Café's Underinsurance Leads to Reduced Payouts After Storm Damage

The café closed on August 28, 2024, due to storm damage and reopened on January 24, 2025, after Suncorp accepted the claim and completed repairs. The insurer paid $280,570 for 12 months' gross profit loss and an additional $26,863 for increased operational costs. However, the café contested the application of an underinsurance clause, seeking reimbursement for deductions and compensation for the stress and inconvenience caused by payment delays and the claims process.

The café argued that payments should be made without reductions, asserting that the adjusted value at risk exceeded 80%. Suncorp maintained that the underinsurance clause was applied correctly, as the sum insured was less than 80% of the actual risk. AFCA supported the insurer's position, stating that the policy required gross profit to be insured for at least 80% of the actual annual turnover multiplied by the gross profit rate. Failure to meet this threshold resulted in proportional claim reductions.

AFCA emphasized that the underinsurance clause discourages businesses from deliberately selecting lower sums insured to reduce premiums while expecting full compensation. The decision also found that Suncorp's handling of progress payments and the overall claims process was reasonable, despite the café's claims of undue stress and inconvenience.

This case underscores the importance for restaurant and café owners to regularly review and accurately assess their insurance coverage. Ensuring that the sum insured aligns with the actual value at risk can prevent significant financial shortfalls in the event of a claim. Business owners should work closely with insurance professionals to understand policy terms, including underinsurance clauses, and to secure adequate coverage that reflects their business's true exposure.