Andrew owns a small lunch bar on a busy street, with plenty of pedestrians. Andrew received a letter from the city council advising that they would be replacing the road and footpath and that the work would take about two months.
In fact, the work took five months. Because people were unable to easily pop into the lunch bar, Andrew lost about $20,000 a month. The reduced income caused Andrew significant financial hardship. He had to sell his car, withdraw funds from his KiwiSaver, and borrow money from his bank to survive.
Andrew submitted a business interruption claim to his insurer. When the claim was declined, Andrew complained to FSCL.
Dispute
The insurer said the business interruption policy did not cover Andrew’s loss because the roadworks were for standard wear and tear. The council had been planning the repair for years and so the work was not ‘unintended and unforeseen’ as required by the policy.
Andrew said that a two-month repair job took five months because there were delays caused by landslips. The delay was not for standard ‘wear and tear’ but to repair damage caused to the road by the landslips.
Review
We started by looking at the policy wording. The policy would cover loss caused by damage to property and damage caused to transport routes. The policy defined damage as ‘unintended and unforeseen physical loss or physical damage’ where a claim under the insured’s material damage policy has been accepted, or would have been accepted, under the material damage property if the insured had owned the property.
The material damage policy allowed us to look at the damage to the road and footpath as if they had been owned by Andrew. However, the material damage policy had an exclusion for wear and tear.
It was our view that the council’s decision to repair the road was as a result of wear and tear, and so not covered by the policy.
However, Andrew had also referred to delays caused by a landslip damaging the road. If the delays had been caused by a landslip, this would not be ‘wear and tear’ and could be covered by the policy. We spoke to one of the engineers working on the project who said that there was a landslip that caused a delay. However, when we went to the project diary, recording all the work undertaken, there was no record of the landslip.
As there was insufficient evidence to show that the landship caused the delay, it was our view the insurer was entitled to decline the claim relying on the exclusion for wear and tear. Andrew did not accept our view.
Resolution
We sympathised with Andrew’s situation. While the policy provided valuable cover, it did not cover the loss in this particular instance. We recommended that Andrew discontinue his complaint, which was the final step in our process.
Insights for consumers
An exclusion for ‘wear and tear’ is often found in insurance policies. Insurance covers unforeseen and unintended events. Although the work in Andrew’s case took longer than expected, this was not as a result of anything unforeseen or unintended – the repair just took 5 months rather than the original 2-month estimate.
