Cape café’s ‘precedent-setting’ business interruption insurance victory

High court ruling could rock short-term insurance sector, but insurer Guardrisk is likely to appeal.
The judgment gives hope to hundreds of other tourism and hospitality businesses. Image: Café Chameleon Facebook page

Popular Cape Town restaurant Café Chameleon has taken on insurer Guardrisk for non-payment of business interruption insurance linked to the Covid-19 pandemic – and won.

The win in the Western Cape High Court on June 26 only came to light on Monday night in a Facebook post, but could have major ramifications for other short-term insurers that are either refusing to pay or delaying similar claims.

Speaking to Moneyweb, Café Chameleon’s owner Nico Schoeman said while he is pleased with the successful declaratory court order ruling, for now “we can’t get too excited because we expect an appeal”.

The news has nevertheless buoyed the spirits of other players in the distressed tourism and hospitality industry who are also taking on big insurance companies on the issue.

Read:
Business interrupted, but insurers don’t want to pay
Hoteliers plead for Covid-19 business interruption insurance payouts

“There are probably other small businesses like ours with the same policy wording who are following this case and for whom this is likely to have an impact. We built this business for 20 years and just want our businesses to continue and provide an income for our employees who are among the less privileged in society,” said Schoeman.

In the 38-page judgment handed down by Judge Andre le Grange, Guardrisk is declared liable to pay out Café Chameleon “in terms of the business interruption section of the policy for any loss suffered since 27 March 2020 as a result of the Covid-19 outbreak in South Africa.”

Costs order

Le Grange also ordered Guardrisk to pay the legal costs of Café Chameleon in relation to the case.

Guardrisk, which is a subsidiary of JSE-listed Momentum Metropolitan (formally MMI Holdings), said in a brief response to Moneyweb that it had noted the High Court ruling.

It did not say whether it would be appealing the decision; however, an appeal is likely considering the significance of the case for both the group and the broader insurance industry.

“Guardrisk and HIC [HIC Underwriting Managers] recognise the plight of business owners in the hospitality industry and the need to get clarity on Covid-19 related business interruption insurance as a matter of extreme urgency,” it said.

“We have been paying and will continue to pay claims in line with our policy wordings. In addition, we have noted the ruling made in the Western Cape Division of the High Court on the matter between Café Chameleon CC and Guardrisk Insurance Company Limited. We are in the process of engaging with our legal team to study the judgment and consider the next steps,” it added.

Read: TBCSA wants Mboweni to intervene on Covid-19 insurance claims

In their submission, Café Chameleon’s lawyers highlighted that the “regulatory regime” (essentially government’s lockdown regulations) in the wake of the Covid-19 outbreak had “severely interrupted” the business, affecting the livelihoods of some 41 employees. The restaurant did not retrench staff, however the government’s UIF Ters programme only paid out for 25 employees in April.

Respondent’s arguments

Guardrisk’s legal counsel’s grounds for opposing the matter included:

  • The lack of urgency as Café Chameleon “is currently not entitled to any relief under the policy”;
  • The relief claimed is inappropriate;
  • The restaurant’s loss is not covered under the infectious diseases extension clause in the policy; and
  • There is no causal link between lockdown regulations and infectious diseases extensions.

It was also argued by Guardrisk that business interruption losses caused by Covid-19, both worldwide and in South Africa, are “likely to be very substantial” thus placing “significant demand” on insurers resources.

The group warned of a creating a precedent if the court order was in favour of Café Chameleon, which would “open the floodgates of liability” not just for it but the insurance industry more generally.

Le Grange, however, noted that Guardrisk did not provide any basis for this. “In any event, each case must be decided upon its own facts and the law. Whether the floodgates will open, as suggested by the respondent, will ultimately depend upon the prevalence of the precise wording of the notifiable disease extension in any contract of this nature.”

He added: “The gloomy predictions of industry collapse within the insurance world … are therefore nothing more than speculation. No substantive information was provided by the respondent [Guardrisk] regarding its own exposure [for instance its assets and liabilities, its reinsurance cover, and the estimated liability to its clients as a result of business interruption due to Covid-19].”

Weak point shot down

The judge had even harsher words for Guardrisk, pointing out that even if the company “is confronted with substantial insurance claims” there is no reason for it to discharge its obligations.

“It cannot be a defence for an insurer to say that it must be excused from honouring its contractual obligations because its business has unexpectedly incurred greater debt than had been expected,” he said.

Loss adjustment firm Insurance Claims Africa (ICA) has welcomed the court’s decision. It is currently representing more than 500 clients in the tourism and hospitality sector, trying to secure payment or some sort of settlement on similar claims with most short-term insurers.

Read:
Santam clarifies Covid-19 position on business interruption cover
When the virus crisis is over, the legal battles begin

“This case quite clearly dealt with the aspects [of business interruption insurance non-payment] that we were challenging,” ICA CEO Ryan Wooley told Moneyweb, describing it as a major, precedent-setting win for the tourism and hospitality sector.

“Realistically speaking, we expect the judgment to be appealed, however it has caused us to rethink our legal strategy …. If it goes to the Supreme Court of Appeal [SCA] on appeal and the insurers lose, it could spark a big financial crisis for the short-term insurance industry.

“I am told this form of insurance cover represents just around 3% of the sector, so the industry can afford to take some pain, especially if insurers opt for a settlement or arbitration,” said Woolley.

“If they lose at the SCA, they are running the gauntlet of ending up paying the full amount, which will run into billions of rand.”

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Quite happy to take the premiums for years but now suddenly crying…….

There are some insurers that’s paying covid BI claims. Check yesterday’s article in the business insider

Extracting the money from insurance companies is a different thing.

Insurance companies seem to live on another planet. Right now everyone is suffering with higher than expected expenses/claims/losses.

They insure folk for business interruption. Business was interrupted- pay up!

If they dont end up paying I think I will cancel all my insurance.

Gina you are correct,

perhaps a wake-up for customers of insurance punters in SA,

SA customers clearly too easy, just look at the size and margins of the local insurance industry over the years.

If an insurer delays paying a claim and that lack of cashflow closes the business, their liability goes up dangerously.

Yes, but that would be a separate matter for civil damages – a claim against the Insurer’s Professional Imdemnity insurance.

This entire industry should be completely dependent upon trust and reputation. If I take out a policy, I do so trusting that when I legitimately need a payout, I will receive it. The refusal by this industry to honour their commitments, is destroying trust at a rate of knots.

Why pay premiums if you may not get anything in return? They may take a short-term knock if they pay out the Covid19 claims now, but that will be as nothing compared to the loss of clients they experience in future, as more and more people start asking why they should pay premiums to an industry that has demonstrated it cannot be trusted.

Of course this is typical insurance. But let’s look at all the medical insurance/policies we have been paying for years, to cover us and our families for an emergency.
Fac- the private hospitals and government have agreed to share / use the private hospitals facilites when the gov hosp are full (like now). So us suckers, who think that because we have insurance, we will get a hospital bed…. it’s extremely likely that we wont.
Let that sink in…..

So let me get this straight. Guardrisk argued that allowing such claims, where businesses have suffered major losses due to Covid19, would in turn result in major losses for itself, effectively caused by Covid19??

Did they perhaps omit to have similar clauses in their reinsurance agreements?

Exactly,

just like the highly “prestigious” landlords cohort …not planning correctly

caught with their pants down..

I had a run in with Guardrisk for more than two years to pay out an after market vehicle insurance claim. They tried every trick in the book, from the patently ridiculous to continual obfuscation. I fought every inch of the way and eventually got paid out in full which is by implication an admission of attempted f…… !

Recently I had a very similar experience with Metropolitan Life, same tactics. Now I see in this article that Guardrisk is a subsidiary of Momentum Metropolitan. Ah, a light bulb!

Their staff must be well trained in obfuscation tactics and are probably paid a bonus on the number of claims that they run into the ground. How their staff sleep at night is a mystery. And as for the ombudsman…… !

“The group warned of a creating a precedent if the court order was in favour of Café Chameleon, which would “open the floodgates of liability” not just for it but the insurance industry more generally.”

So why did you enter this field of business then if you essentially took a bet on never paying out valid claims like this?

The whole insurance industry is misguided by their past successes. The fact that low claims vs high premiums have allowed insurance companies to accumulate huge levels of investment properties, assets and large capital bases. These companies have largely been measured by the market on the return they have generated from these assets and management paid extremely high levels of bonuses from that performance.
Both the market and management believe their job is to generate investment returns and this is just plain wrong, their job is to protect those assets to ensure that when disaster hits they can pay out the claims from the sale of those assets. They have just been living in complete ignorance of their real duty to their premium paying clients.

Guard risk have been caught with their pants down (like most of the worlds insurance companies – aka AIG in the subprime meltdown). This is what is called a 10 Sigma event. As such it is considered money in the bank and very little if not any ‘re-insurance of the risk’ takes place. These premiums pay for the directors Porsches and S class Mercs.

The reality is, you should practice the same level of risk mitigation and re-insurance on this as you do on everything else – not doing so is just GREED.

Yes Guardrisk are in serious danger of going under if they are forced to pay – or like AIG get a bail out. AXA in France just got hammered in the same way and have been instructed to pay out the business interruption. However, this is a ridiculous argument to present as the reason for not paying.

Guardrisk stated: There is no causal link between lockdown regulations and infectious diseases extensions.

Business interruption falls clearly into an unexpected event beyond your control and not caused by you – that is an act of God/ force majeur.

These companies as i have stated before must stop claiming on the COVID 19 basis. Claim against Cyril Ramaphosa lock down (he declared a state of disaster and forced you to shut down with everyone else). This was not of your making or caused by you.

It is the insurance companies problem to argue if there is a causal link or not – effectively they have to prove that the lock down was not justified and then sue the government, or get a bail out on those grounds. It has nothing to do with the insured.

The clowns in centurion don’t see it that way.

Ali Baba and the Forty Insurance Agents

Momentum and its merry crowd of minions caught with their fingers in the till! Karmas a …..!

we NEED more judges as Andre La Grange!!! during my lifespan as a simplistic para-legal…. André La Grange guide me during a tiresome cruel cases & with my body weight-loss with cases…
about the Plascon-Evans rulings!!! and he start at 5 o’clock in the morning in the Chambers Queen Victoria Street CT.. to run over & over for weeks on weeks…. the facts…. AND 7 CUPS of coffee brews from 5 o’clock… all the time ..!!!brilliant man to work with!!! tirelessly tapping my energy…. BUT… with results…. very VERY FAIR & with integrity… SA needs these Judges GUYs like him!!!….
“each case must be decided upon its own facts and the law….”

End of comments.

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