A coffee manufacturer will be covered for a business interruption claim after a dispute ruling found it was subjected to several acts of sabotage that resulted in a loss of income.

The business lodged a claim after a series of disruptions between August 21 and September 10, 2018. These included a hack of the company’s computer systems, preventing internet access; locking staff out of premises; and shutting down electricity to a warehouse.

Further business disruptions were caused when thieves stole forklift keys, gas meters and memory cards that automate roaster machine processes.

The complainant said the attacks resulted in “severe interruption to coffee production, coffee quality and general operations of the business”. 

The insured held a commercial insurance policy, and applied for asset protection for the damaged products and business income protection from the start of the disruptions until the business was sold in January 2020. It sought a total settlement of $784,618, primarily for the interruptions.

360 Underwriting Solutions partially accepted the claim, offering a settlement of $70,000 that assigned $19,000 for material damage to coffee machines and an additional sum on an ex-gratia basis for the business interruptions.

The underwriting agency said the policy’s business interruption benefit was triggered only for losses that fell under the asset protection cover and did not activate for events that did not result in “physical loss or damage to the property”, such as the computer system hack.

The Australian Financial Complaints Authority (AFCA) panel acknowledges the policy did not define “physical loss or damage” and says there was an “implied difference” between the terms.

“If a policy refers to loss or damage, there must be an implied difference, as loss cannot mean damage,” AFCA said. “In these matters, loss has been said to imply something that is unavailable for use while damage is something in the form of physical change.

“Physical loss or damage suggests the loss must be something more than the loss of use. It implies there must be a physical alteration to the insured property causing the loss of use.”

The panel accepts the disruptions, including the thefts, computer sabotage and lock changes, all affected the business’ ability to function and constituted “physical alterations” to the property.

360 Underwriting maintained the events were unrelated to the claimed business interruptions, which the claimant says extended until it sold the business, and that the losses reflected a “decline in quality of the service and product”. It relied on an interview with a former customer, referred to as HG, to support its assessment.

However, AFCA says the insurer “largely focused on isolated parts of the interview” and “one-off events” and did not see the “otherwise good” relationship between the two businesses.

It also notes HG said it lost a customer following the disruptions and could not stay with the manufacturer after losing confidence it could provide its product at a desired quality.

AFCA says the insurer should cover the losses but is not satisfied the policyholder’s sought amount and claimed loss period is appropriately substantiated.

The panel requires 360 Underwriting to appoint a forensic accountant to assess the indemnity period of loss and how much the complainant is due.

The insurer should also cover the costs of a claimant-appointed loss adjustor whose findings were used in the claims process. The adjustor’s fees amounted to $38,054.

Click here for the ruling.