In this Covid-19 business interruption judgment [SCA judgment in AIG v 43 Air School and others], the Supreme Court of Appeal maintained its broad interpretation of the insured peril of an infectious disease extension, despite the contrary interpretation adopted by the UK Supreme Court.

The court ruled that the policy provided cover for business interruption losses even where the first confirmed infection in the specified radius was after the government had imposed restrictions in response to the wider national outbreak.

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 insured operated a flight school from premises in Port Alfred. The business of the insured 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.

This judgment is the first South African court decision concerning a claim where the first Covid-19 infection was only identified after the start of lockdown.

The argument raised by the insurer was that the policy only covered business interruption losses where the infections of Covid-19 within the radius preceded the restrictions imposed by the government. The argument relied upon the judgment of the United Kingdom Supreme Court in the FCA v Arch Insurance (UK) Ltd and others [2021] UKSC 1, more commonly known as the ‘FCA Test Case’.  In the FCA Test Case, the UK Supreme Court decided that the proper interpretation of similarly worded policies was that the insured peril was local infections of infectious disease within the specified radius.

The SCA held that foreign decisions such as the FCA Test Case are to be approached with caution as they were decided on a set of agreed facts on different policy wordings.  The SCA did not follow the interpretation that had been adopted by the UK Supreme Court in the FCA Test Case and instead followed its previous interpretation of a similar wording in Guardrisk v Café Chameleon CC 2021 (2) SA 323 (SCA) that the outbreak of infectious disease and the government response to it is part of the insured peril.  It confirmed its interpretation that the outbreak of disease within the specified radius simply serves as a “trigger” to the cover becoming effective.  The court ruled that therefore there was no requirement for there to be a causal connection between the local outbreak of the disease and the government response to the wider outbreak.  It was therefore not relevant that the first outbreak of the disease in Port Alfred did not contribute to the government’s decision to enter lockdown.  As no causal connection was required, it was also not necessary for the court to consider whether the local outbreak contributed to the maintaining / extending of the lockdown.

The claim of 43 Air School was therefore successful for interruption periods starting on or after 26 April 2020.

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