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[2020] ZASCA 173
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Guardrisk Insurance Company Limited v Cafe Chameleon CC (632/20) [2020] ZASCA 173; [2021] 1 All SA 707 (SCA); 2021 (2) SA 323 (SCA) (17 December 2020)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 632/20
In
the matter between:
GUARDRISK
INSURANCE COMPANY LIMITED APPELLANT
and
CAFÉ
CHAMELEON CC
RESPONDENT
Neutral
citation:
Guardrisk
Insurance Company Limited v Café Chameleon CC
(Case
no 632/20)
[2020] ZASCA 173
(17 December 2020)
Coram:
CACHALIA, SALDULKER and MBHA JJA and
LEDWABA and EKSTEEN AJJA
Heard
:
23 November 2020
Delivered
:
This judgment was handed down
electronically by circulation to the parties' representatives by
email, publication on the Supreme
Court of Appeal website and release
to SAFLII. The date and time for hand-down is deemed to be 09:45 on
17 December 2020.
Summary:
Insurance law –
contract providing cover for loss resulting in interruption of
business for notifiable disease occurring within
50 km of business
premises – whether Covid-19 pandemic contemplated –
whether government response imposing national
lockdown part of the
insured peril – whether national lockdown causally linked to
local occurrence of disease.
ORDER
On
appeal from:
Western
Cape Division of the High Court, Cape Town (Le Grange J, sitting
as court of first instance):
Paragraphs
2 and 3 of the order of the court a quo are set aside. Save as
aforesaid, the appeal is dismissed with costs, including
the costs of
three counsel.
JUDGMENT
Cachalia
JA (
Saldulker and
Mbha JJA and Ledwaba and Eksteen
concurring)
Introduction
[1]
The respondent, Café Chameleon CC (Café Chameleon),
operates a restaurant in Cape Town. Its business, along with
many
other businesses, suffered a substantial, as yet unquantified, loss
of income following the outbreak of the Covid-19 pandemic.
The loss
arose from the interruption of its business due to the government
having instituted a national lockdown in response to
the pandemic.
Café Chameleon has an insurance policy underwritten by the
appellant, Guardrisk Insurance Company Limited
(Guardrisk). The
policy indemnifies it against loss from business interruption due to
notifiable diseases. Covid-19 is a notifiable
disease as envisaged in
the ‘Regulations relating to the Surveillance and Control of
Notifiable Medical Conditions’
(the Surveillance
Regulations)
[1]
promulgated under the National Health Act 61 of 2003 (the Health
Act). Café Chameleon says the policy gives it cover
for the
loss it sustained as a result of the lockdown. Guardrisk believes the
indemnity does not extend to the circumstances of
this case.
[2]
Café Chameleon thus sought a declaration in the Western Cape
High Court that Guardrisk was liable to indemnify it
for any
loss since 27 March 2020, arising from the interruption of its
business due to the lockdown. It also sought other
incidental relief,
including an order that Guardrisk make interim payments in respect of
its losses calculated and quantified from
time to time. The court a
quo (Le Grange J) granted Café Chameleon all the relief
it had initially asked for, but granted
Guardrisk leave to appeal to
this court.
[2]
It appears that the learned judge inadvertently overlooked that Café
Chameleon had abandoned the incidental relief during
the hearing. The
appeal thus concerns only the declaratory order.
The Essential Dispute
[3]
It is helpful to describe the essential dispute between the parties
before setting out the factual background and terms of the
policy.
The clause (the infectious diseases clause) that is the subject
of this dispute indemnifies the insured for “
loss
. . . resulting in interruption (of) the business due to notifiable
[disease] occurring within a radius of 50 km of the premises
”
.
Under the ‘special provisions’ of the policy, a
notifiable disease means “. . .
illness
sustained by any person resulting from any human infectious or human
contagious diseases, an outbreak of which the competent
local
authority has stipulated shall be notified to them . . .
”.
[4] Café Chameleon’s position is that once
it is accepted that there were occurrences of Covid-19 in Cape Town,
within
50 km of its business, the government’s response to it
through the imposition of a national lockdown was part of the insured
peril covered by the infectious diseases clause. Guardrisk maintains,
on the other hand, that the government’s generalised
response
to the pandemic is not what is covered; what is covered is a public
health response aimed only at local occurrences of
the disease within
50 km of the business. I shall consider these contentions in
more detail later in this judgment.
The
Factual Background
[5]
The first cases of Covid-19 were reported in KwaZulu-Natal, after a
group travelling from Italy returned to South Africa, early
in March
2020. By 11 March, there were a further six cases, all with recent
travel histories. One of these was in Cape Town, announced
by the
Western Cape Provincial Government. Two more cases were
announced in Cape Town, on 13 March. By 17 March, the number
of South
African cases had risen to 89, which included the first local
transmissions. On 23 March 2020, the number had grown to
100 cases in
the Western Cape, of which 85 were in Cape Town. At this stage Cape
Town had 25 percent of the reported cases in the
country, indicating
an alarming, rapid spread of the disease. On 28 March, South Africa
recorded its first death. By 30 April,
the total number of infections
was 2020, and four days later it had quickly reached 2 705.
[6]
The government embarked on an aggressive response to curb the spread
of the disease. Under the Disaster Management Act 57 of
2002
(“the Disaster Act”) the responsible Minister
declared a ‘State of National Disaster’ on 15 March
2020. That evening, the President announced this in a televised
address to the nation. On 18 March, the Minister published
regulations
under the Disaster Act prohibiting gatherings of more
than 100 people, closing schools and care facilities, and also
limiting the
sale and transportation of liquor.
[3]
On 23 March, the President announced a nationwide lockdown, to
commence on 23 March, and to continue until 16 April. New stringent
regulations (the Lockdown Regulations) were thus issued on 25 and 26
March to give effect to the lockdown, requiring almost everyone
to
stay at home from midnight 26 March until midnight 16 April.
[4]
[7]
There were exemptions to allow people to leave their homes for
limited purposes to perform essential services, obtain essential
goods and services, and for medical emergencies. Restaurants, such as
Café Chameleon, were forced to close and cease trading
since
27 March 2020. The regulations were relaxed later, permitting
take-away food. Café Chameleon has thus sustained devastating
losses by the interruption of its business. It sought an indemnity
for these losses from Guardrisk, which rejected the claim.
Café Chameleon, therefore, approached the high court for
relief.
[8]
One of Guardrisk’s central averments in its answering papers,
is that the regulations upon which Café Chameleon
relies for
its cause of action – reg 11B (1)
(b)
in particular,
which applies to the closure of businesses – were not
promulgated because of a notifiable disease within 50
km of its
premises. Rather its purpose, as appeared from government
announcements, was to prevent the spread of Covid-19, and,
to allow
the health system to create sufficient capacity to deal with the
outbreak. Guardrisk submits that Café Chameleon
did not
dispute this, which is fatal to its case.
[9] The fact is – and this is clear from the
papers – when the Lockdown Regulations were promulgated,
Cape Town
accounted for a large proportion of Covid-19 infections.
These infections were notifiable to the government in terms of the
Surveillance
Regulations. The government was therefore notified of
the rapid spread of infections in Cape Town, and also in other parts
of the
country. It responded by instituting the lockdown throughout
the country, including in Cape Town. Although Café Chameleon
could have been clearer about drawing the link between the local
outbreak and the imposition of the regulatory regime, it did so
on
any fair reading of the papers. The subtle distinction Guardrisk
seeks to draw, between Café Chameleon’s pleaded
case and
Guardrisk’s denial as to what the purpose for the institution
of the lockdown was, is therefore one without substance.
The true
question in this case is whether, properly interpreted, the
infectious diseases clause covers Café Chameleon for
its loss.
This is primarily a legal question, and, not one of fact.
The
Policy
[10]
The policy provides cover for specified defined events. The ‘Defined
Events’, described in the ‘Business
Interruption
Section’, typically require physical damage to property to be
suffered for a successful claim. However, there
are two types of
extensions to the physical damage requirement. One is the damage
extension to property that occurs in locations
other than the
insured’s premises. The other non-damage extension includes
loss for events that do not cause damage to property,
but occur
within a specified radius of the insured premises. The insured peril
is, therefore, a defined event that results in a
business
interruption.
[11] The non-property damage extension with which we are
concerned, including the infectious diseases clause (clause (e)),
appears
under the heading, ‘Extensions and Clauses’. It
must be read with the ‘Special Provisions’ clause,
which defines a ‘notifiable disease’. The non- property
damage extension provides:
‘
Infectious Diseases/Pollution/Shark and
Animal Attack Extension
Loss as insured by this Section resulting
[from] interruption or interference with the Business due to
:
(a) murder or suicide occurring at the Premises
(b) armed robbery, malicious and terrorist activities (whether actual
or hoax) occurring at the Insured
(c) food or drink poisoning at the Premises or attributable to food
or drink supplied from the Premises
(d) closure of the Premises due to defective sanitation, vermin or
pests on the order of a competent local authority
(e)
notifiable Disease occurring within a radius of 50 kilometres
of the Premises
(f) summons to appear in court as a witness by the Insured or any of
the Insured’s directors, partners of employees
(g) chemical or oil pollution of beaches, rivers or waterways within
a radius of 50 kilometres of the Premises
(h) shark attack or attack by wild game including hippopotamus,
rhinoceros, leopard, cheetah, crocodile, buffalo and elephant within
a radius of 50 kilometres of the Premises
Special Provisions
(a) “
Notifiable Disease” shall mean illness sustained
by any person resulting from any human infectious or human contagious
disease,
an outbreak of which a competent local authority has
stipulated shall be notified to them . . .
’ (Emphasis
added).
Interpreting Insurance Contracts
[12]
This court recently restated the approach to interpreting insurance
contracts in
Centriq
Insurance v Oosthuizen
:
[5]
‘
[I]nsurance contracts are contracts like
any other and must be construed by having regard to their language,
context and purpose
in what is a unitary exercise. A commercially
sensible meaning is to be adopted instead of one that is insensible
or at odds with
the purpose of the contract. The analysis is
objective and is aimed at establishing what the parties must be taken
to have
intended, having regard to the words they used in the light
of the document as a whole and of the factual matrix within which
they
concluded the contract.’
[13]
In this analysis it must be borne in mind that insurance contracts
are ‘contracts of indemnity’. They should therefore
be
interpreted ‘reasonably and fairly to this end’.
[6]
In this regard it is instructive to recall Schreiner JA’s
adoption of the following statement from the English authorities
on
insurance law:
[7]
‘
No rule, in the interpretation of a policy,
is more firmly established, or more imperative and controlling, than
that, in all cases,
it must be liberally construed in favour of the
insured, so as not to defeat without a plain necessity his claim to
the indemnity,
which in making the insurance, it was his object to
secure. When the words are, without violence, susceptible of two
interpretations,
that which will sustain the claim and cover the
loss, must in preference be adopted.’
Guardrisk’s case a quo
[14]
Before interpreting the infectious diseases clause, it is important
to understand Guardrisk’s opposition to the claim
in the court
a quo, as outlined in its answering affidavit. It accepted that
Covid-19 is a notifiable disease as defined, and,
also that it had
occurred within 50 km of Café Chameleon’s premises –
both essential requirements of the insured
peril. But it advanced
four interrelated arguments as to why the policy did not cover
Café Chameleon’s loss:
First, no competent local
authority had stipulated that the disease should be notified in
accordance with the policy. Second, as
a matter of construction, this
requirement localises the scope, and the extent, of the cover to the
50 km radius; the cover did
not extend to the consequences of events
within a wider area, including countrywide or global events. Third,
the policy did not
cover loss following closure of the premises as a
result of a government order. Finally, there was no causal link
between the defined
event (the Covid-19 outbreak within the 50 km
radius) and the interruption of the business. This is because the
interruption was
a consequence of the national lockdown, and,
not the local occurrence of the disease.
[15] As to the contention that no competent local
authority had stipulated the disease, the court a quo undertook a
comprehensive
analysis of the legislative framework governing
notifiable diseases. This included an examination of both the Health
and Disaster
Acts, including the Surveillance Regulations and
the Lockdown Regulations promulgated thereunder. The learned judge
found
that even though the City of Cape Town’s by-laws did
not provide for the notification of human infectious or contagious
diseases, national legislation imposed an obligation to report their
occurrence to a local authority. He concluded that:
‘
[T]he principal reason why the notification
requirement was introduced to the Notifiable Diseases Extension, was
to ensure that
cover thereunder would be triggered by outbreaks of
the most serious diseases, and not whether the source of that
obligation to
report the gravity of the threat was national
legislation, rather than subordinate legislation enacted by a local
authority.’
[8]
[16]
On this basis the learned judge rejected Guardrisk’s submission
that the claim fell outside the scope of the clause,
because no
competent local authority had stipulated that the disease be
notified to it. His criticism that the submission
amounted to a
‘narrow peering of words’, which did not accord with the
proper approach to the interpretation of insurance
contracts outlined
earlier, was well founded. Guardrisk, wisely, abandoned the argument
in this court.
[17] The court a quo also dismissed Guardrisk’s
three other arguments. I shall consider these in due course. It is
apposite
to begin with the third point raised in the high court i.e.,
that the policy does not cover loss following closure of the premises
as a result of a government order. Although the high court did not
deal with the submission explicitly, it implicitly rejected
it. This
is apparent from the learned judge’s conclusion. This issue
lies at the heart of the interpretation question: whether
the
infectious disease clause covers the government’s response to
Covid-19 in this case.
Does
the insured peril include a government response to Covid-19
?
[18]
The trigger for coverage under the infectious diseases clause is that
it is notifiable. Diseases are notifiable when the law
requires it to
be reported to government authorities.
[9]
This is because they pose particular ‘public health risks’.
[10]
They have ‘a potential for regional or international
spread’,
[11]
and may necessitate specific governmental action nationally,
provincially and locally.
[12]
The global response to Covid-19 exemplifies this.
[19]
That a notifiable disease usually requires a government response
would have been appreciated by the contracting parties. They
must
therefore be taken to have understood and agreed that ‘business
interruption’ referred to in the infectious diseases
clause
might result from a public health response to the occurrence of an
infectious disease.
[20]
Counsel for Café Chameleon persuasively drew an analogy
between harm caused by a government response to a notifiable
disease
and fire insurance, which covers incidental harm unavoidably caused
by fire-fighters, in response to a fire at a premises.
In both cases
the response to a notifiable disease by public health authorities and
of fire-fighters to a fire is integral to the
insured peril. That
being so the only sensible interpretation of the clause is that it
includes and contemplates harm that is attributable
to a government
response. It might be that the clause envisages only a lawful
government response and not any response, but that
is not an issue we
need consider.
[21]
I, therefore, accept Café Chameleon’s core submission
that a notifiable disease almost always carries the risk
of a
government response, making it part and parcel of the insured peril.
As counsel for Café Chameleon put it: ‘because
it is
part of the insured peril, the government’s response is
covered, not because it is
caused
by what was insured against; it is covered because it
is
what is insured against’.
[22] It follows that Guardrisk’s contention in the
court below that the policy did not indemnify business interruption
due
to closure following a government order, had to fail. In this
court, Guardrisk’s stance underwent some mutation; it accepted,
in response to questions from the court, that a local government’s
response to Covid-19 would be part of the insured peril.
But, it
maintained, the national response did not fall within the ambit of
the clause. This is the gravamen of Guardrisk’s
complaint.
Does the policy cover the Covid-19 pandemic?
[23]
I must first deal with the submission Guardrisk made at the outset,
which is this. The infectious diseases clause, it argues,
does not
refer to, nor contemplate, cover for the Covid-19 pandemic. This is
because, as it explains in its answering affidavit,
the events
brought about ‘went beyond the imagination of everyone, and
every industry, including the insurance industry’.
No one ever
thought, Guardrisk asserts, ‘there would be a national, and
global, lockdown where commercial activity would
for all practical
purposes cease to exist’. The consequence is that no insurance
company would have underwritten a policy
where the risk of such large
scale and unimagined losses could materialise.
[24] In a nutshell Guardrisk’s contention is that
because the parties had not thought of the risk of a pandemic at the
time
they contracted (and the policy does not explicitly refer to a
pandemic), Café Chameleon is not covered. This argument is
premised on a fallacy that a court determines the intention of the
parties by having regard to what the parties subjectively believed
or
thought when the policy was concluded. But as I have pointed out
earlier, the interpretation of a contract requires an objective
analysis, regard being had to language, context and purpose. The
analysis is aimed at establishing what the parties must be taken
to
have intended, not what their unexpressed thoughts were, when they
contracted. As a member of the court pointed out during the
hearing,
the fact that a policy may include cover for earthquakes does not
mean that the parties realistically thought that the
risk of an
earthquake could materialise. There is thus no substance in this
argument.
Is the insured peril confined to a localised response
to the infectious disease?
[25]
Although Guardrisk no longer persists with the argument that the
policy requires a local authority to stipulate the notification
of
the disease, it contends, as a matter of construction, that this
requirement supports its view that the policy localises the
scope,
and the extent, of the cover to the 50 km radius, and, excludes the
consequences of events within a wider area, including
countrywide or
global events. Simply put, it says that the cover is expressly
limited only to the particular consequences of a
local occurrence of
the notifiable disease. A generalised government response to a
national occurrence of Covid-19, which is not
aimed specifically at
the local occurrence, and causes business interruption and resultant
loss, is not covered. It is, therefore,
impermissible, Guardrisk
insists, to interpret the 50 km radius requirement, as Café
Chameleon does, as a mere qualifying
criteria unmoored from the
causative link between the business interruption and the local
occurrence of the disease.
[26]
Café Chameleon’s answer is that Guardrisk misconstrues
the 50 km requirement as being confined to local occurrences
of
infectious disease. It submits that the infectious diseases clause
has two threshold requirements for indemnification: (a) a
notifiable
disease occurring, and, (b) within a radius of 50 km of the
business premises. Once the threshold is established,
the remaining
requirement is that the outbreak caused business interruption by
deterring potential customers from patronising the
business. It does
not matter, the argument continues, that the interruption and
consequent loss was the result of a national government
response to
occurrences also extending beyond the radius.
[27]
In my view, Guardrisk’s interpretation of the insured peril as
being confined to local occurrences does not accord with
a proper
construction of the clause. In response to a question from the court
as to whether Guardrisk accepted that Café
Chameleon would
have been covered if the local authority – the City of Cape
Town in this case – had imposed the lockdown,
instead of the
government, Counsel for Guardrisk, quite properly, accepted that it
would have. Why then, it might be asked rhetorically,
should the
insured be denied cover only because the government, rather than the
local authority, took action against an infectious
disease that
occurred, not only within the 50 km radius, but also beyond it.
[28]
Properly construed, I think, the 50 km radius acts both as a
threshold or qualifying requirement for liability under the clause,
and, a break against liability for far-flung occurrences beyond it.
An example would be where there is an outbreak of the disease
on a
tourist bus headed for Cape Town, from Johannesburg, and, as a
consequence the tourists are quarantined at a hotel more than
50 km
from Cape Town through government action. The tourists have
reservations at a Cape Town restaurant, but are compelled to
cancel
the booking, which results in business interruption. It is evident
that there would be no cover because there is no notifiable
disease
occurring within 50 km of the business premises. If, however, the
discovery of the outbreak had occurred within this radius
it would
yield a different result.
[29]
Guardrisk sought to argue by reference to several other examples that
Café Chameleon’s interpretation of the clause
yields
absurd results, because it grants cover for business interruption
caused by an outbreak within 50 km of the premises, but
denies cover
where the notifiable disease is detected just outside the radius. It
criticises this interpretation as having the
effect that cover
becomes a matter of ‘happenstance’, amounting to a
‘postcode lottery’.
[30]
Café Chameleon answers this criticism convincingly: Drawing
lines in statutes or contracts, Mr Gauntlett argues on its
behalf,
often yields arbitrary results. Guardrisk could have drawn the line
much tighter at 5 km from the premises, or chosen other
distances
arbitrarily – 30 km or 60 km. But it chose 50 km, apparently,
without giving this much thought. Drawing lines in
this way, without
an objective basis, will inevitably result in hard cases at the
margins, as in the tourist example given earlier,
or when an insured
who is 49 km from a reported occurrence of an infectious
disease, qualifies for cover, but not the insured
who is 51 km away.
This is not a problem of interpretation, but arises unavoidably
because Guardrisk itself drew these sharp lines.
[31]
This much is clear from the facts. When the President announced the
lockdown on 23 March there were 100 reported cases of Covid-19
in the
Western Cape, of which 85, were in Cape Town. At this stage Cape Town
had 25 percent of the reported cases in the country.
This represented
the highest number in any area or region. It is, therefore, fair to
say that the occurrence of the disease was
predominantly in Cape
Town. There was thus a rapidly spreading ‘notifiable disease
occurring within a radius of 50 km of
the premises’, which
required an urgent government response.
[32]
Guardrisk submits that the lockdown was a response to several
outbreaks in different parts of the country, and, not only Cape
Town.
This is so. But it is also undeniable that the rapid spread of the
disease in Cape Town would have weighed with the public
authorities
in recommending that a national lockdown be implemented, including,
and especially, in Cape Town. Despite this, Guardrisk
would have us
accept that the clause covers only a public health response to local
occurrences, and, not to outbreaks in multiple
areas, which includes
a local outbreak. A proper reading of the clause does not support its
stance.
[33]
The purpose of the clause, quite clearly, is to provide cover for
business interruption due to occurrences of a notifiable
disease
within a 50 km radius of the premises. The language of the clause
contains no indication that cover is provided only for
a public
health response that does not extend, nor have its genesis, beyond
the radial boundary. The parties must have contemplated
that the
clause would provide cover for any public health response to any
outbreak of a notifiable disease, whether or not it occurs
in
multiple localities, provided only that it also occurs within the 50
km radius. Guardrisk’s interpretation is therefore
neither
commercially sensible, nor does it reasonably or fairly accord with
the purpose of the clause.
[34] Once it is understood that a notifiable disease as
envisaged in the infectious diseases clause entails a government
response
(national or local), it must follow that the insured peril
includes both its occurrence within the radius, and, the government’s
response to it. And where, as here, the response is aimed at curbing
the spread of the disease in multiple locations, including
the area
that falls within the radius specified in the policy, it must also be
covered by the policy. The government response to
Covid-19, which
resulted in the interruption of Café Chameleon’s
business, and its consequent loss are, therefore,
covered by the
policy. This conclusion renders the question of causation, whether
the insured peril ie, the presence of Covid-19
in Cape Town and
the government’s response, was the cause of the
business interruption, superfluous. I shall nevertheless,
for
the sake of fullness deal with it, not least because Guardrisk’s
case is framed primarily as one of causation.
Causation
[35]
The infectious diseases clause provides cover for loss resulting in
business interruption
due
to
notifiable
disease occurring within 50 km of the business premises. Guardrisk,
therefore, insists that there be a causal connection
between the
defined event (the occurrence of Covid-19 within 50 km) and the
business interruption. Guardrisk contends that
there is no causal
link between the defined event, and, the interruption of the
business. This is because the interruption was
a consequence of the
lockdown, and, not due to the local occurrence of the disease. Café
Chameleon has, therefore, not shown
that the lockdown was the factual
or legal cause for the interruption.
[36]
The high court did not have the benefit of the argument made on
Café Chameleon’s behalf in this court dealing
with
the proper interpretation of the clause. It thus also approached the
problem primarily as one of causation. The learned judge
found that
there was a ‘clear nexus’ between the Covid-19 outbreak
in Cape Town and the imposition of the national lockdown,
and
also that the harm to the business caused by the outbreak was not too
remote. He thus held that factual and legal causation
had been
established.
[13]
Causation
in Insurance
[37]
The general approach to causation also applies to insurance law.
[14]
Factual causation is the first enquiry. The diagnostic tool is the
‘but for’ test, which involves a ‘hypothetical
enquiry as to what probably would have happened but for the wrongful
conduct of the defendant’.
[15]
The test is usually applied in the law of delict. In the insurance
context, the analysis is aimed at establishing what would have
happened, but for the insured peril.
[38]
The courts have recognised that a rigid application of the test may
sometimes yield unpalatable and unfair results, and, have
thus
cautioned against applying ‘rigid deductive logic’.
[16]
In what is now an oft-quoted passage from this court, in
Minister
of Safety and Security v Van Duivenboden
[17]
Nugent JA said:
‘
. . . A plaintiff is not required to
establish the causal link with certainty, but only to establish that
the wrongful conduct was
a probable cause of the loss, which calls
for a sensible retrospective analysis of what would probably have
occurred, based upon
the evidence and what can be expected to occur
in the course of ordinary human affairs rather than an exercise in
metaphysics.’
[39]
The common law test is thus applied flexibly, recognising that
‘common sense may have to prevail over strict logic’.
[18]
In the contractual context it has long been accepted that causation
rules should be applied ‘with good sense to give effect
to, and
not to defeat the intention of the contracting parties’.
[19]
For insurance contracts the question always is: ‘[H]as the
event, on which I put my premium, actually occurred?’
[20]
[40]
Of relevance in the instant case is that there may be more than one
cause or multiple causes giving rise to a claim. In that
case ‘the
proximate or actual or effective cause (it matters not what term is
used) must be ascertained . . .’
[21]
Even if a loss is ‘not felt as the immediate result of the
peril insured against, but occurs after a succession of other
causes,
the peril remains the proximate cause of the loss, as long as there
is no break in the chain of causation’.
[22]
A proximate cause should be identified as a matter of ‘reality,
predominance [and] efficiency’.
[23]
Put differently the real or dominant cause is ascertained by applying
good business sense.
[24]
[41]
The enquiry into legal causation usually follows factual causation.
It asks whether there is a sufficiently close relationship
between
the factual cause and the consequent loss to give rise to legal
liability.
[25]
Put differently, the question is whether the loss is too remote for
the factual cause to also be the legal cause. If not, no legal
liability may arise.
[42]
In delict, policy considerations are applied to guard against
attaching ‘liability in an indeterminate amount for an
indeterminate time to an indeterminate class’.
[26]
In contract, though, these policy considerations ‘usually do
not enter into the enquiry’.
[27]
Instead, and in particular with insurance contracts, as Grosskopf JA
observed in
Napier v
Collett
:
‘
[O]ne would have prime regard to the
provisions of the insurance policy. Thus for example the policy may
extend or limit the consequences
covered by the policy, for example
by laying down exceptions. But in addition to any specific
provisions, matters such as the type
of policy, the nature of the
risk insured against and the conditions of the policy may assist a
court in deciding whether the factual
cause should be regarded as the
cause in law.’
[28]
[43]
Sometimes, complex legal questions may arise, ‘where several
factors concurrently or successively contribute to a single
result
and it is necessary to decide whether any particular one of them is
to be regarded legally as a cause’.
[29]
Effect must then ‘be given to the parties’ own perception
of causality lest a result be imposed upon them which they
did not
intend’.
[30]
Was factual and legal causation established?
[44]
As mentioned, Guardrisk contends that there was no causal link
between the defined event (the Covid-19 outbreak within the
50 km
radius) and the interruption of the business. Café Chameleon
has therefore not proved factual causation. Its argument
is this. The
application of the ‘but for’ test in an insurance case
requires the correct identification of the counterfactual,
with
reference to the defined event. It involves a mental elimination of
the defined event. The counterfactual posited is: but
for the
elimination of the occurrence what would have happened.
Self-evidently, the answer to this question is, there would still
have been business interruption because of the national lockdown.
Ergo, the defined event was not the factual cause of the
business
interruption.
[45]
There is a seductive allure to the simplicity of the question posed
by Guardrisk, and, the answer it inevitably yields. But,
I have
already found, as a matter of construction, that the defined event or
insured peril is the occurrence of Covid-19
and
the government’s response. So the proper question in applying
the ‘but for’ test in this case is to ask whether,
but
for the defined event (properly understood as the occurrence of
Covid-19 and the government response) would the business have
been
interrupted.
[46]
Guardrisk pushes back against this approach. It insists that even if
the defined event includes a government response, it must
be
factually linked to the localised outbreak of the disease. On this
basis it accepts that a lockdown imposed by a local authority
in
reaction to the outbreak would have been a factual cause of the
business interruption. The national lockdown, which caused the
business interruption was, however, aimed at curbing the spread of
the disease throughout the country, rather than Cape Town,
specifically. Therefore, contends Guardrisk, the outbreak of the
disease in Cape Town did not cause the business interruption.
[47]
The difficulty Guardrisk cannot overcome is that its central premise
is founded on an artificial separation between the occurrence
of the
local outbreak in Cape Town and government’s response to
the national outbreak, which perforce included
Cape Town, as I
have pointed out earlier. As the high court put it, correctly I
think, there was a ‘clear nexus’ between
the local
occurrence of Covid-19 and the lockdown.
[48]
Viewed slightly differently, because the lockdown was a response to a
national outbreak, which included, predominantly, the
Cape Town
outbreak, Café Chameleon’s losses were due at the very
least to concurrent causes. As a matter of ‘reality,
predominance and efficiency’, therefore, the local outbreak
and government response, was the real or proximate cause
of the
business interruption. This conclusion not only accords with reality
but also makes good business and common sense. So,
when Café
Chameleon asked the question: ‘[H]as the event, on which I put
my premium, actually occurred’, there
could have been only one
answer.
[49] Having established that the local occurrence of
Covid-19 and the government’s lockdown was the factual cause of
Café
Chameleon’s loss, the focus shifts to whether it
was also the legal cause. In the court a quo, Guardrisk invoked the
spectre
of indeterminate liability and potential collapse of the
insurance industry, should the insured’s interpretation of the
clause
be upheld. The court dismissed the argument on the ground that
these gloomy predictions were speculative and that Guardrisk had
provided no evidence regarding its own exposure. But even if this
were so, it reasoned:
‘
[I]t cannot be a defence for an insurer to
say that it must be excused from honouring its contractual
obligations because its business
has unexpectedly incurred greater
debt than had been expected.’
[31]
[50]
In this court Guardrisk abandoned this argument because, as is clear
from
Napier v
Collett
,
[32]
policy considerations, such as indeterminate liability do not play a
role in a contractual setting. Instead the focus is on the
provisions
of the insurance policy. Accepting this approach, Guardrisk thus
contended that Café Chameleon had not proved
that the local
occurrence of Covid-19 was ‘sufficiently intimately connected
with the imposition of the regulations’
to impose liability on
it.
[51] Once we accept, as I have, that the government
response through the imposition of the lockdown, was both a proximate
cause,
or as the high court found, sufficiently closely connected to
the business interruption and consequent loss, the conclusion that
legal causation was proved, follows inevitably.
The
Financial Conduct Authorities Case
[52]
The parties drew our attention to a recent test case in the UK High
Court involving several sample business interruption policy
wordings
from eight insurers.
[33]
The case was brought by the Financial Conduct Authority (the FCA)
representing the interests of insured businesses. As with
the present
case, the FCA sought declarations in respect of these wordings in
respect of a set of agreed facts.
[53]
In this regard it is apparent that the United Kingdom’s
regulatory response to Covid-19 was similar to South Africa’s.
In the middle of March, the UK government directed people to stay at
home and stop non-essential human contact and travel. On 20
March, it
ordered restaurants to close, and, a few days later, it announced a
national lockdown, including all non-essential businesses
in its
dragnet.
[54]
Argenta’s was one of the policies the court was asked to
interpret. It had a remarkably similar infectious diseases clause
to
the one at issue in this appeal. It extended business interruption
cover ‘for such interruption as a result of . . .
any
occurrence of a [notifiable human disease] within a radius of 25
miles of the [premises]. It also took care to limit its liability
to
£25 000, which Guardrisk, doubtless must rue, has not
done’.
[34]
Argenta, nevertheless, sought to escape any liability by contending,
as Guardrisk does here, that an insured must show that a business
interruption was the ‘proximate cause’ by the occurrence
of Covid-19 within the 25 mile radius. Unless it is able to
do so,
the argument continued, there is no cover for losses due to measures
taken in response to occurrences outside the radius
or of the public
response to such measures.
[35]
[55]
The court found, as a matter of construction, that Argenta’s
argument did not accord with the language of the policy.
It reasoned
that the text ‘is not expressly confined to cases where the
interruption has resulted only from the instance(s)
of a Notifiable
Disease within the 25 mile radius as opposed to other instances
elsewhere’.
[36]
Instead, it continued, ‘the clause can and should
properly be read as meaning that there is cover for business
interruption
consequences of a Notifiable Disease which has occurred,
i.e. of which there has been at least one instance within a specified
radius’.
[37]
[56]
Significantly, the court accepted, as I have, that the nature of a
notifiable disease involves a government response. It explained
that
it is in ‘the nature of human infectious and contagious
diseases that they may spread in highly complicated, often difficult
to predict, and what may be described as “fluid”
patterns’. The list of notifiable diseases ‘includes some
which might attract a response from authorities which are not merely
local authorities, and which is not a purely local response’.
[38]
I pause to mention that this observation echoes the requirement in
South Africa, that a Category 1 notifiable medical condition,
which
includes respiratory disease caused by a novel respiratory pathogen
referred to in Table 1 of Annexure A of the Surveillance Regulations,
which Covid-19 is, must be reported to the Department of Health
within 24 hours. The court thus concluded that the parties to this
kind of insurance ‘must have contemplated that there might be
relevant actions of public authorities which affect a wide
area’
and that ‘the authorities might take action in relation to the
outbreak of a notifiable disease as a whole, and
not to particular
parts of an outbreak’.
[39]
[57]
The court also based its conclusion on its interpretation of the
clauses, even though much of the insurers’ arguments
were put
in terms of causation. Put simply, it said that the case was about
construction rather than causation.
[40]
However, it accepted the FCA’s argument that given the nature
of the cover that was provided ‘proximate causation’
would be satisfied:
‘
[In] a case in which there is a national
response to the widespread outbreak of a disease. In such a case we
consider that the right
way to analyse the matter is that a proximate
cause of the business interruption is the Notifiable Disease of which
the individual
outbreaks form indivisible parts.’
[41]
[58]
I refer to this case with caution bearing in mind that it was decided
on a set of agreed facts and that there were differences
– in
some instances important differences – in the language of the
policies there in issue. We were also informed from
the bar that the
UK Supreme Court is yet to deliver judgment in an appeal by both the
FCA and the insurers in respect of some of
these findings. This
notwithstanding, I consider the court’s reasoning persuasive,
at least in relation to the policies that
bear a similar wording to
the present one.
[59] Guardrisk has three remaining arguments that
require brief consideration. I deal with the Trends Clause first.
The Trends Clause
[60]
As an afterthought, Guardrisk contends that the ‘trends’
clause or ‘other circumstances clause’ effectively
denies
Café Chameleon cover. The purpose of the clause in insurance
contracts is to adjust the loss an insured has suffered
as a
consequence of the insured peril, so that the insured is put in the
same trading position after the business interruption,
as if it had
not happened. The formula, according to which the loss is calculated,
is adjusted to reflect the projected fate of
the business, as if the
business interruption had not occurred. Café Chameleon is not
entitled to cover, it argues, because
the Lockdown Regulations
constituted an ‘other circumstance’ affecting the
business, the effect of which is that it
would have suffered a loss
even if there was no local occurrence of Covid-19.
[61]
Guardrisk did not advance this argument in its answering papers, nor
in the court a quo. On appeal Counsel merely stood by
his written
submissions, apparently without conviction. The short answer to this
contention is that the trends clause is relevant
to the
quantification of loss, not liability, which is what we are here
concerned with.
[62] More fundamentally Guardrisk errs in construing the
lockdown regulations as an ‘other circumstance’. The
trends
clause applies when an adjustment must be made, in its words,
‘to provide for the trend of the business and for variations
or
other circumstances affecting the business either before or after the
Damage or which would have affected the business had the
Damage not
occurred’. An ‘other circumstance’ by definition,
therefore, refers to an occurrence separate from
or independent of
the insured peril, not one that is intrinsic to it. The Lockdown
Regulations, I have found, were part and parcel
of the insured peril.
They are not an ‘other circumstance’ as envisaged in the
trends clause. If Guardrisk’s
submission were correct it would
have the extraordinary consequence that despite being part of the
insured peril for which cover
is provided, the Lockdown Regulations
simultaneously operate as a circumstance to negate the cover.
The Remaining submissions
[63] Guardrisk persisted with two other submissions in
its heads of argument, but not argued orally. The first is that the
court
a quo erred because the declaratory relief sought, and the
order granted, did not mirror the language of the infectious diseases
clause. The declaration sought was:
‘
That it is declared that the respondent is
obliged to indemnify the applicant in terms of the Business
Interruption section of policy
number HIC 0000-2950 for any loss
suffered by the applicant, calculated and quantified as provided in
that section,
arising since 27 March
2020 from the interruption of the business as a result of the
promulgation and enforcement of Regulations
made by the Minister of
Cooperative Government and Traditional Affairs under the
Disaster
Management Act 57 of 2002
in response to the Covid-19 pandemic in
South Africa.
’
And what was granted, but apparently not sought was:
‘
That the Respondent is liable to indemnify
the Applicant in terms of the Business Interruption Section of Policy
number HIC 0000-02950
for any loss suffered since 27 March
as
a result of the Covid-19 outbreak in South Africa which resulted in
the promulgation and Enforcement of Regulations made by the
Minister
of Co-operative Government and Traditional Affairs under the
Disaster
Management Act, 57 of 2002
.
’
[64]
The infectious disease clause covers ‘loss as insured by this
Section resulting in interruption or interference due to
. . .
notifiable Disease occurring within a radius of 50 kilometres of the
Premises’. It is, therefore, contended that it
was not
competent for the court to grant relief that was not asked for or
fell within the ambit of the clause.
[65]
It is apparent that, whatever the formulation of relief of the order
sought or granted, the essential dispute between the parties
was over
whether the business interruption was due to the lockdown. That is
essentially the relief that was sought and granted
despite the minor
differences in language. The argument is devoid of merit.
[66] Finally, Guardrisk had one more technical argument,
also meritless for its abject formalism. It contended that Café
Chameleon relied on the wrong policy, which was the renewed policy
that took effect on 1 April 2020 rather than the identical earlier
policy. The lockdown commenced on 26 March, and, Café
Chameleon claimed loss from 27 March. There is no dispute that both
policies applied during the period for which the loss is claimed. In
its replying affidavit, Café Chameleon asked the court
to
grant relief on whichever version of the policy it regarded
appropriate. The Court a quo correctly did so.
Conclusion
[67]
The central question in this appeal was whether the government’s
imposition of a lockdown in response to multiple outbreaks
of a
‘notifiable disease’ i.e. Covid-19, throughout the
country, and predominantly in Cape Town, where Café
Chameleon’s operates its business, was covered by the
infectious diseases clause. The question was answered in favour of
Café Chameleon, as was the question whether the outbreak
of Covid-19 in Cape Town was the cause of its business interruption.
In coming to this conclusion I am fortified by much of the reasoning
in the FCA case
[42]
and two recent judgments of the Western Cape High Court:
Ma-Afrika Hotels and
Another v Santam Limited
[43]
and
Interfax (Pty)
Ltd and Another v Old Mutual.
[44]
[68] In the result the following is made:
‘
Paragraphs 2 and 3 of the
order of the court a quo are set aside. Save as aforesaid, the appeal
is dismissed with costs, including
the costs of three counsel.’
__________________
A
CACHALIA
JUDGE OF APPEAL
Appearances
For
appellant: I P Green SC (with him R Ismail and J Chanza)
Instructed
by: Clyde & Co Inc, Sandton
Honey
Attorneys, Bloemfontein
For
respondent: J J Gauntlett SC QC (with him S P Rosenberg SC, T Tyler,
P Long and J Mitchell)
Instructed
by: Dunster Attorneys, Cape Town
Phatshoane
Henney Attorneys, Bloemfontein
[1]
‘
Regulations relating to the Surveillance
and Control of Notifiable Medical Conditions, GN 1434,
GG
41330, 15 December 2017.’
[2]
Café Chameleon v Guardrisk Insurance
Company Ltd
[2020] ZAWCHC 65
;
[2020]
4 All SA 41
(WCC)
.
[3]
‘
Regulations issued in terms of
s 27(2)
of
the
Disaster Management Act, 2002
, GN 318,
GG
43107, 18 March 2020.’
[4]
‘
Disaster Management Act, 2002
: Amendment
of regulations issued in terms of
s 27(2)
, GN 398,
GG
43148,
25 March 2020 and GN 419,
GG
43168,
26 March 2020.’
Regulation 11B(1)
(b)
provided
that ‘[d]uring the lockdown, all businesses and other entities
shall cease operations . . .’ It specifically
included
restaurants, which were not included in previously.
[5]
Centriq Insurance Company Ltd v Oosthuizen and
Another
[2019] ZASCA 11
;
2019 (3) SA
387
(SCA) para 17.
[6]
Norwich Union Fire Insurance Society Ltd v
South African Toilet Requisite Co Ltd
1924
(AD) 212 at 222.
[7]
May on
Insurance
(4
ed) at 174-175. Cited with approval in
Kliptown
Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA
Ltd.
1961 (1) SA 103
(A) at 107A-B.
However, the recent statement in
Ma-Afrika
Hotels and Another v Santam Limited
[2020]
ZAWCHC 160
para 74, does not accord with our law. It reads:
‘Insurance is intended to serve as a social safety net to
cover financially
devastating losses and compensate injured parties.
This is precisely the safety net required as a result of the
unprecedented
Covid- 19 pandemic.’
[8]
Café Chameleon CC v Guardrisk Insurance
Company Ltd
(fn 2) para 62.
[9]
Regulation 13
of the Regulations relating to the
Surveillance and Control of Notifiable Medical Conditions. Fn 1
above.
[10]
Ibid Regulation 12(2)
(a)
.
[11]
Ibid Regulation 12(2)
(b).
[12]
Ibid Regulation 12(2)
(c).
[13]
Café Chameleon v Guardrisk Insurance Co
Ltd
(fn 2) paras 74 and 81.
[14]
Napier v Collett and Another
[1995] ZASCA 44
;
1995
(3) SA 140
(A) at 144C-G.
[15]
Lee v Minister of Correctional Services
[2012]
ZACC 30
;
2013 (2) SA 144
(CC) para 40.
[16]
Lee v Minister of Correctional Services
[2012]
ZACC 30
;
2013 (2) SA 144
(CC) paras 44 and 47.
[17]
Minister of Safety and Security v Van
Duivenboden NO
2002(6) SA 431 (SCA)
para 25.
[18]
Lee
(fn 15) para
44.
[19]
Leyland Shipping Co Ltd v Norwich Union Fire
Insurance Society Ltd
[1918] AC 350
at
365.
[20]
Becker Gray & Co v London Assurance Corp
[1918] AC 101
at 118.
[21]
Incorporated General Insurances Ltd v Shooter
t/a Shooter’s Fisheries
1987 (1)
SA 842
(A) at 862C-D.
[22]
Mutual & Federal Insurance Company Ltd v
SMD Telecommunications CC
[2010] ZASCA
133
;
2011 (1) SA 94
(SCA) at para 11.
[23]
Leyland Shipping
(fn
19).
[24]
Global Process Systems Inc & Anor v
Syarikat Takaful Malaysia Berhad (The Cendor Mopu)
[2011]
UKSC 5.
[25]
Napier
(fn 14)
at 144D-F.
[26]
Country Cloud Trading CC v MEC, Department of
Infrastructure Development, Gauteng
[2014]
ZACC 28
;
2015 (1) SA 1
(CC) para 24 (
citing
Ultramares Corporation v Touche
174 NE
441(1931)
at 444).
[27]
Napier
(fn 14)
at 143J (citing
Concord Insurance Co
Ltd v Oelofsen NO
1992 (4) SA 669
(A)).
[28]
Napier
(fn 14)
at 144E-F.
[29]
Concord Insurance
(fn
27) at 673I.
[30]
Ibid at 674A-B.
[31]
Café Chameleon v Guardrisk Insurance
Company Ltd
(fn 2) para 79.
[32]
Napier
(fn 14)
at 143J.
[33]
Financial Conduct Authority v Arch Insurance
(UK) Ltd and Others
[2020] EWHC 2448
(Comm).
[34]
Financial Conduct Authority v Arch Insurance
(UK) Ltd and Others
[2020] EWHC 2448
(Comm) para 150.
[35]
Ibid para 156.
[36]
Ibid para 102. Although this quote refers to
another clause where the same argument was made on behalf of the
insurer ie, in the
RSA case, it is clear that the same reasoning was
applied for this clause.
[37]
Ibid.
[38]
Financial Conduct Authority v Arch Insurance
(UK) Ltd and Others
[2020] EWHC 2448
(Comm) para 102.
[39]
Ibid.
[40]
Ibid para 164.
[41]
Ibid para 111.
[42]
Financial Conduct Authority
(fn
33).
[43]
Ma-Afrika
(fn
7).
[44]
Interfax (Pty) Ltd and Another v Old Mutual
Insure Limited
[2020] ZAWCHC 166.