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Festive Merriment for Business Interruption Policyholders

18 December 2020
– 4 Minute Read


The Western Cape Division of the High Court in Cape Town (Court) delivered its judgment relating to a business interruption arising from the COVID-19 pandemic (COVID-19) in favour of Café Chameleon CC (Café Chameleon). Please refer to our previous Newsflash here relating to the Café Chameleon court case against Guardrisk Insurance Company Ltd (Guardrisk). Café Chameleon operates a restaurant in Cape Town. Its business, along with many other businesses, suffered a substantial, as yet unquantified, loss of income following the outbreak of COVID-19.

Guardrisk proceeded to appeal the Supreme Court of Appeal (SCA) with the judgment being electronically handed down on 17 December 2020. Café Chameleon’s position is that once it is accepted that there were occurrences of COVID-19 in Cape Town, within 50 km of its business, the government’s response to it through the imposition of a national lockdown was part of the insured peril covered by the infectious diseases clause. Guardrisk disagreed and was of the view that the government’s generalised response to the pandemic is not covered; what is covered is a public health response aimed only at local occurrences of the disease within 50 km of the business.

In the case of Café Chameleon, the infectious diseases clause was a non-damage extension. It provided cover for losses that did not cause damage to property, but occur within a specified radius of the insured premises due to a notifiable disease. COVID-19 was considered a notifiable disease.

The SCA once again reaffirmed the interpretation of insurance contracts, being that since insurance contracts are ‘contracts of indemnity’, they should therefore be interpreted ‘reasonably and fairly’ to this end. Which requires the contract of insurance to be ‘liberally construed in favour of the insured’ when ‘the words are, without violence, susceptible of two interpretations, that which will sustain the claim and cover the loss, must in preference be adopted’.

Guardisk advanced four arguments in the court a quo:

  • no competent local authority had stipulated that the disease should be notified in accordance with the policy;
  • the cover did not extend to the consequences of events within a wider area, including countrywide or global events;
  • the policy did not cover loss following closure of the premises as a result of a government order; and
  • there was no causal link between the defined event (the COVID-19 outbreak within the 50 km radius) and the interruption of the business. This is because the interruption was a consequence of the of the national lockdown, and, not the local occurrence of the disease.

The court a quo rejected all the above arguments.

The SCA examined the above arguments and in turn also rejected the arguments.

Once again, the Court considered the UK test case of the Financial Conduct Authority v Arch Insurance (UK) Ltd and Others [2020] EWHC 2448 (FCA Test Case). The SCA states that although the UK Supreme Court is yet to deliver judgment in the appeal of the FCA Test Case, it considered the Court’s reasoning persuasive, at least in relation to the policies that are similar to the wording of Café Chameleon.

The SCA concluded that the government’s imposition of a lockdown in response to multiple outbreaks of a ‘notifiable disease’ was covered by the infectious diseases clause. The SCA’s decision was further fortified by much of the reasoning of the FCA Test Case and the recent judgements also in the Western Cape High Court: Ma-Afrika Hotels and Another v Santam Ltd [2020] ZAWCHC 160 (click here for our Newsflash on this case) and Interfax (Pty) Ltd and Another v Old Mutual Insure Ltd [2020] ZAWCHC 166.

A copy of the Appeal case can be found here.