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    • A Cape Town restaurant just won a major court battle against a big insurer.
    • The restaurant had been insured for outbreak of a pandemic, but the insurer claimed it was lockdown that caused the economic damage, and not Covid-19.
    • It's a big win for the tourism industry, which is currently in a huge fight with insurers over the paying out of claims due to lockdown.
    • For more stories go to www.BusinessInsider.co.za.

    (This article has been updated to reflect new information. Details are below)

    A Cape Town restaurant just won a key court battle, which may make insurers like Santam nervous. 

    After being unable to do business for months, restaurants, bars, hotels and guesthouses are demanding that their insurers pay out business interruption claims for the financial harm they suffered while being under lockdown. Some business interruption policies include cover for contagious diseases.

    However, some big insurance companies, like Santam and HCI, are hesitant to pay out, claiming that the income losses stem from the government-induced lockdown, and not from the disease itself. Some insurers are willing to pay out for localised outbreaks of Covid-19, such as the forced closure of a restaurant due to coronavirus cases, but don’t want to pay out for the general loss of income due to the lockdown .

    READ| Santam and others may not be paying lockdown claims, but some insurers are

    A restaurant in the northern suburbs of Cape Town, Café Chameleon, brought legal action against Guardrisk, a specialist insurance provider owned by MMI Holdings.

    Café Chameleon has been forced to close its business in lockdown, and suffered huge financial losses. It is now struggling to pay employee salaries. It says that Guardrisk should settle its claim because it was insured for business interruption coverage if there was an outbreak of a "notifiable disease" - the type of disease outbreak that authorities need to be notified of, such as Covid-19 or smallpox.

    But the insurer argues that losses stemming from the national lockdown didn't fall under any clauses insuring companies against infectious diseases - it was the lockdown that caused the damage, not the disease.

    It also argued that if they did have to pay out for general Covid-19 losses "it may have the potential to destabilise the global and the South African insurance market".

    Judge Andre le Grange, however, was not convinced. In fact, he said that "the gloomy predictions of industry collapse are...nothing more than speculation".

    And even if insurers did receive a flood of claims, that’s no defence for reneging on a contract. "It cannot be a defence for an insurers to say that it must be excused from honouring its contractual obligations because its business has unexpectedly incurred greater debt than had been expected,” the judge found.

    The big win for the tourism industry is that the judge also rejected the argument that it was lockdown, and not Covid-19 which caused the economic harm to the business - a key argument that the insurance industry has been relying on. "It is difficult not to accept that there is indeed a clear nexus between the Covid-19 outbreak and the regulatory regime that caused the interruption of [Cafe Chameleon's] business," he ruled. "The suggestion therefore that the regulatory regime was only introduced to "flatten the curve" and had little to do with the Covid-19 outbreak is misplaced."

    Insurance Claims Africa, which is leading hundreds of policyholders in potential class-action lawsuits against the insurance industry, said “this is a significant win for the tourism and hospitality sector”.

    “Of critical importance, is the fact that Judge Andre le Grange rejected the insurers’ argument that the losses suffered by the claimant was due to the lockdown, and not the Covid-19 pandemic,” said Ryan Woolley, CEO of Insurance Claims Africa. 

    “This argument has never made any sense, as the insurers chose to insure a notifiable disease which would have contemplated government intervention and restrictions or quarantine. It is clear that without Covid-19, there would be no lockdown, so to attempt to separate the two is nothing short of disingenuous,” says Woolley.

    The attorney for Café Chameleon's attorney, Ren Dunster, told Business Insider that he and his client "aren't celebrating yet. There's still a very long road ahead, and we're expecting an appeal."

    In a written response to questions from Business Insider Guardrisk says the company is "in the process of engaging with our legal team to study the judgment and consider the next steps". The company added that they "have been paying and will continue to pay claims in line with our policy wordings."

    (This article has been updated to include commentary from Guardrisk and Ren Dunster)

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