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Business interruption insurance and Covid-19

The Covid-19 pandemic has not only had devastating health consequences the world over, but it has wrought havoc on our economy, which will likely be felt for many years to come. Those especially hard hit include small businesses, restaurants and hotels, Airbnb’s, holiday resorts and the travel industry.

Many of these businesses had insurance in place which they thought they could rely on in their time of peril, but have received a nasty surprise when attempting to claim from their insurer under the ‘business interruption’ section of their insurance policies, by having their claim rejected. 

These businesses naturally felt let down by their insurers, but, more importantly, many of them were unable to not only pay their rent and other related expenses, but were also unable to pay their staff. There have been countless stories of small business and restaurant owners reaching into their own pocket to try and pay their staff whatever they can, to help them survive during this time. Unfortunately, though, this is simply not sustainable long-term, and many small businesses and restaurants have been forced to permanently close as a result.

In recent weeks, we have even seen a national protest by the restaurant industry under the hashtag #jobssavelives.  

What is “business interruption insurance”?

Business interruption insurance is insurance to protect businesses from significant and, generally, unforeseen events. It aims to place businesses in the position they would have been in, ‘but for’ such an event. Typically, these events include fires, natural disasters and the like. Businesses generally claim for loss of turnover, and, for example, in the restaurant industry, there can be claims for loss of food or products which have gone to waste as a result of not having any customers to serve.

What the law says:

In the recent case of Cafe Chameleon CC v Guardrisk Insurance Company Ltd [2020] ZAWCHC 65, a restaurant took on its insurer which had rejected its claim under the business interruption section of their insurance policy. The insurers main argument was that the business interruption was not caused by the Covid-19 pandemic itself, but by the government’s lockdown regulations. 
The High Court, Western Cape, rejected this argument and in its judgment delivered in June 2020 found that “…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.” 

The court ordered the insurer to indemnify the restaurant in terms of their insurance policy as a result of the national Covid-19 related lockdown. Whether the judgment will be taken on appeal, only time will tell.

In the weeks following this judgment, and after an instruction from the Financial Sector Conduct Authority, most of the bigger insurance companies within South Africa have backpedalled on their initial decision to decline business interruption claims, and have chosen to either honour the claims, or to pay out ‘settlement’ amounts. However, most of these insurers are still seeking clarity through the courts, and the outcome of this on a larger scale remains to be seen. Another similar case is scheduled to be heard in September 2020, in which 500 small businesses will take on their insurers in a class action.

Watch this space for further updates and get in touch with us if we may be of assistance.