Contingent Business Interruption – FSCA seeks declaratory order

Further to previous publications by the Financial Sector Conduct Authority (FSCA) on the problematic issue of Contingent Business Interruption (CBI), the Authority has now published details of its letter to non-life insurers on the matter.

The insurers have expressed concerns with regard to “…arbitration proceedings, the ambit of existing court proceedings and rulings and possible appeal proceedings relating to such matters as well as the implications and possible differentiating factors of the test case launched by the Financial Conduct Authority in the United Kingdom. The FSCA has taken note of non-life insurers’ view that legal certainty will be achieved only through Court proceedings.”

In order to assist in the process, the FSCA envisages a process of engagement with non-life insurers and their legal teams.

“The purpose of this letter is therefore to outline some of the pivotal issues for consideration, comment and discussion with non-life insurers concerning any legal process.”

The FSCA is of the view that the most expedient way to achieve legal certainty would be by way of an application for declaratory relief in the High Court on the interpretation and application of specific clauses in business interruption (BI) insurance policies in the context of Covid-19-related claims. The Authority envisages, subject to its legal standing in the matter, that it may be the applicant for purposes of an application for declaratory relief. Relevant non-life insurers may be cited as respondents.

“The FSCA is not aware of any procedure in South Africa which equates to the Financial Markets Test Case Scheme in the United Kingdom which permits the determination of issues of general importance in the public interest. Non-life insurers are therefore invited to indicate whether they are of the view that the FSCA is entitled in law to bring a case of the type proposed in this letter and, if so, to explain on what basis they have reached this conclusion.”

The issues to be considered

The purpose of the proposed proceedings will be to achieve legal certainty as to the meaning and effect of certain clauses commonly found in policies pertaining to business interruption resulting from contagious or infectious disease.

The FSCA hopes to reach consensus with the principal non-life insurers as to which specific terms should be selected with a view to enabling the required legal certainty to be achieved and what the questions are on which declaratory orders should be sought.

The letter then proposes a number of scenarios which need to be clarified in the declaratory order, including:

whether the insurer can avoid liability on the basis that the cause of the loss was the national lockdown and not the presence of the disease within the specified radius?
whether the insured’s losses arising from its closure fall within the insured risk?
whether the notification obligation in respect of Corona-19 was imposed by the national government (and not by a local authority) entitles the insurer to avoid liability?

What can be seen as disconcerting is that, under two of these questions, the FSCA states that it “…does not presently take the view that any such claim arises but reserves its right to argue to the contrary if so advised.” If this was the view of the counsel acting on my behalf, I would be extremely concerned.


“The FSCA invites non-life insurers to respond to the content of this letter and for the parties to thereafter engage in order to reach understanding on the process to be followed with regard to the possible approach to the Commercial Court outlined above.”

“The FSCA also envisages that in the event of the matter being classified as an urgent commercial matter, the timelines and procedures may be stipulated by the judge or judges to whom the case may be assigned and it is therefore not possible to stipulate timelines in this regard.”

Interim relief measures from Insurers

Various steps were taken by non-life insurers to ease the financial burden of policyholders who have been without any income for the past four months. Whilst the steps outlined in the letter by the FSCA is commendable, it appears that, by the time legal certainty is obtained, there will be few, if any, businesses left to benefit from such certainty.

As Barry McGuire so succinctly put it in his 1965 hit, Eve of destruction:

“If the button is pushed, there’s no running away
There’ll be no one to save with the world in a grave.”
Click here to download the FSCA letter.

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