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Are Insurers Liable For COVID Losses?

Several High Court cases clarify whether business interruption cover should include COVID or not.

Are Insurers Liable For COVID Losses?

COVID isn't going away any time soon. Many countries are battling a second wave of infections, new variants have started popping up, and mass vaccination is still a long way off. Since further disruption is almost inevitable, can you claim any resulting losses from your insurer?

Business interruption is a common feature of commercial insurance policies and typically covers losses due to property damage, criminal activity, and other events. However, some insurers have rejected COVID-related claims. This has resulted in several lawsuits, including Cafe Chameleon v Guardrisk, Ma-Afrika Hotels v Santam, Fat Cactus vs Guardrisk, as well as Interfax and Luggage Glove vs Old Mutual.

The pertinent details for all of these cases are virtually identical: the companies concerned took out insurance policies with business interruption cover for a variety of events, including the occurrence of infectious diseases within a specific radius of their premises. They all suffered losses following the outbreak of COVID, but their insurance claims were rejected.

The insurers relied primarily on a two-pronged defence: first, they highlighted that COVID is a national epidemic and not a local outbreak limited to the radius defined in the policies. Second, they contended that the true cause of business interruption was not COVID itself, but rather the national lockdown that was implemented in response to the epidemic.

The plaintiffs, in turn, argued that the insurers were relying on an excessively literal interpretation of their policies to circumvent their liability. As one of them adroitly pointed out, it was irrational that the quarantine of a neighbourhood due to a vermin infestation (or similar local outbreak) would be covered, yet an epidemic affecting the entire country (including the same local neighbourhood) would not.

All of these cases were brought before the Western Cape High Court, which concluded that nothing in the policies required the outbreak of an infectious disease to be limited to a specific radius as the insurers claimed. Rather, the disease had to occur within the radius, but could extend beyond it.

Furthermore, while the High Court concurred that the business interruption suffered by the plaintiffs was primarily due to the national lockdown, it pointed out that it was shortsighted to exclude COVID as a causal factor. Put simply, without the virus, the national lockdown would have never been introduced in the first place.

Therefore, in all four cases, the High Court ruled in favour of the plaintiffs and instructed their insurers to cover the losses that they suffered due to COVID.