Picture: SANTAM
Picture: SANTAM

Afternoon tea has been served on the terrace of the Drakensberg’s Cathedral Peak Hotel since the early 1940s by the same family — the Van der Riets — who built the landmark in 1939.

But if the hotel cannot get the money it believes it is due from its insurers, along with thousands of other local businesses, that tradition may well be over.

Kobus Botha, who owns the Cradle Nature Reserve and Boutique Hotel close to Lanseria airport, runs another such business.

“We used a broker who specialises in the tourist sector to ensure we had full cover,” he says. “But when we claimed for loss of business, we were pushed from pillar to post. And what made it worse is that it coincided with the ineptly handled roll-out of relief by the Unemployment Insurance Fund”.

Botha and William van der Riet, who owns Cathedral Peak Hotel with his wife, Belinda, form part of a group of aggrieved clients taking Santam to court for not honouring what they believe to be valid claims under business interruption cover.

They are hoping that if Santam, SA’s largest insurer, is forced to pay out, the rest of the industry will have to settle too.

The firms are represented by loss adjustor Insurance Claims Africa, working on a contingency — or no win, no fee — basis.

The tourism and hospitality sector sustains over 740,000 direct and 1.5-million indirect jobs and contributes 8.6% to GDP. According to the Tourism Business Council of SA (TBCSA), tourism adds R206bn to the supply chain annually, feeding vehicle manufacture, agriculture, fuel, textiles, furniture, security, marketing and other sectors.

TBCSA CEO Tshifhiwa Tshivhengwa says as much as R4bn in claims, predominantly from the hospitality sector, may have been turned down by insurers.

“The insurers are running away when our members need them, and they are coming up with pathetic excuses.”

Cathedral Peak Hotel: Built in 1939. Picture: Supplied
Cathedral Peak Hotel: Built in 1939. Picture: Supplied

It’s a grim confirmation of the old adage that insurers take your money religiously every month, but when you really need them they find excuses in the small print not to pay.

Santam, for one, built its brand on “insurance good and proper” to differentiate itself from the flighty direct insurers notorious for what is politely called “underwriting at claims stage” — basically, not stumping up the cash.

Santam CEO Lizé Lambrechts says there is “no doubt” that the outbreak would not be covered by standard business interruption insurance, which covers direct physical damage to property such as a fire or flood.

But the argument really revolves around extended business interruption insurance, which covers damage due to other perils, including losses resulting from a contagious or infectious disease. In industry jargon, this falls under the contingent business interruption (CBI) section of the policy.

Lambrechts says CBI cover is very specific, and covers businesses for interruptions as a result of the outbreak of a disease at a “local” level.

“Our policy wording is quite clear in that it states that a business needs to be directly impacted by a disease such as Covid-1 9 in order for the cover to kick in. If policyholders can show this to be the case, we will pay their claims,” she says.

Old Mutual Insure MD Garth Napier says the cover becomes effective if a specific case of the disease interrupts business.

But you’d think that this is exactly what these businesses are arguing — interruption based on a pandemic.

But Napier says this isn’t so: “a suspicion or the general widespread occurrence of Covid-19 or any steps taken by the government to limit the spread of the disease nationally will not constitute an interruption under this extension”.

That’s just wrong, says Ryan Woolley, CEO of Insurance Claims Africa. Nowhere in these contracts does it say that the insurance cover only applies at a “local level”, nor does it stipulate that a business has to be “directly impacted ” by the disease, he says.

For example, says Woolley, CBI cover kicks in if there is a shark attack in an area.

The Cradle Boutique Hotel. Picture: Supplied
The Cradle Boutique Hotel. Picture: Supplied

“The only way a shark attack in the radius of a restaurant could cause business interruption is if a shark attack makes the authorities close the beach. The restaurant on the beach then has to close because it has no business while the beach is closed. This is exactly the same scenario as a government-imposed lockdown because of the Covid-19 pandemic.”

He says the businesses he is representing had hoped for a negotiated settlement: “We were prepared to go down to as little as 40% of the claim value, and even offered to accept staggered payments.”

For many tourism companies, this cash would have presented a lifeline. Already, many small hotels and restaurants only have enough cash to last another month.

Santam admits that CBI cover represents less than 5% of its commercial business; paying out claims would probably lead to no more underwriting losses than a routine catastrophe such as a Gauteng hailstorm or a Knysna fire. The biggest difference is that a large part of those payouts can be recouped from reinsurers such as Munich Re.

But on Covid-19 the reinsurers, local and foreign, have dug in their heels and will pay virtually no claims.

Lambrechts is adamant that the national lockdown is not a peril that is covered by its policies, and so clients will not be able to make a successful claim for this event.

Instead, she says, “if a policyholder ran a hotel and one of the workers or guests became infected with Covid-19, forcing them to close their operations, they would have a claim for as long as it took them to clean their premises and resume operations”.

But Woolley says this wording does not appear in any of the policies issued to his clients. While these CBI policies are not expensive, and make up a tiny part of the cost of a commercial policy, it’s clearly that the actuaries underpriced the risk.

But, says Woolley, “it cannot be reasonable to penalise policyholders for the insurer’s own poor underwriting skills”.

The case involving Santam has been set down for the high court in Cape Town on September 1. But on Tuesday, that court issued a decision compelling Guardrisk to honour the Covid-19 business interruption insurance claims of Cape restaurant Café Chameleon.

Woolley said it was significant that judge Andre le Grange rejected the insurer’s argument that the losses suffered by the claimant was due to the lockdown, and not the Covid-19 pandemic.

At Santam’s AGM on Tuesday, it was asked by shareholder body Just Share whether it would reconsider its position in light of the Guardrisk judgment. But the company said only that it would “seek clarity from the courts of SA”.

And yet, Lambrechts says Santam is sympathetic to the plight of its clients, arguing that it has committed more than R400m in Covid-19 funding to provide relief through premium reductions and refunds, as well as providing support to business partners.

But Santam chief marketing officer Mokaedi Dilotsotlhe says it is not reasonable to expect an insurer to pay for the damage caused by the closure of the economy, which was not foreseen.

“The infectious disease cover was meant to cover losses to premises while they are closed to be disinfected, not for a 12-week closure. We can’t insure against government action,” she says.

Woolley and his consortium, of course, disagree. But how many of them will still be solvent when the court sits in September?

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