Picture: THINKSTOCK
Picture: THINKSTOCK

Court action is looming against short-term insurers that have refused to pay policyholders for Covid-related damages under their business interruption policies.

Specialist public loss adjustment firm Insurance Claims Africa (ICA), which is representing just over 500 claimants from the tourism and hospitality sector with claims of between R3.5bn and R4bn, plans to bring an urgent application against underwriting agency HIC by next week.

Before Covid-19, the tourism industry contributed 8.6% to GDP and was responsible for about 1.5-million direct and indirect jobs but it expects to significantly shrink in size due to the pandemic.

ICA is also hoping to join a separate action against Santam, which is due to be heard in the Cape Town high court in September, and is keen to collaborate with firms of attorneys that are representing over 100 claimants with a view to a possible class action. It is engaging with the Financial Services Conduct Authority (FCSA), the market conduct regulator for the financial services industry, in a bid to find a solution.

ICA CEO Ryan Woolley said at a media briefing on Wednesday that Santam had indicated that it wants legal certainty in the interpretation of the disputed policies and that it does not want to delay the matter. A solution is urgent, he stressed, as businesses are threatened with imminent closure.

The insurance companies that face legal action include Santam, Hollard, Bryte, HIC and Monitor — both in the Guardrisk stable — Thatch Risk Acceptances, Old Mutual Insure and Old Mutual’s One Insure.

Woolley said the claimants understood that the claims had the potential to devastate the insurers if paid at full value and were willing to reduce them to about 50% or 60% and to agree to terms of repayment over several months or even years. He believed the insurers should settle the claims of the policyholders and take the fight up with their foreign reinsurers, which he believed were holding the insurers to ransom.

The outcome of a similar case in the UK could be decisive in the way reinsurers and insurers respond to the claims, he said.

Woolley explained that the claims are being made under a tourism/hospitality policy that includes interruption by infectious or contagious notifiable disease. Short-term insurers have rejected the claims for business interruption on the grounds that the interruption and subsequent losses incurred were caused by the Covid-19 lockdown regulations imposed by the government and not the pandemic itself.

Woolley said the grounds for the rejection of the claims did not make any sense because the insurers chose to insure a notifiable disease and should have contemplated government intervention and restrictions. Without Covid-19, there would be no lockdown.

 Santam has insisted that its contingent business interruption policies do not cover pandemics.

“The reality is that no insurer can afford to offer widespread pandemic coverage within its standard policies. The premiums would be too high and it would become unaffordable for the majority of businesses,” it said in a recent statement. It said the protection provided by contingent business interruption policies was very specific and covers only businesses that are directly affected as a result of the outbreak of a disease at a local level.

Tourism Business Council of SA CEO Tshifhiwa Tshivhengwa estimated that the sector had probably lost R72bn since the start of the lockdown and appealed for a relaxation of the lockdown regulations to allow interprovincial travel.

It was only recently that level 3 regulations were relaxed to allow hotels and restaurants to open under strict safety conditions.

ensorl@businesslive.co.za

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