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Top Commonwealth court affirms High Court ruling on Covid-19 business interruption insurance claims


While the Supreme Court judgment in the matter is still awaited, the Supreme Court of Appeal of South Africa has moved swiftly to support the Commercial Court’s findings for the UK regulator and insureds in Financial Conduct Authority v Arch Ins (UK) Ltd) [2020] EQHC 2448 (Comm).

In a unanimous  judgment for the five-member court, Cachalia JA  noted that Argenta’s policy in Arch was remarkably similar to the wording of the extension in the present case. Both required the notifiable disease (here, Covid-19) to be present within a stipulated radius of the insured business. The appellant South African insurer, Guardrisk (part of the multinational SA Mutual Group) contended that the insured risk only covered loss proven to have been caused by a Covid case within the radius.

Covid-19 had been present in the local area of the insured business in Cape Town before the South African Government imposed a hard lockdown in March. But the loss could not be attributed to any one or more local Covid-19 cases; it arose from the rapid spread of the pandemic through the country, and a national lockdown response to that.

Holding the High Court’s ruling in Arch persuasive”,  the Supreme Court of Appeal held that the insured risk included harm attributable to governmental response. It considered the analogy with the fireman’s axe and hose compelling: in principle, insuring against the peril anticipates (through requiring notification of any pandemic outbreak to health authorities), and includes, a response which may in itself cause harm.

The Court rejected the argument by Guardrisk  that if that were so, the stipulation by the insurer of a 50km radius meant that only local responses fell within the cover. It pointed to the absurdity of including the consequences of a municipal response (as Guardrisk conceded) but excluding a wider (provincial or national one).

Going on to consider causation, the Court held that its conclusion on the scope of insured peril in fact rendered this superfluous. But if it were applied, the same result arises: causally the pandemic and responses to it are inseparable. And as regards the suggestion that it could not be said that the Cape Town outbreak could not be shown to have caused the national response, the Court rejected this: nearly a quarter of South Africa’s reported cases immediately prior to the national lockdown were in the Western Cape. Substantially those cases precipitated the hard lockdown. Besides, causation was to be approached in a commonsensical way, recognising the problems posed by multiple causation.

The judgment is here.

Jeremy Gauntlett QC SC led five South African counsel for the insured.