Insurers cannot use lockdown as grounds to reject claims – FCSA

The Financial Sector Conduct Authority (FSCA) has clarified its position on the hot-button issue of business interruption insurance policies that have infectious disease cover, saying the lockdown aimed at curbing the spread of Covid-19 cannot be used by any insurer as grounds to reject a claim.

In a strongly-worded statement issued on Thursday, the financial regulator added that it “is concerned about the behaviour of some insurers who are deliberately avoiding paying business interruption claims where no grounds exist to do so.”

The FSCA’s comments come in the wake of a recent landmark victory in the Western Cape High Court. Cape Town restaurant Café Chameleon successfully secured a declaratory order against Guardrisk Insurance, which is part of JSE-listed Momentum Metropolitan, for non-payment of a claim linked to the Covid-19 pandemic.

Read: Cape café’s ‘precedent setting’ business interruption insurance victory

Noting the case, the regulator said: “This judgment is in line with our communication and with what the FSCA has been communicating to the insurance industry subsequent to the issuance of its communication. Based on this judgment and in an attempt to avoid protracted litigation on further aspects of business interruption insurance cover such as quantum, the FSCA is engaging with the insurance industry in the interests of all affected policyholders.”

Café Chameleon is one of hundreds of smaller tourism and hospitality establishments countrywide that have cried foul over short-term insurers refusing to pay or delaying payments on policies that have extensions covering contagious and infectious diseases.

“Such conduct [by insurers] goes against the principles of treating customers fairly and breaks down confidence and trust in the insurance sector,” the FSCA declared.

Read:
Hoteliers plead for Covid-19 business interruption insurance payouts
Business interrupted, but insurers don’t want to pay

The watchdog said that it has communicated this view to insurers and “will take action against those that do not treat their customers fairly”.

“One of the key principles underlying the Twin Peaks reforms is that of treating customers fairly, where products are designed to meet customers’ needs; are sold in such a way that customers understand what they are buying; and unfair barriers such as fine print or unfair proof of claims are not put in the way of customers exercising their rights in terms of those policies,” it noted.

“The FSCA expressed its concern to the short-term insurance industry when this matter first arose and engaged with the sector to resolve it. The FSCA formalised its concern in the form of a [industry] communication that focused on specific aspects of business interruption insurance cover [communication 34 of 2020],” it said.

“This communication followed complaints relating to delays experienced by policyholders in the processing of business interruption insurance claims and repudiations of business interruption insurance claims by insurers,” the FSCA added.

Read:
OUTsurance pays out Covid-19 business interruption claims
Santam clarifies Covid-19 position on business interruption cover

As part of this process, the regulator assessed different wordings of such policies of the various insurers and issued guidelines [communication 34 of 2020] for insurers to deal with business interruption insurance claims.

“While the FSCA acknowledges that business interruption claims are complex in their nature, insurers that have policy wordings which fall under the (1) radius and notification, (2) radius; and (3) notifiable diseases categories must, when they have received all relevant documentation from a policyholder, not delay the payment of any claim provided policyholders are able to prove the requirements highlighted,” the FSCA noted in its concluding remarks of its industry communiqué at the time.

In the communiqué, the FSCA also pointed out that the actual Covid-19 lockdown could not be regarded as a trigger event for such claims.

It may have been this element that caused some confusion in the industry.

But in its latest media statement, the regulator clarified: “Based on the information received and analysed by the FSCA to date, the FSCA found that although it could not find evidence that the national lockdown could be a trigger for a valid business interruption insurance cover claim, policyholders are able to claim in instances where they can show that they have satisfied the requirements of their specific policy, whether it was before, during or after the national lockdown.”

The FSCA added: “In other words, the national lockdown cannot be used by any insurer as a ground to reject a claim.

“If a policyholder has a business interruption policy with a radius clause and such policyholder can prove that it suffered a loss for example, less bookings, cancellations of bookings and so forth as a result of the contagious/infectious disease in the area specified in the radius clause, and its business was interrupted or interfered with as a result of measures taken as a consequence of the contagious/infectious disease, including the national lockdown, then the policyholder has a valid claim.”

The regulator noted that it has “continuously reminded the insurance industry of the fact that Covid-19 entered the country and spread already prior to the declaration of the lockdown”.

Insurers are engaging with the FSCA, which has advised that it may issue specific directives to any insurer which is seen to be non-compliant.

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