1. Introduction
When COVID-19, and all the effects flowing therefrom, hit South Africa, many businesses approached their insurers in the hope that they were covered under Business Interruption (“BI”) insurance. Unfortunately, many realised that Insurance Law is fickle when it comes to providing cover for BI claims. Many were left with policies that offered no help and no answers as to why this was so.
Therefore, to simplify the matter, this article will attempt to answer the questions that many have been asking, such as:
Why does my insurance policy not include BI claims?
Does the decision in Café Chameleon v Guardrisk (5736/2020) [2020] ZAWCHC 65 (“Café Chameleon”) effect the success of my claim?
When does my policy cover a BI claim and is there anything I can do if it does not?
2. Contractual exclusion of consequential loss.
Insurance policies, which aim to limit the scope of indemnity, generally cover loss relating to physical destruction of, or damage to, one’s property or the object of the risk. This would mean, for example, that an insurance contract covering damage as a result of fire would only compensate the insured for the damage to his restaurant caused by a fire.
Insurance policies, in general, exclude cover for consequential loss. Consequential loss means loss of an interest other than the insureds interest in the value of the property itself and would include things like loss of profit. Thus, in the example above, the insurer would compensate the insured for the physical damage to his restaurant caused by a fire but would not compensate the insured for the income lost while his restaurant was unable to generate income.
The fact that consequential losses are generally excluded does not mean that the restaurant owner has an interest in only physical damage. Thus, the owner of the restaurant can insure against both the physical loss of the restaurant and the loss of profits connected therewith. This is, however, not a given and therefore if the restaurant owner wishes to be insured against both losses he must do so expressly.
Being insured for loss does not necessarily mean that one was/is covered for losses related to BI. The overall onus is on the insured to have expressly included BI coverage failing which the insurer has no obligation to compensate the insured for such losses.
3. What bearing does the Café Chameleon judgement have on my claim?
COVID-19, and the lockdown regulations instituted in response to same, forced many businesses to reduce or entirely cease their operations. As these businesses were still bound by their own obligations to others, BI claims were instituted against insurers. One such claim was instituted by Café Chameleon (“the insured”), a business that had taken out an insurance policy with Guardrisk Insurance Company Ltd (“the insurer”) in terms of which the latter indemnified the former for business interruption caused by “human infectious or human contagious disease, an outbreak of which the competent local authority has stipulated shall be notified to them” provided such contagious disease was reported within a 50 kilometre radius of Café Chameleon’s premises. When COVID-19 forced the insured to shut down operations it sought to claim under the aforementioned policy extension which the insurer failed to timeously respond to. The insured thereafter went to court and sought a declaratory order with regard to the insurers liability in terms of the policy.
After hearing both parties, the court looked to the policy wording for answers. The court highlighted the importance of interpretation of the policy and held that interpretation must be done in a sensible manner that is not “unbusiness-like”. Thus, any interpretation which disobeys this would not find favour in the court. Further, the court held that the COVID-19 outbreak led to the implementation of lockdown regulations which directly caused or materially contributed to the interruption of the insured’s business thus entitling the insured to institute a claim under the policy. Finally, the court rejected the insurers argument that it should be released from its contractual obligations because enforcing them would open the floodgates for future claims of this nature. Thus, the court has set the precedent, which was later confirmed by the Supreme Court of Appeal (2020 ZASCA 173), that insurers cannot simply repudiate BI claims based on bizarre interpretations of clauses and/or an incorrect application of the principle of causation.
What does this mean for businesses and/or individuals wishing to make a claim for BI? The landmark judgement, which was subsequently confirmed by the Supreme Court, gives businesses and/or individuals greater prospects of success when seeking to enforce their BI claims. Café Chameleon demonstrates the judiciary’s refusal to yield to insurance companies who try to escape liability after accepting premiums from their clients. Of course the judgement, and the precedent set therein, will only be of assistance to businesses who have BI insurance extensions within their policies and who are facing repudiation on unfair grounds. The prospects of success, as in most cases, depends on the existence of the right and the actual wording within one’s specific policy.
4. When does my policy cover BI and is there anything I can do if it does not?
As has already been outlined, BI insurance does not automatically apply but requires one to expressly include it in one’s policy. It must, furthermore, be noted that ‘pandemic and infectious disease’ risks do not normally fall within the standard insurance cover or even BI cover. ‘Pandemic and infectious disease’ coverage, within the context of BI insurance, is a special form of coverage which is provided for under a very specifically worded policy extension. As such, there will be instances where an insured does actually have BI insurance but when it comes to claiming under said policy is informed that their specific BI insurance only covers interruption due to ‘fire’ or ‘flooding’ but not a ‘pandemic and/or infectious disease’. It is therefore important to really scrutinize both the policy schedule and the policy wording and be sure that the specific BI coverage one has applies specifically to loss as a result of a ‘pandemic and / or infectious disease’.
If, after scrutinizing your policy, you find that you are not expressly covered, you may be wondering whether there is anything you can do to try salvage the situation. Fortunately, there are potentially two courses of action at your disposal.
The first is to argue that the policy wording and/or BI extension is vague. Vague in this sense means that the words used in the policy and/or BI extension are ambiguous and do not clearly indicate whether you are or are not covered for interruption due to a ‘pandemic and / or infectious disease’. If this is the case one can apply the verba (cartarum) fortius accipiuntur contra proferentem rule which holds that a contract and its terms must, in case of doubt, where there is ambiguity, be construed against the contracting party by whom, or on whose behalf, it was formulated. It is the insurers duty to ensure that the words used in the policy and/or BI extension are clear and certain otherwise the contract will be interpreted against it and in favour of the insured. The effect, if successful, would be that the policy and/or BI extension would in fact apply to risk associated with or caused by a pandemic and/or infectious disease thus giving the insured a right to institute a claim.
If this is unsuccessful or if this is not an option, one can potentially pursue a breach of contract claim against the broker if a broker was engaged. The relationship between a broker and his client is based on a contract of mandate. The very essence of a broker’s business is to advise clients about financial products such as insurance contracts. The broker, whether acting as mandatary or as a representative, stands in a fiduciary relationship to his client which requires him/her to act in good faith towards the latter. A breach by the broker of this duty to act in good faith constitutes a breach of contract giving rise to the normal remedies for breach of contract.
Furthermore, in terms of the common law, the contract of mandate requires the broker to properly advise his client as to the suitability of the product recommended by the broker. By failing to properly comply with the duties imposed by the brokerage contract, the broker commits a breach of contract giving rise to remedies for breach of contract, such as a claim for damages to restore the client to the financial position he would have been in had the broker carried out his duties. If the broker failed to ensure that you had the correct cover or if the broker failed to fully advise you about the best insurance policy, there may be a claim for breach of duty and/or breach of contract which could ensure that you would be compensated for your loss.
5. Conclusion
COVID-19 has had a devastating effect on businesses and individuals globally. Many have turned to their insurers to soften the blow. Unfortunately, many have come to the realisation that their insurer is either not obliged to or simply refuses to indemnify them. Whether your insurer is or is not obliged to indemnify you will always depend on your policy which is ultimately a contract that can be enforced by either party. It is therefore important for you to know what your contract says and what powers it does or does not give you in this time of uncertainty.
The content of the article is intended to provide a general guide to the subject matter. Contact us at zelmari@kernattorneys.co.za or 010 109 1055 for specialist advice relating to your specific circumstances, or to review your policy documents.