Court orders insurance giants Santam to pay business claims

A full bench of the Western Cape High Court has found in favour of Ma-Afrika Hotels and Stellenbosch Kitchen against Santam after the insurance giant rejected its business interruption claims although its policies included cover for infectious or notifiable diseases.

Santam was ordered to pay the full business interruption losses, including the impact of the government’s response to Covid-19, over the entire policy period of 18 months, without limitations, as well as Ma-Afrika’s legal costs.

The combined total of the business interruption cover for loss of revenue for Ma-Afrika hotels is R105,482,456, while Stellenbosch Kitchen’s cover for loss of revenue under a similar policy is R16,947,368.

Ma-Afrika Hotels and Stellenbosch Kitchen approached the court for two declaratory orders. The first was to hold Santam liable to cover them for losses caused by a notifiable disease in the form of Covid-19 occurring within a radius of 40km of the insured premises and the second to order that the period covered was 18 months.

Santam rejected the claims from Ma-Afrika Hotels because a notifiable disease did not occur within 40m radius of the business premises and said the losses were due to the lockdown and/or general concern or fear of the public.

Ma-Afrika Hotels and Stellenbosch Kitchen said they had suffered losses when guests cancelled due to the outbreak of Covid-19 before lockdown. Santam said the policies’ cover insured loss and not economic hardship as a consequence of the Covid-19 pandemic.

However, the court concluded that Covid-19 and government’s response to it are inseparably part of the same insured peril.

“The breakout of a notifiable disease, whether reported to a local or national authority always comes with the risk of a government response and make the government response part of the insured peril of notifiable diseases,” judges Patricia Goliath, Judith Cloete and Babalwa Mantame said in their judgment.

In the court’s view, the losses Ma-Afrika Hotels and Stellenbosch Kitchen suffered were exactly what they had insured themselves against and have to be put in the position that they would have been in had the insured peril not occurred.

André Pieterse, chairman and chief executive officer (CEO) of the Ma-Afrika Hotel Group, said afterwards they were grateful for the court’s decision in their favour.

“This outcome will greatly assist in allowing ourselves and others in the tourism and hospitality sector to weather the ongoing Covid-19 storm.”

Ryan Woolley, CEO of Insurance Claims Africa (ICA) – the public loss adjustment company that is representing over 750 businesses in the tourism and hospitality sector in their battle to get large insurers to pay out on these claims – also welcomed the judgment.

“Santam has consistently said that it requires legal certainty in order to honour their customers’ claims and most other insurers have followed suit. This judgment from a full bench provides the legal certainty required to finalise all claims relating to business interruption caused by the pandemic.”

The Financial Services Regulatory Authority (FSCA) instructed insurers in July to pay claims and in the same month the Western Cape High Court rejected Guardrisk’s argument that the losses were due to lockdown, in a similar matter between Cafe Chameleon and Guardrisk. Guardrisk’s appeal of this matter would be heard in the Supreme Court of Appeal (SCA) on 23 November.

“The Ma-Afrika judgment has arrived in time to provide the SCA with further guidance from respected Cape High Court judges. This is a matter of national importance and the judgement reiterates the need to protect the consumer from Insurers trying to change the terms of the contract post loss,” Woolley says.

According to ICA, the tourism and hospitality sector sustains over 740 000 direct and 1.5 million indirect jobs, while contributing 8.6% to the South African economy.

Santam said in a press release that it had taken note of the judgment.

“The detailed and complex nature of the judgment, as well as its broader implications, means that it needs to be carefully considered. It will also be important for Santam to discuss the implications of the judgment with all our stakeholders, including reinsurers, in order to arrive at a comprehensive response.”

The insurer said that issues pertaining to business interruption were of a global in nature and subject to appeal court proceedings in various countries.

“The response of the global reinsurers, which are in effect insurers to the insurer, is important in helping us to reach finality on this matter.”

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