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  • There's a huge fight between some large insurers and the hospitality industry over whether claims for losses during lockdown should be paid out.
  • Some insurers says the losses suffered by the industry are caused by a government-imposed lockdown, not Covid-19.
  • But others are paying out.
  • For more articles, go to www.BusinessInsider.co.za.

Is anybody getting paid out by insurers because of the Covid-19 pandemic? Yes, as it turns out.

Although some insurance giants are being sued by policyholders for their refusal to settle claims, others have been paying out without fuss.

After being unable to do business for months, restaurants, bars, hotels and guesthouses are demanding that their insurers pay out business interruption (BI) claims. Usually, business interruption has to do with damage to the insured property, which means it can’t operate.

But many policies have BI “extensions” – which cover other events, including contagious diseases.

The exact type of cover depends on the wording in your policy. Big insurers are not refusing to pay out as a matter of course. But they only want to pay out for a very specific local event, such as if your business was closed due to a Covid-19 outbreak, and needed to be cleaned. For shops, they’ll pay out for the few days it took them to disinfect after an outbreak.

What they don’t want to pay for is a general claim that your business had to be closed due to lockdown. Because, they argue, they’ve insured you for a pandemic breaking out in or near your premises. But what’s hurting your business isn’t Covid-19, but a giant national lockdown – and you weren’t insured for that.

Santam and HIC are among the most prominent insurers who are refusing to pay out claims relating to the lockdown.

Hundreds of their policyholders - led by Insurance Claims Africa (ICA) – are threatening a class action lawsuit. Santam is already being sued by two of its clients for its refusal to pay out business interruption claims, and the case will be heard on 1 September in the Western Cape High Court.

Others insurers – including Outsurance - are paying out, especially to guesthouses and smaller hospitality players. 

“For a valid claim, our clients needed to have the extended cover under their business interruption cover,” says Natasha Kawulesar, the company’s head of client relations, “This cover was not intended to apply to a global pandemic such as Covid-19. Our policy wording did not, however, exclude pandemics.  Based on this, we took the decision from the outset to settle valid claims where our clients had the extended cover.”

However, Outsurance is a relatively small player in hospitality insurance, and the payouts are hardly hurting the company. It has paid out R37 million in these claims so far – less than half a percent of the gross premiums (R8.3 billion) it received in the past year, according to its 2019 annual report.

The boutique hospitality insurance group, Incompass Insurance Consultants, has also been paying out.

"It often comes down to the quality and strength of the claimant’s substantiation, and this is where we believe we need to assist and advise our clients, as is required by the overarching TCF (Treating Customers Fairly) principle that the FSCA puts so much emphasis on," says Jan Wink, managing director of Incompass. It has paid out more than half of its gross written premium in Covid-19 claims and, ultimately, they expect total payout to be 133,3% of their premium income.

Incompass is also one of the main brokers for specialist hospitality insurer, Bryte Insurance Company. According to Wink, Bryte has paid out more than R50 million in Covid-19 claims - and most of this relates to the cancellation of bookings, he says.

That's because, instead of having to try and prove the outbreak of Covid-19 in their area, like in BI insurance extensions, guesthouses can simply claim for the cancellation of bookings, and the interpretation of this is pretty broad, says Wink. Larger players, like hotels, fall into a separate category with more stringent requirements.

So, who is right?

Should insurers be paying out lockdown-related business interruption claims?

In order to provide some clarity on the matter, the Financial Sector Conduct Authority (FSCA) “found no evidence in support of the view that the national lockdown could be a trigger for a valid BI insurance cover claim”. That’s in reference to standard BI insurance, in which you need to prove physical damage to property, such as storms and fire.

However, it was a bit more cautious regarding extensions specifically related to the outbreaks of infectious diseases. In fact, it analysed the wordings on a bunch of policies, and grouped them into six broad categories that you're likely to have on your policy. They've broken them down as follows:

  • Radius and notification: If your business needed to be closed as a result of the outbreak of a contagious disease and “provided the local authority has formally declared that a disease exists within the area and/or it has imposed quarantine regulations or restricted access to the area”.
  • Radius: An outbreak of an infectious disease “at the premises or within a specified radius of the premises to which the insurance relates”.
  • Notifiable disease: This is the outbreak of a disease of which the authorities needed to be notified. No one needs to tell the government that someone has a cold. However, they need to be told if someone has Covid-19.
  • General exclusion: In this wording, you’re covered if there’s an outbreak of an infectious disease at or near your business. However, there’s a ‘general exclusion’ that releases the insurer if it’s a full-blown pandemic.
  • Closure or restriction: In this case, your wording indicates that “business must have been interrupted by a closure or restrictions placed on the premises by the authorities as a result of a contagious disease occurring at the premises”
  • Closure by order: Finally “the interruption of business by the outbreak of a notifiable disease …resulting in the closing or partial closing or other interference with the business by order of the state or government, local authority or any other competent authority."

According to the FSCA, you’re only likely to have a claim for payment due to lockdown if it falls in the first three categories. You might still have a claim under the last categories, but only if you can prove you had an outbreak at your premises.

If that doesn’t work, the regulator suggests you contact the courts, the financial sector tribunal, or the ombudsman for short-term insurance.

Ayanda Mazwi, the senior assistant ombudsman, says most commercial policies in the market provide cover for business interruption on condition that there was damage to the insured property following an insured event, and the insurer accepted liability for that claim.

“Policies specifically providing cover for infectious or contagious diseases are in the minority,” Mazwi says. “Even with these policies, the onus is on the policyholder to prove several factors in order to enjoy cover - such as that the infectious disease occurred at the insured premises or within a specified radius.”

According to Mazwi, the ombud has received 312 complaints related to Covid-19 since the start of lockdown and, of these, 237 were related to business interruption – about 9% of the total number of complaints received during April and May.

Figuring out whether a claim is valid is a complex task at the best of times – even more so when there’s a giant fight between industries playing out in public. Mazwi says “a number of these disputes will ultimately need to be resolved in a court of law”.

The first court ruling landed this week, which will be a blow to insurers. Insurance company Guardrisk was ordered to pay a Cape Town restaurant, which had cover for business interruption due to infection diseases, for the losses it suffered during lockdown. According to the ruling, the judge rejected claims that the losses were due to the lockdown, not Covid-19.

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