Appeal court throws out insurer's Covid-19 business interruption case

The first business interruption case to reach the Supreme Court of Appeal has ended in defeat for the insurance company that tried to avoid paying out when its client lost money during the Covid-19 lockdown.

Guardrisk appealed after the Cape Town high court said it must compensate Café Chameleon, in Plattekloof, for revenue lost as a result of the lockdown.

The high court ruling was handed down in June and has been followed by several others which all came to the same conclusion about insurers' refusal to pay business interruption claims.

Café Chameleon's appeal victory, announced in a ruling on Thursday penned by judge Azhar Cachalia, sets a precedent for the other cases which insurers have taken to the appeal court.

Cachalia said the clause at the heart of the dispute indemnified the restaurant for “loss . . . resulting in interruption [of] the business due to notifiable [disease] occurring within a radius of 50km of the premises”.

Guardrisk argued that the government’s national response to the pandemic was therefore not covered. But Cachalia said: "The fact is, when the lockdown regulations were promulgated, Cape Town accounted for a large proportion of Covid-19 infections."

Although Café Chameleon's court papers could have made a clearer link between the local outbreak and the lockdown, "the subtle distinction Guardrisk seeks to draw ... is without substance".

Cachalia said the trigger for the business interruption claim was the declaration that an infectious disease is notifiable, meaning cases must be reported to the National Institute for Communicable Diseases.

"The only sensible interpretation of the clause is that it includes and contemplates harm that is attributable to a government response," he said.

"Why ... should the insured be denied cover only because the government, rather than the local authority, took action against an infectious disease that occurred, not only within the 50km radius but also beyond it?"

Cachalia also dismissed Guardrisk's argument that the infectious diseases clause in Café Chameleon's policy did not cover Covid-19 losses because the pandemic "went beyond the imagination of everyone, and every industry, including the insurance industry".

The insurer said no one ever thought "there would be a national, and global, lockdown where commercial activity would for all practical purposes cease to exist".

No insurer would have underwritten a policy where the risk of such large scale and unimagined losses could materialise, it said.

Cachalia said this argument was based on a fallacy that the insurance policy was based on what the insurer and the client subjectively believed at the time they signed the policy.

"The interpretation of a contract requires an objective analysis ... aimed at establishing what the parties must be taken to have intended, not what their unexpressed thoughts were," he said.

"The fact that a policy may include cover for earthquakes does not mean that the parties realistically thought that the risk of an earthquake could materialise."

Guardrisk was ordered to pay Café Chameleon's costs for the three counsel who appeared on its behalf in the appeal court.

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