Insurance brokers occupy a position of considerable trust. They are the intermediaries upon whom clients rely to secure appropriate cover, and upon whom insurers rely for accurate and timely disclosure. The recent judgment of the Western Cape High Court in The Collection at D'Aria (Pty) Ltd v Cross Point Brokers (Pty) Ltd illustrates what happens when a broker misunderstands the nature of its own policy and fails to act on early warning signs. The court was required to determine, as a separated issue, whether the broker was entitled to indemnification from its professional indemnity insurer in respect of claims brought against it by two restaurant businesses. The answer turned on two deceptively simple questions: which policy year responded to the claim, and whether the broker had complied with its notification obligations.
The broker, acting as an insurance intermediary for two restaurant businesses, procured commercial insurance policies on their behalf with an insurer on 4 June 2019. Crucially, the policies did not include an extended business interruption clause, the very clause that, following the Supreme Court of Appeal's landmark decision in Guardrisk Insurance Co Ltd v Cafe Chameleon CC, was held to oblige insurers to indemnify their insureds for losses arising from the Covid-19 lockdowns under specific circumstances. The restaurants' businesses suffered substantial revenue losses that were not covered by the policy. By January 2021, the restaurants had complained to the broker in terms that left little room for ambiguity. They regarded themselves as inadequately insured and blamed the broker for it. The broker, however, did not notify its own professional indemnity insurer of these circumstances until July 2021, when it forwarded the formal letters of demand received from the restaurants to its professional indemnity insurer, which rejected the broker's claim on the basis that the 2021 policy was the operative one and that the plaintiffs' claims, arising as they did from Covid-19, were excluded from cover under the broad Covid-19/Infectious Disease Exclusion contained in that policy. By then, the 2021 policy, which contained a broad Covid-19/Infectious Disease Exclusion, was the only active policy.
The legal question concerned the distinction between claims-made insurance policies and loss-occurrence policies. A claims-made policy affords indemnity based on the date on which a claim is made against the insured and duly notified to the insurer, rather than the date on which the underlying negligent act or omission occurred. Accordingly, for cover to attach, the policy must be operative at the time the claim is made and reported. If the policy has lapsed or has not been renewed by the time the claim is lodged, no indemnity is available, even where the conduct giving rise to the claim occurred during a prior period of insurance.
By contrast, a loss-occurrence, or occurrence-based, policy links the insurer’s obligation to the timing of the event, act or omission giving rise to the loss. Under such policies, the policy in force at the time of the alleged wrongful act responds to any claim arising from that act, irrespective of when the claim is eventually made or notified, even if this occurs years after expiry of the policy period.
The broker contended that the policies in question were occurrence-based in nature and therefore triggered by the alleged negligent act said to have occurred in June 2019. The broker accordingly argued that liability should be determined with reference to the policy in force at the time of that conduct, rather than by reference to the timing of the subsequent claim.
The court disagreed, finding that both the 2020 and 2021 policies were claims-made policies, and that the 2021 policy, with its Covid-19 exclusion, was accordingly the operative one. The broker's attempt to extend the period of insurance by reference to the retroactive date of 1 September 2008 was rejected. The retroactive date, the court explained, is simply the earliest date from which the insured's negligent activities are covered, and it does not extend the period of insurance. Rather, it merely permits claims made during the operative policy period to be indemnified even if the underlying conduct occurred years earlier. The definition of "period of insurance" in the 2021 policy, which referred to "any other period for which We have accepted Your premium", serve to incorporate the lapsed 2020 policy. That interpretation, the court observed, would be absurd. Renewal of a policy creates a new contract; it does not carry over rights arising under a preceding one. The 2021 policy's Covid-19 exclusion was clear and unambiguous, and the broker conceded that if the 2021 policy applied, the exclusion barred its claim.
The policies required the broker to give written notice "as soon as reasonably possible" of any claim or "any specific event or circumstance which may give rise to a Claim". As early as June 2020, the broker had informed the restaurants that the underlying insurer would not cover their Covid-19 losses. By January 2021, the restaurants' emails were accusatory and unambiguous: they blamed the broker for placing them with an insurer whose policy lacked the critical clause, and they pointed to competitors who were being paid out. The court held that these communications left no room for doubt as to the possibility of claims to come, and that the broker's failure to notify its professional indemnity insurer constituted a material breach. The purpose of notification clauses, as the court emphasised, is to enable the insurer to investigate under the most favourable circumstances and to take steps to mitigate losses. By withholding notification, the broker deprived its insurer of that opportunity. Critically, had the broker notified its insurer before the 2020 policy expired on 31 August 2020, it could have relied on the deeming provision in the claims conditions, which treated circumstances notified during the policy period as claims first made during that period, thereby attaching its claim to the 2020 policy and avoiding the Covid-19 exclusion entirely.
The judgment offers guidance that extends well beyond its specific facts. For insurance brokers and other professionals who rely on claims-made indemnity cover, three principles emerge.
First, professionals must understand the mechanics of their own indemnity policies. The distinction between claims-made and loss-occurrence cover is not academic, it determines which policy year is triggered and whether cover is available at all.
Second, notification requirements are not mere administrative formalities; they are the contractual mechanism through which an insured preserves its right to indemnification. Where a professional becomes aware of circumstances that may reasonably be expected to give rise to a claim, prompt notification to the insurer is essential. A failure to notify timeously does not simply create a procedural irregularity, it may lead to the forfeiture of cover altogether.
Third, the deeming provisions commonly included in claims-made policies exist precisely to safeguard the insured in situations where a claim has not yet materialised but potential exposure is apparent. Those provisions allow circumstances notified during one policy period to be treated as a claim made during that period. But they offer protection only if the insured actually invokes them by notifying the insurer timeously.
This article was first published by FA News:Claims made policies and notification obligations - a costly lesson on timing
