Santam Limited v Ma-Afrika Hotels (Pty) Ltd & Another

Ma-Afrika Hotels (Pty) Ltd and The Stellenbosch Kitchen (Pty) Ltd held insurance policies with Santam Limited that provided business interruption cover for loss of revenue, including cover for notifiable diseases. During June 2020, following the outbreak of the Covid-19 pandemic in South Africa, the respondents lodged claims for business interruption losses. The policies covered notifiable diseases occurring within a 40 km radius of the insured premises. The first reported Covid-19 case in the Western Cape was on 11 March 2020 in Cape Town, and the first case at Tygerberg Hospital (near Stellenbosch) was on 16 March 2020. Santam rejected four of five claims, contending that losses were caused by government lockdown rather than local disease outbreak, and that even if liable, the indemnity period was limited to 3 months rather than the 18 months claimed. The respondents approached the Western Cape High Court seeking declaratory relief. The High Court granted the relief, declaring Santam liable with an 18-month indemnity period. Following the Supreme Court of Appeal judgment in Guardrisk Insurance Company v Café Chameleon, Santam confined its appeal to the issue of the indemnity period only.

• What is the applicable indemnity period under the business interruption insurance policies for losses arising from the Covid-19 pandemic - 18 months or 3 months?
• How should the insurance contract and its schedules be interpreted to determine the indemnity period applicable to infectious disease cover?
• Whether the contra proferentem rule applies in the event of ambiguity in the policy wording?
• Whether the infectious disease extension constitutes an 'extension' subject to the 3-month limitation stated in the Memorandum, or falls under the main business interruption cover with an 18-month indemnity period?

The appeal was dismissed with costs, including costs occasioned by the employment of three counsel. The High Court's declaration that the indemnity period was 18 months was upheld.

The binding legal principle is that in interpreting insurance contracts and schedules, courts must apply a unitary approach considering language, context and purpose, and adopt commercially sensible meanings. Where an insurance schedule lists categories of loss with an 18-month indemnity period in one section, and separately lists optional extensions with 3-month periods, a notifiable disease that is a peril (not a category of loss) and does not appear as a separately priced extension falls under the main cover with the 18-month period. The phrase 'Extensions under the Section are limited to an Indemnity Period of 3 Months' in a Memorandum refers to the listed extensions in the Extensions and Clauses section of the schedule, not to all cover under the Business Interruption Section. Any limitation on an obligation to indemnify must be restrictively interpreted and clearly spelled out by the insurer. Where there is meaningful ambiguity in policy wording, the contra proferentem rule applies against the insurer.

The Court made observations criticizing Santam's approach as 'tortured, convoluted and intricate' and as a 'desperate re-running' of arguments that had failed in earlier proceedings. The Court noted that while not necessary to decide, there was force in the argument that Santam had 'twisted and turned and changed tack in order, studiously, to avoid liability'. The Court observed that the policy was 'not an easy policy to navigate' (a concession made by counsel for Santam), and that the lack of evolution and refinement in the policy drafting 'is due to no fault on the part of the insured'. The Court also noted that insurers have evolved from the 'traditional approach' of providing cover only for physical damage to providing cover for perils such as notifiable diseases, and that since the pandemic, insurers 'appear no longer to offer and provide such cover'. While finding it unnecessary to engage in the debate, the Court noted there was an argument that an indemnity period is a limitation that should be restrictively applied, and that Santam's criticism of the High Court's description of insurance as a 'social safety net' need not be addressed.

This case is significant in South African insurance law as it clarifies the interpretation of complex insurance schedules in the context of Covid-19 business interruption claims. It reinforces the principles of contractual interpretation established in Centriq Insurance Company Ltd v Oosthuizen, requiring courts to have regard to language, context and purpose in a unitary exercise, and to adopt commercially sensible meanings. The judgment demonstrates the application of the contra proferentem rule in insurance contracts and emphasizes that insurers must spell out clearly any limitations they wish to impose. The case, following Guardrisk, forms part of the important jurisprudence on Covid-19 business interruption insurance in South Africa, providing clarity for numerous similar disputes. It illustrates that where policy wording is convoluted or ambiguous, courts will interpret provisions against the insurer who drafted them. The case also demonstrates judicial willingness to reject overly technical interpretations that would defeat the reasonable expectations of insureds.