Santam finally concedes defeat in business interruption insurance battle

By Georgina Crouth 5 January 2021

After insurance companies have lost four times in high court and one appeal at the Supreme Court, Santam has finally conceded its liability for contingent business interruption claims. It has taken 10 months for SA’s biggest short-term insurer to buckle under pressure from the courts and the public.

On Monday, 4 January, Santam announced that it would process and pay all valid business interruption claims in line with recent court rulings – including claims it had previously rejected.

In a statement, the insurer, which has come to embody the business interruption saga in SA, said it would commence the process for assessing claims for policies with contingent business interruption extensions. It is, however, still disputing the claims indemnity period and plans to proceed with its Supreme Court of Appeal application in February.

The claims assessment process applies specifically to policies written by its Hospitality and Leisure Division, which are affected by the recent judgment in the Western Cape High Court in the case between Santam v Ma-Afrika Hotels and Stellenbosch Kitchen, and the Supreme Court of Appeal ruling in the Café Chameleon v Guardrisk Limited matter.

The Supreme Court of Appeal ruled on 17 December that the government’s imposition of a national lockdown in response to multiple outbreaks of a “notifiable disease” (Covid-19) was covered by the infectious disease clause. It dismissed Guardrisk’s appeal of the Café Chameleon judgment, ordering it to settle its client’s full claim and legal costs for three senior counsel. 

On 18 December, Guardrisk told clients it accepted the ruling and would abide by it. 

Ryan Woolley, CEO of Insurance Claims Africa, said: “While we are encouraged by Guardrisk’s commitment to fulfilling its contractual obligation with its customers, we are aware that they are reluctant payers and are likely to be aggressive in their determination of the quantum. In this next crucial step in the process, we are determined to ensure our clients see justice done and receive the fair compensation due to them.” 

Hollard, too, said it would abide by the ruling and start processing the claims, but Santam remained obstinate, saying matters involving contingent business interruption were “complex in nature and require careful consideration”. The insurer said it would consider the judgment’s potential impact on its appeal involving Ma-Afrika Hotels and Stellenbosch Kitchen, and while there were similarities between its case and the Café Chameleon and Guardrisk matter, there were also material differences in the initial judgments that were handed down by the Western Cape High Court. 

“Santam believes that the Western Cape High Court erred in its judgment regarding causation and the insured peril, the trends clause and the indemnity period, and has therefore decided to take the matter to the Supreme Court of Appeal.”

But on Monday, Santam announced that contingent business interruption claims stemming from the commencement of the national lockdown on 27 March 2020 would be processed. 

“The Ma-Afrika judgment resolved that there is cover for business interruption losses caused by Covid-19 itself and generally by the national lockdown and related restrictions imposed by government in response to the pandemic, provided that there was an occurrence of Covid-19 within the designated radius of the insured premises. The Supreme Court of Appeal decision in the Café Chameleon court case confirmed that approach,” the statement read.

“The assessment process for contingent business interruption claims requires that businesses provide audited financial statements and other documentation to support their claims. Santam has previously advised intermediaries of these requirements and will continue to do so over the next few weeks. Clients are urged to work closely with their intermediaries to ensure that the requirements for processing claims are met.” 

We’ve geared up for this by assigning additional loss adjusters and other staff with the necessary skills to keep the process as efficient as possible. Clients are urged to work closely with their intermediaries to ensure that the requirements for processing claims are met.

Santam has already paid out more than R1-billion in interim relief to nearly 2,500 small and medium-sized hospitality, leisure and non-essential retail services industry businesses with contingent business interruption cover in their policies.

The company said it had further committed up to R400-million in Covid-19 funding to provide relief through premium reductions, refunds, support to SMMEs, corporate social responsibility and Solidarity Fund contributions.

The interim relief was announced after the Financial Services Conduct Authority’s intervention, to be offset against valid claims arising from the assessment process.

Santam said it respected the decision of the courts and believed the recent judgments provide legal certainty in terms of the proximate cause of business interruption losses for policies “with the same conditions, characteristics and circumstances” as the Ma-Afrika and Café Chameleon judgments.

The insurer said it aimed to assess and process valid claims as quickly as possible. 

“We’ve geared up for this by assigning additional loss adjusters and other staff with the necessary skills to keep the process as efficient as possible. Clients are urged to work closely with their intermediaries to ensure that the requirements for processing claims are met.”

However, it said it believed there are valid reasons to appeal the judgment of the Western Cape High Court in the Ma-Afrika case with respect to the indemnity period, which is why it would continue with its application for leave to appeal at the Supreme Court of Appeal.  

Insurance Claims Africa represents 750 clients, mostly from the hospitality and tourism sector. 

Woolley said they are cautiously optimistic that claims will be paid: “Santam is no longer disputing the merits of the case, but it is only paying out with certain of their policy wordings.”

The indemnity period remains a critical issue because Santam insists it is only liable for three months, not up to 18 months, depending on the policy wording, according to Insurance Claims Africa’s reading of the policies. Insurance Claims Africa plans to oppose Santam’s leave application on 16 February.

“We’re concerned about the indemnity period. We hope they will make payments in full, pending legal certainty.” 

Woolley said they were also concerned about the interest on the payouts because clients are in a desperate situation.

“Insurers have been sitting on this money for 10 months and they’re likely to avoid paying interest. But they should; they need to restore faith in the industry and pay interest on top.”

He said they hoped the dominoes would start to fall as the three major insurers are now settling and the policy wordings in South Africa are very similar. Other insurers, including Old Mutual, Bryte, AIG and Chubb, are yet to fall in line, despite the precedent set by the Supreme Court of Appeal judgment. 

“But decisions are made by lawyers, who are paid no matter what, and the boards are not strong enough. These guys could have settled. Instead, they tortured customers for 10 months. What about insurers’ reputations? How did the boards survive this?” DM/BM

  • Story corrected to make it clear that insurance companies generally, not Santam alone, lost four cases in the High Court.

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  • As a Santam domestic policy holder, who hasn’t needed to claim, I wonder how they will treat me when I do need to claim. Reputation is everything and I’m afraid they have lost theirs. It’s a competitive market out there.


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