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Illustrative image from Gallo Images / Misha Jordaan)
Ten months after the closure was announced, the Supreme Court of Appeals ruled in favor of a Cape Town restaurant. It is seen as a major victory for the battered tourism and hospitality industry, with the potential to bring the insurance industry to its knees in the short term.
The lockdown, and not government action, resulted in business closures and losses, meaning that short-term insurers will now have to pay their clients. On Thursday, December 17, the Supreme Court of Appeals (SCA) ruled in favor of Cape Town’s Café Chameleon restaurant in its case against Guardrisk insurer.
The ruling, issued with an order for costs, was welcomed as a precedent because it could close the door to the controversy over business interruption (BI) insurance claims. But for insurers, it’s a potentially ruinous lesson in underwriting, costing them billions of rand and could open the floodgates for more claims.
As of November 26, all BI applicants came from the hospitality and tourism sector. The Western Cape Superior Court later ruled in favor of luggage retailer Interfax in its case against Old Mutual Insure, finding it liable for the company’s pandemic-related losses of up to R17.6 million.
And now Guardrisk, a subsidiary of Momentum, will have to pay Café Chameleon for its full BI claim.
The appeal comes from Guardrisk’s loss in the Western Cape Superior Court on July 8, when it was determined that it was required to pay Café Chameleon’s claim for losses suffered due to the closure.
On November 18, Santam, South Africa’s largest short-term insurer and the “face” of the BI problem due to the number of hotel clients disagreeing with the insurer over payments, lost to Ma-Afrika Hotels and Stellenbosch Kitchen.
More twists and turns in business interruption lawsuit
Santam had hoped to join forces with Guardrisk on the appeal, which was brought urgently by the crisis in the hospitality industry, but the SCA did not accept it. Santam’s appeal, which was due to be heard in early December, has been postponed. sine die.
The SCA ruling, considered the “last word” in the case as it is unlikely to be heard in the Constitutional Court, says the government’s imposition of the blockade in response to outbreaks of a notifiable disease or contagious (Covid-19) was covered by the infectious diseases clause.
It also reinforced the position taken in the UK Financial Conduct Authority test case and the Western Cape High Court judgments in the Ma-Afrika Hotels-Stellenbosch Kitchen v Santam and Interfax v Old Mutual cases.
The public adjuster Insurance Claims Africa (ICA), which has been at the center of the fight for the hospitality and travel sector, has welcomed the ruling, saying that now that legal certainty has been established, “no there should be nothing left for insurers to do but resolve their clients’ claims ”.
ICA represents more than 750 hospitality and tourism clients from Santam, Bryte, Hollard, Guardrisk, Old Mutual and others on the BI matter.
ICA CEO Ryan Woolley said Chameleon Coffee Judgment it was a “significant victory” for an industry that had suffered huge losses.
Without urgent payments from insurers, many doors will close and many more thousands of jobs will be decimated.
“As South Africa faces a second wave of the Covid-19 pandemic, the hope of survival is rapidly evaporating for many of these companies that were counting on the summer holidays to carry them through 2021. The latest statistics show that hotel occupancy in Ciudad del Cabo is sitting at a devastating 18%. The rest of the country is in a similar situation.
“Without urgent payments from insurers, many doors will be closed and many more thousands of jobs will be decimated.”
Café Chameleon owner Nico Schoeman did not respond to a Business maverick asks about the amount of the claim, but his attorney, Ren Dunster, said: “We applaud the urgency and clarity with which the judges handled the matter. We are privileged to have such a strong judiciary in South Africa. “
Ma-Afrika CEO André Pieterse called on Santam to stop delaying the issue, saying he has shown “total disregard” for the decisions of eight superior court judges who had ruled against him and other insurers. short term.
“It will be a total disgrace and will do irreparable damage to the tourism industry and the insurance business in the short term if Santam ignores today’s Supreme Court of Appeals ruling and continues with his request seeking authorization to appeal.”
In July, Santam had offered a billion rand relief to his clients. The insurer denied being under pressure from the Financial Sector Conduct Authority (FSCA) to establish the fund, claiming it wanted to “do the right thing” for its hospitality clients due to claims likely to arise from Covid-19.
The group’s CEO, Lizé Lambrechts, said: “We really want to help our clients; We are not indifferent to what the confinement has done to them. “
Ex gratia payments, offered by some insurers after FSCA’s intervention, were only offered to policyholders with current business interruption insurance that had contagious disease policy extensions, while legal certainty was sought through of the courts.
Lambrechts said Santam believed that the wording of his CBI policy was specific and only covered companies for localized disease outbreaks. The extensions were only offered to customers before the March 18, 2020 deadline. Payments ranged from 25,000 to 1.5 million rand.
On Thursday, Santam said he had taken note of the ruling and that “matters related to contingent business interruption are complex in nature and require careful consideration.”
The insurer said it would consider the ruling and its potential impact on its own appeal involving Ma-Afrika Hotels and Stellenbosch Kitchen.
But, true to form, he said that while there are “similarities” between the cases, there are also material differences in the initial judgments that were handed down by the Western Cape Superior Court.
“Santam remains committed to achieving legal finality as soon as possible.”
However, insurers have been accused of delaying their obligations to their clients.
I doubt that the ConCourt will overrule the SCA on this, especially when the SCA, due to the origins of insurance law, followed UK law and the position of its FCA at its trial.
Guardrisk could attempt to appeal to the Constitutional Court with the consent of the SCA, but the higher court is unlikely to hear the matter, says Professor Birgit Kuschke of the University of Pretoria.
“I doubt that the ConCourt will overrule the SCA on this, especially as the SCA, due to the origins of insurance law, followed UK law and the position of its FCA at its trial.
“The ConCourt will protect the fundamental rights of people more than the profitability of large companies, unless the state of the latter significantly affects people, to the extent that society as a whole suffers. The ConCourt should focus more on the interests of SMEs and the individual than large companies at this time. “
Kuschke said that insurers have always maintained that the lockdown was an intervening cause, trying to break the physical chain of events. The Covid-19 pandemic and the closure were inevitably linked and not new events.
“Once the factual causality of the closure has been proven, that the government had no choice but to lock us up, since it was an absolutely necessary consequence of the pandemic, a joint causal event is created that leads to damage. “
Kuschke, a practicing attorney specializing in insurance and contract law, leads a coalition of legislators, law firms and advisory groups in BI’s battle against some of South Africa’s leading short-term insurers.
He said insurers should be held liable according to their policy wording because they simply ignored infectious diseases, even though Sars, Mers and Ebola are well documented for more than a decade.
“It was inevitable that sooner rather than later we would suffer some kind of universal disease. We have known about these contagious infectious diseases for more than a decade, but they ignored them. ” BM / DM
