As Santam loses COVID-19 claims case, reinsurers call the shots
A South African high court decision that the country’s largest general insurer Santam is liable for COVID-19 business interruption claims represents victory at a high cost.
The judgement on 17 November from the Western Cape High Court ordered the insurer to pay plaintiff Ma-Afrika Hotels for the impact of COVID-19 over the entire policy period of 18 months, without limitations.
Santam had argued that the pandemic and the lockdown were two separate events, and that the costs of business interruption were therefore not covered by its pandemic policy. That was rejected: local occurrences of COVID-19 and the South African government lockdown response are “inseparably part of the same insured peril”, Judge Cloete wrote in the judgement.
The court also told Santam to pay Ma-Afrika’s legal costs.
The judgement is “precedent-setting”, Ryan Woolley, CEO of Insurance Claims Africa (ICA), said in a briefing on 18 November. Santam and other insurers should now promptly settle claims, he said. “I don’t know how much more brand damage they could suffer” if they don’t pay. ICA is a public loss adjustment company representing over 700 tourism and hospitality businesses.
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In July, South Africa’s Financial Services Regulatory Authority (FSCA) instructed insurers to pay COVID-19 claims. Woolley questions whether further legal certainty is now needed. He asks whether South African insurers including Old Mutual, Guardrisk, Bryte, Hollard, F&I, Chubb, TRA, Lombard, AIG and Monitor are really looking for legal certainty – or a just hoping for a way to dodge claims.
The danger is that the judgement will prompt reinsurers to force insurance companies to stop offering pandemic cover.
- In October, Swiss Re, one of the big six global reinsurers, said it has “no appetite” to insure or reinsure businesses against pandemics, which it sees as a job for governments.
- The six largest reinsurance companies by 2019 global premiums written were Munich Re, Swiss Re, Hannover Re, Scor, Warren Buffett’s Berkshire Hathaway and Lloyd’s.
- Woolley says that he doesn’t expect to see South African insurers continuing to offer pandemic protection.
In July, the Western Cape High Court also rejected the case put by the insurer Guardrisk that losses were due to lockdown rather than pandemic. Guardrisk’s appeal in its case versus Cafe Chameleon will be heard in the Supreme Court of Appeal on 23 November.
Woolley said he also expects Santam to appeal. It looks like reinsurers will have the final say on that decision.
- The judgement needs to be “carefully considered”, Santam said in a statement on 18 November. The company will “discuss the implications of the judgment with all our stakeholders, including reinsurers”.
- “The response of the global reinsurers, which are in effect insurers to the insurer, is important in helping us to reach finality on this matter.”
- Woolley says that reinsurance arrangements are “of no consequence to the policyholder. There should be enough liquidity to pay the claims.” Only the insurers will benefit if the dispute turns into a two-year legal battle, he adds.
Failure to promptly pay, Woolley says, will mean insurers “are remembered in history as companies that contributed directly to the demise of thousands of businesses and jobs during the country’s worst economic and social crisis.”
Reinsurers forcing continued legal appeals over COVID-19 claims will succeed only in damaging the credibility of the insurance industry.