INTRODUCTION
Around this time last year, most of us South Africans never imagined that their livelihoods could be so detrimentally affected by a virus that would ultimately alter every aspect of human interaction. Many South Africans also never imagined that they would have to take insurance out for loss from business interruption due to a global pandemic. Unfortunately, South Africans and other business owners around the world have been left with no alternative but to prepare for the worst and re-assess their insurance cover. It is with this in mind, that is would be sooner rather than later that a court would have to decide on whether the lockdown regulations imposed a year ago (almost to the date of this article) would be considered an indemnifiable risk if a business is forced to shut down. The case of Guardrisk Insurance Company Limited and Café Chameleon CC[1] is of vital importance for insured who have had their claims rejected on the basis that government regulations in respect of the lockdown were the cause of the loss, and not the pandemic.
During the outbreak of the Covid-19 pandemic in South Africa Café Chameleon, a restaurant trading in Cape Town, along with many other businesses, suffered a substantial loss of income due to the restrictions placed on trade. Café Chameleon had an insurance policy underwritten by Guardrisk Insurance Company Limited (“Guardrisk”). The policy insured Café Chameleon against loss from business interruption due to a “notifiable disease”. This “infectious diseases” clause became the subject of the dispute and provided cover for Café Chameleon in the event it suffered “loss… resulting in interruption (of) the business due to notifiable [disease] occurring within a radius of 50 km of the premises”. The policy further defined a notifiable disease as “any illness sustained by a person from any human infectious or contagious disease, an outbreak of which the local authority shall notify the insured”. ”
See below a summary of this insightful judgment, which will be of great importance as we wage against the global pandemic and its financial ramifications.
COURT APPLICATION
Café Chameleon requested the Court to declare that Guardrisk was liable to indemnify it for any financial loss suffered since 27 March 2020. Guardrisk argued that Café
[1] Guardrisk Insurance Co Ltd v Café Chameleon CC 2021 (2) SA 323 (SCA)
Chameleon’s losses were not as a result of Covid-19 being within 50 kilometres of the business, but rather as a result of the lockdown imposed by the President. The underwriter further argued that the purpose of the lockdown was to curb the spread of the disease throughout the country and not aimed at reducing Cape Town’s infection rate.
JUDGMENT
The Supreme Court of Appeal dismissed the argument made by Guardrisk and held that the infectious diseases clause covers Café Chameleon for its loss. The SCA further held that when interpreting insurance contracts, one should read the agreement with a commercially sensible mindset that is both an objective and fair approach when interpreting disputes of this nature.
Cafe Chameleon had established that Guardrisk was liable to cover the Applicant for the financial loss suffered from March 27 as a result of the Covid-19 pandemic and not as a result of the lockdown itself. The court also ordered Guardrisk to make interim payments in respect of such losses when the restaurant was able to calculate and quantify from time to time.
CONCLUSION
The significant outcome of this SCA judgment will most certainly set a precedent for many insurance agreements. It further serves as a caution to insurers that have been rejecting claims even though extension for cover of this nature is included in the insured’s policy.
If you are struggling with your insurance claim, or are unsure if you are covered, please do not hesitate to contact us for a consultation.
For further information or enquiries, contact us on mariana@fdclaw.co.za.