The stand-off between short-term insurers and clients who had claims denied for business interruption due to Covid-19 took an interesting turn after the Cape High Court found against one insurer.
The Applicant, Café Chameleon, sought a declaratory order that Guardrisk, the insurer, is obliged to indemnify it for the loss suffered as a result of the interruption caused by the Covid-19 pandemic and the resultant promulgation and enforcement of the Lockdown Regulations under the Disaster Management Act 57 of 2002.
The respondents argued, amongst others, that the Applicant’s loss, if any, was not insured under the Infectious Diseases Extension clause in the Policy and that there is no causal link between the lockdown Regulations and the Infectious Diseases Extension.
The judgement then sets out the timeline of events as it unfolded under State of Disaster regulations.
Notifiable disease
A large part of the judgement dissects a particular section of the policy wording which reads: “…human infectious or human contagious disease, an outbreak of which the competent local authority has stipulated shall be notified to them”. Whilst counsel for the respondent argued that there was no such obligation in the Western Cape, the court ruled that this was overruled by the regulations promulgated by the national government.
Contract interpretation
This very important matter received a substantial amount of clarification. In discussing the various points put forward by both parties, the judge noted:
“it is evident that an insurance policy has to be interpreted so that its provisions receive fair and sensible application and that a restrictive consideration of words without regard to context has to be avoided.”
“The Policy under consideration must therefore be considered on the contractual terms to which both parties had assented to, in a sensible manner which underpins sound commercial sense, and not have an un-business-like result.”
“It must therefore, follow that, properly interpreted, insofar as the indemnity is conditioned upon a “human infectious or human contagious disease, an outbreak of which the competent local authority has stipulated shall be notified to them’; Covid-19 falls substantially within the ambit of the Notifiable Disease Extension…”
“The views of the insurance industry that demonstrate insurers generally do not actually mean to provide cover in accordance with the literal meaning of the Extension is…hardly of assistance to the Respondent. It is inconceivable to reasonably expect that an ordinary person who is not involved in the insurance industry must have such insight and knowledge of the industry when entering into an insurance contract.”
Causation
“…the insurer’s duty to perform is made conditional upon a particular peril “causing” a particular consequence or “fact”, such as a loss or an occurrence. A claim in terms of an insurance contract therefore requires a claimant to prove not only of the peril and of the loss or occurrence as described in and covered by the contract, but also of a causal nexus or link between the two.”
In applying the “but for” test the court asked whether, but for the Covid-19 outbreak, the interruption or interference to the Applicant’s business would have occurred when the Lockdown Regulations were promulgated.
“The Respondent has also admitted that Covid-19 occurred within 50 kilometres of the Applicant’s premises, that Covid-19 is a human infectious disease and there had been an outbreak. In these circumstances it is difficult not to accept that there is indeed a clear nexus between the Covid-19 outbreak and the regulatory regime that caused the interruption of the Applicant’s business. The suggestion therefore that the regulatory regime was only introduced to “flatten the curve” and had little to do with the Covid-19 outbreak is misplaced. In my view factual causation was established by the Applicant.”
Judgement
The court found the Respondent liable to indemnify the Applicant for any loss suffered since 27 March 2020 as a result of the Covid-19 outbreak in South Africa which resulted in the promulgation and enforcement of Regulations made by the Minister of Co-operative Government and Traditional Affairs under the Disaster Management Act, 57 of 2002. Guardrisk was also ordered to pay the costs of the applicant, including the costs of two counsel.
