Covid-19 notifiable “disease” insurance policies

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Are insurance companies legally correct in repudiating claims for business interruption due to the Covid-19 pandemic?

Up until now insurers have maintained that whilst some of them cover contagious diseases under their business interruption insurance, a lockdown is not a covered event.

The Western Cape High Court has recently ruled in the Guardrisk Insurance Company must indemnify the Cape Town restaurant, Cafe Camelion, in terms of their business interruption claim.  In the ruling that was delivered, Judge Andre Le Grange said that Guardrisk is liable to pay Cafe Camelion’s claim for losses suffered when the lockdown began on the 27th of March.  As a result of the Covid-19 outbreak in South Africa, which resulted in the promulgation and enforcement of the regulations made by the Minister of Cooperative Government and Traditional Affairs under the Disaster Management Act, Act 57 of 2002.  Judge Le Grange found that, while Guardrisk and other insurers argued restrictions to trade under the lockdown were the cause of their client’s losses, it was clear that the lockdown was the result of a notifiable “disease” that the insurer covered.  Guardrisk admitted that Covid-19 occurred within 50km of the applicant’s premises, a prerequisite for a claim in terms of the policy document.

While the industry has argued that if it were to shoulder economic losses of the country, resulting from the lockdown, their reserves might not be enough to cover these and that this would cripple smaller players, Judge Le Grange said that the gloomy predictions of the industry collapsing within the insurance world are nothing more than speculation.  Whether the flood gates will open as suggested by Guardrisk will ultimately depend upon the prevalence of the precise wording of the Notifiable Disease Extension in any contract of this nature.

The matter between Stellenbosch Kitchen Pty Ltd and MA-Afrika Hotels Pty Ltd versus Santam is enrolled for hearing on the 1st of September 2020.  Santam has filed its answering affidavit to the business interruption claims case on the defense, inter alia, that the steps taken by the South African government and the National Lockdown in particular, meant that the insured was prohibited by law from conducting their business.  This had the consequence, applying the relevant provisions of the policy, that the insured is not entitled to an indemnity under the policy for a loss of revenue.

The ruling that Covid-19 is a notifiable disease has said president in the Western Cape High Court.  This ruling is however not binding on other regional courts unless the Supreme Court of Appeal arrives at the same conclusion.

Policy holders should bear in mind that most insurance policies have a contractual prescription period of 90 days after repudiation of a claim by the insurance company.  Should an insured fail to timeously take the necessary steps their claim will contractually prescribe and would they be left with no further recause against the insurance company.

For any information and/or advice contact Herbie Oosthuizen at Herbie Oosthuizen & Associates, 044-601 8700.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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