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Business Interruption Claims – The gloves are off

The stand-off between non-life insurers and clients with business interruption cover on their policies increased in intensity as the Financial Sector Conduct Authority stepped up its involvement in the fray.

According to a Business Report article, “The Financial Sector Conduct Authority has given insurers in South Africa until Tuesday (9 June) to submit their policy wordings so it too can decide if High Court action is needed for clarity, which could speed up payment of the claims.”

Earlier, Joint Communication 5 of 2020 from the FSCA and the Prudential Authority provided broad guidelines on the regulatory position on the matter, its expectations of non-life insurers and intermediaries on communicating with policyholders in respect of BI claims, ensuring that processing of claims is not unduly delayed, and that terms and conditions of insurance coverage are not varied without taking a balanced approach to ensure fair outcomes.

Expectations in respect of fair treatment of clients were raised, both in terms of claims and future exclusions. The latter gave rise to some commentators in the media asking why cover for Covid-19 is being excluded in future if it is not regarded as the proximate cause of business interruption.

Whilst expressing concerns about material solvency risks for insurers, the Authorities also need to consider the interests of policyholders, which it is mandated to protect, and the reputation of the financial services industry in the wake of increasing negative media exposure.

The Business Report article also notes that a public loss adjuster is “…planning to go to court on behalf of hundreds of hospitality and travel sector clients whose contingent business interruption claims for the Covid-19 lockdown were declined.”

“Insurance Claims Africa chief executive Ryan Woolley this week said the leading business interruption claims consultancy was ready to go “all-in” to act on behalf of over 400 claimants, whose claims exceeded R3 billion.”

Moneyweb also reported on this, but added a cautionary note from Woolley:

“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.”

International trends

The Financial Conduct Authority (FCA) in the UK has also taken steps to ensure a fair and equitable outcome in the squabble there.

It has compiled a representative sample of policy wordings which it intends to submit to court as a test case. “We believe the circumstances of the current coronavirus emergency, and its effect on businesses holding BI policies means this uncertainty needs to be resolved as quickly as possible. We intend to obtain court declarations as part of a test case, aimed at resolving the contractual uncertainty around the validity of many BI claims.”

A provisional court date is set for the second half of July, with the FCA employing a highly experienced counsel team to present policyholders’ arguments to their best advantage.

“The test case is not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and ‘causation’ issues to provide clarity for policyholders and insurers.”

As most local insurers have indicated that they are following overseas trends closely, this is likely to have a major impact here as well.

Professional advice

An interesting article by ENS titled “COVID-19 Related Insurance Claims And Coverage: The Arguments For And Against Coverage” notes several examples of differing viewpoints:

One insurer claims: “It was never the intention of the extension to provide cover for a pandemic event affecting the whole of South Africa” but rather it was only “meant to provide protection against a local outbreak of infection”.The legal response to this is: “The interpretation of a policy does not contemplate the subjective intention of the parties and neither does it entertain considerations of what, a party might subsequently contend, was intended to be covered.”

The article continues: “It is important that both insurers and policyholders seek legal advice in relation to COVID-19 related claims made under their policies.

Insurers must carefully consider coverage relative to the circumstances giving rise to each claim, with specific reference to the policy wording, prior to simply adopting a blanket denial approach. Insurers are required to give justifiable reasons for accepting or denying coverage, as emphasised by the FSCA and the PA.

Likewise, policyholders must understand whether their policies afford protection against the impact of COVID-19, and if so, ensure compliance with claims notification and submission requirements and ensure that claims are well-articulated and presented within the contemplation of the policy wording. Where cover is denied by an insurer, a policyholder need not simply accept this position, as also emphasised by the FSCA and the PA.

Going forward

Whichever perspective one looks at from, this matter is of grave importance to the country’s precarious economic position.

At the Africa Travel Indaba in May last year, the President clearly outlined the hugely important role that the hospitality industry will play on the road to recovery, calling it Africa’s “new Gold”. What he did not mention, is that this industry is self-sufficient, contributes enormously to upskilling of thousands without government aid, and contributes billions in badly needed foreign cash inflows to the country.

Annually, 10.2 million foreign tourists visit our shores, with the annual spend in 2018 amounting to R120 billion. The sector provides direct jobs to over 350 000 of which 70% are women and 60% youths. In total, it provides employment to in excess of 1 million people.

Whilst the non-life sector cannot, and should, not be expected to make decisions based on sentiment, doing the right thing can help restore some of the reputational damage as a result of rather abrupt refusal to pay claims, and employing questionable semantics in the process.

It is in the best interests of all that the issue gets resolved sooner, rather than later. There is simply too much at stake for this to be drawn out indefinitely.

Paul Kruger is an independent editor-at-large, specialising in refining information on matters related to financial advice.

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