Bushfires are a regular feature of Australian life. Some say they are a natural, cyclical phenomenon which play a role in the clearing and rejuvenation of land. No one can deny the devastation and destruction they cause.
Many Australians remember the ferocity of the Ash Wednesday fires which affected Victoria and South Australia in 1983. Well known tourist destinations including the Dandenong and Macedon ranges were blackened.
Most are too young to remember Black Friday which occurred in Victoria on 13 January 1939, considered to be one of the worst natural bushfires in the world! Several towns were completely destroyed, and were not rebuilt. Ash from these fires fell on New Zealand.
In late 2006 mature El Nino conditions, ongoing drought and record high temperatures combined to produce tinder dry country that again ignited into perilous fires.
Devastating bushfires occurred in all States and Territories in Australia threatening both life and property. Victoria and Tasmania were particularly hard hit.
At the time of writing smoke continued to shroud Melbourne. A constant reminder of the enormity of the fires which raged through the State. A reminder also of the difficult defend or evacuate decision which was faced by so many.
Part of the recovery process is a contract, an insurance policy. A document that seems insignificant compared to the magnitude of the bushfire devastation.
There are many types of policies. The comments which follow relate to the Mark IV Industrial Special Risks policy designed for commercial risks.
Section 1 of the cover is headed Material Damage and responds to the replacement value of property which has been destroyed by bushfire or the reinstatement of property which has been damaged. Several conditions must be met before the replacement or reinstatement value is paid.
Section 2 of the cover is headed Consequential Loss and aims to cover the loss of profit resulting from the property damage payable under Section 1.
This type of cover will respond to the loss of property and loss of profit for many of the commercial risks which may suffer damage from the bushfires.
However, there are risks that may not clearly fall within these Sections.
Imagine an hotel that does not sustain any property damage yet its trade is non-existent because the area has been evacuated and/or roads closed. Perhaps it has been closed by a public authority. Perhaps people have simply left. A loss of profit will be sustained but this is not due to fire damage to the hotel, it is due to the evacuation.
Even though there is no property damage the loss of profit sustained while the area is closed may be covered under a Prevention of Access clause. Careful consideration of this clause may be necessary.
Cast your mind forward several months. The fires are over, access restrictions have been lifted but the area remains devastated and it will take years before it rejuvenates. Visitors to the area slowly return but numbers are nowhere near pre fire levels. An ongoing loss of profit is sustained even though the imaginary hotel did not suffer any property damage.
This ongoing loss of profit may not be covered under the standard unendorsed Mark IV Industrial Special Risks policy.
Endorsements may extend the cover to include a portion of the ongoing loss of profit. These could include cover for "Loss of Attraction", "Interference with Access to Premises of Others", "Closure by Order of a Public Authority", "General Area Damage" and the like.
This is a complex area of Business Interruption insurance and specialist advice is required.
An Insurance Policy is a vital risk management tool!
Author
Published with permission of Claim Solutions Pty Ltd.
Insurance Policy
Country: - Australia
Policy Description: - Mark IV Industrial Special Risks (ISR) Policy
Insurer: - Various
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