COVID-19 Business Interruption Claims — South Africa Update
South Africa’s FSCA gives guidance to insurers and policyholders on how to prove up a non-property damage business interruption claim — and buys small businesses time to litigate disputed cases.
Standard business interruption coverage in South Africa requires “property damage.” However, as many as 5% of policyholders purchased some form of extended “non-property damage” coverage for infectious diseases.
The South African Financial Sector Conduct Authority (FSCA) quickly began raising concerns insurers had been inappropriately denying claims under some non-property damage extensions. Ultimately, the FSCA identified six main categories of non-property damage infectious disease coverages in the South African market and evaluated the proof necessary to recover under each.
As described in the attached presentation, the FSCA rejected as unfair any policy provision conditioning coverage on local government action or regulation. First, the FSCA found the nationwide nature of the governmental response to COVID-19 (as opposed to independent local responses) should not prejudice policyholders. Second, a policy term conditioning coverage on circumstances over which it had no control seemed unreasonable. The FSCA later endorsed the court’s ruling in Café Chameleon v. Guardrisk Ins. similarly rejecting a “local” governmental action as a condition on coverage.
The FSCA also reasoned a policyholder could prove the existence of COVID-19 within the requisite radius of the insured property by proof of:
· Any staff member working at the location testing positive;
· A major facility (e.g., a hospital or shopping mall) location within the prescribed radius having been closed because of a positive COVID-19 test; or
· Location on the insured’s premises within a government designated COVID-19 hotspot.
It seems insurers had argued that the cause of any business interruption at a location where there is no evidence of the presence of COVID-19 must be the government’s lockdown orders — and not COVID-19. Both the FSCA and court in Café Chameleon rejected this argument. The lockdown orders would not have been issued in the absence of COVID-19 so COVID-19 is the cause of the business interruption.
Interestingly, the court in Café Chameleon also dispensed with insurer arguments the court should deny coverage or else the flood gates would open and overwhelm the industry.
On July 24, the FSCA announced it had reached an agreement with insurance companies. Insurers would make a one-time payment to policyholders with non-property damage infectious disease extensions intended to assist these businesses stay afloat while coverage disputes make their way through the courts. In the event a court rules against the policyholder, the policyholder can keep the payment. Otherwise, the payment would operate as an offset against the obligations of the insurer.
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