In this Covid-19 business interruption judgment [SCA judgment in AIG v 43 Air School and others], the Supreme Court of Appeal clarified the distinction between joint and composite policies of insurance in relation to the multiple insureds of one insurer under one policy.

The policy included an extension which provided cover for interruption to the business of the insured caused by the outbreak of infectious or contagious disease within a radius of 25 km of the premises.

The definition of “insured” in the policy indicated that there were multiple insureds.  Two insureds were identified by name, one of them being 43 Air School (Pty) Ltd.  The policy also insured “subsidiary companies, managed, controlled, member companies, joint venture, … and any other persons or entities for which they have the authority to insure, jointly or severally, each for their respective rights and interests’ “ of the named insured.

43 Air School operated a flight school from premises in Port Alfred. Other companies in the same group of companies conducted related aviation training businesses in Gqeberha and Lanseria.

The business of the 43 Air School had been interrupted as a result of the national lockdown starting on 27 March 2020 arising from the Covid-19 pandemic.  However, the Port Alfred area had only recorded its first confirmed Covid-19 infection on 26 April 2020, almost a month after the lockdown had started.

43 Air School sought to claim business interruption losses from the earlier date of 27 March 2020.  It relied on infections that had been confirmed within 25km of premises of other companies within the same group in Gqeberha and Lanseria prior to 27 March 2020 insured under the same policy.

The SCA distinguished between a joint policy and a composite policy.  A joint policy is one where the “the interests of the several persons who are interested in the subject-matter are joint interests, so that they are exposed to the same risks and will suffer a joint loss by the occurrence of an insured peril”. An example of a joint policy is where co-owners share a joint interest in a property.  A composite policy is intended to insure each of the insured separately in respect of its own interests. 

The nature of the interest in the subject matter of the insurance is the decisive determinant.  The subject matter of the business interruption insurance was the gross profit of the insured.  The different insureds covered by the policy did not share a joint and common interest in each other’s gross profits, so the policy was a composite policy and not a joint policy.

The outbreak of infections within 25 km of the premises of other insured companies insured under the composite policy did not trigger cover for the 43 Air School’s business interruption claim for 27 March 2020. The claim of 43 Air School was only successful for an interruption period starting on 26 April 2020.