Hotel owners and others in the hospitality industry have been paying for business interruption as part of their business insurance policy premiums. But, insurers are refusing to pay for the extreme revenue losses incurred as governments have ordered businesses to close their doors to halt the spread of Covid-19. Insurance companies are ducking and diving around policy wordings and playing a tactical delay game to save themselves from having to pay out vast sums. Many hospitality businesses cannot survive a double whammy of their insurers refusing to pay and other large companies, like online travel agencies Booking.com and Expedia forcing them to refund non-refundable deposits. Corporations like Expedia, which dominate search engines, have rewritten contracts in their favour – and to the detriment of hotel owners – as the Covid-19 situation has evolved. In this interview with BizNews founder Alec Hogg, hotelier William van der Riet and insurance claims expert Ryan Woolley unpack the business insurance rip-off of the century. – Editor
William van der Riet is the owner of Cathedral Peak Hotel, a four-star hotel in the Drakensberg and Ryan Woolley, the CEO of Insurance Claims Africa. Both of these guys are having serious issues now with this business interruption insurance. William, perhaps you can just tell us your story of Cathedral Peak and why you decided in the first place to go for business interference or insurance.
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We are very isolated, as you are aware. We’ve always had the risk of being cut off either by the road access or a situation like this. We have gone for this specific policy, for this very reason. We took the extension and we’ve been paying our dues since 2009, and here we find ourselves in a situation where we need the insurers and they’ve turned their back on us.
For more than 10 years, you’ve been paying for business interruption insurance. Have you ever claimed up to this point?
We have never claimed on business interruption. We’ve had other policy claims, but not on the business of interruption. We calculated that our fees have been in the region of R9.5 million to date. They’ve taken our money in good faith for all these years, and here, in a time of crisis when we need them, they are not there for us.
How much would you be claiming?
Ryan Woolley’s company has calculated that we are probably looking at a loss over 12 months in the region of R21 – 22m. Our policy was for a 12-month period from the time of our first claim. We are going to be in for about R22m thereabouts.
Ryan, this sounds very unfair. R9.5 million over 10 years. If you take the value of that cash, just deflate it, then you’d probably easily get to R21 million. So the insurance company wouldn’t really be making a big loss on Cathedral Peak Hotel. What are they saying to you, why won’t they pay?
All the insurers, barring Outsurance, have essentially said that they don’t see the lockdown period as being covered and that they believe that this is an intervening cause and not what the policy was designed to cover. It’s a completely nonsensical approach, without Covid-19 you don’t know the lockdown restrictions and measures. Insurers have chosen to insure notifiable disease. The insurers that William is with have a very simply worded policy that says that if there’s a notifiable disease that affects the business within a 50-km radius – that claim is payable.
Their approach is one where they say; show us the 1 or 2 cases that you’ve identified that are being positive Covid cases that have directly caused your business to be interrupted or interfered with. They’re not interested in anything with regards to government restrictions or any of the interventions. We just think that they are interpreting the policy in their favour, that they are trying everything to get out of this. The wording, it’s not worth the paper it’s written on if it doesn’t get interpreted the way that William and ourselves see it, which is; if you have a notifiable disease that occurs anywhere within your radius, that creates fear, that it’s a loss of attraction or anything of the like, as well as the government’s intervention and restriction to notifiable disease, then how else could the policy respond.
If the policy is not applicable in this case, the obvious question to them is, when will it be applicable? If it isn’t with Covid 19, when are you actually going to pay out on this R9.5 million worth of premiums that William has had?
Absolutely. That’s exactly the point, is that the way that we’ve interpreted it – the way that Outsurance interpreted it – is the way that anybody who applies any common sense would. A judge, I’m sure at some stage, will sit and interpret it exactly the same as we have said. It’s a sad indictment on the industry if we have got to wait for 2 to 3 years and watch businesses that have been around, like Cathedral Peak – which is an institution – to see those businesses fail because insurance has not come to the party, it’s just devastating.
William, you are the 2nd generation. Did your father or your family presumably start the hotel?
Yes, that’s correct. My dad was a farmer originally. They used to go on horseback hunting up in the Drakensberg, because there were no roads or anything. It was just grazing veld and he located the landowner in the 1930s and negotiated to buy the piece of property and build it from the ground up. There was absolutely nothing there, they had to make the roads to get to the property. Then the second World War came along and that interrupted business and made things very difficult for them back in the early days. We’ve been there 81 years, we used to joke about how nice it would be if the hotel had no guests and no staff, this whole place to ourselves. Little did we know that this Covid would come along and we would be in this situation. So it’s really scary for us.
Are you able to survive this?
Not without help. Overheads at the moment are between R800,000 and a million a month, with security, which we’ve had to keep on to protect the property, and with the various insurance policies – medical aid, UIF etc. – we’ve have massive overheads and we’ve maxed out on our credit limits at this stage. If we don’t get help soon, we are going to be in serious trouble and we’ll have to try and approach the banks to get interim financing. We’re still hopeful that the insurers will come to their senses and make some sort of offer on this. Some negotiated settlement. I just don’t understand why the industry has not adopted a proactive approach from the beginning and said, listen, guys – we acknowledge that we are in this thing and your policy is valid, but we can’t meet the quantum. We can offer you a percentage and then give you a discounted rate for the next 2 years or some sort of proactive approach instead of just absolutely slamming the door in our faces. It makes no sense.
Ryan, it sounds almost like a cartel type approach from the insurance companies. You did mention Outsurance has broke ranks?
I spoke to Danie Matthee, the CEO, on Friday and applauded him for the efforts that they’ve made. They’ve been paying the claims since mid-April and his view is very clear. His interpretation of the policy is well aligned with ours and he’s also been quite vocal with their meeting with the FCA and the likes. We can only hope that common sense prevails. With Guardrisk, we’ve extended the olive branch, we’ve asked for a meeting with him. We’re waiting for confirmation of that, but unfortunately, we can’t wait so the applications are going off and we’ll be looking for our day in court.
Guardrisk, that’s the people you’ve been paying, William?
We pay our broker and the policy is underwritten by Guardrisk.
What does your broker say about this? Being the intermediary between you and the insurance company that won’t pay.
When this whole Covid thing started breaking in February, I had conversations with him where he indicated that we were in good standing. Our policy was the best policy money could buy, once we had a case within 50 km, we would have a valid claim. We had a case 5 days before lockdown and we lodged our claim and, as everyone would tell you who’s in the situation, they’ve asked for more information, which you give them, they ask for more information, you give it and they string you along for three months now. We should have been paid out and, in fact, the insurers indicated that the moment they will consider paying us out for the five days between our first claim and the lockdown, which is ludicrous. They are hiding behind their lawyers and fancy wording, but we believe we should be paid.
What about the government? Surely, if there’s one instance where the government needs to step in – this would be it, given the philosophy that government has towards tourism being a huge part of the development of South Africa. Ryan, have you had much success with it?
We’ve lobbied support from all the associations within the tourism sector. On Friday, we reached out to the Minister of Tourism in a formal letter to ask for intervention.
William?
The tragedy is, is that where we are situated, we’ve been 81 years. We employ from our local community at the moment, we have 200 odd staff. In the days of better business, we had over 300 staff and 300 stock supports, thousands and thousands of family members. We are all in this predicament, we are the major employer in our valley. If we go down, there will be a lot of people without jobs. You would really think that the government should intervene in some form. The bank loans that are available via the government don’t really help, because you have to start paying that back within 3 months. If we’re not allowed to operate, we can’t pay the loan back. They’ve rejected the claims. Most of the other schemes are available for small black-owned businesses and not available for businesses like ours.
When are you going to be allowed to take bookings again?
Well, this is another point. The statements that are going out about tourism being open, you can go for a hike and you can go and play golf and you can go fishing, but some have interpreted that that means leisure hotels are open. We are not of that opinion, we are of the opinion that we will not be allowed to open for accommodation until level 1, but right now, there is a lot of confusion out there. I know some businesses that are just opening and saying, well, the government must do what they have to do, but they can’t carry on surviving with no income. We don’t know when they are opening – there is absolutely no indication. We are hoping by later in the year, but I believe this Covid story is just beginning. The numbers are going to skyrocket now in areas like ours, they have not been practising social distancing or anything like that. They’ve been carrying on like nothing’s happened and when we do open, our staff come from that area. What’s going to happen? We are caught in the middle of a really tough situation.
Do you get most of your visitors from KwaZulu-Natal? In other words, the interprovincial banning, transport banning – does that affect you?
About 20% of our businesses is from overseas, so we know they will be gone for 18 months to 2 years, in my opinion. Then the rest is pretty well spread around the country. Probably only about 30% to 40% come from KZN. It’s not going to be easy. When we do open, I’m sure we will not be able to open at full capacity. Even if we could fill the hotel, there are going to be restrictions on numbers and all the rest. The staff want to be paid.
You’re not taking bookings yet?
No, we’re not taking bookings yet, we have got the opinion that it’s pointless taking bookings until you know when you can honour them.
