Ethically, insurers should pay faster for Covid-19 business losses, high court says
- Ethical business practice would see insurers on the hook for Covid-19 business interruption claims to make interim payments, the high court in Cape Town has commented.
- But unless policies make provision for such quick payments, insurance companies can't be forced to make them.
- Old Mutual had tried to argue that a national coronavirus lockdown meant it didn't have to pay on a policy dealing with diseases within a 50km radius of its client.
- Just because Covid-19 is unprecedented doesn't mean the company can avoid liability of up to R17.6 million, the court said.
- For more stories go to www.BusinessInsider.co.za.
If it were only a matter of ethics, then insurance companies – rather than fighting claims – should have been making fast payments to businesses with policies that cover losses due to a viral outbreak, the high court in Cape Town said.
Legally, though, they can't be forced to do so without specific policy language to that effect.
"Ethical business practice would certainly dictate" that an insurance client be able to claim an interim payment in order to survive as a business, wrote judge Dennis Davis in a judgment on Wednesday.
"Unfortunately, however, this court is confined to whether there is a legal basis by which to make such an award," Davis said, expressing "some regret" for being unable to order one.
Davis was ruling in a claim that could max out at R17.6 million, from Cape Town based Luggage Glove and associated company Interfax, against Old Mutual under a "business protection" clause in an insurance policy.
The companies had claimed R4.84 million as an interim payment, covering a bit more than half of the six months it is insured for.
That insurance, the court said, covers loss of gross profits for up to six months, and the luggage company had paid its premiums and filed a proper claim under cover that includes losses due to infectious or contagious disease.
But in a shifting argument that dwelled on the meaning of the phrase "provided that", Old Mutual said a reference in the policy wording to a 50 kilometre radius meant it was not liable to pay up for a disease outbreak on a national scale that leads to a nationwide response.
Davis and two concurring colleagues did not buy that line of reasoning, nor that the unprecedented nature of Covid-19 would be cause for Old Mutual to refuse payment.
A small proportion of business insurance policies are believed to cover disease outbreaks, but many insurers have shown themselves loathe to pay up where they do. Some were forced into settlements, and some lost legal arguments including that it was lockdown, and not the coronavirus, that caused businesses to lose money.
A handful of businesses, though, have seen significant payouts in return for tiny premiums over the years – on types of insurance that have subsequently become a lot harder to buy.
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