A recent High Court ruling has dealt a blow to Lewis Group’s hopes of litigating a R423-million Covid-19 business interruption claim – and delivered a reminder to both insurers and policyholders: if your contract says arbitration, the courts will likely hold you to it.
The legal dispute arose from claims Lewis lodged against several insurers for losses incurred during the Covid-19 lockdown. Although the insurers admitted liability, the dispute centred on the amount to be paid out.
Lewis, one of South Africa’s largest retailers of furniture and appliances, held a business interruption insurance policy from 1 April 2019 to 31 March 2020. The company claimed R1m per store – totalling R422.9m across 628 stores – under an extension covering losses linked to Covid-19 outbreaks within 20km of any insured premises.
The insurers disagreed, arguing that the policy capped the total payout at R1m for the entire business. They said Lewis’s interpretation was commercially unrealistic and not supported by the policy wording.
In August 2023, Lewis launched an application in the High Court seeking a declaration that the indemnity period extended for 12 months beyond the policy’s expiry, and the claim could be quantified later with additional evidence.
In response, Emerald Risk Transfer, Hollard Insurance, and Integrated Insurance Administrators filed a counter application in October 2023. They sought to halt the proceedings and refer the dispute to arbitration, citing clause 9 of the policy.
That clause reads:
“If any difference shall arise as to the amount to be paid under this policy (liability being otherwise admitted), such difference shall be referred to an arbitrator or arbitrators to be appointed by the parties concerned in accordance with the applicable statutory provisions in force. The making of an award shall be a condition precedent to any right of action against the insurer to recover such amount in dispute.”
The insurers also invoked sections 6(1) and 6(2) of the Arbitration Act, which allow the courts to stay legal proceedings where arbitration is contractually required – unless there is “sufficient reason” not to.
Writing on Norton Rose Fulbright’s blog, director Donald Dinnie described the judgment as noteworthy. “It is unusual for an insurer to force its insured to arbitrate an insurance dispute,” he said. But in this case, the court enforced the policy’s arbitration clause and stayed the High Court proceedings.
Judge Nelisa Mali, who delivered the judgment on 20 May, referred to the Constitutional Court’s decision in Crompton Street Motors CC t/a Wallers Garage Service Station v Bright Idea Project 66 (Pty) Ltd t/a All Fuels, which held that the courts must generally uphold arbitration clauses unless a “very strong case” is made to the contrary. The burden, the court noted, falls on the party resisting arbitration.
Dinnie explained that Lewis had argued the dispute related to policy limits – a matter it claimed should be dealt with in court. But Judge Mali rejected this view.
“The insured unsuccessfully argued that disputes involving limits of cover are for the exclusive domain of the courts,” he wrote. “Even if the amount to be paid requires legal interpretation on the facts of the case, the legal interpretation had to be the subject for arbitration.”
Lewis also tried to rely on section 3(2)(b) of the Arbitration Act, which gives the courts limited discretion to deny arbitration. But Judge Mali found no valid basis to exercise this discretion.
“The insured had not alleged potential bias on the part of the arbitrator, for example, which is a factor mostly considered in avoiding arbitration, and had shown no good cause at all,” Dinnie wrote.
The insurers also raised a prescription defence, arguing that Lewis’s claim had expired because the right to claim arose in March 2020 and legal action was taken in August 2023. The court did not rule on this issue, having referred the quantum dispute to arbitration.
The court upheld the contractual agreement to arbitrate and directed the parties to resolve the dispute outside of litigation. The ruling reinforces the enforceability of arbitration clauses in insurance policies – particularly where liability has already been admitted.
Read the full judgment here.
