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Business Interruption Claims Update – Old Mutual to offer settlement option

A Fin24 report notes that Old Mutual has joined the other major insurers who opted to either provide interim financial relief or come to a settlement agreement with their business interruption customers.

The insurer estimated that about R650m for financial settlements and business interruption claims have already been submitted by its clients. However, financial settlements will only be made to clients who have an annual sum insured of R5m or less, and who had the infectious disease extension in their policies. Bigger commercial customers will have to wait for the conclusion of pending court cases.

As noted on Monday, relief from insurers take two forms. Santam, Bryte and Hollard have indicated that it will pay non-refundable amounts to policyholders with the reportable contagious disease extensions on their policies. Old Mutual and Guardrisk have opted for a “full and final settlement” offer option.

The latter places policyholders in a very difficult situation, as the indemnity period varies between three and twelve months. Should they accept the offer, and the insurer loses the court bid, they could be at the losing end. In the event of the court finding in favour of the insurer, they would have at least received something.

Those who will be receiving an interim payment will gain either way.

Given the dire straits the hospitality industry finds itself in, the temptation to settle for anything just to keep the ship afloat will be very tempting. Offering some interim relief which can be offset against a possible full claim later appears by far the fairer way to treat clients.

Given the unprecedented negative media coverage the industry suffered thus far, these steps offer a way to repair some reputational damage. The choice appears to hinge between client and shareholder interests.

With most insurers having excluded business interruption as a result of a contagious disease from their policies, clients’ decisions on future cover will be determined by their perspective of how they were treated. Expect some serious replacements in this lucrative market segment.

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