It is not unusual to have insurance claims approved but payouts being underwhelmingly low and/or slow. This was mostly seen during COVID-19 in relation to business interruption claims. Whilst most claims were approved by the insurers, the payouts left the insureds with great dissatisfaction. Despite COVID-19, many other major events led to this kind of situations. For example, July 2021 Unrest and the April 2022 floods. From the onset, it is important to note that there are 2(TWO) components in an insurance claim i.e., liability and quantum. Whilst an insured may succeed in proving liability on the part of an insurer, the quantum component remains for consideration. Most business interruption claims become problematic on the quantum component. Sometimes the payouts are justifiably low whereas, in some instances, they are unjustifiably low. The focus of this piece will be on instances where a low payout is unjustifiable. This is of importance because in such an instance, an insured may have a legal claim against one or more of the stakeholders such as the broker, insurer, public loss adjuster, etc. The unique facts and the circumstances of the case will dictate which stakeholder is liable. Thus, this piece briefly highlights the legal position and some factors and considerations that go into the quantification of business interruption claims, and thereafter explicates who may be liable under what circumstances.
In any insurance claim, there are many stakeholders that play a crucial role in resolving a matter. Business interruption claims are ordinarily complex in so far as the determination of quantum is concerned. This partly justifies why most business interruption claims normally take long to finalise. Despite all the complexities that may be present in a matter, all the stakeholders involved have a legal duty - be it based on common law and/or legislation - to execute their duties with the reasonable skill and care required of such a stakeholder. It goes without saying that the more complex the case is, their higher the degree of expertise and experience is required. Therefore, any negligence on the part of any stakeholder that negatively affects a payout in terms of a policy may be held legally liable for the damages and losses suffered by the insured. During the quantification process of a business interruption claim, an expert (with accounting background/expertise) will need to consider the insured business's performance before, during and after the event insured against. This is congruent with the principle of clawback. At some other opportune time, a thorough explanation and discussion on clawback will be presented by the author. Much dissatisfaction stems from the application of clawback principles. The accountant will have to consider inter alia, financial and bank statements, invoices, and all the relevant financial documentary records. As one can imagine, it is a thorough and sophisticated process.
Where one stakeholder has acted negligently and/or in breach of their statutory duties, an insured business may have a legal claim against the concerned stakeholder. Herewith are some examples of when different stakeholders may be held liable for a low payout:
- A broker will be liable where s/he has advised the insured to accept a low payout without having thoroughly considered all the steps taken by the insurer in arriving at the figure. In this example, the broker owes a common law duty of care towards the insured. In addition, Section 2 of the General Code of Conduct, as per the Financial Advisory and Intermediary Services Act ("FAIS Act") stipulates that, "a provider must at all times render financial services honestly, fairly with due skill, care and diligence, and in the interests of clients.". This is one of many relevant provisions from the General Code of Conduct.
- Where an accountant (a public loss adjuster) miscalculates the claim and thus breaches common law and statutory duties.
- An insurer may also be held liable in an instance where it can be proved that it contravened ethical duties and breached Policyholders Protection Rules such as inter alia, an insurer's duty to act honorably, professionally and with due regard to the fair treatment of the insured.
Where an insured is uncertain whether its claim payout is just, it is critical to seek legal advice. Depending on the involved stakeholders, a legal expert will be able to identify which stakeholder may have breached his/her duties leading to the under settlement of the claim. From thereon, a report of an alike expert may be necessary to serve as a basis for any legal action.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.