Picture: 123RF/EVERYDAY PLUS
Picture: 123RF/EVERYDAY PLUS

Santam’s court loss in its battle over Covid-19 business interruption claims could put SA insurers on the line for billions of rand, after the Western Cape High Court ruled that SA's largest short-term insurer was fully liable for all losses suffered by some of its clients during the pandemic.

The unprecedented economic affect of Covid-19 has prompted global legal battles over the extent insurers should pay up, with more than 1,000 legal cases launched in the US alone.

Locally, legal clarity may be found by the end of 2020 as a similar case, this time involving Momentum Metropolitan's Guardrisk subsidiary, heads to the Supreme Court of Appeal (SCA) on Monday.

Insurance companies have already moved to put billions of rand aside as they await clarity from the courts, while they are also facing reputational damage as a result of not paying claims.

There are also concerns that insurers will be reluctant to offer such cover in future.

On Tuesday, the Western Cape High Court dismissed Santam's argument that it should not be fully liable for the effects of a global pandemic, or nationwide restrictions, with its cover instead covering local effects, and for a limited period.

The court found that Santam was liable to cover losses without limitations for the full 18-month period under its policy, while it was also ordered to pay the legal costs of the applicants.

Hotel group Ma-Afrika Hotels, along with loss-adjustment group Insurance Claims Africa (ICA) and Stellenbosch Kitchen, were seeking about R122.4m through five policies, and maintain the outcome will probably prompt at least some insurers to try settle.

ICA CEO Ryan Woolley said on Wednesday the 18-month period of cover in the judgment was much higher than the three months that Santam had wanted to limit the indemnity period to. Indemnity period is the amount in which claimants can receive benefits from a policy.

It was difficult to estimate the implications of the decision, said Woolley, but the 850 clients represented by ICA had total claims in the region of R6bn to R7bn, and they probably represented about 30% of the market.

Santam would likely appeal the decision, said Woolley, but it was also likely that one or two other companies may “break ranks” and instead offer settlements.

“We don't know how much more brand damage they can suffer if they don't make good on settlements,” he said.

Momentum Metropolitan Holding’s subsidiary, Guardrisk, has also lost a similar legal battle over the effects of a global pandemic for its cover. Its appeal to the SCA will be heard on Monday, with Woolley saying if the Tuesday judgment had come a little earlier, the two cases probably would have been combined.

Legal certainty

Woolley said the Santam case would inform the SCA proceedings, and the outcome from that court, along with Tuesday's ruling, would likely be enough to provide enough clarity on the issue.

Santam said on Wednesday it was considering options, adding it needed to take into account the implications for all involved including reinsurers, referring to companies that provide financial protection to insurers from major claim events.

Santam has said previously it had gone to court to get clarity, and had raised a claims provision of R1.29bn in its six months to end-June, as the best estimate of its exposure relating to policies with contingent business interruption extensions.

It also made R1bn in relief payments from August, and has said even if the courts ruled in its favour it would not seek to recover this from policy holders.

Guardrisk's total exposure to business interruption claims is approximately R600m, Momentum said in the release of its results for the year to end-June.

Woolley said on Wednesday that overall, SA insurers had paid out about R2.5bn in claims. It was likely that after Covid-19, insurers would provide little, or no, protection against pandemic events, he said.

General business continuity insurance, for example in the event of a fire, would continue.

Ma-Afrika Hotels said on Tuesday the relief payments from Santam allowed it to retain its entire staff complement of 210 people.

SA’s hospitality industry employed about 740,000 at the start of 2020, contributing 8.6% to GDP in 2019, according to the Tourism Business Council of SA (TBCSA).

Foreign tourism alone employed more than 375,000 people, and the TBCSA has said the sector could contract 75% in 2020.

Correction: November 18 2020
In an earlier version of this article, the name of ICA CEO Ryan Woolley was spelt incorrectly.

gernetzkyk@businesslive.co.za

Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.