CAPE TOWN – The judgment handed down this week by the UK High Court in favour of policyholders in a test case on whether insurers were liable for certain business interruption claims arising from the Covid-19 pandemic is likely to influence the outcomes of a raft of similar cases in South Africa.
Short-term insurance companies here and overseas have repeatedly argued that the lockdowns imposed by governments, which devastated small businesses, were not covered in business interruption policies that included cover for notifiable or infectious diseases.
They argued that it was the lockdowns, not the disease, that caused the losses.
The test case had been brought before the court by the UK’s financial services regulator, the Financial Conduct Authority (FCA), on behalf of policyholders.
After considering the wordings of policies from a range of insurers, the court, according to an FCA press statement released on Tuesday, “found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues”.
While the wording of each policy would ultimately determine an insurer’s liability, the court found, among other things, that the lockdowns could not be disassociated from the pandemic – in other words, the pandemic was the underlying, or proximate, cause of the losses.
Christopher Woolard, the interim chief executive of the FCA, said: “We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market. We are pleased that the court has substantially found in favour of the arguments we presented on the majority of the key issues.
“Coronavirus is causing substantial loss and distress to businesses, and many are under immense financial strain to stay afloat. Our aim throughout this court action has been to get clarity for as wide a range of parties as possible as quickly as possible, and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.
“If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible. As we have recognised from the start, thousands of small firms and potentially hundreds of thousands of jobs are relying on this.”
In South Africa, insurers facing similar claims have resisted settling them, saying they needed first to establish certainty in how these cases were being resolved internationally.
This despite a case here, Cafe Chameleon vs Guardrisk, in which the Western Cape High Court ruled that the pandemic was the proximate cause and found in favour of the policyholder. (Guardrisk has appealed the decision.)
In July, the local authority, the Financial Sector Conduct Authority (FSCA), persuaded the insurance companies to at least provide interim relief to small businesses, which they have done.
In a statement released this week in light of the UK court ruling, the FSCA said it was studying the FCA judgment.
“After engaging with their legal teams, the majority of non-life insurers have advised the FSCA that… they are now of the view that the cases currently before the South African courts and the one by the FCA in the UK will provide the required legal certainty on policy wordings for the non-life insurance industry.
“Considering the view of these insurers, the FSCA will await the outcome of all these cases to see if they indeed provide the required legal certainty on all elements of the policy wordings.
“Should there be any elements of the policy wordings that remain unclear after finalisation of the cases referred to above, or the cases do not provide certainty for the non-life insurance industry as hoped, the FSCA will engage with the non-life insurance industry again in an effort to have such elements or uncertainty clarified efficiently,” the statement said.