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Santam loses Business Insurance case – Helpers out, round number two?

On 17 November, the Cape High Court delivered a rather damning blow to the insurance giant’s hope of escaping liability under the business interruption clause, specifically as it relates to losses resulting from Covid-19 and the national lockdown.

As in the case of Guardrisk, the court found that there was a direct causal link between the pandemic and steps taken by government to curb the spread of the virus, and that this is what led to losses suffered by qualifying policyholders. Judge Cloete, one of the three judges hearing the case, concurred with the court’s findings and elaborated on why he agreed. In paragraph 8.4 he states:

“Because insurance contracts have a risk-transferring purpose, any provision such as an exclusion placing a limitation upon an obligation to indemnify is usually restrictively interpreted, since it is the insurer’s duty to spell out clearly the specific risks it wishes to exclude. In the case of “real ambiguity” the contra proferentem rule applies, and such a clause is construed against the insurer;”

Indemnity period

This rule applied equally to Santam’s decision to limit the period of indemnity to three months, despite the contract stating that it was for 18 months. Paragraph 86 and 87 reads:

“Santam submits that the infectious disease clause is an extension to business interruption cover, and so the indemnity period is limited to three months. In support of this contention, Santam elected to overlook the period of 18 months and focused on a “Memorandum” tucked away at the end of the schedule, which reflects in fine print: “Extensions under the Section are limited to an Indemnity period of 3 Months.”

“It is evident that the infectious disease clause is not one of the twenty-six items listed under the “Extensions and Clauses” heading in the schedule. Some of these items, like “Loss of Tourist Attraction” and “Loss of Aesthetic Attraction” expressly record an indemnity period of three months. Others do not, like the “Bush Fire” extension. It appears that the residual three month period may be applicable to these listed extensions. It could be reasonably concluded that the residual indemnity period does not apply to the infectious disease clause because it is not a listed extension. Instead, it comes as a standard feature of the business interruption section.”

To appeal or not to?

Various commentators have remarked about the possibility that Santam, like Guardrisk, may appeal the findings. Gareth Stokes, in FAnews notes:

“Santam has indicated that any challenge to the High Court ruling would be subject to a close examination of its decision. One aspect that may influence an appeal decision is that the High Court did not deem it necessary to deal with their argument re the development of the common law pertaining to insurance contracts. Another influencer will be the High Court’s extensive reference to the test case before the UK courts…”

Appeal considerations

In a brief media release, Santam noted that it will publish a comprehensive response once it had spoken to various role players, notably reinsurers. Virtually the same message was relayed to intermediaries, including a webinar next week to confer with all intermediaries who have clients affected by the court’s decision.

Whilst the insurer’s contracts with reinsurers are not in the public space, it appears that the latter is not keen to be drawn into this matter. If this is so, the insurer’s will be left to foot the bill on their own.

In the case of an appeal, affected clients face an even more prolonged period of financial agony, and quite possibly, business closures, given the dampening effect of, specifically, a virtual shutdown of all overseas visitors in view of the second wave in most of Europe and America. Local tourism is almost equally slow, with many people reluctant to venture too far away from home.

Guardrisk appeal case

On Monday, the Café Chameleon/Guardrisk will be heard in the Appeal Court. The outcome there, as well as the appeals in the UK test court case, could have a significant impact on other insurers. Will they offer settlements, or go the “take us to court” route?

Whatever happens, the reluctance to honour what policyholders regard as the insurers’ legal and moral obligations will result in brand damage which no amount of interim assistance will be able to negate.

Click here to download the judgement file.

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