In a judgment handed down by the Western Cape High Court on 25 November 2020 in the matter of Interfax (Pty) Ltd v Old Mutual Insure Limited, luxury travel goods retailer, Interfax (Pty) Ltd, has joined Café Chameleon and Ma-Afrika Hotels in succeeding in its claim for loss due to Covid-19-related business interruption.  This marks the fourth judgment handed down by the Western Cape High Court in favour of the policyholder. 

It has been a busy past week for BI-related court proceedings. The Ma-Afrika Hotels v Santam judgment was handed down on 17 November 2020, the appeal in Café Chameleon v Guardrisk was heard in the Supreme Court of Appeal on 23 November 2020 and the Grassy Knoll Trading as Fat Cactus v GuardRisk judgment was handed down on 26 November 2020.1 The eagerly and, hopefully, decisive Café Chameleon judgment is expected to be handed down by the SCA before the end of the year.

Interfax approached the court for a declaratory order that the Lockdown Regulations, and consequent interruption of Interfax's businesses, constitutes a defined event for which cover is provided in terms of the policy. 

Much like Café Chameleon, Ma-Afrika Hotels and Fat Cactus, Interfax took out business interruption insurance for loss resulting from an infectious or contagious disease within a 50 kilometer radius of its premises.  The cover was subject to a government authority:

  • declaring that a notifiable medical condition or communicable disease exists within the area; and/or
  • imposing quarantine regulations; and/or
  • acting to restrict access to the area in terms of a law pertaining to public health or safety.

Old Mutual argued that Interfax was indemnified only if the business interruption was caused by a local occurrence of the disease, and not a national occurrence or national response to the outbreak of the disease.  Old Mutual asserted that the loss suffered by Interfax was the result of the interruption of the business due to a national response to a national outbreak of Covid-19, and as such cover was not provided for in the policy.

In response, Interfax argued that this interpretation of the policy wording was fundamentally flawed and that no justification exists in the policy wording for the restrictions applied by Old Mutual.

Deciding the matter, Judge Davis held that the case turned on whether the insured peril, being the notifiable disease, incorporates a response from national government where the focus is exclusively on a locally-defined area.

Interpretation of the policy wording

In interpreting the policy wording, the court held that the drafters of the policy should have reasonably considered the possibility that regulations which restricted movement or imposed quarantine restrictions would not be confined to a local outbreak only.  On a proper interpretation of the policy, the parties contemplated that a local lockdown by a local authority was possible in the event of an outbreak of contagious disease. Therefore, according to the court, it follows that the policy  contemplates the possibility of a national government imposing broader restrictions than those restrictions implemented on a local level.  This approach to the interpretation of the policy wording led the court to an analysis of the issue of causation.

The causation debate

An insurer is only liable to indemnify a policyholder if the insured peril is the proximate cause of the loss.  In determining whether Covid-19 is the proximate cause of the loss suffered by Interfax, the court was required to consider the "but for" test-

"But for the occurrence of Covid-19 within a 50 kilometer radius of the insured premises, what would have happened?"

In responding to this question, the court held that -

"If there had not been an outbreak of Covid-19, then there would have been no national lockdown, no closure of business and no interruption of the applicant's business; that is, but for the outbreak of Covid-19, which included outbreaks within the 50 kilometer radius of the insured's premises, and regulations which restricted access within a 50 kilometer radius to the insured's premises, there would have been no interruption of its business as covered in terms of the insured peril".

Therefore, according to the court, the loss to Interfax's business would not have occurred "but for" the outbreak of Covid-19, which was the trigger for the national response restricting access to the area in which the business was located.  The court further ruled that an insurer cannot avoid liability under a policy because it did not foresee the unprecedented impact of Covid-19 and its consequent indebtedness due to Covid-19-related claims.

Judge Davis held that Interfax had established both factual and legal causation. In the result the following order was made:

  • Interfax is covered under the business interruption section of the policy;
  • The Lockdown Regulations implemented in response to Covid-19 and the resultant interruption of Interfax's businesses constitute defined events; and
  • Old Mutual is liable to indemnify Interfax for loss of gross profit due to the defined events in an expeditious manner.

Old Mutual has 15 days to appeal the decision.

A café, hotel, restaurant and luxury travel goods retailer may have been declared victorious by the Western Cape High Court, but the ultimate binding decision-making precedent remains in the hands of the Supreme Court of Appeal. We will continue to follow and report on this issue as it unfolds.

Footnote

1. For a summary of the Cafè Chameleon v Guardrisk and Ma-Afrika Hotels v Santam High Court judgment see the bulletins published by Fasken Insurance Services, available at High Court rules on insurers' liability in business interruption claims: What this means for insurers and insured's | Knowledge | Fasken and Insureds dot down a second Try | Knowledge | Fasken.

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