Café Chameleon, a restaurant in the northern suburbs of Cape Town, recently won an important COVID-19-related insurance claims court battle against insurer Guardrisk Insurance, a division of Momentum Metropolitan Holdings.
To mitigate the spread of the ongoing COVID-19 pandemic, South Africa, like many other countries around the world, entered into a national lockdown that led to the closure of thousands of businesses of all shapes and sizes.
In response, businesses looked to their insurers, demanding payouts under their business interruption policies, something that insurance companies fought by claiming that the income losses were actually a result of government enforced lockdowns, and not the virus itself.
Café Chameleon suffered significant financial losses as a result of the COVID-19-induced lockdown, and is struggling to pay its employees wages. The restaurant argues that, insurer Guardrisk should honour its claim because it was protected for business interruption (BI) coverage if there was an outbreak of a “notifiable disease”.
However, Guardrisk claims that losses from the lockdown in South Africa didn’t fall under any clauses insuring firms against infectious diseases, implying that it was the lockdown that drove the losses and not the disease.
But despite the argument, Judge Andre le Grange ruled against Guardrisk’s belief that it was the lockdown, and not COVID-19 that caused the financial challenges to the business.
“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 [Cafe Chameleon’s] business,” said Judge Andre le Grange. “The suggestion therefore that the regulatory regime was only introduced to “flatten the curve” and had little to do with the Covid-19 outbreak is misplaced.”
Ultimately, Judge le Grange ruled that the insurer was liable to indemnify Café Chameleon in terms of the business interruption section of the insurance contract for any losses suffered since March 27th, 2020 as a result of the COVID-19 outbreak in South Africa, which led to the implementation of lockdown restrictions.
Insurance Claims Africa (ICA), a loss adjustment firm that is leading numerous policyholders in potential lawsuits against the insurance sector, has underlined that this is a huge victory for the tourism and hospitality sector.
“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. It is clear that without Covid-19, there would be no lockdown, so to attempt to separate the two is nothing short of disingenuous,” said Ryan Woolley, Chief Executive Officer (CEO) of ICA.
As businesses of all shapes and sizes from across all types of industries look to their insurers for assistance during this challenging time, policy wording is going to be vital when determining the validity of claims related to the pandemic.
Overall, exclusionary language and the lack of a physical trigger is expected to largely mitigate the ultimate industry loss from business interruption lines. However, this win by Café Chameleon will be welcomed by the hospitality and tourism sector and could see more businesses be successful in their court battles with insurers.