AIG South Africa Limited v 43 Air School Holdings (Pty) Ltd and Others [2024] ZASCA 97 (13 June 2024)

The case involves AIG South Africa Limited (AIG) and four respondents: 43 Air School Holdings (Pty) Ltd (Holdings), 43 Air School (Pty) Ltd (43 Air School), PTC Aviation (Pty) Ltd (PTC), and Jet Orientation Centre (Pty) Ltd (JOC). The dispute centers around the interpretation of an insurance policy issued by AIG, which provides cover for business interruption due to a notifiable disease occurring within 25 km of the insured's business premises. The key background facts are as follows:

1. Corporate Structure and Relationships:
Holdings owns 100% of the shares in 43 Air School.
PTC is a subsidiary of Holdings, with 50% of its shares held by Holdings and the remaining 50% by a trust. JOC is jointly owned by PTC and 43 Air School.
The business premises of PTC and JOC are located in Gqeberha, while 43 Air School operates from Port Alfred and Lanseria.

2. Nature of Business:
43 Air School provides pilot and air traffic control training at its Port Alfred premises. PTC offers exclusive pilot preparation services and flight training for Boeing 737NG and Airbus A320 at its Gqeberha premises. JOC owns and leases flight simulators, primarily used by PTC in Gqeberha and occasionally by 43 Air School at Lanseria.

3. Insurance Policy:
AIG has been the insurer for NAC and 43 Air School for many years, covering their respective subsidiaries and other entities they have the authority to insure.
The policy period in question is from 1 July 2019 to 30 June 2020. The policy includes business interruption cover with a limit of R66,443,230 and property cover for assets valued at R275,499,804. The policy defines "business interruption" as a reduction in turnover and an increase in the cost of working, less any savings during the indemnity period. The "extended defined event" includes an outbreak of an infectious or contagious disease within a 25 km radius of the insured premises.

4. COVID-19 Pandemic and Government Response:
COVID-19 was declared a pandemic by the World Health Organization on 11 March 2020. The South African government imposed a national lockdown from midnight on 26 March 2020 to midnight on 16 April 2020, which was later extended to 30 April 2020. During the lockdown, all non-essential businesses were required to cease operations, significantly impacting the respondents' businesses.

5. Claims and Disputes:
43 Air School submitted two claims to AIG for business interruption: one for the period 26 April 2020 to 30 April 2020 and another for the period 1 May 2020 to 31 May 2020. AIG repudiated these claims, arguing that 43 Air School had not proven a causal connection between the outbreak of COVID-19 within the 25 km radius and its loss. The respondents filed an application in the Gauteng Division of the High Court, seeking a declaration that AIG was liable to compensate them for business interruption losses due to COVID-19.

6. High Court Proceedings:
The High Court granted an order in favor of the respondents, declaring AIG liable for the business interruption claims. AIG appealed the High Court's decision, leading to the current proceedings in the Supreme Court of Appeal.

7. Key Issues on Appeal:
Whether the insurance policy was joint or composite. Whether the respondents complied with the reporting obligations under the policy. Whether PTC was an insured entity under the policy. Whether 43 Air School proved a causal connection between the outbreak of COVID-19 within the 25 km radius and its business interruption losses.

The ratio decidendi, or the core legal principle underlying the decision in this case, revolves around the interpretation of the insurance policy and the obligations of the insured under that policy. The key legal principles can be summarized as follows:

1. Nature of the Insurance Policy (Joint vs. Composite):
The court determined that the insurance policy in question was a composite policy rather than a joint one. This conclusion was based on the nature of the interests insured under the policy. Each insured entity had separate and distinct interests in their respective gross profits, rather than a joint interest. Therefore, the policy covered each entity individually for its own losses, not collectively for the losses of the group.

2. Compliance with Reporting Obligations:
The court underlined the importance of compliance with the reporting obligations stipulated in the insurance policy. The policy explicitly required the insured to report any event that may result in a claim as soon as reasonably possible and to provide full details in writing. Failure to comply with these conditions precedent meant that the insurer's liability was not triggered. The court found that 43 Air School had complied with these obligations for its first and second claims but not for its third claim, and PTC and JOC had not complied with the reporting obligations at all.

3. Causation and Interpretation of the Policy:
The court reaffirmed the principle that the insured peril (in this case, the outbreak of COVID-19 within a 25 km radius) and the government's response to the pandemic (the national lockdown) were inextricably linked. The court held that the business interruption and consequent losses suffered by the insured were covered by the policy because the government response was part of the insured peril. The court rejected the insurer's argument that the losses were caused solely by the national lockdown and not by the local outbreak of the disease.

4. Proof of Insured Status:
The court found that PTC was not an insured entity under the policy because it was a subsidiary of Holdings, which was not listed as an insured in the policy. The court emphasised the need for clear and unequivocal proof of insured status under the policy.

In summary, the ratio decidendi of the case is that the insurance policy was composite, requiring individual compliance with reporting obligations by each insured entity. The court also held that the insured peril included both the outbreak of the disease and the government response, thereby covering the business interruption losses. Additionally, the court underscored the necessity of proving insured status under the policy.

The court in this case relied on several key pieces of case law to support its reasoning. Here are the primary cases cited, along with their neutral citations:

1. Centrique Insurance Company Ltd v Oosthuizen and Another [2019] ZASCA 11; 2019 (3) SA 387 (SCA)
This case was cited for the principles of interpreting insurance contracts, emphasizing that such contracts should be construed by considering the language, context, and purpose in a unitary exercise. The court also noted that any provision limiting an obligation to indemnify should be restrictively interpreted.

2. Guardrisk Insurance Company Limited v Café Chameleon CC [2020] ZASCA 173; [2021] 1 All SA 707 (SCA); 2021 (2) SA 323 (SCA)
This case was referenced for its findings on the interpretation of business interruption insurance policies in the context of the COVID-19 pandemic. The court in Guardrisk held that the government’s response to the pandemic was part of the insured peril and that the business interruption caused by the national lockdown was covered by the policy.

3. Ma-Afrika Hotels (Pty) Ltd and Another v Santam Limited [2020] ZAWCHC 160; [2021] 1 All SA 195 (WCC)
The court in this case similarly found that the national response to COVID-19 and the local outbreak of the disease were part of the same insured peril. The court held that the business interruption losses were covered by the policy.

4. Financial Conduct Authority v Arch Insurance (UK) Ltd and others [2020] EWHC 2448 (Comm) (Queen's Bench Division)
This case was referenced for its analysis of similar business interruption insurance policies in the UK. The court in the FCA case held that the government’s response to the pandemic was integral to the insured peril.

5. Russell NO and Loveday NO v Collins Submarine Pipelines Africa (Pty) Ltd 1975 (1) SA 110 (A)
This case was cited for the principle that conditions in insurance policies relating to the giving of notice to insurers are generally considered conditions precedent, meaning that non-compliance with such conditions suspends the insurer’s liability.

6. Norris v Legal and General Assurance Society Ltd and Another 1962 (4) SA 743 (C)
This case was referenced to support the interpretation that conditions precedent in insurance policies must be clearly stated and that non-compliance with such conditions results in the insurer not being liable.

These cases collectively provided the legal foundation for the court's decision, particularly in interpreting the insurance policy, determining the nature of the policy (joint vs. composite), and assessing compliance with reporting obligations and causation.