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Covid -19 and Business Interruption Insurance – Media starting to focus on refuted claims

The first repudiations of claims by policyholders for business interruption as a result of the pandemic have led to very keen media interest in the matter.

The Ganas/Momentum case provided useful insight into how media exposure can impact on the industry. In his notes on the matter, the Long-Term Ombud noted:

“In November 2018 after a newspaper article about this matter there was a public outcry. What can be best described as a “frenzy” ensued in social media and other forms of media.”

This, despite the fact that the initial repudiation of the claim being done on perfectly legal grounds. It was subsequently reversed.

The FSCA and PA indicated in its joint Communication 5 of 2020 that, based on engagements with insurers, there is a small percentage of policies with BI cover that have specific extensions for infectious/contagious diseases. “Engagements seem to indicate various interpretations as to what the trigger is for valid claims and how exclusions for pandemics should be applied.”

The main bone of contention revolves around an extension of Business Interruption cover in the event of a contagious or infectious notifiable disease.

In the view of one insurer “…the proximate cause is the lockdown and travel ban imposed by the Government and not due to a direct causal link between a positive case and the direct effect on the premises.”

It appears that there are directly opposing views on how insurers interpret this, vis a vis policyholders, who argue that the lockdown is a direct result of the Corona virus and hence for a successful claim.

Insurers and reinsurers have indicated that they are also looking at international trends. In a related article, Moneyweb refers to a court ruling in France in favour of a restaurant chain. In addition it states that the British financial regulator “…has also turned to the courts to try to get clarity on whether insurers should pay out coronavirus-related claims to small businesses.”

In another article, Moneyweb notes:

“According to Statistics South Africa’s Tourism Satellite Account released in 2019, the sector directly employed 740 000 in 2018. The World Travel & Tourism Council report says in 2018 the sector contributed 2.8% of the country’s real GDP while its indirect contribution accounted for 8.2% of GDP.”

Before Covid-19, tourism was touted as the hen that would lay golden eggs in the form of employment, upskilling and badly needed generation of income from overseas visitors, both business and leisure travellers, with very little cost to the government.

“A total devastation,” said Lee Zama, chief executive of the Federated Hospitality Association of Southern Africa in describing how the virus has impacted the industry.

This coming Sunday, Carte Blanche will look for answers to the following question: “A global pandemic… it’s a nightmare for restaurants and hotels forced to close their doors. But with so many businesses claiming on their insurance around the world, will these companies pay out?”

The Tshwane Tourism Association has launched a set of guidelines titled “Joint effort regarding insurance issues” to its members in an effort to ensure fair outcomes.

The regulatory Authorities have indicated that they are continuing to engage with insurers and other stakeholders on some of the aspects referred to in Communication 5 of 2020, particularly the “…mid-term withdrawal of cover for infectious/contagious diseases”. This raises the question: Why is Covid-19 cover excluded in future if policyholders do not enjoy cover against it?

Both the FSCA and SAIA, in its responses to the threat that the pandemic holds for the industry, referred to safeguarding the sustainability of the industry. Perhaps, in the spirit of Ubuntu, the same consideration should be given to policyholders whose future depends on applicable business interruption cover.

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