Business Interruption Insurance Update

On 08 July 2020, we reported on the Western Cape High Court’s judgment regarding Business Interruption Insurance Claims.

The Judgment of the Western Cape High Court was taken on appeal, and the Supreme Court of Appeal again decided against the insurer. The full judgment can be found HERE.

The Law is Settled

The law is settled. Insurance companies are to indemnify their clients in terms of business interruption insurance policies and/or clauses. The national Covid-19 Lockdown was found to be in response to Covid-19 infections, which together, falls within the ambit of business interruption insurance clauses.

Unfortunately, several businesses had to close down as a result of the insurers’ repudiation of valid claims. Whether or not this was a deliberate strategy by insurers to reduce their liability, remains open for speculation.

Insurance Companies heavily resisted these claims, presumably because the Lockdown was national and not geographically limited, thereby increasing the volume and amounts of claims.

Santam’s Response

On 04 January 2021, Santam announced that it “respects the decision of the courts and believes that the recent judgments are sufficient to provide legal certainty in terms of the proximate cause of business interruption losses for policies with the same conditions, characteristics and circumstances to the Ma-Afrika and Café Chameleon judgments.” This announcement by Santam is, in our opinion, a half-hearted one, especially since it “believes that there are valid reasons to appeal the judgment of the Western Cape High Court in the Ma-Afrika case with respect to the indemnity period.”

Santam qualifies its respect for the Courts’ decisions, by attaching two conditions. First, the insured’s policy should share the same conditions, characteristics and circumstances as that in the Ma-Afrika and Café Chameleon Judgments. And secondly, that it still disputes the indemnity period of the Ma-Afrika Judgment.

We interpret Santam’s announcement to mean that Santam will continue to dispute and repudiate claims where the conditions, characteristics and circumstances of the policies are not the same as that in the Ma-Afrika– and Café Chameleon Judgments., and where the indemnity period falls outside of the national lockdown. Whether such disputes and repudiations will be valid, will all depend on the degree of deviation of such conditions, characteristics and circumstances, and the outcome of their appeal against the Ma-Afrika Judgment relating to the indemnity period.

With regards to the indemnity period in the Ma-Afrika Judgment, the policy specified an indemnity period of 18 months. Elsewhere in the policy, the indemnity period for “extensions” of cover was limited to 3 months. The cover for Infectious Diseases were not included in the list of 26 “extensions”, and therefore the Court decided that the indemnity period of 18 months is applicable. We agree with the Court’s decision in this regard.

Injustice caused

Despite the favourable outcomes of the litigation, the unreasonable and unlawful repudiation of claims caused several businesses to close and several people losing their jobs, and the insurance companies are to blame.

For years, insurance companies benefitted from premiums, without having to pay substantial business interruption claims, but when the time came to do what they were paid for, they backtracked and caused sever injustice to their clients and their employees.

Breach of Contract

An insurance policy is a contract between an insurer and insured. When either party does not comply with its obligations in terms of the policy, that party is in breach of the policy (contract) and the other party is entitled to the relief stipulated in the policy, or any other relief in terms of the common law pertaining to contracts.

When a party to a contract fails to perform timeously or at all, the innocent party can claim damages caused by the delay in performance.

The insurer’s breach of contract gives rise to a claim for damages by the insured, not only for the period of business interruption, but also to the damages caused by their delay in paying out the claims. In short, if the insured would have been in a better financial position had the insurer acknowledged and paid the claim timeously, the insured should be placed in the position is would have been, had the insurer complied with its obligations in terms of the insurance policy.

Conclusion

We welcome the Court’s decisions, settling the legal position on business interruption insurance during the Covid-19 Lockdown.

Check your policy wording to determine whether you are insured against business interruption as a result of infectious diseases, and if so, the extent of your cover.

As you will see from the Ma-Afrika Judgment, your policy may provide for more cover than what your insurer accepts liability for, and even provide for cover where your insurer denies liability. If you are unsure, about the existence or extent of your cover, rather seek legal advice before accepting your insurer’s determination, since we suspect insurance companies will now go to great lengths attempting to deny or limit their liability.

In addition, if your business suffered economic losses or had to close down as a result of the unreasonable delay in payment of your claim, you may also be entitled to damages, in addition to your claim.