Business interrupted, but insurers don’t want to pay

Hundreds of business owners fighting for survival, largely in South Africa’s embattled tourism and hospitality industry, have another battle on their hands related to the economic fallout of the Covid-19 pandemic. They are up in arms over not being paid out business interruption insurance claims.

Various insurance, financial regulatory and tourism industry bodies including the Ombudsman for Short-Term Insurance (Osti), the Financial Sector Conduct Authority (FSCA) and the South African Tourism Services Association (Satsa), are facing an increasing number of complaints on the matter. If not resolved, the issue is likely to see a barrage of legal battles heading to court.

At the heart of the issue is that many business interruption insurance policies for the tourism and hospitality sector have extended cover for interruptions caused by infectious or contagious notifiable diseases.

These businesses are now using this element of their insurance policies to claim lost income due to the Covid-19 pandemic. However, many cash-strapped smaller players in the industry are seeing their insurance claims being either rejected or delayed.

Insurance Claims Africa (ICA), which describes itself as a specialist public loss adjustment firm, is representing more than 400 claimants against several insurance groups. The claimants range from small scale hotel and lodge owners to restaurants and cafes.

Businesses facing imminent closure

“ICA is currently in discussions with leading insurance companies, in an attempt to reach a sensible settlement for these businesses who face imminent closure. If these discussions are unsuccessful, it will turn to the courts,” the firm said in a statement on Tuesday.

It is also engaging with the FCSA. “It [ICA] hopes that the FSCA will act in the interests of the policyholders who desperately need the policy payouts due to them to support their staff and meet their fixed costs.”

Speaking to Moneyweb, ICA CEO Ryan Woolley said that in addition to the claimants his firm is representing, there are likely hundreds more affected businesses across the country. He is aware of some cases (not involving his firm) that are already heading to court.

Asked whether his firm is considering a class action case against insurers, he said such an approach would not work.

“Class action will be very difficult to get off the ground because of the policy wording differing between insurance firms, products and clients,” he said. “We will likely take one case with strong facts to court on an urgent basis, seeking a declaratory order, which will set a precedent for the other claimants.”

He said ICA is however interacting with insurance groups in the hope of coming to some sort of agreement instead of heading to court.

According to Woolley, Covid-19 qualifies as a declared notifiable disease, yet local insurance companies are frustrating legitimate claims by businesses.

“Insurers claim that government regulations in respect of the lockdown are the cause of the loss – not Covid-19.

“This, however, doesn’t make any sense as the insurers chose to insure a notifiable disease which would have contemplated government intervention and restrictions/quarantine. It is clear that without Covid-19, there would be no lockdown.”

ICA believes insurers are in effect penalising their customers for their own poor underwriting skills, acting in poor faith and are in breach of the ethical codes and standards that guide the insurance industry.

“It is unconscionable that businesses in one of the most vulnerable sectors are being put through such a traumatic and debilitating experience,” said Woolley.

One of the businesses affected and now represented by ICA is The Cradle Hotel near Gauteng’s Maropeng Cradle of Humankind World Heritage Site. Owner Kobus Botha told Moneyweb that he contacted his insurance company as far back as March regarding a claim, after experiencing a significant drop in bookings due to Covid-19.

“I have over 70 staff and this whole issue has been enormously frustrating for us,” said Botha. “It’s a massive blow, coming on top of us not being allowed to operate under the initial lockdown and also having issues around accessing the UIF Ters and other Covid-19 relief benefits.”

Botha has been in tourism for 30 years and said his current business is covered by business interruption insurance, including extended coverage linked to contagious notifiable diseases. Yet: “I have been sent from pillar to post by my insurance company. It seems my only hope is through ICA and legal action.”

Satsa CEO David Frost has fielded numerous queries and complaints on the issue, but said his organisation can only offer advice and does not have the resources to take on the issue on behalf of tourism businesses.

“The devil is in the detail and each insurance contract is different, but we really hope this matter can be resolved or some sort of settlement is reached.”

South Africa is not alone in this matter; similar cases are playing out in several other countries, with some insurance companies settling their customers’ business interruption claims on a compromise basis, according to Woolley.

“Locally, we are working on a similar strategy with insurance companies, whom we urge to work with us to find a mutually beneficial way forward.”

Moneyweb contacted the South African Insurance Association (SAIA), which represents 57 non-life or short-term insurers in the country, for comment on the matter. However, the association sent a statement it released on May 15 with general comment on the issue. Its CEO, Viviene Pearson, was unavailable for comment on Tuesday afternoon.

“SAIA has noted that uncertainty may exist amongst policyholders who took out business interruption insurance cover, regarding whether their policies will respond to losses suffered due to Covid-19, and/or the resultant lockdown,” the statement read.

“Some business interruption cover may include an extension for infectious or contagious diseases which may or may not include cover for an event of this nature, depending on the contract between the insurer and the policyholder.

“Policyholders who are uncertain whether they have a valid claim or not, are strongly encouraged to contact their insurers and/or brokers or financial advisers to provide clarity. Should policyholders believe that they have a valid claim in terms of their policy, such policyholders are encouraged to lodge a claim with their insurers,” SAIA added.

The organisation pointed out that should a claim be deemed by an insurer as invalid in terms of the insurance policy and the claim is repudiated, the policyholder is entitled to lodge a complaint with Osti. However, it noted that the claim needs to qualify in terms of the Ombudsman’s limited jurisdiction on commercial policies.

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