Commercial Law: Concluding Remarks on Business Interruption Insurance and Covid-19

There is no doubt that COVID-19 has had a major impact on all areas of society. Zoning in on the insurance sector, an influx of claims have arisen as result of the impact experienced by businesses during lockdown. What becomes relevant is the coverage of these businesses’ insurance because most insurance policies refer to Business Interruption insurance. This is a type of insurance which covers the loss of income that a business suffers due to natural disasters such as: floods; earthquakes; fires and most notably; infectious or contagious diseases.

Courts around the world grappled with insurers liability in this instance, with the UK Courts being confronted with this legal and commercial issue in the test case of Financial Conduct Authority v Arch Insurance (UK) Ltd and Others (‘FCA v Arch Insurance’). This case was heard on the 9th of June 2020 in the commercial court, with final judgment being handed down on the 15th September 2020 by the UK High Court.

The High Court provided UK policy holders and insurers with legal clarity on the meaning and effect of certain Business Interruption insurance policy wordings and ruled in favour of policy holders by confirming insurers liability for Business Interruption claims stemming from Covid-19. Prior to the UK High Court judgment, South African policy holders and insurers held their breathe in anticipation.

The claims giving rise to the FCA v Arch Insurance case and the discussions regarding legal clarity even prior to the judgment being handed down, provided high persuasive value for South African courts. The issue was brought before the Western Cape High Court in the case of Café Chameleon CC v Guardrisk Insurance Company Ltd, with judgment being handed down on the 26th of June 2020.

This case concerned a clause in the insurance policy that indemnified Café Chameleon for loss due to the interruption of business pertaining to a notifiable disease occurring within 50 km of their premises. The notifiable disease was defined as an illness sustained by any person resulting from any human infectious or human contagious disease, an outbreak of which the competent local authority has stipulated shall be notified to them.

Café Chameleon thus claimed from Guardrisk Insurance for Business Interruption due to Covid-19. Guardrisk Insurance however argued that the Business Interruption which caused loss was as a result of the lockdown regulations by Government and not the presence of Covid-19 and thus did not fall under the scope of the Business Interruption coverage.

The Court ruled in favour of Café Chameleon, after which Guardrisk Insurance appealed to the Supreme Court of Appeal (‘SCA’), arguing that the Government’s national response to the pandemic was not covered under the insurance policy, and argued that what was covered, was a response aimed only at local occurrences of the disease within 50 km of the business.

Judge Cachalia of the SCA considered the matter in light of international developments stemming from the FCA v Arch Insurance case, and upheld the decision of the Western Cape High Court in its judgment on the 17th of December 2020, confirming that the insurer is liable. In arriving at its decision, Judge Cachalia adopted an interpretive approach, highlighting various principles that would apply to such an interpretation.

Firstly, it was emphasised that the language, context and purpose of an insurance policy must be considered together, from an objective point of view in order to give light to the intention of the parties. Insurance contracts hold the purpose of indemnifying a party from possible damage and should thus be interpreted ‘reasonably and fairly’ to achieve such a purpose.

It was further held that the policy must be liberally interpreted in favour of the policy holder, and in the event that a policy may be interpreted in two possible ways, the interpretation which sustains the claim and indemnifies the loss should be preferentially applied.

The SCA thus provided much needed clarity on issues surrounding the insurer’s liability to honour their lawful obligations under Business Interruption policies. However, it must be noted that this judgment cannot be interpreted as a confirmation that all Covid-19 losses will now be covered under business interruption policies. Rather, this judgment confirms that such losses can be covered and that there is a possibility of an interpretation which is in favour of indemnification.

It is important to know that the individual policy wording of each policy will determine whether or not your business is covered, and it is therefor recommended that you consult the wording of your insurance policy with your attorney to know what extent you may or may not be covered for business interruption due to Covid-19.

For all your queries relating to the legalities of your insurance policy and business needs, contact an attorney at De Klerk & Van Gend. (info@dkvg.co.za)

Written by Leigh-Anne Kriel (Candidate Attorney)

This article is for general information purposes and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us At DKVG Attorneys for specific and detailed advice.