Food for thought – leaving perishable food stock out of freezer is a “sudden, unexpected or unintended” loss

The Australian Financial Complaints Authority (AFCA) has recently found in favour of a business insurance policyholder whose claim for loss of perishable food stock caused by a COVID-19 lockdown was declined.

The insured was interstate at the time the lockdown was imposed in March last year and instructed her staff to salvage any perishable food by placing it in the freezer.  However, her staff neglected to do so, and the food stock became spoilt.

The insured lodged a claim for lost stock under her policy, which required that the loss had to be a “sudden, unexpected or unforeseen occurrence”.  Suncorp accepted the damage was unintended but argued that the spoilage of the food could not be said to be unexpected, since it was known to be perishable.  It further argued that the spoilage was not sudden, given it took place over a period of time. It also relied on various exclusions in the policy, including those in relation to gradual deterioration, loss caused by variation in temperature, and consequential losses such as loss of use or loss of earning capacity.

The AFCA, in finding for the insured, stated that what must be sudden, unexpected or unintended was the event that led to the damage, not the damage itself.  The AFCA was satisfied that the insured’s staff’s failure to store the food correctly was a sudden, unexpected or unintended occurrence which led to the damage of the stock, thus establishing a valid claim under the policy.

The AFCA also found no exclusions applied.  While the food deteriorated when left out of the freezer, this was not the cause of the loss.  Rather, it was the staff’s action that was the cause of the loss so the gradual deterioration exclusion did not apply.  In relation to the argument for consequential losses, the AFCA considered that the claim was for property damage so did not fall within consequential loss under the policy.  

Comment (Philippa Fee)

This decision reaffirms that there will be some category of cases which ‘tick the boxes’ for material damage cover, on basic insurance principles.  In this case, the requirements for damage as prescribed by the policy were satisfied.  The message for insurers is that while some claims for COVID losses may not be covered, others will.  Each claim must be examined on its merits. 

Philippa Fee is a Partner at Fee Langstone