A shop that blamed its broker for underinsurance after a $126,000 business interruption (BI) payout was 26% short has lost a claim dispute.  

The shop’s signage was destroyed when a truck hit the premises in late 2018. 

A BI claim successfully resulted in the six-figure payout, but the shop said it should have received a further $44,000 and sought that broker McLardy McShane pay it $48,400 compensation – the shortfall plus $4400 for claims preparation. 

The complainant told the Australian Financial Complaints Authority (AFCA) the broker failed to update the sum insured, request estimated turnover, provide information regarding risks of underinsurance, or explain what the policy would cover. 

But AFCA ruled the broker was not responsible for the business being underinsured and there was “no basis” to make an award. 

“The policy was issued based on the instructions provided by the complainant and there has been no indication that those instructions were incorrect,” AFCA said. “The broker has not caused the complainant any loss.” 

The shop had the policy documents for a number of years and “ought to have been aware” of the risks associated with underinsurance and the importance of providing the correct financial information for BI cover, the ombudsman said.  

“Once the broker had provided the relevant information, it was the complainant’s responsibility to review it.  

“Best practice would require the broker to specifically draw the underinsurance/average provisions in the policy documents to the complainant’s attention and expressly discuss them. However, I consider ... the broker has sufficiently discharged its duty,” AFCA said.  

AFCA noted McLardy McShane had requested turnover figures on multiple occasions and said it was “entitled to rely on the instructions provided by the complainant for the purposes of renewal and, also, to assume that the information provided was accurate”. 

Correspondence exchanged between the broker and the shop had highlighted the importance of financial performance in placing BI cover. 

On October 8 2018, a month before the truck ran into the shop, it had advised McLardy McShane turnover for the last financial year had been $223,000. A year after the truck collision when completing the next renewal, the broker became aware that the actual turnover figure was in fact $358,000. 

“Even if the broker should have done more to advise the complainant about the risk of underinsurance, there is no suggestion in the documents or from the complainant that the turnover figure provided on October 8 2018 was incorrect or that a different figure would have been provided. 

“Therefore, even if the broker had breached its duty, there is no loss that would flow from it because the same information would have been provided,” AFCA said. 

See the full ruling here.