By David Whitehouse
Businesses in Cape Town brought to their knees by COVID-19 are taking Santam, South Africa’s leading general insurer, to court in what they hope will lead to a landmark judgement for liability.
Ma-Afrika Hotels and restaurant company Stellenbosch Kitchen have brought the case against Santam which is being heard in the Western Cape High Court today. The hotels remain closed, and the restaurant business has been greatly reduced.
According to the heads of argument filed to the court by the applicants, Santam has tried to neutralise the infectious diseases clause in its policies through two approaches:
It has sought to separate COVID-19 and the South African government’s response to it by arguing that lockdown, not the pandemic itself, caused the losses.
It has also tried to limit the insured peril to a local outbreak of a notifiable disease, while excluding a more widely distributed outbreak.
READ MORE South Africa VS Coronavirus: Insurers face crisis of confidence
In July, South Africa’s Financial Sector Conduct Authority said the lockdown could not be used by insurers as grounds to reject claims.
READ MORE Coronavirus: South Africa to rev economy by easing lockdown
The Cape Town businesses argue that COVID-19 and the government’s response to it cannot be separated.
“The very concept of a notifiable disease owes its existence to the need for a coordinated, government-led response to diseases that pose peculiar and immediate public health risks,” according to the heads of argument.
There is “an unbroken line of causation connecting COVID-19, the government’s response to COVID-19, and the Applicants’ losses.”
Santam has argued that pandemics are not included in its cover. In the heads of argument, the applicants argue that Santam “fails to locate this pandemic exclusion anywhere in the text of the policy” – despite the fact that other rare occurrences, such as wars, are specifically excluded.
“Despite bargaining power being unequal from the start, Santam still insists on a thick-spectacled parsing of its policies to avoid coverage.”
Too Little, Too Late
In July, Santam said that it would up to 1 billion rand (EU50mn) in relief to policyholders in hospitality, leisure and non-essential retail who have a contingent business interruption extension in their policy. On August 27 Santam said it had paid out 870 million rand of that amount.
Ma-Afrika Hotels and restaurant company Stellenbosch Kitchen have brought the case against Santam which is being heard in the Western Cape High Court today. The hotels remain closed, and the restaurant business has been greatly reduced.
According to the heads of argument filed to the court by the applicants, Santam has tried to neutralise the infectious diseases clause in its policies through two approaches:
It has sought to separate COVID-19 and the South African government’s response to it by arguing that lockdown, not the pandemic itself, caused the losses.
It has also tried to limit the insured peril to a local outbreak of a notifiable disease, while excluding a more widely distributed outbreak.
READ MORE South Africa VS Coronavirus: Insurers face crisis of confidence
In July, South Africa’s Financial Sector Conduct Authority said the lockdown could not be used by insurers as grounds to reject claims.
READ MORE Coronavirus: South Africa to rev economy by easing lockdown
The Cape Town businesses argue that COVID-19 and the government’s response to it cannot be separated.
“The very concept of a notifiable disease owes its existence to the need for a coordinated, government-led response to diseases that pose peculiar and immediate public health risks,” according to the heads of argument.
There is “an unbroken line of causation connecting COVID-19, the government’s response to COVID-19, and the Applicants’ losses.”
Santam has argued that pandemics are not included in its cover. In the heads of argument, the applicants argue that Santam “fails to locate this pandemic exclusion anywhere in the text of the policy” – despite the fact that other rare occurrences, such as wars, are specifically excluded.
“Despite bargaining power being unequal from the start, Santam still insists on a thick-spectacled parsing of its policies to avoid coverage.”
Too Little, Too Late
In July, Santam said that it would up to 1 billion rand (EU50mn) in relief to policyholders in hospitality, leisure and non-essential retail who have a contingent business interruption extension in their policy. On August 27 Santam said it had paid out 870 million rand of that amount.
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Conveniently for Santam, the one-month period to submit a claim for relief ended on 28 August – just in time for today’s court case.
While Santam classes the payments as relief, they are in fact interim payments made against legitimate claims, says Ryan Woolley, CEO of Insurance Claims Africa (ICA).
Woolley says that Santam should have had “the same sense of urgency to make these payments to their customers at the outset of the lockdown, and not after substantial pressure from both the regulator and its customers.”
ICA is a public loss adjustment company representing 700 businesses in tourism and hospitality which is trying to get large insurers to pay out.
Woolley says today’s case is a “watershed” which will have major implications for the insurance industry.
Wynand du Toit, founder of Tented Adventures in Rustenberg, hoped to get some benefit from the Santam relief scheme. But “reading the fine print broke me, literally broke me,” he wrote in an open letter to Santam on 30 July. Companies needed to have continued to pay their premiums to be eligible for the relief – but du Toit had no money to do so.
Bottom line
Confidence that claims will be paid is the cornerstone of insurance. And in this particular case, whether Santam wins or loses, it has forfeited that very confidence.
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