The Western Cape is a major tourism and hospitality destination. Picture: 123RF/KAVRAM
The Western Cape is a major tourism and hospitality destination. Picture: 123RF/KAVRAM

As nothing is more infuriating than learning that the small print of a contract or insurance policy nullifies one’s claim for compensation, there is likely to be immediate sympathy for those Covid-19-hit tourism and hospitality businesses whose claims have been rejected by a number of insurance companies.

On the other hand, if the claims threaten the very survival of the short-term insurance companies involved, their resistance to accepting them is understandable.

The stability and sustainability of the sector is important. As far as we know, about 400 claims worth about R3bn have been lodged by businesses in the sector with about nine insurers in terms of their business interruption policies for coronavirus-induced losses.

The insurance companies are saying that it was not Covid-19 that caused the interruption but the government-imposed lockdown.

The insurers involved include Santam, Hollard and Old Mutual. These business interruption policies were designed specifically for the tourism and hospitality sector and cover infectious or contagious diseases.

The loss of business suffered would differ from policy to policy in terms of the period of the cover and the maximum amount payable but in some cases this could cover the period from the beginning of the lockdown in March to the easing of the regulations to allow tourism and hospitality operations to open, which could be only in February or March next year.

The insurance companies are saying that it was not Covid-19 that caused the interruption but the government-imposed lockdown. The claimants say this specification was not contained in the policies’ wording.

Santam, the largest short-term insurer, has stressed that its contingent business interruption policies do not cover pandemics and notes that “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 says the cover for infectious and contagious diseases relates to interruptions due to the outbreak of a disease at a local level with the business being directly affected. An example would be a policyholder who runs a hotel one of the workers of which became infected with Covid-19, forcing operations to close.

Take responsibility

It is very possible that in designing these policies, the insurance companies couldn’t imagine a catastrophe such as Covid-19, a national lockdown and the devastation caused to the economy and businesses and could argue that they surely cannot be made to carry the financial burden of this.

The claimants say that even if it was an oversight that resulted in poor underwriting, the insurance companies have to take responsibility for the contract they offered and for which the businesses paid the required premiums. They point out that the insurers chose to insure a notifiable disease and should have contemplated that government intervention and restrictions would be necessary. Without Covid-19, there would be no lockdown, they say.

So we have a deadlock that could end up in a prolonged and costly court process unless the parties can reach a settlement, which on the face of it seems to be the best solution.

The claimants have sought the intervention of the Financial Sector Conduct Authority (FSCA), which is analysing the wordings of these policies with legal advisers, and a ruling of what is fair could help to resolve the matter.

A possible outcome is that the FSCA, a standards-setting regulatory body, obtains a declaratory order regarding the fairness of the wordings, or exercises its powers.

The claimants are ready to settle at amounts less than their claim and it might well be in the interest of the insurers to accept these offers rather than being strong-armed into paying the full amount of the claims, which could entail reputational damage.

One just has to recall the reputational damage suffered by Momentum in 2018 after it refused to pay out a life cover claim for a policyholder who was shot dead in a Durban hijacking. Its reason was that the policyholder had not disclosed his high blood sugar levels at the time of signing the contract, which was therefore nullified. After an eruption of social media outrage in which many people said they had or would cancel their contracts with the life insurer, Momentum agreed to pay the full amount.

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