Readers will have seen the recent Guardrisk judgment. The applicant, a Cape Town restaurant, sought urgent declaratory relief that the insurer was obliged to indemnify it in terms of the business interruption section of the policy for loss suffered as a result of the closure of the restaurant from 26 March 2020.

The infectious disease extension to the business interruption section of the policy provided cover for loss resulting from interruption or interference with the business due to, among other things, ‘notifiable disease occurring within a radius of 50km of the premises’.

The court asked ‘whether, but for the COVID-19 outbreak, the interruption or interference to the applicant’s business would have occurred when the lockdown regulations were promulgated’.

The court found that:

  • Factual causation had been established because COVID-19 occurred within 50km of the applicant’s premises;
  • COVID-19 is a human infectious disease and there was an outbreak of it; and
  • There was a nexus between the COVID-19 outbreak and the regulatory regime that caused the interruption of the applicant’s business.

The judgment is not always clear whether the court is referring to the local outbreak that is within the radius as required by the policy or the worldwide COVID-19 pandemic which spread to South Africa.

The court failed to ask and answer the correct question. It ought to have asked whether ‘but for’ the local infections the business interruption would have occurred.  Instead it asked whether ‘but for’ the COVID-19 pandemic, which led to the lockdown regulations, the business would have closed.

Presumably the judgment will be subject to an appeal.