In a ruling that brings legal certainty on an issue that hurt the reputation of short-term insurers and soured relationships with clients, Santam has lost its appeal against a decision that it must pay businesses affected by the pandemic and lockdowns in full.
The decision by the high court means that Santam must pay out contingent business interruption (CBI) claims to Ma-Afrika Hotels and Stellenbosch Kitchen for the full 18-month period covered in their policies.
SA’s largest short-term insurer had contested a November 2020 ruling by the high court in Cape Town, which ordered it to pay out for 18 months, by arguing its policy wording meant it was liable for only three months.
However, on Thursday, the Supreme Court of Appeal (SCA) dismissed Santam’s appeal with costs, meaning it will have to pay out Ma-Afrika and Stellenbosch Kitchen in full.
The SCA said Santam had “twisted and turned” and “changed tack” in an attempt to avoid liability, according to the outcome of the precedent-setting case heard on August 27 2021.
The court also said Santam had engaged in “a desperate rerunning” of submissions accepted by foreign courts, notably in the US, where it was argued that business interruption claims for Covid-19 must fail on the basis that such policies had traditionally contemplated only physical damage to businesses.
“It is, in our view, hardly possible to imagine a more tortured, convoluted and intricate approach to the reading of the policy,” the SCA said in its ruling.
After the government imposed an almost complete lockdown after the arrival of Covid-19 in the country, small businesses that were facing ruin also found that insurance companies refused to pay out on business interruption policies. That led to a lengthy legal battle, which has been seen in other countries, too. In the UK, insurers started paying out only after the regulator took the case to that country’s Supreme Court.
Santam said it was pleased with the ruling because it brought legal clarity on the interpretation and application of certain CBI policies.
“The certainty was not only required for us — we also needed the legal certainty for us to have recourse to reinsurance,” Santam’s outgoing CEO, Lizé Lambrechts, told Business Day.
“Otherwise the reinsurers could come back and say we paid [out] on the basis of no legal certainty and that could have been detrimental ... which in the end is bad for all our policyholders if we don’t get maximum recovery from reinsurance.”
Lambrechts, who will step down as CEO in 2022, said the SCA’s judgment affected less than a third of the 3,200 CBI claims Santam had received. She also argued that Santam had “bent over backwards” to ensure clients received payouts timeously, including R1bn in interim relief disbursed to about 2,500 businesses in August 2020. This was followed by a further R1.1bn in payments since January 2021, taking Santam’s total Covid-related CBI payouts to R2.1bn so far.
“I think we did the best we could under the circumstances,” Lambrechts said. “This was not about trying to avoid paying at all costs.”
The SCA found that Santam’s CBI policies were difficult to navigate and there was a meaningful degree of uncertainty around whether indemnity periods of three months or 18 months applied to certain events. This meant the so-called contra proferentem rule, which requires that written documents be construed against the party that drafted them, would apply against Santam.
The upshot was that the SCA ruled the longer 18-month indemnity period referred to in the main business interruption section of Ma-Afrika’s policy that deals with physical damage also applied to the contagious and infectious diseases extension of the contract, which Santam had argued was three months.
CBI claims related to Covid-19 have emerged as one of the most contentious issues in the short-term insurance industry. Insurers initially refused such claims on the basis that their policy wording only covered outbreaks of disease within a specific radius of clients’ premises rather than a worldwide pandemic, while others argued it was the lockdown that caused the losses rather than Covid-19.
The courts ultimately found against the insurers, which lost a string of cases including Guardrisk v Café Chameleon; Santam and Ma-Afrika Hotels; and Old Mutual and Interfax.
Insurance Claims Africa (ICA), the public loss adjuster that has spearheaded the fight against insurers over Covid-19 claims, said the SCA’s ruling provided much-needed certainty. “The court’s decision in this matter is crucial for thousands of Santam’s hospitality & leisure division’s business interruption policyholders,” said Ryan Woolley, CEO of ICA.
“The behaviour of insurers throughout this debacle has been a travesty. In essence, they chose to abandon their customers in their darkest time of need.”
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