Loadshedding likely to trigger business insurance litigation
19 Nov 2021
The ongoing persistence of loadshedding is causing havoc for households and businesses alike. As if Covid-19 and civil unrest and looting experienced mid-year were not devastating enough for businesses, they now have to put up with the current ongoing loadshedding. Whilst most big businesses may have insurance cover and mitigating equipment in place to deal with the ramifications of loadshedding, medium and small businesses may not have such “luxuries”. Importantly, any kind of business runs certain risks, in varying scales and sizes, when loadshedding is implemented. Significantly, if and when these risks materialise, legal implications are most likely to follow.
In light of the fact that loadshedding has been part of our lives for many years, albeit periodically, the majority of businesses are likely to have business insurance cover that may directly or indirectly relate to consequences of loadshedding. In view thereof, continued loadshedding may result in an influx of claims and litigation for insurers. What further exacerbates the possibility of litigation against insurers is the fact that insurers have had huge claims against them in the past few months, mainly stemming from business interruption claims, relating to Covid-19. Therefore, with their financial calamities, insurers may repudiate claims whenever they find a reason to do so. It is imperative that businesses are aware of what insurance covers may be relevant in light of the ongoing loadshedding; the consequences that may flow from loadshedding which may, in turn, trigger insurance claims and possibly litigation; how businesses can mitigate their risks to maximise their chances of success if and when they litigate; and possible dispute resolution platforms that they may consider.
As indicated above, loadshedding comes with business interruptions which leads to financial losses. Considering that businesses cannot do much to hold Eskom legally responsible for the effects of loadshedding on their businesses, it is important that businesses are covered for financial losses and that the cover is adequate. With loadshedding, some stock may be ruined as refrigerators and other appliances are switched off. This inevitably eats into the profits of a business. For such losses, a stock insurance policy may be important. Also, loadshedding may expose businesses to various crimes, for example, theft, robberies, hijackings, etc. Thus, insurance policies such as cover for theft may be triggered. Further, power surges may lead to fires. Fires may bring business operations to a halt. This unavoidably activates business interruption policies. Furthermore, during loadshedding, businesses are vulnerable to a huge risk of cyberattacks which have been on an alarming rise in recent months, in South Africa. Data theft and data loss is a massive risk when loadshedding hits. Businesses ordinarily have contractual obligations which may be breached as a result of losing data. To guide against this risk, cyber liability cover becomes important. Moreover, personal injuries are likely to occur when loadshedding hits, for example, lift malfunctions, escalator malfunctions, etc. As a result, a business may find itself being sued for personal injury. These are but some of the practical examples.
Business insurance covers generally come with certain conditions intended to mitigate against a particular peril. For a claim to be valid, it is necessary for businesses to ensure that they have complied with their contractual obligations as per the policy. Some examples of the mitigating factors would include:
- Fire alarms may be relevant in respect of fires caused by power surges. Also, fire extinguishers may be relevant herein.
- Strengthened security systems to guard against theft and robberies.
- Back-up devices for loss of data.
- Protective software(s) and training for staff to guard against cyberattacks.
Whilst it is crucial for businesses to comply with the conditions of their insurance policies, there are instances where business insurance repudiations may be set aside by a court of law (or any presiding officer). Herewith examples of instances where a business insurance repudiation will not stand:
- A business is afforded an unreasonable and unrealistic time period to install a certain mitigating device.
- In an instance where an insurer makes it unreasonably onerous for the insured to comply.
- Where there is ambiguity in the policy wording in relation to a condition.
- Where a condition itself flies in the face of the very purpose of having the policy in place.
- Where enforcing a particular condition will lead to miscarriage of justice, in view of the facts and circumstances of the case.
- If the condition contravenes any law – common law, legislation, convictions of the society, or the Constitution.
It is critical that businesses immediately seek legal opinion when their claims have been repudiated. This is so even where an insurance broker is involved. This is due to the fact that a legal expert is most appropriately positioned to advise on the relevant legalities and to scrutinise the policy itself, instead of advising on what is depicted in the policy (which can also be done by brokers).
Lastly, it is always sagacious to select an appropriate dispute resolution platform taking into account the issue of costs and time. An appropriate platform is generally dictated by the nature, complexity, urgency, facts, financial muscle, intention of the parties, and circumstances of the case. This is not an exhaustive list of the relevant factors. Depending on a case, settlement negotiations; mediation; Ombudsmen’s office; arbitration; litigation (trial or motion), may be appropriate. Once more, it is crucial to source legal opinion in this regard.
Whilst everyone may be inconvenienced and annoyed by the ongoing loadshedding, the insurance industry may suffer financially, as a result of same. Businesses who have relevant policies in place should not be hesitant to submit their claims (and challenge any rejections which they are unsatisfied with) because businesses sacrifice a lot to have proper insurance policies in place.
See also:(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)