A butcher shop owner seeking business interruption (BI) compensation from his broker for failure to bump up the sum insured as instructed has lost the case.

Ausure already paid $53,250 to the butcher without admitting liability - $25,000 for a panel solar system and $28,250 for contents. The butcher then sought a BI payout too.

“The complainant suffered a loss because the broker did not change the policy as instructed before the insured property was damaged. The broker fully compensated the complainant for this loss. It would be unfair to require the broker to pay further compensation,” the Australian Financial Complaints Authority (AFCA) ruled.

Before the fire, Ausure met the butcher’s authorised representative at the butcher shop in April 2018 and was instructed to make several changes to the policy, including increasing the gross profit under BI by $50,000, to $300,000.

A week later, the shop was damaged by fire. Ausure had not made the requested change.

The insurer settled the BI claim for $231,358. Had Ausure increased the gross profit as instructed before the fire, the butcher argued the insurer BI payout would have been $298,907 - an additional $45,651.

AFCA ruled there was no indication the insurer would have paid more than it did even had the requested change been made.

“I cannot conclude the insurer would have paid more for BI if the gross profit was increased to $300,000,” the ombudsman said. “The complainant has not established that it suffered a loss because of the broker’s failure to increase the gross profit.”

By June 2020, the insurer had paid $131,358 for BI. The butcher then paid $21,000 for a forensic accountant report which concluded it should settle the BI claim for $253,256, also calculating that had the declared gross profit been increased as instructed, this entitlement would have risen by $45,651 to $298,907.

This was partly because of an underinsurance clause which had more impact when the gap between the declared profit and the insurable profit was wider.

A few months later, the butcher and the insurer agreed to settle an additional $100,000. AFCA said based on the underinsurance clause and other calculations relied on by the forensic accountant, the insurer should have actually paid an extra $167,549.

This meant “the available information does not establish the insurer would have paid more” even if the gross profit figure been bumped up by Ausure as requested. The butcher also sought that Ausure pay its legal and accounting fees, but AFCA said "the broker did not make an error that caused the complainant to incur processional costs.”

See the full ruling here.