Business interruption

In Santam Limited, a division of which is Hospitality and Leisure Insurance v Ma-Afrika Hotels (Pty) Ltd and Another [2022] 1 All SA 376 (SCA), business interruption indemnity period, objective approach of interpreting contracts and parties’ intentions applied.

By Merilyn Rowena Kader LLB (Unisa), Legal Editor at LexisNexis South Africa.

Insurance - Business interruption indemnity: The first respondent (Ma-Afrika) operated hotels and businesses in the Western Cape, and the second respondent (the Kitchen) was a restaurant that operated on the premises of one of those hotels. In terms of insurance policies with the appellant (Santam), infectious disease indemnity cover was provided to the respondents. The policies also offered business interruption cover, and the respondents were indemnified for loss of revenue. The insurable event was the outbreak of a ‘notifiable disease’ at or within a 40km radius of each of the establishments.

On the outbreak of the COVID-19 pandemic in South Africa, the respondents claimed for business interruption losses under insurance policies. Santam upheld only one of five claims, in respect of the hotel and only for the period 15 to 27 March 2020, due to the outbreak at that establishment, causing revenue losses only for that period. The remaining claims were rejected on the basis that none of the losses claimed were caused by a notifiable disease occurring within a 40km radius of the premises. Santam contended further that the losses suffered were because of a government lockdown and general concern or fear instead of a local outbreak of the notifiable disease. The respondents sought a declaration in the High Court that the indemnity period for the loss of revenue claim was 18 months.

The High Court granted declaratory relief confirming Santam’s liability to indemnify the businesses. Santam’s appeal focused on the applicable indemnity period in relation to business interruption losses under the policies.

The issue on appeal in Santam Limited, a division of which is Hospitality and Leisure Insurance v Ma-Afrika Hotels (Pty) Ltd and Another [2022] 1 All SA 376 (SCA), required a consideration of the period during which, according to the policy, the indemnity operated.

Undertaking an interpretation of the policy and the Schedules, thereto, the court restated the approach in interpreting insurance contracts. Language, context, and purpose must be considered in a unitary exercise. A commercially sensible meaning is to be adopted. The analysis is objective and is aimed at establishing what the parties must be taken to have intended, having regard to the words they used in the light of the document as a whole and of the factual matrix within which they concluded the contract. Applying that approach, the court concluded that the indemnity period in relation to claims for loss of revenue due to business interruption was 18 months. The appeal was dismissed with costs.

Merilyn Rowena Kader
Legal Editor at LexisNexis