Santam to appeal insurance judgment
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DURBAN - FINANCIAL services group Santam has decided to appeal this week’s Western Cape High Court judgment that favoured Ma-Afrika Hotels and Stellenbosch Kitchen relating to policies with Contingent Business Interruption (CBI) infectious disease extensions.
Santam said it believed the court erred in its judgment on the causation, insured peril, the trends clause and the indemnity period.
The insurer said it was therefore important to take the matter to the Supreme Court of Appeal.
It said the significance of the CBI matter to the insurance industry and the precedents at stake necessitate continuing to the next stage in the process of obtaining legal finality.
“Our reinsurers are key stakeholders in the insurance value chain as they are in effect insurers to the insurer,” Santam said.
“They agree with us on the need to obtain legal certainty from a higher court.”
The court found in favour of Ma-Afrika, stating that Santam was liable to pay the full business interruption losses including the impact of the government’s response to Covid-19.
The judgment ordered the insurer to pay Ma-Afrika for the impact over the entire policy period of 18 months without limitations.
The court also ordered that Santam pay Ma-Afrika’s legal costs. Absa Asset Management investment analyst and associate portfolio manager Cornette van Zyl said the ruling was complex.
Van Zyl said would be difficult to quantify the exact impact on the short-term insurance industry in South Africa.
“The matter relates to many businesses that have insurance cover for Contingent Business Interruption with various shortterm insurers, so the whole industry could be affected,” van Zyl said.
It also relates to a technical legal issue, as some contracts include wording that could possibly result in a claim for CBI, should an infectious disease pandemic occur. Obviously when these policies were written, the likelihood of a pandemic like Covid19 seemed very remote.
“Corporate insurance policies are not uniform, so the legality of each claim from each business will have to be assessed by each insurance company. Santam said the judgments referred to both the Café Chameleon versus Guardrisk matter as well as the Financial Conduct Authority (FCA) in the UK. It said these had been taken on appeal with decisions expected late in 2020 or early in 2021.
“While awaiting the legal process to be concluded, Santam paid out more than R1 billion in interim relief to assist nearly 2 500 small and medium sized businesses in the hospitality, leisure and non-essential retail services with CBI cover in the policies,” said Santam.
“These are considered to be advance payments against any finally determined claims, in the event that the courts ultimately rule in favour of the policyholders.
“Should the courts rule in favour of Santam, then the amounts paid will be considered relief payments and will not be recovered from policyholders.”
Santam said its catastrophe reinsurance would limit the net cost of contingent business interruption claims.
The insurer said it had increased its net CBI claims provision by R1.7bn in addition to R1.3bn that was raised in June 2020.
It said the increase was mainly due to the Ma-Afrika judgment in favour of the insured and the different view taken by the court regarding the indemnity period applicable to the CBI extension.
The insurer said it would continue to update the market on changes to its best estimate of CBI claims provisions as more information became available.