CRIME CROSS­OVER

A $2bn fraud per­pe­trated in Den­mark is play­ing out in UK courts, where the Dan­ish tax author­ity is su­ing more than 90 de­fen­dants

Financial Mail - - IN GOOD FAITH - @carmel­rickard

Dur­ing lock­down, my lifestyle has in­cluded binge­watch­ing the Dan­ish po­lit­i­cal drama Bor­gen. Per­haps that’s why I didn’t skip past a case that, just two months ago, I might have writ­ten off for hav­ing an un­pro­nounce­able name.

Skat­te­for­valt­nin­gen (re­ferred to by the court as Skat) is Den­mark’s cus­toms and tax ad­min­is­tra­tion. Last week the UK high court de­liv­ered a pre­lim­i­nary de­ci­sion in what prom­ises to be a land­mark busi­ness cor­rup­tion case in­volv­ing

ý Af­ter­noon tea has been served on the ter­race of the Drak­ens­berg’s Cathe­dral Peak Ho­tel since the early 1940s by the same fam­ily — the Van der Ri­ets — who built the land­mark in 1939.

But if the ho­tel can­not get the money it be­lieves it is due from its in­sur­ers, along with thou­sands of other lo­cal busi­nesses, that tra­di­tion may well be over.

Kobus Botha, who owns the Cra­dle Na­ture

Re­serve and Bou­tique Ho­tel close to Lanse­ria air­port, runs an­other such busi­ness.

“We used a bro­ker who spe­cialises in the tourist sec­tor to en­sure we had full cover, and had three months’ cover. But when we claimed for loss of busi­ness, we were pushed from pil­lar to post. And what made it worse is that it co­in­cided with the in­eptly han­dled roll-out of re­lief by the Un­em­ploy­ment In­sur­ance Fund,” he says.

Botha and Wil­liam van der Riet, who owns Cathe­dral Peak Ho­tel with his wife, Belinda, form part of a group of ag­grieved clients tak­ing San­tam to court for not hon­our­ing what they be­lieve to be valid claims un­der busi­ness in­ter­rup­tion cover.

They are hop­ing that if San­tam, SA’S largest in­surer, is forced to pay out, the rest of the in­dus­try will have to set­tle too.

The firms are rep­re­sented by loss ad­jus­tor In­sur­ance Claims Africa, work­ing on a con­tin­gency — or no win, no fee — basis.

The tourism and hos­pi­tal­ity sec­tor sus­tains

Cathe­dral Peak Ho­tel: Built in 1939

over 740,000 di­rect and 1.5-mil­lion in­di­rect jobs and con­trib­utes 8.6% to GDP. Ac­cord­ing to the Tourism Busi­ness Coun­cil of SA (TBCSA), tourism also adds roughly R206.5bn to the sup­ply chain an­nu­ally, feed­ing ve­hi­cle man­u­fac­ture, agri­cul­ture, fuel, tex­tiles, fur­ni­ture, se­cu­rity, mar­ket­ing and other sec­tors.

TBCSA CEO Tshifhiwa Tshiv­hengwa says as much as R4bn in claims, pre­dom­i­nantly from the hos­pi­tal­ity sec­tor, could have been turned down.“the in­sur­ers are run­ning away when our mem­bers need them, and they are com­ing up with pa­thetic ex­cuses.”

It’s a grim con­fir­ma­tion of the old adage that in­sur­ers take your money re­li­giously ev­ery month, but when you re­ally need them they find ex­cuses in the small print not to pay.

San­tam, for one, built its brand on “in­sur­ance good and proper” to dif­fer­en­ti­ate it­self from the flighty di­rect in­sur­ers no­to­ri­ous for what is po­litely called “un­der­writ­ing at claims stage” — ba­si­cally, not stump­ing up the cash.

San­tam CEO Lizé Lam­brechts says there is “no doubt” that the out­break would not be cov­ered by stan­dard busi­ness in­ter­rup­tion in­sur­ance, which cov­ers di­rect phys­i­cal dam­age to prop­erty such as a fire or flood.

So the ar­gu­ment re­volves around ex­tended busi­ness in­ter­rup­tion in­sur­ance, which cov­ers dam­age due to a num­ber of other per­ils, in­clud­ing losses re­sult­ing from a con­ta­gious or in­fec­tious dis­ease.

In in­dus­try jar­gon, this falls un­der the con­tin­gent busi­ness in­ter­rup­tion (CBI) sec­tion of the pol­icy. Lam­brechts says CBI cover is very spe­cific, and cov­ers busi­nesses for in­ter­rup­tions as a re­sult of the out­break of a dis­ease at a lo­cal level. “Our pol­icy word­ing is quite clear in that it states that a busi­ness needs to be di­rectly im­pacted by a dis­ease such as Covid-19 in or­der for the cover to kick in. If pol­i­cy­hold­ers can show this to be the case, we will pay their claims,” she says.

Old Mu­tual Insure MD Garth Napier says the cover be­comes ef­fec­tive if a spe­cific case of the dis­ease in­ter­rupts busi­ness.

You’d think that this is ex­actly what th­ese busi­nesses are ar­gu­ing — in­ter­rup­tion based on a pan­demic.

But, Napier goes on to say, “a sus­pi­cion or the gen­eral wide­spread oc­cur­rence of Covid-19 or any steps taken by the gov­ern­ment to limit the spread of the dis­ease na­tion­ally will not con­sti­tute an in­ter­rup­tion un­der this ex­ten­sion”.

Ryan Wool­ley, CEO of In­sur­ance Claims Africa, says that nowhere in th­ese con­tracts does it say that cover is only at a “lo­cal level”, nor that a busi­ness will need to be “di­rectly im­pacted” by the dis­ease.

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Wool­ley says CBI cover kicks in if there is a shark at­tack in an area, for ex­am­ple.

“The only way a shark at­tack in the ra­dius of a restau­rant could cause busi­ness in­ter­rup­tion is if a shark at­tack makes the author­i­ties close the beach. The restau­rant on the beach then has to close be­cause it has no busi­ness while the beach is closed. This is ex­actly the same sce­nario as a gov­ern­ment-im­posed lock­down be­cause of the Covid-19 pan­demic.”

He says the busi­nesses he is rep­re­sent­ing had hoped for a ne­go­ti­ated set­tle­ment: “We were pre­pared to go down to as lit­tle as 40% of the claim value, and even of­fered to ac­cept stag­gered pay­ments.”

Al­ready, many small ho­tels and restau­rants only have enough cash to last an­other month.

San­tam ad­mits that CBI cover rep­re­sents less than 5% of its com­mer­cial busi­ness; pay­ing out claims would prob­a­bly lead to no more un­der­writ­ing losses than a rou­tine catas­tro­phe such as a Gaut­eng hail­storm or a Knysna fire.

The big­gest dif­fer­ence is that a large part of those pay­outs can be re­couped from rein­sur­ers such as Han­nover Re and Mu­nich Re.

But on Covid-19 the rein­sur­ers, lo­cal and for­eign, have dug in their heels and will pay vir­tu­ally no claims.

Lam­brechts is adamant that the na­tional lock­down is not a peril that is cov­ered by its poli­cies, and so clients would not be able to make a suc­cess­ful claim for this event.

In­stead, she says, “if a pol­i­cy­holder ran a ho­tel and one of the work­ers or guests be­came in­fected with Covid-19, forc­ing them to close their op­er­a­tions, they would have a claim for as long as it took them to clean their premises and re­sume op­er­a­tions”.

We were pre­pared to go down to as lit­tle as 40% of the claim value, and even of­fered to ac­cept stag­gered pay­ments

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