Guardrisk has decided it is going to appeal the Western Cape High Court ruling that ordered the company to pay out business interruption claims of Cape Town restaurant, Cafe Chameleon.

The insurer, which is an underwriter of HIC Underwriting Managers, said the appeal was important to obtain certainty for the whole industry as it was clear that insurers around the world are grappling with the same issue.

In the UK, the Financial Conduct Authority has taken eight insurers to the Supreme Court for a test case. In the US, the Circuit Court in Michigan dismissed Covid-19 business interruption claims from two restaurants last week, saying their policies only covered direct physical loss or damage to property, while another case, a class action suit, has gone to the Supreme Court of Ohio to clarify whether presence of the virus constitutes physical loss to property.

Kavisharm Dheepnarayan, analyst at Benguela Global Fund Managers, said while one cannot pre-empt what will come out of Guardrisk's appeal, the important aspect will be getting clarity on the extent of the liability the insurer faces. That clarity will also be important for the reinsurance market, which is the party that insurers will pass most of these claims to if courts rule that they have to pay out. Warwick Bam, head of research at Avior Capital Markets, said so far, the scope of the Guardrisk case vs. Cafe Chameleon case has been limited to whether the insurance policy applies to the impact of the national lockdown.

It did not deal with the quantum of the claim. Bam said dealing with the quantum of the claim may require further legal proceedings.

"Is it fair to assess lost income based on the prior period when demand would have fallen even without lockdown regulations due to fear of contracting the virus?" he asked.

Guardrisk had not yet accepted or rejected Cafe Chameleon's claim, but the restaurant approached the Court to try and speed up the process as it was being asked to provide more and more information. While the judgment said Guardrisk ought to pay, it did not say how much.

"For me, it sounds like we are going to get to a point where there's going to be an argument for how much should the settlement be. So, it's about how long before they get to that point. Right now, there's a lot of uncertainty as to how much each will be liable for, what wording is in their documents because different policies are worded differently," said Dheepnarayan.

Court should also clarify who has a valid claim

He said court processes should also clarify how a valid claim is defined. This will especially be key for insurers as the Financial Sector Conduct Authority threw a spanner in the works last week when it issued a statement saying that policyholders who had a business interruption cover with infectious diseases and a radius clause in their policy documents have "a valid claim" if they suffered a loss because they were interrupted by a lockdown.

READ | Insurers can't use lockdown as excuse to reject claims, says regulator

Bam said ultimately, it is the courts that will determine who has a valid claim. "The courts will have an ultimate say in the matter so the FSCA's statement cannot be generalised, in my view."

He added that the approach taken by the UK's FCA, whereby it approached the Court to hear how it would interpret the cover in relation to lockdown regulations, is a constructive approach to empower the regulator and the Ombudsman to resolve this issue.

But Dheepnarayan said the fact that players like Santam have come out to say that their balance sheet will remain strong whether it is ordered to pay out or not, means some insurers expect that they may need to start making provisions for these claims.