A Covid-19 Silver-Lining: Business Interruption Insurance Claims

The Western Cape High Court recently handed down a decision in the matter of Café Chameleon CC v Guardrisk Insurance Company Ltd 5735/2020 which has offered some business owners an unexpected glimmer of hope in the COVID-19 forecast. The matter was brought by Café Chameleon against its insurer, Guardrisk, following the repudiation of its claim for business interruption as caused by the lockdown announced in response to the COVID-19 pandemic.

At the heart of the dispute was the business interruption section of the written contract of insurance (“insurance policy”) governing the relationship between the two parties. These sections provide for the circumstance whereby the insured party suffers a loss caused by certain eventualities outside of its control which disrupt its business. One such eventuality in the insurance policy at hand included “notifiable disease occurring within a radius of 50 kilometres of the premises”. The insurance policy goes on to define notifiable disease as “illness sustained by any person resulting from any human infection or human contagious disease…”.

While it acknowledged that Covid-19 is a notifiable disease, the insurance company argued that the loss suffered by Café Chameleon was not as a result of the Covid-19 pandemic – but was instead caused by the subsequent lockdown, and its accompanying regulations. Judge Le Grange found this argument to be without substance in that the lockdown, and the lockdown regulations, would not have been promulgated and enforced if it weren’t for the Covid-19 pandemic. As such, the loss suffered by the business was found to be inextricably linked to the outbreak.

In what appears to be one last desperate attempt to avoid liability, the respondent then argued that allowing Café Chameleon’s claim would open the flood gates for business interruption claims which would collapse the insurance industry. In response to this submission, Judge Le Grange stated “it cannot be a defence for an insurer to say that it must be excused from honouring its contractual obligations because its business has unexpectedly incurred greater debt than had been expected.”

Ultimately, the court found that the insurer was liable to indemnify Café Chameleon in terms of the business interruption section of the insurance policy. As such, Guardrisk was ordered to make payment to the business for any loss it had suffered since 27 March 2020 as a result of the Covid-19 pandemic – and the promulgation and enforcement of the lockdown regulations.

This decision reached by Judge Le Grange may well offer many businesses some structural support as they begin to rebuild – something which the collapsing South African economy desperately needs. At last insured business owners have been presented with a silver-lining amidst the chaos of 2020.