Cafe Chameleon, a Cape Town restaurant, is the first to win a court case against an insurer for payment of damages arising from a business interruption policy due to the Covid-19 pandemic.
The judgment which establishes the liability of the insurer for the claim could have far-reaching implications for other short term insurers who face similar claims amounting to about R4bn.
The successful urgent application was brought to the Western Cape High Court by the restaurant against insurance company Guardrisk.
Guardrisk was ordered to pay any loss suffered by the restaurant since March 27 as a result of the Covid-19 outbreak in SA which resulted in the lockdown regulations. These regulations required the restaurant and many other businesses to shut down. Guardrisk was also ordered to pay the costs of the applicant including the costs of two counsel.
Cafe Chameleon only sought a declaratory order as to the liability of Guardrisk and did not seek a quantification of the liability by the court.
Guardrisk argued that Cafe Chameleon was not entitled to any relief under the policy, that any loss suffered was not insured and that there was no causal link between the lockdown regulations and the infectious disease policy. Judge Andre le Grange rejected these arguments.
One of the arguments put forward by Cafe Chameleon’s counsel was that the insurance policy should not be interpreted “on the basis of generalised concerns about the effect of Covid-19 on the insurance industry at large when the respondent has made no attempt to establish what the effect of the disease on its own business is likely to be”.
Le Grange accepted this argument saying “it will therefore be impermissible to determine the respondent’s liability with reference to the alleged condition of the insurance industry”.
The claim was made under a tourism-hospitality policy that includes interruption by infectious or contagious notifiable disease.
A number of similar court action actions across the country are in the pipeline against short-term insurers that have refused to pay policyholders for Covid-related damages under their business interruption policies.
Specialist public loss adjustment firm Insurance Claims Africa (ICA), which is representing just over 500 claimants from the tourism and hospitality sector with claims of between R3.5bn and R4bn, plans to bring an urgent application against underwriting agency HIC by next week.
ICA is also hoping to join a separate action against Santam, which is due to be heard in the Cape Town high court in September, and is keen to collaborate with firms of attorneys that are representing more than 100 claimants with a view to a possible class action. It is engaging with the Financial Services Conduct Authority, the market conduct regulator for the financial services industry, in a bid to find a solution.
The insurance companies that face legal action include Santam, Hollard, Bryte, HIC and Monitor — both in the Guardrisk stable — Thatch Risk Acceptances, Old Mutual Insure and Old Mutual’s One Insure.
Short-term insurers have rejected the claims for business interruption on the grounds that the interruption and subsequent losses incurred were caused by the Covid-19 lockdown regulations imposed by the government and not the pandemic itself.
Santam has insisted that its contingent business interruption policies do not cover pandemics.
“The reality is that no insurer can afford to offer widespread pandemic coverage within its standard policies. The premiums would be too high and it would become unaffordable for the majority of businesses,” it said in a recent statement.
It said the protection provided by contingent business interruption policies was very specific and covers only businesses that are directly affected as a result of the outbreak of a disease at a local level.
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