South African short-term insurers and their clients are awaiting two very important outcomes next week: the Supreme Court of Appeal judgment in the Café Chameleon case involving Guardrisk, and the Ma- Afrika case against Santam in the Cape High Court. Some businesses with Covid-19-related losses in the UK will not have business interruption cover in terms of the Financial Conduct Authority (FCA) test case determined in the United Kingdom (UK) at the end of October, whilst appeals will be held. In the UK, the Supreme Court will live-stream the appeal hearings, due to take place on 16-19 November.
In a BusinessTech article Christine Rodrigues, partner at law firm Bowmans, points out that the outcomes of the first test cases have shown that it is ultimately the wording of insurance policies that determines what is covered and what not – and wordings are subject to widely differing interpretations. The UK business interruption test case has now been elevated to the Supreme Court in a ‘leapfrog’ appeal.
The FCA, six insurers and an action group are appealing the lower court judgment that sought to clarify whether 21 policy wordings, affecting potentially 700 types of policies, 60 insurers, 370,000 policyholders and billions in claims, cover disruption and government-ordered closures to curb the virus.
Rodrigues told the media that the FCA test case is particularly important because although the UK High Court found that insurers must pay up, the Court did emphasise that liability of the insurer still needs to be considered in terms of the contractual terms and conditions. “The case also illustrates how the Court applies the principles of Treating Customers Fairly (TCF) within the constraints of the policy wording.”
She further stressed that South African policyholders should be aware that TCF needs to be applied within the confines of the policy wording. “It is important that they understand what their policies do and don’t cover to ensure that they do not get themselves into the situation where there is no cover or where they need to take legal action to enforce their rights.”
High-level findings if the UK case included:
|●||A policy provided business interruption cover where the insured could show that the loss resulted from Covid-19 from the date when the disease occurred in the 25-mile radius, either by reason of the actions, measures and advice of the government or the reaction of the public in response to the disease;|
|●||If the policy wording required an ’event’ to occur to trigger cover, then occurrences of the disease at different times and in different places would not constitute the same event and so the policy would not provide cover;|
|●||An insured would only have cover in terms of prevention of access by a public authority if access to, or use of, the insured premises was prevented or hindered as a consequence of government or other authority action or restrictions pertaining to the insured’s particular business. The High Court said there was a distinction between businesses that were mandated to close versus those whose revenue dropped because people chose to stay at home;|
|●||In interpreting some of the trends clauses, the Covid-19 pandemic and the government and public response were a single cause of the covered loss. The High Court found that where the insured has established a loss caused by an insured peril, it would seem contrary to principle, unless the policy wording so requires, for that loss to be limited by the inclusion of any part of the insured peril in the assessment of what the position would have been if the insured peril had not occurred.|
“Regardless of the outcome of the various business interruption claims underway in South Africa, we can expect that policy wordings will be amended in order to prevent ‘interpretation’ issues going forward. Insurers must be explicit in what they do or do not want to cover,” Rodriques concludes.
It is interesting to note that, in both the South African cases, mention was made of the fact that where there is ambiguity, the benefit of the doubt should go to the insured. It will be interesting to see whether the Santam case, which was heard in the same court as the Guardrisk one, will come to the same, or a different conclusion.
Click here to read the latest news about the Café Chameleon case.
Click here to read the BusinessTech article.
Click here to follow the UK case.