Insurers urged to share policy wording
DURBAN - The Financial Sector Conduct Authority (FSCA) has summoned short-term insurers to share their policy wording relating to business interruption cover after receiving complaints about claims stemming from the country’s coronavirus (Covid-19) pandemic lockdown.
The FSCA said the responses would determine whether it would approach the courts to seek a declaratory order to speed the payment of the claims.
The probe follows a wave of litigation in France, Britain and the US arising from the pandemic.
Last month a Paris court ordered French insurer AXA to pay a restaurant owner for Covid-19-related revenue losses, which potentially opens the door to a wave of similar litigation.
The restaurateur, Stephane Manigold, had gone to court demanding AXA cover his operating losses after the government-ordered closure to slow the pandemic’s spread. Mangold reportedly called it a “collective victory” and wept while addressing reporters outside one of his shuttered restaurants.
This week the Financial Conduct Authority (FCA) in the UK also announced that it would launch a test case in July to resolve contractual uncertainty after obtaining policy wordings.
In South Africa, law firms are lining up potential action against insurers and Insurance Claims Africa, a specialist-consulting firm of public loss adjusters, has vowed to go “all in” for more than 400 claimants.
If the FSCA obtains the declaritor, insurers are likely to appeal.
The contingent business interruption policies, sold by most insurers to some hospitality and tourism sector clients, differ from standard business interruption policies, which are linked to a direct physical loss, damage or destruction of property.
Clients who had invested in the costly policies with extensions for contagious or infectious diseases believed they had claims relating to loss of profit due to the lockdown, but the industry has rejected them, saying those policies were never written to cover pandemics and if they were forced to pay the claims, it would cripple their businesses.
All insurers have now endorsed these policies - some mid-term - to exclude cover for Covid-19 from this month in a move that is widely viewed as an admission that the policies had covered infectious diseases previously.
The FSCA has given insurers until next Tuesday to share their policy wordings.
In a joint communication with the Prudential Authority, the FSCA noted it had seen “various interpretations as to what the trigger is for valid claims and how exclusions for pandemics should be applied. The authorities understand that insurers and reinsurers are interpreting the infectious/contagious disease extension and in relation to the Covid-19 pandemic to apply only where the loss of business income was due to the business being interrupted as a result of a localised Covid-19 infection and not as a result of other related actions such as lockdown introduced by the government”.
Caroline da Silva, deputy executive for regulatory policy at the FSCA, said an approach to the court for a declarator on policy wording would be a first. “We are watching the FCA action very closely. Customers had expected to be covered for Covid-19 and we need to ensure they are treated fairly.”
Makgompi Raphasha, the head of insurers and retirement fund benefit administrators, said: “With standard business interruption policies, we would be very slow to intervene as physical damage has to be proved. With contagious or infectious disease extensions, there are various wordings relating to the radius, location, whether the local or national authorities have declared disease in the area. We need to analyse the various wordings and then begin the process to engage with general counsel.”
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