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Insurer trying to limit Covid-19 business interruption payout indemnity to just three months

22nd January 2021

By: Rebecca Campbell

Creamer Media Senior Deputy Editor

     

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Specialist public loss adjustment company Insurance Claims Africa (ICA) has expressed disappointment, but no surprise, at major insurance company Santam’s latest manoeuvre in the seven-month-long legal struggle regarding the paying out of the business interruption insurance claims of small and medium-sized enterprises (SMEs) in the hospitality and tourism sector. Santam has now agreed to pay these claims, which stemmed from the Covid-19 pandemic, but insists it will only pay out three months’ worth of losses, even though many of its policyholders have 6-, 12-, or 18-month coverage for losses in their contracts.

The insurer has adopted this position even though an appeal is pending at the Supreme Court of Appeal (SCA) concerning the indemnity period. (This is the period for which policyholders can claim for losses.)

“The problem for Santam is that they have a judgment against them in the Ma-Afrika [Hotels] matter, which orders the insurer to pay for the full indemnity period of 18 months,” pointed out ICA CEO Ryan Woolley. “This should not be ignored. The only way for them to treat their customers fairly is to offer an interim payment of three months, and leave the balance to be dealt with after the SCA appeal.”

Although many hospitality and tourism SMEs had pandemic cover in their business interruption insurance with Santam, the insurer (and a number of other insurance groups, including Bryte, Guardrisk, Factory & Industrial, Hollard and Old Mutual Insure) refused to pay out their claims. The reason given was that the business interruption had not been caused by the Covid-19 pandemic but by government’s national lockdown (which was imposed to counter the pandemic).

The courts disagreed and ruled that the business interruption had been caused by Covid-19 and the insurers had to pay the claims. Santam has accepted it must pay, but is seeking to appeal the length of the indemnity period it must cover.

“While we are encouraged by Santam’s acknowledgement that legal certainty has been established, they continue to pick and choose what suits them in the court rulings,” he highlighted. “Santam’s Stalingrad strategy of delay, deny and defence has put its customers under excruciating financial stress. The real tragedy is that if these businesses are forced to shut down as a result of Santam’s nonpayment, their claim against the insurer is extinguished. Offering a full and final three-month settlement on a valid 18-month contract is unacceptable. Shareholders should be questioning who has given this strategy to Santam as it demonstrates a lack of respect for their customers, the South African judiciary, and the [Financial Services Conduct Authority], and displays a level of arrogance that no matter how poorly you treat your customers, they will remain loyal.”

Santam has stated that every policyholder that wants to challenge its unilateral imposition of a three-month indemnity period for claims payouts would have to individually take the group to court. “This latest cynical and devastating move proves how disingenuous Santam is,” he affirmed. “Policyholders, who are already financially decimated, will now have to find the money to fight the insurer in court to enforce the indemnity periods contained in their contracts.”

Of the other insurers that have hitherto been refusing to pay out business interruption insurance claims caused by the Covid-19 pandemic, ICA noted that Guardrisk and Hollard have also now accepted that rulings by eight High Court and five Supreme Court judges have given legal certainty on the issue. However, Bryte, Old Mutual Insure and Factory & Industrial still maintained a “deafening silence”.

“Business interruption insurance exists to help businesses survive following an unanticipated event,” explained Woolley. “Thousands of businesses bought these policies, which included cover for infectious, contagious and notifiable diseases, but when the pandemic occurred, the insurance industry turned their back on their customers, claiming all manner of excuses to wriggle out of their obligations.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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