The final say on business interruption insurance and Covid-19

16 March 2021 552
“I’ve been following the media reports relating to the Café Chameleon case and their claim that their business interruption insurance covers losses suffered due to Covid-19. The last I heard was that this case was being appealed by the insurer. I have a similar argument going with my insurers, and would like to know whether there is any finality yet on the matter.”

A business may take out insurance that includes provisions that cover them for what is called business interruption insurance. Not all insurance contracts would have such provisions, and provisions may differ from insurer to insurer. However, where such insurance is present, it usually covers the insured business for losses suffered from an event that affects the ability of their business to generate an income, such as a national lockdown due to Covid-19. Generally, such insurance covers a business for events such as floods, fires, earthquakes etc. as well as even for infectious or contagious diseases. Importantly, what is covered will vary from insurance policy to insurance policy and will have to be carefully ascertained in relation to the wording thereof.

So, in the case of Café Chameleon CC v Guardrisk Insurance Company Ltd, Café Chameleon had a clause in its insurance policy that indemnified it for loss due to the interruption of business, due to a notifiable disease occurring within 50 km of their premises. The notifiable disease was defined as an illness sustained by any person resulting from any human infectious or human contagious disease, an outbreak of which the competent local authority has stipulated shall be notified to them. Café Chameleon instituted a claim with their insurer for business interruption because of Covid-19. The Insurer however argued that the business interruption which caused loss was as a result of the lockdown regulations by Government and not the presence of Covid-19 and thus did not fall under the scope of the business interruption coverage.

Café Chameleon approached the Western Cape High Court which ruled in their favour holding the insurer responsible to indemnify Café Chameleon in terms of the business interruption policy section of their business insurance policy for losses suffered since the Covid-19 outbreak and the resultant implementation of the lockdown regulations.

The insurer did not however leave things there and noted an appeal to the Supreme Court of Appeal. Here the insurer argued that the Government’s national response to the pandemic was not covered under the insurance. What was covered in their view was a response aimed only at local occurrences of the disease within 50 km of the business. 

The SCA considered the matter and upheld the decision of the High Court, confirmed that the insurer is liable. In arriving at its decision, the court determined that the question was whether or not Café Chameleon’s infectious disease clause, if properly interpreted, covered the loss they suffered. In considering whether it did, the Court mentioned various principles that would apply to such an interpretation.

Firstly, the court held that the language, context and purpose of an insurance contract should all be considered together when interpreting a clause. Insurance contracts must be considered objectively, in an attempt to achieve what the parties intended, having regard to the words used in the contract and the circumstances that lead to the conclusion of the contract. As insurance contracts are entered into with the purpose of indemnifying a party from possible damage, they should therefore be interpreted ‘reasonably and fairly’ to achieve such a purpose.

The Court further held that the most important rule when interpreting a policy is that the policy must be liberally considered in favour of the insured, so that the claim for indemnity does not fail without reason, as obtaining the indemnity was the reason why he entered into the insurance contract. When a policy may be interpreted in two possible ways, the interpretation that will sustain the claim and indemnify the loss should be preferentially applied.

By applying these principles, the Supreme Court of Appeal therefore found in favour of Café Chameleon and held that the insurer is liable to indemnify Café Chameleon for their loss suffered as per the policy. 

Importantly though, this victory for Café Chameleon cannot be interpreted as a blanket confirmation that all Covid-19 losses will now be covered under individual business interruption policies. Rather, it should be seen as a confirmation, that such losses can be covered and that an interpretation which is in favour of such indemnification can be applied. However, the individual policy wording of each policy will ultimately have the final say as to whether your business is covered or not.

It is therefore highly recommended that you consult your policy wording with your attorney to gauge to what extent in light of the above case you may or may not be covered for business interruption due to Covid-19.
Related Expertise: Commercial Contracting