A recent judgment clarifies how claims-made professional indemnity policies operate when a claim is brought against an insurance broker. The High Court in Cape Town was asked to determine, as a separated issue, whether the broker was entitled to indemnification from its professional indemnity insurer in respect of claims brought by two restaurant businesses.
The dispute turned on a single question: which policy year applied.
The two businesses, The Collection at D’Aria (Pty) Ltd and Copper Club Eatery Tyger Waterfront (Pty) Ltd, alleged that Cross Point Brokers (Pty) Ltd had negligently failed to procure a policy containing an extended business interruption clause. When the Covid-19 lockdowns struck in 2020, the restaurants suffered substantial revenue losses but received no indemnity under their commercial policies, leading to claims against the broker.
After the Supreme Court of Appeal confirmed in Guardrisk Insurance Co Ltd v Café Chameleon CC that insurers could be obliged to indemnify under such clauses, the restaurants complained to Cross Point that their policies lacked this protection.
Cross Point in turn sought indemnification from its professional indemnity insurer, Santam.
Two consecutive policies came into play because the alleged negligence occurred in June 2019 under a professional indemnity policy covering 1 September 2019 to 31 August 2020, which did not contain a Covid-19 exclusion. The restaurants’ claim against the broker was made in June 2021 during the subsequent policy period 1 September 2020 to 31 August 2021, which did include such an exclusion.
The Court was not required to decide whether the broker was negligent, but whether Santam was obliged to cover the claim.
Claims-made versus occurrence-based policies
The central legal issue turned on the nature of the broker’s professional indemnity policy – specifically whether it operated on a claims-made or loss-occurrence basis. The Court therefore first had to determine what type of policy it was dealing with.
Looking at the wording of the policies, the Court concluded they were claims-made policies rather than occurrence-based policies. In a claims-made policy, cover depends on when a claim is first made and notified to the insurer, whereas occurrence-based policies respond according to when the underlying negligent act occurred.
As the judgment records, the insuring clause provided cover for “any claim first made against you during the period of insurance”.
Because the restaurants’ claims were first made on 30 June 2021 and notified on 1 July 2021, the 2021 policy was the operative policy.
The significance of the Covid-19 exclusion
Unlike the earlier policy, the 2021 policy contained a broad Covid-19/infectious disease exclusion, introduced after insurers began facing pandemic-related claims.
The clause excluded cover for claims directly or indirectly arising from Covid-19 or related infectious diseases. The broker conceded that if the 2021 policy applied, the exclusion would defeat its claim.
The Court agreed. Once the claim was located within the 2021 policy period, the exclusion applied and Santam was not obliged to indemnify the broker.
The retroactive date did not help
The broker attempted to rely on the retroactive date in the policy, which was 1 September 2008.
The Court rejected this argument, explaining that the retroactive date does not extend the policy period. Instead, it sets the earliest date from which negligent conduct may be covered – provided the claim is made during the active policy period.
In other words, the retroactive date allows older conduct to be covered, but it does not determine which policy responds.
Renewal does not preserve earlier rights
The broker also argued that because the policy had been renewed, the earlier policy period should effectively be treated as part of the later policy.
The Court rejected this argument. The renewal of an insurance policy creates a new and separate contract, even if many of the terms remain similar. The 2021 policy therefore did not carry forward any supposed right to indemnification under the 2020 policy.
A second difficulty: late notification
Although unnecessary to the final decision, the Court also addressed the broker’s notification obligations.
The policies required the insured to notify the insurer “as soon as reasonably possible” of any claim or any circumstance that might give rise to a claim.
The restaurants had sent emails by at least January 2021 complaining they were inadequately insured and suggesting that the broker should have arranged different cover. The Court held that these communications clearly signalled the possibility of a claim.
As Acting Judge Phillipa van Zyl observed, the broker “must therefore have realised that a storm was brewing, at least by January 2021 when the plaintiffs expressed their incredulity at not being covered”.
However, the broker only notified Santam after receiving formal letters of demand in July 2021.
The Court held the broker should have realised earlier that a claim might arise, and its failure to notify the insurer promptly constituted a breach of the policy’s notification provisions.
A missed opportunity
Claims-made policies typically include a deeming provision allowing an insured to notify the insurer of circumstances that may give rise to a claim. If such circumstances are reported during the policy period, any later claim arising from those circumstances is treated as having been made during that earlier policy period.
In this case, the broker did not notify the insurer of any potential claim during the 2020 policy period. If it had done so, the later claim might have been treated as falling under the earlier policy, which did not contain the Covid-19 exclusion.
Commentary: key lessons for brokers
In commentary on the judgment, attorneys from Webber Wentzel highlight the implications of the decision for insurance brokers and other professionals who rely on claims-made indemnity cover.
They note that the policies required the broker to give written notice “as soon as reasonably possible” of any claim or “any specific event or circumstance which may give rise to a claim”. By January 2021, the restaurants’ emails were already accusing the broker of placing them with an insurer whose policy lacked the necessary business interruption clause.
These communications left “no room for doubt as to the possibility of claims to come”, meaning the broker ought to have notified its professional indemnity insurer at that stage, said Sandra Sithole, who is a partner at the law firm, and senior associate Rethabile Shabalala and associate Maano Manavhela.
More broadly, the authors highlight three lessons for professionals relying on claims-made indemnity cover:
First, professionals must understand the mechanics of their own indemnity policies. The distinction between claims-made and loss-occurrence cover determines which policy year is triggered and whether cover is available at all.
Second, notification requirements are not mere administrative formalities; they are the contractual mechanism through which an insured preserves its right to indemnification. Where a professional becomes aware of circumstances that may reasonably be expected to give rise to a claim, prompt notification to the insurer is essential. A failure to notify timeously does not simply create a procedural irregularity, it may lead to the forfeiture of cover altogether.
Third, the deeming provisions commonly included in claims-made policies exist precisely to safeguard the insured in situations where a claim has not yet materialised but potential exposure is apparent. Those provisions offer protection only if the insured invokes them by notifying the insurer timeously.
