Santam must pay 18 months (not three) in Covid-19 business interruption claims

The country’s largest non-life insurer, Santam, has lost its bid to pay its clients just three months’ worth of pandemic-related losses.

On Thursday, the Supreme Court of Appeal (SCA) ordered the insurer to pay Ma-Afrika Hotels and Stellenbosch Kitchen's losses for a full 18 months.

The court’s dismissal of Santam’s appeal and upholding of the Western Cape High Court’s finding in favour of Ma-Afrika Hotels and Stellenbosch Kitchen last November marks the end of a long battle to hold Santam appropriately liable for Covid-19 business interruption claims in the tourism and hospitality industry.

Santam and other insurers which sold business interruption policies with “contagious diseases” clauses had previously consistently argued that the policy was not intended to cover a pandemic-related national lockdown, nor did the premiums reflect that extent of risk.

But in November 2020 three judges ruled that Santam was liable to pay Ma-Afrika Hotels and Stellenbosch Kitchen their full business interruption losses, including those related to state restrictions.

The judgment ordered the insurer to pay the companies for the effect of the pandemic over the entire policy period of 18 months, without limitations.

Santam then applied for leave to appeal, saying it believed the court had “erred in its judgment regarding causation and the insured peril, the trends clause and the indemnity period” and therefore it was “important” to take the matter to the Supreme Court of Appeal.

At that point the issue became one not of liability, but for how many months of lost business the insurer was liable to pay.

Santam Group’s CEO, Lizé Lambrechts, said on Thursday the insurer was “very pleased” that the judgment “allows” the company “to proceed to finalise all impacted CBI claims as soon as possible”.

“We recognise that Covid-19 has had a devastating effect on the economy and in particular on businesses. We also understand that our clients were affected by the process of attaining legal certainty on this one remaining CBI matter,” she said.

“Covid-19 was a once-in-a-lifetime event that affected the entire population and economy which also raised key challenges for non-life insurers, regulators, intermediaries and reinsurers globally. We therefore had to consult widely on how our policies would respond to a pandemic.”

The judgment affects less than a third of the 3,200 notified business interruption claims, Lambrechts, said. The company had already paid more than R2.1bn in those claims, she said, including R1bn in interim relief to about 2,500 businesses in August 2020.

“Today’s judgment provides the clarity and certainty we and our clients have been looking for,” she said. “At the same time we will take positive lessons from the process.”  

The judgment affects not just Ma-Afrika Hotels and Stellenbosch Kitchen, but “provides much needed certainty for the finalisation of outstanding claims for businesses in the tourism and hospitality sector, who have had to wait more than 18 months for valid claims to be settled,” said loss-adjustment group Insurance Claims Africa (ICA) CEO Ryan Woolley.

“The court’s decision in this matter is crucial for thousands of Santam’s hospitality & leisure division’s business interruption policyholders, and once the claims are settled by insurers funds will flow to assist a desperate sector of the economy.

“We all know that the endless litigation and slow progress on payment of claims by certain insurers has had a devastating effect on businesses in a sector that remains severely challenged by the pandemic, affecting the lives of thousands of employees and their dependents.”

SATIB, a specialist broker in the tourism and leisure industry — has welcomed the SCA ruling.

“Though we have not managed to study the judgment in full as yet, the ruling is very welcome news for all SATIB customers with a similar business interruption policy wording to Ma-Afrika,” said SATIB executive head Dewald Cillie.

“It’s a bittersweet moment because we know that it has been — and continues to be — a long, hard road for many in the tourism sector. We’re satisfied with the judgment, pleased to receive clarity, and relieved to see an end to what has been an extraordinary 18 months.

“We have seen the economic effect first-hand. Uncertainty and delays around the processing of Covid-19 BI [business interruption] claims exacerbated an already challenging situation and added to our clients’ mental load.”

Slamming the insurers’ handling of their clients’ valid business interruption claims, Woolley accused them of abandoning their customers in their “darkest hour of need”.

“Their Stalingrad strategy of deny, delay and defend has eroded the public’s trust in insurance and we anticipate that it will take significant effort, commitment and time to restore customers' faith in the sector,” he said.

When previously asked about the quantum of claims by all hospitality companies which had the “contagious diseases” clause in their policies, Woolley said ICA represented 850 clients, with total claims of R6bn to R7bn. “And that’s only about 30% of the total.”

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