Picture: Nokuthula Mbatha
Picture: Nokuthula Mbatha

Looting and violence is destroying businesses - What happens if your insurance rejects a business claim?

By Jean-Paul Rudd Time of article published Jul 13, 2021

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It has been reported in the last week, more than 200 shopping malls and close to R2 billion has been lost due to the protests and looting that has engulfed South Africa.

This is according to Busisiwe Mavuso, the chief executive officer of Business Leadership South Africa.

What will this devastating events have on SA’s economy and how will the insurance industry handle so many claims.


Business insurance policies protect business owners, their employees, and their assets from accidents, lawsuits, theft, business or inventory damage, and other problems that might occur. Typically, businesses acquire several different types of protection to cover all of their needs.

Below are some insurance types that businesses typically acquire:

  • General Liability Insurance;
  • Product Liability Insurance;
  • Commercial Property Insurance;
  • Business Income Insurance;
  • Cyber Liability Insurance;
  • Commercial Auto Insurance.


An insurance contract is subject to the general requirements for contractual validity, namely: consensus, legality, formalities, possibility, capacity and certainty. With specific reference to the element of consensus, parties to a contract need to reach consensus on the essential terms of the contract, failing which, the contract will be voidable. If consensus is obtained in a wrongful manner, through misrepresentation, the contract will be voidable at the discretion of the innocent party.

Misrepresentations made in relation to insurance can take the form of positive misrepresentations or negative misrepresentations. A positive misrepresentation occurs when the (prospective) insured makes an incorrect statement that has to do with a material fact to the insurer. A negative misrepresentation occurs when the (prospective) insured fails to disclose a material fact to the insurer.

Our law does not place a general duty on contracting parties to disclose facts known to one of them, which may have the effect of impacting the consensus of the other party, however, there is an exception to this rule in cases where there is a relationship of trust between the parties whereby one party relies on a disclosure of facts given by the other party. The relationship between an insurer and the (prospective) insured is one of trust and therefore subject to the duty to disclose.

In practice it is difficult for an insurer to escape liability for a claim by alleging that an insured is guilty of negative misrepresentation or failure to disclose facts. The insurer has the burden of proof to show that it either would not have issued the policy or would have inserted a term in the policy which excluded its liability for the claim. In other words, failure must materially affect the insurer’s assessment of risk.

The difficulty facing the insurer is that it must prove what it would have done given a factual situation which is hypothetical and never occurred. Courts are mindful, particularly when large sums of money are involved, that it is easy for an insurer to take a beneficial view of what it likely would have done.


Most short-term insurance contracts contain time-bar clauses which require an insured (as creditor) to institute legal proceedings against an insurer (the debtor) within a set time period. If the insured fails in its obligation in this regard the insured’s claim may be extinguished or at least rendered unenforceable.

Time-barring clauses are included in the terms and conditions of insurance policies and must also be set out in an insurer’s letter of rejection. If an insurance contract does not contain a time-bar clause, then prescription is determined by the Prescription Act of 1969. The usual prescription period is three years although there are exceptions.


After receiving a letter of rejection, an insured can institute action, through a court of law, or refer the dispute to the relevant ombudsman. Deciding on which form of dispute resolution to make use of depends entirely on the facts of each case.

Ombudsman schemes are free, and are an alternative to going to court to sort out a problem. An ombudsman acts as independent 'referee' who looks at both sides of the argument, makes enquiries, asks questions and comes up with a remedy or solution which they believe is fair.

Ombudsman schemes are however not without their own shortcomings, being: it cannot provide a quick solution to complex problems, a complainant has no control over the investigation i.e. the ombudsman does not act for the complainant specifically and they can refuse to deal with a specific matter, and decisions are not binding.

Whichever form of dispute resolution is chosen, business owners should always act promptly, given the time-barring clauses which feature is most insurance contracts.

* Jean-Paul Rudd is a Partner at Adams and Adams


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