We've agonised over decision to reject claims, but it's the right one, says Santam

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  • Santam says the lockdown is an economic loss, not an insured loss.
  • The insurer says, where businesses were forced to close because someone in their premises tested positive for Covid-19, it has paid and continues to pay those claims.
  • But, as the lockdown restrictions are eased further, Santam will not cover pandemic claims.


"We have agonised, and we have really struggled over this," said Santam chief risk officer Asher Grevler on Friday, as the insurer prepared to file its answering affidavit, defending its decision to reject lockdown insurance claims.

Santam and other short-term insurers who offer business interruption cover have become the tourism and hospitality industry's enemy number one. Their decision to not pay out for business interruption claims caused by the lockdown saw Santam being dragged to court by some of its clients. The insurer says the case, which will be heard in the Western Cape High Court on 1 September, will provide much needed clarity to everyone.

With its reputation on the line, and a growing perception that insurers look for reason not to pay, Santam chief marketing officer Mokaedi Dilotsotlhe said the company had pondered on its decision in countless meetings, but had concluded that it could not suspend insurance principles which say insurers are only liable for the specific event they insured.

"The insurance principles have to hold. As much as we wish we could wave a magic wand and make everything payable, the principle of proximate cause, which is an enshrined principle in insurance, must hold,

How Santam separates the lockdown from Covid-19

The insurer is still finalising its answering affidavit for the September case. But its argument is that, while Covid-19 might be the "proximate cause" of businesses being forced to stop trading, the lockdown is an "intervening cause".

In legal speak, a proximate cause is concerned with whether a loss is a result of an insured risk. An intervening cause is a separate act that breaks the direct connection between the proximate cause and actual closure of many businesses during the lockdown.

Santam's clients argued in their affidavit that, without Covid-19, there would be no lockdown. But Santam says the lockdown has caused zero activity across all industries, irrespective of whether businesses had confirmed Covid-19 cases on their premises, and therefore it was an economic loss.

"There's a distinction between economic losses and insured losses, a clear distinction between the two. I don't think it would be fair to expect the whole insurance industry to underwrite the economic losses of the country," said Dilotsotlhe.

The insurer says a scheme underwritten by government, similar to SASRIA, would be more appropriate to cover "extraordinary events" that culminate in economic losses. However, SASRIA only covers damage to property caused by events like riots, strikes, terrorism and public disorder. It does not cover any financial loss as a result of a pandemic.

'We are paying claims'

Dilotsotlhe added that the narrative that Santam was not paying claims at all was not true.

"There are some claims that we paid which were triggered even before the lockdown. And there are claims that we are paying for the businesses that were paying during the lockdown," he said, using an example some Shoprite stores whose loss of income Santam covered.

He added that the insurer had never given victims of the Knysna fires, Johannesburg flash floods, or farmers in drought-stricken areas any runaround, because the cause of their loss was direct and the policy wording clear.

Grevler said Santam had covered pandemics before Covid-19 struck and, because pandemics happened every 30 to 40 years, it had underwritten them.

"If you are running a restaurant and there was Ebola in the area and your business was shut down because of that, you would be covered. But this we never covered, and frankly we never foresaw a situation where the whole country was locked down. That was not an event we ever insured." 

Santam on removing pandemic cover

However, from 1 June, Santam stopped covering pandemics, a move that public loss adjustment firm Insurance Claims Africa (ICA) says is an own goal, as it amounts to an admission that Santam's policies should have covered lockdown claims before that change.

What this also means is that, as the restaurants start opening up for sit-downs and hotels start accepting guests again, they will no longer be covered by business insurance if they are forced to close because someone on their premises tests positive for Covid-19.

Andrew Coutts, head of intermediated distribution at Santam, said reinsurers were no longer covering pandemics and, therefore, it could not continue offering that benefit.

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