In times as challenging as these, no business has been immune to the impacts of COVID-19 and the subsequent national lockdown. As in most instances of crises and subsequent losses, businesses across South Africa have looked to their insurers for reprieve from the damages suffered due to the various regulations put in place since President Ramaphosa announced a national state of disaster in respect of the COVID-19 pandemic on 15 March 2020.
However, despite insurance policies providing business interruption coverage and, in some instances, special extensions in respect of infectious and contagious diseases (such as COVID-19), to date, the majority of claims have been repudiated by insurers relying on interpretation of the policy wording excluding their liability to pay claims to struggling clients.
Although there are slight nuances in business interruption policy wordings, most insurers have policy wordings which indicate that a policyholder will have a valid business interruption claim if the business was interrupted as a result of a contagious disease at the premises or within a certain radius, provided the local authority has formally declared that a disease exists within the area and/or it has imposed quarantine regulations or restricted access to the area.
To date, most insurers have argued that the income losses stem from the government-imposed lockdown, and not from COVID-19 itself. Since most policy wordings do not designate an event similar to the national lockdown as indemnifiable, insurers are arguing that they are not liable to pay.
This approach by insurers has been met with confusion and even outrage amongst policy holders, in the media, by the Financial Sector Conduct Authority and now also in the Western Cape High Court, in Café Chameleon CC v Guardrisk Insurance Company Ltd (5736/2020)  ZAWCHC 65 (26 June 2020). The Hon. Judge Le Grange applied the sine qua non rule and asked whether “but for” COVID-19, the interruption or interference to business would have occurred when the national lockdown regulations were promulgated. In casu, the insurer could not deny that COVID-19 occurred within the requisite radial limit of insured premises, that COVID-19 is a human infectious disease (as defined in the policy wording of the insured) and that there had been an outbreak thereof.
The Court thus found that, in light of the above, it had to be accepted that there was a clear causal link between COVID-19 and the subsequent national lockdown regulations being put in place. In other words, the national lockdown, which is the technical cause of the interruption to business, would not have occurred if not for the occurrence of COVID-19 and, therefore, the two are inextricably linked.
Having satisfied itself that there existed a causal link between COVID-19 and the subsequent national lockdown based on the facts of the matter, the Court had to determine whether the harm suffered by the insured, being the loss of revenue due to the interruption of business, is too remote from the conduct, being the national lockdown, or whether, it is fair, reasonable and just that the insurer be burdened with liability of honouring business interruption claims based on the above.
Whilst the insurer argued, amongst other arguments, that the insurance industry would incur debts far greater than it was prepared for, should they pay business interruption claims, the Court held that this cannot be a defence for an insurer to argue it must be excused from honouring its contractual obligations.
The Court thus found in favour of the Applicant, being the insured party, and the Respondent, being the insurer, was declared liable to indemnify the Applicant in terms of the business interruption section of its policy for any losses suffered since the date of the implementation of the national lockdown. The Court further ordered the Respondent to make payments to the Applicant in respect of such losses as the Applicant is able to calculate and quantify same.
Despite the encouraging judgment, some insurers are still eager to escape liability and it appears as if businesses will be forced to institute proceedings to obtain a court order against their insurer. When most businesses are already strapped for cash, the high costs of litigation is not a feasible step for most.
In a joint statement, the Financial Sector Conduct Authority and the Prudential Authority announced that they had come to an agreement with the insurance sector to provide interim relief in the form of once-off payments to policyholders to enable them to continue running their businesses while waiting for the outcome of legal process. Whilst the full details of such interim relief has not yet been specified by all insurers, the relief may be too little, and too late for many.
In the interim, the nation’s small and medium businesses lick their wounds, count their losses, retrench their staff and, in an increasing and alarming amount of cases, shut their doors. It begs the question: how is your business insured for a more productive, less predictable future?
by Nadia Gava
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).