On Thursday, 08 October 2021, the Supreme Court of Appeal (‘SCA’) dismissed Santam’s appeal on the relevant business interruption indemnity period for Ma-Afrika Hotels and Stellenbosch Kitchen (‘insured’). The result being that Santam must pay out contingent business interruption claims to the insured for the full 18-month period covered in their insurance policies.
Initially, Santam sought leave to appeal in the High Court against the whole judgment and order, but after the SCA’s judgment in Guardrisk Insurance Company v Café Chameleon (Guardrisk) was handed down in December 2020, Santam restricted its application for leave to appeal to those parts of the judgment and orders that relate to the indemnity period.
The dangers of conflicting indemnity periods in one policy
Santam challenged the 18-month indemnity period by arguing that its indemnity period policy extensions, such as the one in this instance relating to infectious diseases, were only for a period of three months, and that physical damage to the business premises was required in order for the 18-month indemnity period under the general business interruption section of its policies to be applicable. Santam thus argued that because there was no physical damage to the either of the insured businesses premises, they could only claim under the infectious disease extension, which provides for three-month cover.
The first part of Santam’s policy schedule referred to the 18-month indemnity period, which was far more visible to clients, while the three-month indemnity period policy extensions were situated in a “memorandum tucked away at the end of the schedule” in fine print. Santam stated that it capitalised the latter indemnity period to draw client’s attention towards it.
The SCA stated that “there is no inherent magic to the capitalisation” and criticised the “tortured, convoluted and intricate” approach to the reading of the policy that Santam proposed, as seeking to overcome the apparent irreconcilable contradiction between the indemnity period of 18 months and three months in one policy schedule. The SCA emphasised this approach as being a clearly demonstrated fallacy.
Policy arguments put forward by Santam
Santam continued to emphasis that lockdown-related business interruption claims are invalid because of the lack of proof of physical damage. The SCA stated that this issue was put to rest in the Café Chameleon CC v Guardrisk Insurance Company Ltd (‘Café Chameleon’) case, as previously discussed in DKVG’s article published in June 2021. The SCA held the insurer in that case liable for business interruption losses due to the outbreak of the pandemic, extending to and including government’s response.
The SCA criticised Santam for their many “twisted and turned” policy arguments presented in an attempt to “studiously avoid liability” and held that Santam cannot separate the lockdown from Covid-19. In light of this, the SCA concluded that “the indemnity period in relation to claims for loss of revenue due to business interruption ineluctably is 18 months.”
This judgement, as well as the Café Chameleon judgment, constitutes valuable development of the jurisprudence on the complexity of insurance contracts, and provide key lessons for contract and policy drafting.
Contracts that have been constructed and drafted in a complicated manner, result in a greater chance of internal ambiguity and contradictions. Accordingly, courts are bound to liberally interpret policies in favour of the insured and give them the benefit of the doubt.
It is thus advisable and far more favourable to adopt a plain language approach when constructing policies, and to correctly vet the contracts and schedules in order to avoid contradictions and conflicting clauses. Such contracts should be easily understandable to a lay person.
Written by Leigh-Anne Kriel firstname.lastname@example.org
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