The hospitality industry has been locked in an intractable battle with its insurers over whether their business interruption cover was valid to cover them for losses incurred under the lockdown. A recent court ruling provides vital clarity on the debate.
TThe Western Cape High Court has ruled in favour of Ma-Afrika Hotels and Stellenbosch Kitchen in its case against short term insurance company Santam, in what is being seen as a victory for all tourism and hospitality businesses with outstanding business interruption claims.
Judgment by Deputy Judge President Patricia Goliath and Honourable Judges Cloete and Matame was handed down on Tuesday afternoon. The court found in favour of Ma-Afrika, stating that Santam was liable to pay the full business interruption losses and the cost of the case.
Restaurants, lodges and hotels have been locked in an intractable dispute with the insurance industry over the validity of their business interruption claims which they lodged following the government’s imposition of a hard lockdown in March. The lockdown has continued in varying forms for the last seven months and restaurants have suffered huge losses, many closing down and retrenching staff along the way.
Almost all insurers – with the exception of Outsurance which is a small player in this space – disputed liability while policyholders, supported by public loss adjuster ICA, argued that the insurance cover was valid, leading to widespread concern about the lack of clarity and certainty.
There have been attempts at clarity. In July the Financial Services Regulatory Authority weighed in on the matter and instructed the insurers to pay claims. Also in July, Judge Andre le Grange ruled that the Covid-19 outbreak was the legal and factual cause of Cafe Chameleon’s loss resulting from the interruption to its business. He instructed Guardrisk to pay the applicant’s business interruption claim.
However, the insurers remained unconvinced and Guardrisk has appealed the case. The appeal will be heard on 23 November in the Supreme Court of Appeal.
This case brings vital certainty.
“We are grateful for the court’s decision in our favour. We are thankful to our legal team, led by Adv Jeremy Gauntlett, and the support from Ryan Woolley and the clients represented by ICA,” says André Pieterse, chairman & CEO of the Ma-Afrika Hotel Group. “This outcome will greatly assist in allowing ourselves and others in the Tourism and Hospitality sector to weather the ongoing Covid-19 storm.”
He notes that the interim relief payments that were agreed to by Santam and other insurers ahead of this judgment, and which were received in August 2020, allowed the Ma-Afrika group to retain its entire staff complement of 210 people with more than 1 000 direct dependents.
The decision has major cost implications for the insurance industry and its underwriters and it remains to be seen whether it will be appealed.
“Santam has consistently said that it requires legal certainty in order to honour their customer’s claims, and most other insurers have followed suit. In our view, today’s judgment from a full Western Cape High Court bench, provides the legal certainty required to finalise all claims relating to Business Interruption caused by the pandemic,” says Ryan Woolley, CEO of ICA, which is representing over 750 businesses in the tourism and hospitality sector in their battle to get large insurers to pay out on these claims.
He adds: “The Ma-Afrika judgement has arrived in time to provide the SCA with further guidance from respected Cape High Court Judges. This is a matter of national importance and the judgement reiterates the need to protect the consumer from Insurers trying to change the terms of the contract post-loss.”
The tourism and hospitality sector sustains over 740 000 direct and 1.5 million indirect jobs and contributes 8,6% to the South African economy. It is also the lifeblood for many micro and small enterprises creating mass employment opportunities for men, women and youth across the country.
“We all know that this was a test case, not just for Santam but for all insurers refusing to pay these claims. By settling valid claims expeditiously, they have the opportunity to contribute to the survival of businesses in this critical sector, and to the preservation of thousands of jobs,” says Woolley.
ICA and Ma-Afrika Hotels’ legal team is led by advocates Jeremy Gauntlett QC SC, Mike van der Nest SC, Sean Rosenberg SC, Guy Elliott SC, and Porchia Long and Jason Mitchell. They are instructed by attorneys Anel Bestbier of Thomson Wilks, and David Bayliss. DM/BM