Business interrupted, but insurers don’t want to pay

Legal battles brewing as tourism and hospitality industry cries foul over Covid-19 claims.
Insurance companies are saying it is the lockdown that has prevented their policyholders from operating as usual – not Covid-19. Image: Cole Burston, Bloomberg

Hundreds of business owners fighting for survival, largely in South Africa’s embattled tourism and hospitality industry, have another battle on their hands related to the economic fallout of the Covid-19 pandemic. They are up in arms over not being paid out business interruption insurance claims.

Various insurance, financial regulatory and tourism industry bodies including the Ombudsman for Short-Term Insurance (Osti), the Financial Sector Conduct Authority (FSCA) and the South African Tourism Services Association (Satsa), are facing an increasing number of complaints on the matter. If not resolved, the issue is likely to see a barrage of legal battles heading to court.

Read: Embattled tourism industry wants to start ‘opening up’ in Level 3

At the heart of the issue is that many business interruption insurance policies for the tourism and hospitality sector have extended cover for interruptions caused by infectious or contagious notifiable diseases. These businesses are now using this element of their insurance policies to claim lost income due to the Covid-19 pandemic. However, many cash-strapped smaller players in the industry are seeing their insurance claims being either rejected or delayed.

Insurance Claims Africa (ICA), which describes itself as a specialist public loss adjustment firm, is representing more than 400 claimants against several insurance groups. The claimants range from small scale hotel and lodge owners to restaurants and cafes.

Businesses facing imminent closure

“ICA is currently in discussions with leading insurance companies, in an attempt to reach a sensible settlement for these businesses who face imminent closure. If these discussions are unsuccessful, it will turn to the courts,” the firm said in a statement on Tuesday.

Read: Dining industry still in ICU

It is also engaging with the FCSA. “It [ICA] hopes that the FSCA will act in the interests of the policyholders who desperately need the policy payouts due to them to support their staff and meet their fixed costs.”

Speaking to Moneyweb, ICA CEO Ryan Woolley said that in addition to the claimants his firm is representing, there are likely hundreds more affected businesses across the country. He is aware of some cases (not involving his firm) that are already heading to court.

Asked whether his firm is considering a class action case against insurers, he said such an approach would not work.

“Class action will be very difficult to get off the ground because of the policy wording differing between insurance firms, products and clients,” he said. “We will likely take one case with strong facts to court on an urgent basis, seeking a declaratory order, which will set a precedent for the other claimants.”

Read: When the virus crisis is over, the legal battles begin

He said ICA is however interacting with insurance groups in the hope of coming to some sort of agreement instead of heading to court.

According to Woolley, Covid-19 qualifies as a declared notifiable disease, yet local insurance companies are frustrating legitimate claims by businesses.

“Insurers claim that government regulations in respect of the lockdown are the cause of the loss – not Covid-19.

“This, however, doesn’t make any sense as the insurers chose to insure a notifiable disease which would have contemplated government intervention and restrictions/quarantine. It is clear that without Covid-19, there would be no lockdown.”

ICA believes insurers are in effect penalising their customers for their own poor underwriting skills, acting in poor faith and are in breach of the ethical codes and standards that guide the insurance industry.

“It is unconscionable that businesses in one of the most vulnerable sectors are being put through such a traumatic and debilitating experience,” said Woolley.

One of the businesses affected and now represented by ICA is The Cradle Hotel near Gauteng’s Maropeng Cradle of Humankind World Heritage Site. Owner Kobus Botha told Moneyweb that he contacted his insurance company as far back as March regarding a claim, after experiencing a significant drop in bookings due to Covid-19.

“I have over 70 staff and this whole issue has been enormously frustrating for us,” said Botha. “It’s a massive blow, coming on top of us not being allowed to operate under the initial lockdown and also having issues around accessing the UIF Ters and other Covid-19 relief benefits.”

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Botha has been in tourism for 30 years and said his current business is covered by business interruption insurance, including extended coverage linked to contagious notifiable diseases. Yet: “I have been sent from pillar to post by my insurance company. It seems my only hope is through ICA and legal action.”

Satsa CEO David Frost has fielded numerous queries and complaints on the issue, but said his organisation can only offer advice and does not have the resources to take on the issue on behalf of tourism businesses. “The devil is in the detail and each insurance contract is different, but we really hope this matter can be resolved or some sort of settlement is reached.”

South Africa is not alone in this matter; similar cases are playing out in several other countries, with some insurance companies settling their customers’ business interruption claims on a compromise basis, according to Woolley.

Locally, we are working on a similar strategy with insurance companies, whom we urge to work with us to find a mutually beneficial way forward.”

Moneyweb contacted the South African Insurance Association (SAIA), which represents 57 non-life or short-term insurers in the country, for comment on the matter. However, the association sent a statement it released on May 15 with general comment on the issue. Its CEO, Viviene Pearson, was unavailable for comment on Tuesday afternoon.

“SAIA has noted that uncertainty may exist amongst policyholders who took out business interruption insurance cover, regarding whether their policies will respond to losses suffered due to Covid-19, and/or the resultant lockdown,” the statement read.

“Some business interruption cover may include an extension for infectious or contagious diseases which may or may not include cover for an event of this nature, depending on the contract between the insurer and the policyholder.

“Policyholders who are uncertain whether they have a valid claim or not, are strongly encouraged to contact their insurers and/or brokers or financial advisers to provide clarity. Should policyholders believe that they have a valid claim in terms of their policy, such policyholders are encouraged to lodge a claim with their insurers,” SAIA added.

The organisation pointed out that should a claim be deemed by an insurer as invalid in terms of the insurance policy and the claim is repudiated, the policyholder is entitled to lodge a complaint with Osti. However, it noted that the claim needs to qualify in terms of the Ombudsman’s limited jurisdiction on commercial policies.

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Keen to take your premiums, far less keen to honour their part of the contract. And then this odious industry gets all upset when people defraud them.

In one case I know of, the insurer, facing very clear language that includes notifiable diseases and forced closure, declined the claim.

Then, they made a classic mistake : they sent out a letter to policy holders that with effect from 1 June the policy will not include cover for covid-19. Clearly their lawyer was absent or asleep or a really bad poker player.

Yes, but then you need to go to court, an expense that small business may be unable to cover due to not being able to claim on the policy.

until they run into a deep pocket gatvol client and he creates a very public case… don’t forget that among the game farmers and wine farmers that operate tourist establishments there are some very wealthy clients including many senior advocates.

Most of the clauses are stock standard across clients. So whatever clients had ticked section 4x of Santam will be a class of claimants.

If the insurers do not pay, when they have already displayed that they know they maybe should pay, and they refuse to arbitrate and then a client goes bankrupt when they would not have gone bankrupt with a partial payment, the insurer will face massive liability.

And insurance companies wonder why so many are skeptical about their product.

I’m a broker with quote a number of hospitality type clients. Only one of my clients elected to submit a claim to his insurers. I should add that he is also an auditor. After he watched the Carte Blanche insert on B/I Claims he decided to withdraw the claim.

Purely this is a global disease, it is not a localised contagious disease. One need to look at the wording and the motive when the wording was added into a policy. Every client (risk) is independently assessed before a policy comes in force. Also the event or incident. There has to be a date and by insurance terms the incident date may not be longer than 48 hours – i.e. a fire which may burn for 48 hours. Thirdly the lockdown is government sanctioned – so compensation is a government issue.

My personal opinion the COVID pandemic is not an insurable event and is thus not covered under current policies –

what a clever guy you are … ! .. 🙂

Wiens brood men eet, diens woord men spreek.

RB : name me notifiable diseases that only occurs at one client’s premises? Is there a strain of Klein Constantia Ebola we don’t know of? An outbreak of a notifiable disease that would shut one’s premises will invariably be widespread – in this case global.

The insurance is not for a disease on one’s premises : it is for being forced to close.

@RBBROKER…..what a pathetically uninformed comment on your behalf !

Are you sure you are a broker ? [ possibly this is why the industry has such a poor reputation ]

Firstly, it doesn’t matter if the event is global or local.

If you insure for an earthquake, and it affects Mozambique too, you’re covered, regardless as to how ‘big’ the event is !

Secondly, there is no time limit to the event – if an earthquake lasts 2 minutes or 2 hours, doesn’t matter.

Same with CV-19 – assigning time parameters to it is ludicrous, as it is in effect a moving target !

Thirdly, its NOT a government issue – its simple logic that without CV-19, there would be NO lock down

Insurers trying to pass the blame on to government doesn’t stand – if government has acted recklessly, then it doesn’t alter the fact that its the INSURES that must then institute claims against government

Regardless, it still doesn’t absolve insurers from settling their customers as a first act of obligation !

Otherwise, what the hang are customers paying insurers every month for ?????????

This is precisely the attitude as displayed by yourself here that gives the insurance industry such a terrible name !!

Totally unethical bunch of people in an industry that thrives on collecting premiums and dishonoring of legitimate claims.

I hope that the cases do go to court & that the courts rule against the Insurance Companies so that they are taken to the cleaners.

Whilst this may be a popular comment to make let’s hope that they are NOT taken to the cleaners as is the suggestion. The insurance industry (of which I’m part of) remains one of the biggest employers (collectively) in South Africa. Policy wording of most policies do not and would not cover a Global Pandemic that leads to closure of businesses worldwide.

‘Totally unethical bunch of people etc….” is a wild statement to make and is not true. I wouldn’t be surprised if one of them take legal action against individuals posting similar comments.

As a Broker, I can confirm knowledge of many cases over a 30+ year time span that was paid out- effectively resulting in the difference between losing it all, and ‘survival’- whether being life or short term assurance.

Question: If this is the opinion, why not cancel your policy? Go without it- and hope you never need it.

This is our AIG moment. Everybody loves to hate the insurance industry while they are oblivious to the fact that any injury to the industry will take down the entire economic system. The Reserve Bank is the lender of last resort. That implies that everybody who gets paid in rands actually guarantees insurance products.

It is easy to shift accountability untill we realize that the buck actually stops with us!

This is a very old story. They give you an umbrella ( You pay for it ) just to take it back when it rains.

Insurance companies and legal eagles biggest rip off artists in the world.

Ladies and Gentlemen,

These are truly unprecedented times, for most of us, and I think the insurance companies will have to reconsider.

They will only reconsider if / when they are forced to.
Remember when the Late Deon Basson (investigating journalist) opened the can of worms about the penalties when you interrupt / stop paying premiums on policies / RA’s?

a Huge “bekgeveg” started (a war with your mouth) and it only resolved when Travor Manuel intervened. He said in a mini budget (October?) that he trusted that the matter will be resolved by February (next budget?) next year.
All of a sudden a new penalty system came to effect For example if you stop paying a RA which is older than 10 years your penalty is small.

To BenK – you say Whilst this may be a popular comment to make let’s hope that ….. hey are NOT taken to the cleaners as is the suggestion. The insurance industry (of which I’m part of) remains one of the biggest employers (collectively) in South Africa…

Do you seriously imply just because some one is a huge employer he should not be taken to task?????
You know, the crime bosses also “employ” large amounts of people……
You end with “Go without it and hope you never need it”
So what is the difference between “I need it but I don’t have it” and “I have it, now I need it but I cannot get it?”

One day I heard a broker telling a colleague (two offices down the corridor and a relative loud voice carry in an nearly empty corridor) to cancel his RA and take out another one.
Later my colleague found out about a huge penalty he got because he made the RA paid up.
The broker did not mention anything about penalties when he gave the cancellation advice. I can vouch for that.
My colleague took this up with the insurer and they said it were not they who gave the advice.
But the broker represented the company when he gave the advice and wrote the new policy my colleague said.
To no event.

Businesses must now stand together in a class action…..
Ja wel no fine.

O incidently, how do certain people sleep at night?
With closed eyes?

With you!

Insurance is about thousands of people paying for unlikely events. In the normal course, one or two of those thousands of premium paying clients will lose their premises to a fire or flood or whatever. Cool, the pooled risk takes care of it because 9999 other people paid and did not burn down their factory. They paid premiums but are grateful they did not burn down.

When clients tick paragraph 42 cover, which paragraph carries an extra premium, they expect to get what they paid for – Business Interruption insurance for closure due to a notifiable disease. They did not tick the box because they had a brain fart or felt like paying more.

The yellow umbrella that collects the tens of billions in premiums is a deemed expert in any court in the world. The client is not a deemed expert. Santam should be distributing the risk by way of reinsurance. That is the way the R30m CEO’s get paid.

We did not pay premiums because we foresaw that we will collect. We paid premiums hoping we would not collect on the policy. Why did Santam bank the premiums – because they knew they would fight paying????

End of comments.

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