A Cape High Court ruling that insurer reimburses a Cape Town restaurant for its losses due to Covid-19 could have far-reaching consequences for insurance companies and the restaurant industry.
Café Chameleon in Plattekloof dragged Guardrisk Insurance, which is part of the insurance giant Momentum Metropolitan Holdings, to comply with a clause in an insurance policy that the restaurant took out in 2007 and has since renewed annually. The clause refers to notifiable diseases that may occur within a 50 km radius of the enterprise.
The restaurant cited its financial distress as a reason for the urgency of its application, saying there was an imminent danger that the insurance would lapse if liquidated. Guardrisk will therefore be able to make significant savings for itself by simply waiting a few months until the business fails.
Café Chameleon’s owner also claimed that his monthly wages amounted to about R165 000 which he paid out of his own pocket in March and that the Unemployment Insurance Fund reimbursed only 25 of the 41 employees under the temporary relief scheme (TERS).
Guardrisk argued that the restaurant was closed during restriction to flatten Covid-19’s infection curve and not because of an outbreak of a notifiable disease. It was also stated in court documents that the closure of the restaurant was not enforced by a local authority as stated in the fine print of the policy.
Judge André le Grange described both of these arguments as misleading.
Citing a further Guardrisk argument that a ruling in Café Chameleon’s favor would open the locks for similar claims, the judge found that it could not be the defense when deciding how to interpret the Notifiable Illness Clause.
The court ruled that Guardrisk was liable for losses that Café Chameleon could prove and ordered that the necessary interim payments be made. Guardrisk also has to pay the cost of the application.
Insurance Claims Africa (ICA) welcomed the ruling. The firm handles the applications of about 500 businesses in the tourism and hospitality sector, which is battling to get major insurers to pay Covid-19 related claims.
According to ICA, insurers have so far rejected such claims, even though policies have a clause that describes infectious and reportable diseases. The insurers’ defense is apparently that the clause is not intended to cover pandemics.
“This is an important victory for the tourism and hospitality sector,” says ICA CEO Ryan Woolley.
The South African Property Owners Association (SAPOA) says it’s an important point made by the court that contractual obligations must be fulfilled, even though those obligations are more than expected.
SAPOA says although the ruling is binding only in the Western Cape, it is likely to be followed by other courts. The association advised policyholders with similar insurance to consider filing claims.
