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Smoke, but no claim: BI appeal lost

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A small business which lost more than $150,000 in profit when thick smoke from bushfires on SA’s Kangaroo Island deterred tourists in January has lost its dispute over a Business Interruption (BI) claim.

The Australian Financial Complaints Authority (AFCA) agrees the nearby bushfires had a significant impact on the business but says the policy, held with Suncorp-owned AAI, clearly defined that loss or damage must be of a physical nature.

AAI found the business was interrupted due to a downturn in tourism rather than from an insurable event.

The business is located in the beachside suburb of Normanville, about 75km from Adelaide and 50km from Kangaroo Island, where bushfires started on December 20. This had an immediate impact on sales as tourists stayed away due to the danger the fires posed and the sheer volume of smoke.

The business said it makes most of its income from Boxing Day to the end of January, and the fires resulted in a downturn in gross profit of more than $150,000.

AFCA says the profit downturn was due to the impact of the fires, which were unexpected and unintended, but the customer could not establish any physical loss or damage to property.

“There must be sudden and unforeseen physical damage or destruction to the complainant’s building contents or stock. In this case there was no physical damage to the insured property. No claimable loss has been established.”

The AAI policy covered accidental damage subject to various conditions and exclusions. Building contents and stock was insured under section one for fire and other damage and included cover for accidental damage.

Section two of the policy covered a reduction in gross profits arising from the business being interrupted directly by damage covered under section one.

An additional benefit under section two provided cover when damage was sustained to property in the “immediate vicinity” of the insured property. AFCA says this was relevant to the circumstances of the business owner but it is “not satisfied the damage on Kangaroo Island falls within the definition of immediate vicinity”.

“The complainant would have been covered under section one and two if the bushfires damaged the insured property.”