The Financial Sector Conduct Authority (FSCA) in South Africa has issued a statement outlining an understanding it reached with non-life insurers that are most affected by business interruption cover claims.
The arrangement is that insurers will consider interim relief to their policyholders who have the appropriate contagious disease extension, while legal certainty on this matter is being sought from the courts. The interim relief will take the form of once-off payments to policyholders to enable them to continue running their businesses while waiting for the outcome of the legal process.
The statement, released on 24 July 2020, says that the arrangement follows discussions between the FSCA and the Prudential Authority (PA) (collectively dubbed the Authorities) and the non-life insurers. The discussions were primarily aimed at addressing the impact of the repudiation of contingency business interruption cover claims by some non-life insurers (and delays in processing policyholders’ claims) and the impact of this issue on the reputation of the non-life insurance industry.
The Authorities have established the guiding principles to be applied in determining the interim relief:
The interim relief should at the very least focus on those businesses most impacted by lockdown (for example, the hospitality industry) and also on small businesses;
The funds provided to a policyholder as interim relief shall not be claimed back by any non-life insurer from a policyholder should the courts decide in favour of insurers. However, should the courts find in favour of policyholders, these funds will be deducted from the total claim amount payable to a policyholder by a non-life insurer; and
This relief should be on either an interim basis pending legal certainty or if non-life insurers wish to offer a full and final settlement, such settlement should reflect reasonable value to a policyholder and the implications thereof should be clearly explained in writing should a policyholder wish to accept the settlement on this basis.
The Authorities have agreed with the most affected non-life insurers that, despite the time barring clauses in the business interruption policies, non-life insurers would not raise the defence of prescription should policyholders decide to lodge court actions against non-life insurers at a later stage.
The statement also recognises that for reinsurance purposes, non-life insurers may require policyholders to lodge their claims before certain dates and the Authorities encourage policyholders, their brokers and legal representatives to co-operate with non-life insurers in this regard.