The Western Cape High Court recently ordered insurance company Guardrisk to pay the business interruption claims of Cape restaurant Cafe Chameleon. The ruling was welcomed by specialist public loss adjustment firm Insurance Claims Africa (ICA).

“This is a significant win for the tourism and hospitality sector,” highlighted ICA CEO Ryan Woolley. “While there is no doubt that this is precedent setting, we expect the judgment to be appealed, so it is still [a] long way from payment. Of critical importance, is the fact that Judge Andre le Grange rejected the insurers argument that the losses suffered by the claimant was due to the lockdown, and not the Covid-19 pandemic.”

Business interruption insurance is intended to help companies survive unanticipated events. It is intended, ICA explained, to allow businesses to pay their staff, rates, rent and so on, and so survive a crisis. It can be for an agreed amount of money, or for an agreed time period. Tourism and hospitality enterprises can specifically insure against business interruption caused by contagious or infectious notifiable diseases.

ICA was currently helping some 500 tourism and hospitality businesses in their struggles to get insurance companies to pay out their business interruption claims. All ICA’s clients have insurance against business interruption caused by notifiable diseases. But South African insurance companies have been claiming that business interruption has been caused by the government-ordered national lockdown, and not by the pandemic.

“This argument has never made any sense, as the insurers chose to insure a notifiable disease which would have contemplated government intervention and restrictions or quarantine,” pointed out Woolley. Disingenuous “It is clear that without Covid-19, there would be no lockdown, so to attempt to separate the two is nothing short of disingenuous.”

Separately, South African nonprofit shareholder activist organisation Just Share highlighted local insurance group Santam’s refusal to pay out business interruption claims from policy holders in the hospitality and tourism sector resulting from the impact of the Covid-19 pandemic. This followed Just Share’s raising of the issue at Santam’s recent electronic annual general meeting (AGM). The AGM followed after the Western Cape High Court ruling against Guardrisk.

“When asked by Just Share whether it would reconsider its position in light of a recent judgment of the Western Cape High Court against insurer Guardrisk on the same issue, Santam stood firm in its position that it will ‘seek clarity from the courts of South Africa’,” reported the activist group. “The board also would not commit to a binding arbitration process to expedite the matter.”

Just Share described Santam’s position as “surprising”, as legal clarity on the matter had already been provided by the Western Cape High Court, in the case ‘Café Chameleon v Guardrisk Insurance Company Ltd’. The court had ruled that it was Covid-19, and not the lockdown, that had caused Café Chameleon’s losses and that Guardrisk had to pay out the claim.

The activist group also highlighted that Santam’s position contrasted starkly with the assurance of its CEO, Lizé Lambrechts, posted on the company website, that the insurer was “absolutely committed” to reducing the “devastating impacts” of Covid-19. Further, during the electronic AGM, Santam assured its shareholders that its balance sheet would not be harmed if it was forced to pay out Covid-19 claims.

“Many of Santam’s business continuity policyholders, however, are facing imminent closure, threatening the livelihoods of the thousands of people employed by them,” stressed Just Share. “Santam has chosen to go to court to obtain ‘legal certainty’ in the interpretation of the disputed policies; unlike the insurer and its immensely deep pockets, these businesses cannot wait months or years for the resolution of a court process.”

Santam had, the activist group reported, also rejected a reasonable settlement proposal. “[T]he company seems determined to take a short-sighted approach which is eroding its reputation, and which will contribute to the devastation of a swathe of the small tourism and hospitality businesses which are so essential to the South African economy,” affirmed Just Share responsible investor researcher Emma Schuster.

South Africa’s hospitality and tourism sector provides more than 740 000 direct and 1.5-million indirect jobs. It includes many micro- and small enterprises and contributes 8.6% of the national gross domestic product. The Tourism Business Council of South Africa reports that the sector also provides business worth some R206.5-billion a year for its supply chain, acquiring goods and services from the agricultural, automotive, fuel, furniture, marketing, security and textiles sectors, among others.