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COVID-19 South Africa: FSCA proposal to gain legal certainty on contingent business interruption insurance cover

  • Legal Development 08 August 2020 08 August 2020
  • Africa

  • Coronavirus

On 7 August 2020, the Financial Sector Conduct Authority ("FSCA") issued a letter ("the Letter") to all affected non-life insurers underwriting contingent business interruption insurance cover ("CBI cover"), in terms of which the FSCA advances a proposal in an attempt to expedite legal certainty regarding CBI cover in the context of COVID-19 related claims. Please click here to view the Letter.

In the Letter, the FSCA records that it has taken note of the affected non-life insurers' concerns regarding the current legal uncertainty regarding CBI cover in the context of COVID-19 related claims, including possible appeal proceedings relating to such matters and the implications and possible differentiating factors of the test case launched by the Financial Conduct Authority in the United Kingdom. The FSCA also emphasises that it notes the view of affected non-life insurers that the necessary legal certainty in respect of CBI cover will only be achieved through court proceedings.

In view of the above concerns, the FSCA has, for purposes of further engagement, posited an approach in order to facilitate the obtaining of the necessary legal certainty. The FSCA is, amongst other factors, considering the following framework proposal:

  1. To approach the High Court for a declaratory order on the interpretation and application of specific clauses in business interruption insurance policies in the context of COVID-19 related claims;

  2. The said application be referred to the Johannesburg Commercial Court, in view of the fact that insurance and reinsurance is recognised as a commercial matter capable of being referred to this court;

  3. The application for a declaratory order be sought on an urgent basis;

  4. That it, subject to whether the FSCA can rely on section 6(1)(d) of the Financial Institutions (Protection of Funds) Act, 2001 to establish locus standi, be the applicant and dominus litis of the declaratory application. The affected non-life insurers may then be cited as respondents;

  5. To reach consensus with the principal affected non-life insurers regarding matters which are common cause (e.g. the date of lockdown) and agree on the issues to be considered by the Commercial Court, in an attempt to curtail the proceedings;

  6. The possible joinder of other interested parties (e.g. affected policyholders) to the said application. The process to achieve such is still to be assessed and determined;

  7. The costs of such litigation will be for the cost of each party and no party will seek cost orders against any other party; and

  8. Non-life insurers will not raise prescription as a defence should policyholders decide to lodge court actions against them at a later stage.

The FSCA emphasises in the Letter that the content of the Letter is a proposal for consideration and discussion aimed at reaching an understanding as to the framework for the process that may be followed in order to attain legal certainty. In particular the FSCA expressly invites non-life insurers to consider and submit their views on (amongst other things):

  1. Whether affected non-life insurers would support an application proposed by the FSCA for the determination of certain legal issues in respect of CBI cover, especially in the instance where a decision might not bind the policyholders;
  2. A process whereby all persons with an interest in the issues to be determined could be cited as an interested party in a manner which may result in them being bound by the decision of the court;
  3. Whether they are of the view that the FSCA is entitled in law to bring a case of the type mooted in the Letter and, if so, to explain on what basis they have reached this conclusion;
  4. The locus standi of the FSCA to act as an applicant and its legal interest in such an application, more particularly its interest in any “existing, future, or contingent right or obligation” as contemplated by section 21 of the Superior Courts Act;
  5. Whether the use of the Commercial Court is an appropriate forum to launch declaratory proceedings, and whether the Commercial Court will accept jurisdiction to hear the matter and/or any alternative proposals in this regard;
  6. Motivations as to the issue of whether the proposed application satisfies the test for urgency, and on what basis such urgency will be founded;
  7. Their position regarding prescription (i.e. not raising prescription as a defence), as such may or may not affect the viability of the FSCA bringing the contemplated proceedings and/or affect the question of urgency;
  8. Whether there is a need to agree on a set of common cause facts which will form the subject matter of the proposed application;
  9. Which specific policy terms should be selected for interpretation in the proposed application, and what the questions are on which declaratory orders should be sought in terms of such policy terms;
  10. Proposals regarding the costs of the proposed application; and
  11. Proposals regarding appeals of the outcome of the proposed application, namely whether non-life insurers will agree (and in doing so waive their rights) not to seek a further ruling on any issue by the Constitutional Court following the outcome of the proposed application.

The FSCA notably stresses the importance for non-life insurers and the FSCA to comply with the provisions of the Competition Act, 1998 in this process and that it remains the responsibility of each non-life insurer to seek guidance and advice from their respective attorneys regarding their statutory obligations under the Competition Act, 1998.

In the event of the FSCA and non-life insurers reaching an understanding with regard to the process to be followed in obtaining legal certainty, the FSCA will communicate such understanding on the FSCA’s website, including the content of a letter to be addressed to the Commercial Court, directives as may be issued by the Judge President or Deputy Judge President or any judge(s) allocated to the matter, as well as the pleadings and all notices and processes related to the matter.

The FSCA iterates that it intends issuing, after consultation with non-life insurers, regular media releases to update the public on developments concerning the legal process.

We suggest that insurers consider the proposals posited by the FSCA and engage their legal teams to assist in responding to the proposals and queries posed in the Letter, when engaging with the FSCA.

Should you require further information regarding the Letter and the impact thereof on CBI cover, please contact Ernie van der Vyver, Amelia Costa, Tony Hardie or Daniel le Roux.


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