The Insured was a newly established commercial gym, located in the Perth C.B.D.

The gym had only been open for approximately 6 months in a new multilevel building when they suffered water damage to their property. The cause of the damage was a blockage in the main sewerage pipe, which lead to a back flow of sewerage into the premises.

The sewerage spread throughout a significant portion of the Insured’s premises causing damage to equipment, rubber flooring and fit out that was installed in the building. In addition, the sewerage had penetrated many gyprock walls on the main floor, studios and changerooms.

The rubber flooring on the main gym floor was a very specialized flooring manufactured for the Insured that prevented noise travelling to lower floor levels.

Fortunately, the sewerage was contained under the rubber flooring in almost all areas and temporary repairs were able to be completed to allow the gym to continue to trade without any impact to the members.

The damage did however necessitate the replacement of the entire flooring system as well as many gyprock walls and steel stud wall frames throughout the property.

Business Interruption Claim

 Builders estimated that to undertake all repairs would take a minimum of 4 weeks but closer to 5 weeks.

Having only recently opened and the loss occurring during a significant growth phase of the business, there was significant concern around the impact that such a closure would have on the gym’s development and it was envisaged that many of the new members would simply cancel their memberships and the long term impact on growth would be significant.

With the damage being concealed and clients not being at any risk, it was proposed to the Insurer that repairs be postponed to Christmas as the gym would be quieter at that time and the Insured would have a further 6 months to grow their member base and prepare for the shutdown.

We were able to present a calculation demonstrating how postponing the repairs would significantly reduce the business interruption claim. It was also agreed with the Insurer that they would extend the Indemnity Period to accommodate this delay which was clearly for their benefit as well.

The Insured was able to grow their member base significantly over this “waiting” period making the business more financially stable prior to entering the shutdown to undertake repairs.

Prior to repairs commencing, it was still critical that the Insured manage existing members expectations and provide the newer members with some additional benefit to entice them to stay.

The shutdown was marketed as an upgrade to the facility and the Insured utilized this as a means of changing the layout to the gym etc.

Costs were also incurred to provide members with free personal training sessions or free membership for a period after repairs were completed. New members joining just prior to the closure were offered free membership and would only start paying the month after the gym reopened.

After the repairs were completed, the Insured experienced some cancelations however these were significantly less than expected.

The Insured undertook an extensive marketing campaign after reopening to ensure they also continued to hit sales targets as other gyms in the CBD took advantage of the closure (as one would expect).

All of the above was possible because the Insured had a Business Interruption policy in place that responded appropriately, including a healthy allowance for Additional Increased Cost of Working.

Lessons Learned

 It is important to remember that when a loss occurs, one should look at all options available a client to minimize their loss. In this instance it was a very unorthodox approach to actually postpone repairs which would see the loss extend beyond the Indemnity Period available under the policy.

That idea was first presented and then discussed with all parties on the claim, including the Loss Adjuster and Insurer.

Such an approach however was not simple and straightforward. It required a detailed analysis and submission of the exposure to the Insurer if repairs were done earlier compared with repairs being delayed to a future more suitable date, so that Insurers could make an informed decision to essentially vary the standard contractual terms of the policy.

Insurers ultimately could see the benefit of the proposal to both them and the Insured and in this instance were willing to accommodate the request.

Following careful management of the claim and putting into action the plans established prior to repairs being undertaken, the desired outcome was achieved to the satisfaction of all parties concerned.

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Representing the Policy Holder