The document summarizes the South African regulatory response to business interruption insurance claims related to COVID-19. It discusses 6 categories of extended business interruption coverage found in South African policies. It also outlines the regulators' positions that insurers should not be required to provide retroactive COVID-19 coverage but should evaluate claims appropriately under existing policy terms. The regulators agreed with a court ruling that supported a restaurant's claim and reiterated that radius clause claims requiring proof of loss due to disease measures would be valid. Insurers also agreed to provide interim relief payments to some policyholders while legal clarity is pursued.

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CBI-PAN-20-27
South Africa Regulatory Response
Business Interruption Claims
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Centers for
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South African Regulatory Response
On May 12, 2020 South Africa’s Financial Sector Conduct Authority (FSCA) and the South African Reserve Bank
Prudential Authority issued Joint Communication #5 recognizing two broad categories of business interruption
insurance sold in the South African Market:
Standard Business
Interruption Coverage
Extended Business
Interruption Coverage
To trigger coverage, the policyholder must provide physical
damage to the business premises.
Standard business interruption coverage is extended to
include infectious / contagious disease.
The Authorities understand that insurers and reinsurers
are interpreting the infectious/contagious disease
extension and in relation to the Covid-19 pandemic to
apply only where the loss of business income was due to
the business being interrupted as a result of a localised
Covid-19 infection and not as a result of other related
actions such as lockdown introduced by government.
The Authorities are not considering initiatives to require insurers to retroactively cover
Covid-19 related losses, such as business interruption, that are specifically excluded in
existing insurance contracts. Requiring insurers to cover such claims could create material
solvency risks and significantly undermine the ability of insurers to pay other types of
claims. Such initiatives could ultimately threaten policyholder protection and financial
stability, further aggravating the financial and economic impacts of Covid-19.
We reiterate that in respect of policies with standard BI
insurance, insurers must communicate clearly to
policyholders that policy benefits will be provided only
if physical damage is proved and provided that all
other policy requirements for cover are met.
Retroactive Coverage
The authorities offered no insight into their position, if any,
whether COVID-19 could cause physical damage.
The authorities expressed concern regarding inappropriate
denials of coverage under these extensions.
The authorities ruled out seeking retroactive coverage for COVID-19.

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SocietyCategories of Extended Business Interruption Coverage (1/2)
South African Regulatory Response
On June 18, 2020 the FSCA issued Communication # 34 identifying 6 main variations of extended business
interruption coverage:
1
Radius and
Notification
Business is interrupted as a result of a contagious
disease at or within a certain radius from the
premises and the local authority has formally
declared that a disease exists within the area,
imposed quarantine regulations or restricted
access to the area
2 Radius
Business is interrupted as a result of a contagious
disease at or within a certain radius of the
premises
Coverage Trigger Example of Satisfactory Evidence
Radius Requirement
• Any staff member tested positive for COVID-19 and
business had to close for a certain period; or
• A major facility such as a hospital or large retail store
(within the specified radius of the insured’s business
premises) was closed for a certain period due to a
positive case of COVID-19 at its premises; or
• The insured’s business premise is situated within one
of the cities or districts that have been declared
COVID-19 hotspots by the government
3 Notifiable
Disease
Business is interrupted by an illness sustained by
any person, resulting from an outbreak of which
the competent local authority requires that it be
notified
Local Authority Requirement
The requirement of:
• A formal declaration of disease by a local authority is
unenforceable because the COVID-19 response is
being handled at the national level and this condition
is totally beyond the control of the policyholder; and
• A mandatory notification to a local authority is
likewise unfair and therefore unenforceable.

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Centers for
Better Insurance
Policyholders
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SocietyCategories of Extended Business Interruption Coverage (2/2)
South African Regulatory Response
On June 18, 2020 the FSCA issued Communication # 34 identifying 6 main variations of extended business
interruption coverage:
6 Closure by Order
Interruption of business by the outbreak of a
notifiable disease or illness, or disease
occurring at the premises of the insured,
resulting in the closing or partial closing or
other interference with the business by order
of the state or government, local authority or
any other competent authority
Coverage Trigger Example of Satisfactory Evidence
4 General Exclusion
Radius extension subject to an exclusion if
there is an infectious epidemic or pandemic
disease at the insured’s business premises
or if the disease exists within a specified
radius of the business premises
No coverage is available because the World
Health Organization had declared COVID-10
a pandemic so there is no basis for recovery
5 Closure or Restriction
The insured’s business is interrupted by a
closure or restrictions placed on the
premises by the authorities as a result of a
contagious disease occurring at the
premises
Policyholder must prove that the insured’s
business was closed by an authority as a
result of COVID-19 at its premises
COVID-19 infection at the business premises
of a policyholder which resulted in the
business being closed completely or partially
by an order of state or government

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Centers for
Better Insurance
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Employees
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SocietyReiteration of Position
South African Regulatory Response
On July 9, 2020 the FSCA issued a press release reinforcing its position under the radius clause:
If a policyholder has a BI policy with a radius clause and such policyholder can
prove that it suffered a loss for example, less bookings, cancellations of bookings
and so forth as a result of the contagious/infectious disease in the area specified
in the radius clause, and its business was interrupted or interfered with as a
result of measures taken as a consequence of the contagious/infectious disease,
including the National lockdown, then the policyholder has a valid claim.
Proof Required under Radius Clause
Judgment in Café Chameleon v. Guardrisk Ins.
The FSCS endorsed the ruling in Café Chameleon where the court reviewed a “notifiable disease” extension. Under the wording
of the policy the disease must be of the kind “the competent local authority has stipulated shall be notified to them.”
The insurer denied the restaurant’s business interruption claim because (a) a national rather than local authority required
notification of COVID-19; and (b) the cause of the business shutdown is the lockdown regulation intended to “flatten the curve”
not the presence of COVID-19.
On the first point, after review of the South Africa legislative scheme for contagious disease notification the court found, in the
absence of any local legislation requiring contagious disease notification national legislation, a requirement to notify a national
authority would suffice to satisfy this requirement.
On the second point, the court found the cause of the business interruption was COVID-19. The virus is a “but for” cause of
lockdown regulations which in turn led to interruption of the policyholder’s business operations.

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South African Regulatory Response
Interim Payments and Test Case
On July 24, 2020 the FSCA issued a bulletin explaining an agreement it has reached with insurers:
Interim Relief to Policyholders
While legal certainty is being sought from the courts, insurers have agreed to make a one-off payment to the 3%-5% of policyholders
with a contagious disease extension subject to the following guidelines:
• At a minimum, the interim relief must be focused on those businesses most impacted by lockdown (e.g., the hospitality
industry) and small businesses;
• The amount of the payment will not be clawed back from the policyholder if the insurer prevails in the litigation;
• If the policyholder prevails in the litigation, the amount of the payment will be deducted from the total claim; and
• Insurers may offer a full and final settlement reflecting reasonable value to a policyholder which the policyholder may
accept or reject.