COVID-19 South Africa: Authorities' Stance Vis-à-vis Business Interruption Insurance

• Published date: 03 June 2020
• Author: Mr Ernie Van Der Vyver and Nicole Britton
• Subject Matter: Finance and Banking, Insurance, Coronavirus (COVID-19), Financial Services, Insurance Laws and Products, Insurance Claims
• Law Firm: Clyde & Co

On 12 May 2020, the Financial Sector Conduct Authority ("FSCA") and the Prudential Authority ("jointly referred to as the Authorities") collectively issued Joint Communication 5 of 2020 ("Communication"), which sets out the Authorities' position on certain aspects relating to Business Interruption ("BI") insurance in light of COVID-19 and the Authorities' expectations on non-life insurers and intermediaries pertaining to policyholders with BI claims related to COVID-19.

The Authorities expressed the view that COVID-19 in itself will not trigger cover under standard BI insurance policies as it does not cause physical damage to an insured's premises and the Authorities see no basis to intervene in instances of repudiation of cover

The Authorities' engagements with various non-life insurers revealed that there are generally two broad categories of BI insurance in the market namely: (i) standard BI insurance which requires physical damage to the premises as a trigger for the policy to respond; and (ii) BI insurance that contains a specific extension for infectious/contagious diseases.

In respect of standard BI insurance:

• The Authorities expressed the view that COVID-19 in itself will not trigger cover under standard BI insurance policies as it does not cause physical damage to an insured's premises and the Authorities see no basis to intervene in instances of repudiation of cover.
• Insurers however are required to clearly communicate exclusions to policyholders and quote the relevant provisions of the policy document.

In respect of extension for infectious/contagious diseases:

• The Authorities' engagements indicate that there is only a small percentage of policies that offers this type of cover and that there are various interpretations in the market as to what the trigger for cover is and how exclusions for pandemics should be applied.
• The Authorities' understanding is that cover will only be triggered where the loss of income was due to the business being interrupted as a result of a localised infection of COVID-19. On this interpretation, the insured will not be entitled to claim for loss which solely arose as a result of other related actions such as the national lockdown introduced by government.
• The Authorities emphasise that insurers must communicate such interpretation (and effects thereof) clearly to policyholders (either directly or through their intermediaries).

Endorsements to policies

• From the Authorities' engagement with insurers pursuant...