Tourism and insurance industries head to court in heated battle over Covid-19 claims
Let the courts decide. That’s what the huge stand-off between insurance companies and their hospitality clients - over whether the “notifiable disease” wording in business interruption policies covers their lockdown losses - has come to.
Santam, South Africa’s largest insurer, and insurance claims consultants Insurance Claims Africa, are jointly seeking legal clarity on whether clauses along the lines of “an outbreak of an infectious or contagious disease occurring within 50 kilometres of the business” cover the huge losses businesses have suffered since being forced to shut down at midnight on March 26.
The problem is the court date set down is September 1, and by then many guest houses, which still can’t open for leisure guests, according to the tourism minister, will have closed down.
“We can probably only survive for another month or six weeks,” said William van der Riet of Cathedral Peak Hotel in the Drakensberg at a virtual media conference hosted by Insurance Claims Africa and the Tourism Business Council on Wednesday.
The hotel was established by his father 81 years ago and has been run by the family since then, currently with a staff of 200. “Our overheads are R800,000 to R1m a month and we still don’t have an income, nor do we know when we will get one,” Van der Riet said.
“I have put my personal money into the business; we owe R7m to R8m and we have maxed out our credit.”
Meg Fargher of Budmarsh Country Lodge in Magaliesburg painted a similarly bleak picture.
“We have no cash and no income; we owe our creditors R600,000 and Eskom is threatening to cut our electricity.
“What do we say to our staff? They don’t understand that there is simply no money left … “Should we tell them to go and ask Santam?”
To the guest houses and restaurants which understandably assumed that the contagious disease “extension” to their business interruption insurance policy would ensure that their businesses survived the Covid-19 lockdown, the rejection of their claims has been the ultimate betrayal.
The insurers, on the other hand - including Santam, Bryte, Guardrisk, HIC and Old Mutual Insure - say it’s simply a matter of the policy not being designed to cover losses sustained during a national lockdown caused by a pandemic, and the policy wording ruling out successful claims.
Their clients, and many brokers, remain convinced that it’s a classic case of insurers doing whatever they can to avoid paying.
Don Scott, owner of Tanda Tula and Jenkins Rockfig Safari Lodge in Timbavati Private Nature Reserve, summed up the general sentiment in a Business Day opinion piece: “The tourism sector was forced to shut its doors before we could record any actual cases of this disease on or near our properties. In fact, the pre-emptive shutdown of the sector is the very act that prevented us all from recording cases in the first place, and the insurance industry is using this paradoxical situation to exploit its own version of whether claims are valid.”
Not so, says Santam.
The scope of cover is intentionally restricted, the company says. “It was never the intention of the extension to provide cover for a pandemic event affecting the whole of South Africa.
“We provide cover for a business that is shut down directly as a result of a contagious disease.
“If we were to charge premiums based on the risk of a national lockdown or any form of mass governmental action, then insurance would be unaffordable,” Santam executives told TimesLIVE.
A supermarket forced to close for a few days after a staff member tests positive for Covid-19, to do deep cleansing - that’s the type of risk such policies were meant to cover, says Santam’s chief risk officer Asher Grevler.
“We agonised over this decision,” says chief marketing officer, Mokaedi Dilotsotlhe.
“We held countless meetings looking at what we could do.
“We totally understand the negative sentiment, but the policy wording has to determine what is payable or not.”
Many restaurants and hotels in the UK which had business interruption insurance policies with a specific “extension” for income losses stemming from “restriction of access by a public authority (in response to an outbreak of a notifiable disease” have had their claims settled. But that wording doesn’t appear in the BI policies of businesses in the US, most of Europe, Asia or South Africa, so hospitality businesses in those markets are also having their lockdown-related claims rejected.
The Financial Sector Conduct Authority (FSCA) appears to agree with South Africa’s insurers.
“(We) are of the firm view that the national lockdown was not intended and cannot reasonably be interpreted to be a trigger for BI insurance cover claims,” the regulator said last month. But Outsurance is showing up the bigger business interruption insurers in a big way by choosing to settle the claims of its clients which had a “contagious disease” clause in their policies.
“Our view, from the onset of the pandemic,” said CEO Danie Matthee, “is that they are covered (by the policy wording) and we needed to get cash to the businesses with the right cover in place as soon as possible. We understand cash flow is king for small and medium businesses and we are pleased that we could be of assistance to our clients in this time of need.”
As for the rest, it’s now up to a court to determine whether their interpretation is justified.
In the meantime, tensions are running extremely high, given what’s at stake.
Tourism Business Council CEO Tshifhiwa Tshivhengwa didn’t pull any punches at the media conference.
“Business Interruption claims have been rejected, TERS payments are over, leisure hospitality is not allowed … we are being put into a corner; something is going to give and it’s not going to be nice,” he said.
The devastation will affect a very long value chain in many sectors, he said.
“What is happening now [with business interruption claim rejections] is spitting in the faces of these companies which have been paying their premiums for many years.
“It’s time for them to show up.”