Court rules against insurer in Covid-19 claim case - but does it set a precedent?

The Court has ruled that businesses closed because of the virus.
The Court has ruled that businesses closed because of the virus.
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  • The Western Cape High Court has ordered Guardrisk and HIC Underwriting Managers to pay Cafe Chameleon's lockdown-related claim.
  • Up to now, insurers have maintained that while some of them cover contagious diseases under their business interruption insurance, a lockdown is not a covered event.
  • Guardrisk says it is still consulting with its legal team on the next steps.
  • Santam says this hasn't set a precedence for its upcoming case.

The Western Cape High Court has ruled that Guardrisk must pay out business interruption claims of Cape Town restaurant, Cafe Chameleon, but it is still unclear whether the ruling will set a precedent for other cases of this nature.

In the ruling that was delivered, Judge Andre Le Grange said Guardrisk is liable to pay Cafe Chameleon's claim for losses suffered when the lockdown began on 27 March, an order that has left a question mark on whether other insurers still stand a chance in winning the same argument or if they should just start paying up.

The court did not only rule in favour of Cafe Chameleon, but it also ordered Guardrisk to pay costs, an order that is normally reserved for cases where the judge feels the defence argument was a waste of the court's time.

Lockdown is covered

Judge Le Grange found that, while Guardrisk and other insurers argued restrictions to trade under the lockdown were the cause of their clients' losses, it was clear that the lockdown was the result of a notifiable disease that the insurer covered.

"The respondent [Guardrisk] has also admitted that Covid-19 occurred within 50 kilometres of the applicant's premises.

"In these circumstances, it is difficult not to accept that there is indeed a clear nexus between the Covid-19 outbreak and the regulatory regime that caused the interruption of the applicant's business," wrote Le Grange.

While the industry has argued that if it were to shoulder economic losses of the country, resulting from the lockdown, their reserves might not be enough to cover these and that this would cripple smaller players, Le Grange said even if Guardrisk had substantial business interruption claims, the court could not exempt it from honouring its contractual obligation to clients.

Guardrisk said it, together with HIC Underwriting Managers, was still in the process of engaging with its legal team to study the judgment and consider the next steps.

Avior Capital Markets' head of research, Warwick Bam, says the insurer is likely to take this ruling on appeal, but, in his view, the jury is still out on whether the ruling has set a precedent.

Case by case?

"Not all policy wording is the same, so this may not necessarily be a precedent-setting case.

"On the face of it, the judge has agreed that the lockdown regulations could not be separated from the infectious disease – this creates the precedent for other claims, in my view," said Bam.

Judge Le Grange did, however, note in in his judgment that each case must be "decided upon its facts and the law" and his ruling does not ultimately open "the floodgates of liability".

Santam has already decided that, despite this ruling, it will stick with its argument for now that the lockdown is not covered by its policies, until its own case is heard by the same court on 1 September.

Bam says the argument is more complex than implying that Covid-19 caused the lockdown.

"The bigger issue is that insurers were not pricing the policy or reserving for the risk of a lockdown scenario, nor was the regulator monitoring the solvency of insurers for such an event. The financial stability of short-term insurers is potentially under threat," he said.

But public loss adjustment firm, Insurance Claims Africa (ICA), says there is no doubt that the ruling is precedent-setting.

"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.

"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," said ICA CEO Ryan Woolley.

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