The economic impact of the national lockdown has been felt by several businesses across South Africa as many are dealing with operational restrictions. Among the hardest hit are the hospitality and food service industries where many may be forced to close their doors causing a ripple effect on the economy by adding to job losses. As a result, businesses are looking to insurers for recourse by instituting claims on business interruption policies. Of recent, these claims have been highlighted in the media – the majority of which are proving to have little to no success with some insurers deliberately avoiding payment on business interruption claims where no grounds exist to do so.
The High Court judgment of Café Chameleon CC v Guardrisk, delivered on 26 June 2020 was the first court case that resulted in a win against an insurer for payment arising from a business interruption policy due to the COVID-19 pandemic. Guardrisk, the insurer, was ordered to pay any loss suffered by Café Chameleon, a Cape Town restaurant, since 27 March 2020 as a result of the COVID-19 outbreak in South Africa which resulted in the lockdown regulations in terms of the Disaster Management Act. While this case sets a precedent for other business interruption claims related to COVID-19, Guardrisk is set on appealing the judgement.
In a Press Release issued by the FSCA on 9 July 2020, the FSCA stated that it is aware of the Café Chameleon CC v Guardrisk judgment and that the judgment is in line with the FSCA’s stance on Business Interruption Insurance as set out in FSCA Communication 34 of 2020. The FSCA also stated that “the National Lockdown cannot be used by any insurer as grounds to reject a claim. Such conduct goes against the principles of treating customers fairly and breaks down confidence and trust in the insurance sector. The FSCA has communicated this view to insurers and will take action against those that do not treat their customers fairly”.
FSCA Communication 34 of 2020 is based on the outcome of engagements with insurers following business interruption insurance publications earlier this year. Business interruption insurance claims, particularly those containing the extension for infectious and/or contagious diseases, have received a lot of attention from affected stakeholders. Some of the concerns surrounding business interruption insurance relate to various policy wording clauses that exist in the industry, the application of the different policy wordings by the insurers underwriting this type of cover, the requirements placed on policyholders to prove a valid claim, and the repudiation of these claims. During industry engagements, insurers were requested to provide copies of their current policy wordings that related to business interruption insurance cover.
An analysis of the different business interruption wordings and complaints from policyholders received by the FSCA revealed that although there seems to be slight nuances in the business interruption policy wordings, they may be broadly grouped into six different categories. It also revealed that some insurers have more than one clause that applies to different types of policies and that the application of different policy wordings by different insurers seems to result in different burdens of proof placed on policyholders at claim stage.
The six categories of business interruption policy wording are grouped by the FSCA as follows:
- Radius and Notification
- Notifiable disease
- General Exclusion
- Closure or Restriction
- Closure by Order
These categories along with their individual requirements and the FSCA’s stance on each together with examples of what may constitute sufficient proof for a valid claim are set out in detail in FSCA Communication 34 of 2020.
The Press Release states that “based on the information received and analysed by the FSCA to date, the FSCA found that, although it could not find evidence that the National Lockdown could be a trigger for a valid business interruption insurance cover claim, policyholders are able to claim in instances where they can show that they have satisfied the requirements of their specific policy, whether it was before, during or after the National Lockdown. In other words, the National Lockdown cannot be used by any insurer as a ground to reject a claim.”
The FSCA also reminded industry that “one of the key principles underlying the Twin Peaks reforms is that of treating customers fairly, where products are designed to meet customers’ needs; are sold in such a way that customers understand what they are buying; and unfair barriers such as fine print or unfair proof of claims are not put in the way of customers exercising their rights in terms of those policies”.
Insurers were urged to action business interruption insurance claims in line with FSCA Communication 34 of 2020 and the FSCA advised that it may issue specific directives to any insurer which is seen to be non-compliant.