INSURANCE AND COVID-19: CAFÉ CHAMELEON CC VS GUARDRISK INSURANCE COMPANY

In a judgment delivered on 26 June 2020 in the Cape High Court, an insurer (Guardrisk Insurance Company) was declared liable to its insured (the restaurant, Café Chameleon CC) in terms of the provisions of the Business Interruption Section of its insurance policy.

In this case the Business Interruption Section of the restaurant’s insurance policy contains a so-called Notifiable Disease Extension, which extends cover to losses suffered due to the interruption of business, conditional upon a “human infectious or human contagious disease, an outbreak of which the competent local authority has stipulated shall be notified to them” (“Notifiable Disease”).The relevant policy extension provides furthermore that the Notifiable Disease must be occurring within 50km of the Premises.

The restaurant argued that the Covid-19 outbreak falls substantially within the ambit of the Notifiable Disease Extension. Contrary thereto, the insurer argued that the losses suffered by the restaurant was due to the lock-down provisions and not directly related to the outbreak of Covid-19. The insurer also relied on the fact that the competent local authority did not stipulate that Covid-19 shall be notified to them. The Court, however, found that the national government, through regulations, stipulated that the outbreak of any human infectious or human contagious disease must be notified to the local authority, although no local authority did so.

The Court found that the principal reason why the notification requirement in the Notifiable Disease Extension was introduced, was to ensure that cover thereunder would only be provided upon outbreaks of the most serious diseases, and that the source of that obligation is not material, i.e. whether it is the local or national government, considering that a notification obligation to the local authority had been created, albeit via the national government.

The Court also found that Covid-19 was factually and legally causally connected to the losses suffered by the restaurant, as the lock-down provisions were implemented as a direct result of the outbreak of Covid-19. Furthermore, the insurer conceded that the outbreak was within 50km of the restaurant premises.

Although the Court found against the insurer in this instance regarding the cover provided by a Business Interruption Section, and more specifically an extension to Notifiable Diseases, whether a similar extension will provide cover to other restaurants and businesses, will depend on the exact wording of the extension in their Business Interruption policies and the facts of each case. The Court in this case pertinently pointed this out. This Court decision does however provide guidance on the manner in which the Courts may approach similar cases in future, although it is to be expected that this judgment will be appealed.

This short memorandum was prepared by Eugene Groenewald, a director of VanderMerwe & Robertson Inc, specialising in insurance law. In addition to legal qualifications, he also completed various Advance Insurance Practice courses through Unisa and obtained the post-graduate International Diploma in Enterprise Risk Management from the Institute of Risk Management in London.

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