๐Ÿ”’ Business interruption claims fiasco: tourism, hospitality operators get set for court battle. LISTEN

Insurance Claims Africa (ICA) joins forces with hospitality group Ma-Afrika Hotels in their litigation against Santam, which will be heard in the Western Cape High Court on Tuesday 1 September. ICA represents over 700 businesses in the tourism and hospitality sector in their fight to get large members of the insurance industry to honour their Covid-19 business interruption claims.

An update on where things stand

“This sector employs 740,000 direct jobs, 1.5 million indirect, and contributes 8.7% to the GDP,” explains ICA CEO Ryan Woolley. “This is a huge sector that’s just had the rug swept from underneath its feet.”

Following an agreement reached between financial sector authorities – Financial Services Conduct Authority (FSCA) and the Prudential Authority (PA) – and large short-term insurers in July, a number of insurers have committed to interim relief payments or settlements. Regulators were concerned about the shoddy treatment of policyholders by large insurers, and the reputational damage that their continued refusal to settle valid claims is having on the insurance industry at large.

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“The FSCA said, well, we can’t just have this carrying on because it’s causing endless damage to the industry’s credibility and reputation,” says Woolley. Since then, a number of insurers have started making these relief payments to buy themselves some time and to save face, while some have not.”

Midsize to large businesses in the tourism and hospitality sector have been left out almost entirely, as well as many businesses that, for financial reasons, could not continue their premiums.

Regardless of the interim payments, all insurers insist that they require legal certainty, which is why ICA will join Ma-Afrika Hotels in court on 1 September.

Playing the waiting game

In a media briefing, Woolley voiced his frustrations with the insurance industry in general. He said the ICA had the highest regard for these insurers, but this matter has left them questioning. “The other insurers we’ve been largely disappointed by – even Santam that professes to be spending a billion on these clients. You know, it only represents probably about 10 to 15% of these clients’ losses in total. And of our 700 clients, only about 200 are actually getting any sort of benefit out of this. So, it’s still quite devastating,” he says.

“OMI and Hollard and Bryte, I don’t believe have done themselves any favours. They should be looking to uplift what the FSCA asked for. They asked for focusing this relief on the SMME, so 50 million and below. All of these focused roughly on 25 million and below, or five million and below. Santam have excluded all of our large claimants, so anyone with a turnover or sum insured over 50 million has been excluded. We’ve lobbied very hard to try and get Santam to look at that more favourably, but we are awaiting the outcome.”

“These businesses are the ones that employ communities and they’re also deeply entrenched in wildlife conservation in the country. And all that funding is drying up. You know, there’s just not enough resources to go around, and these policies would have helped these businesses survive and kept these communities fed.”

“One of the things that we still find frustrating is that Santam has paid claims like this before where we were involved, which is the Ebola claims in Sierra Leone, and the wording of those policies is very similar to what we’ve got now. It just makes us think that it’s the magnitude once again that has become the issue,” says Woolley.

Woolley says that for now, they are playing the waiting game. “We wait to see if they heed what the FSCA has said or if they’ll stand their ground and reject these claims outright. We hope that it’s the former, and we hope that their moral compass allows them to make these interim payments, settlement offers, and the like.”

Read also:ย Business interruption insurance expert Ryan Woolley on Covid-19 court victory

What is a notifiable disease?

Woolley was joined by Professor Alex van den Heever, a health economist, and Chair of Social Security Systems Administration and Management studies at the Wits School of Governance. He says it boils down to the policy wording itself, and whether or not there is a logical reason for not paying out on the basis of that wording.

“Essentially the issue is whether or not the closure of businesses resulted from a lockdown independently of the epidemic itself,” Van den Heever explains. “The question is whether the wording of a policy, in my view, should actually change based on the scale of the size of the potential claim. And it seems that might be the case in this instance.”

“These policies look at providing coverage for any infectious and contagious disease that occurs within a 40km radius that is notifiable. People are saying, well, the lockdown was what caused it, not the disease, and the problem is that government’s responses to a notifiable disease are inseparable from the act of notifiability.

“Notifiable disease is essentially a reportable, highly infectious and contagious disease that must be reported to a national structure. It’s governed by the National Health Act. It’s reported to the National Institute of Communicable Diseases (NICD) and forms part of a surveillance system to ensure that government can act timeously where a dangerous disease has essentially arisen. So, the idea of notifiability is directly connected to the government response framework. You don’t notify for any other reason than to have government decide what the appropriate response is going to be.”

“Now, if you look at the notifiable conditions that are listed by the NICD, you’ll see quite a wide range of diseases and they have different potential government responses. Not all of them entail or involve the same kind of government response. So, everything depends really on the contagious aspect of the disease. How risky is it in being transmitted from one person to another? How rapidly, or how efficiently does it get transmitted, and if it’s transmitted very efficiently, then it has different consequences to when the transmission is not very efficient.”

“The response of government to a highly infectious, contagious disease with high case mortality rates means that you’ve got to immediately stop that spread and you’ve got to stop it in all contexts where that spread is going to be most efficient. So, when you look at what we’ve experienced in South Africa, the causal relationship between the shut downs and the restrictions of access, and the quarantining are obviously a direct response of government receiving information on a notifiable condition in all of the key centres of South Africa.”

“When you read the wording of the policies, it’s really kind of difficult to understand under what scenarios that policy was designed to pay out if it wasn’t in an instance like this. And this becomes a real concern, because if you don’t pay out in this instance, it’s very unclear where you would pay out, given the wording of the policy, because if you had any kind of business closure that resulted from government action, that was driven by a notifiable condition, theoretically, it’s not covered in this instance. Somehow it’s the independent action of government that is seen as the cause for the business interruption and not the disease.”

According to Van den Heever, the action of restricting access to any area, which is one of the measures that governments introduce to deal with the risk of an epidemic, is clearly a result of how government sees the risk associated with a pathogen. “It’s very difficult to see that there isn’t some kind of relationship between the disease itself and the action of government,” he says.

Can we trust insurance industry policies at all?

Van den Heever feels that this creates a lot of uncertainty about whether or not one can rely on the wording of insurance policies going forward. “When can you trust the wording,” he says, “and also, whether or not when you take out the insurance policy, if you’ve properly been advised on the potential truncated meaning of the policies – what you’re not covering.”

“I look at the wording of this policy and I would have thought if I took it out, and I’m one of these businesses, that I’m protected when something like Covid happens, and it’s a shock when it isn’t. So, I think that there’s a black mark against the short term insurance industry in South Africa in a case like this, where suddenly the size of the claim causes somebody to revise their understanding of their own wording and their obligation to claimants.”

Like Woolley, Van den Heever’s main concern is that the hospitality and tourism sector in South Africa may be obliterated if something isn’t done quickly. “We effectively have a kind of an economic embolism at play where the blood supply to a part of our economy is being cut off,” he says.

“We’ve got parts of South Africa that are inexcusably closed off and it’s going to be a serious problem going forward. “If there was a good reason for this, perhaps one could consider it, but if there’s no good reason for this, it’s something that really should be raising concerns across the board in South Africa.”

Read also: Santam: โ€˜Please look into our faces, see our painโ€™ โ€“ tourism boss. Business insurance scandal

The fight goes on

The matter will be heard by a full bench in the Western Cape High Court, which includes three senior judges. This means that the decision in this matter will be precedent setting.

“We are very grateful that we’ve got a full bench to hear the matter and we are cognisant of the fact that Santam may appeal, but we hope that with this legal certainty, we’ll be able to treat this as the watershed case that could influence the rest of the insurance industry,” says Woolley.ย 

“Time is marching on and unfortunately, we can’t let this process drag out forever. The longer it drags out, the worse off our claimants are, and they’re having to see how they can survive,” Woolley says. “All that we can say is that the fight goes on. Our clients are being decimated, not only by the effects of the pandemic, but also by the insurers not honouring their policies. Funding would have helped them survive, would have helped them keep their staff employed, and for us, we hope that there is justice for these claims. This must remain an issue of national importance.”