Technical Municipal Radius Clause Interpretations to Avoid Coronavirus Liability and Perspectives from the OECD and Vienna Convention on the Law of Treaties 1969—Guardrisk Insurance Limited v Café Chameleon CC (case no 632/20) [2020] ZASCA 173

Abstract

Approximately fifteen years ago, most insurers inserted a radius clause to avoid paying claims based on financial losses and/or damages resulting from bacteria or viruses—known as notifiable diseases—that originate outside the radius. Other insurers tried to regulate liability for losses as a result of bacteria or otherwise, by inserting a force majeure clause (which is not a radius clause) in their insurance contracts. In this way, the insurer was not liable to pay for business interruption claims, irrespective of where the bacteria or viruses had originated. To avoid paying claims where a virus or otherwise originated within a specific radius, many insurers in OECD member states are willing to refund all paid premiums to their policyholders. Other insurers have given technical radius clause interpretations to avoid liability (coronavirus did not originate within the specified radius) or to grant premium payment holidays to policyholders as long as Covid-19 exists. The OECD considers these radius interpretations or arguments unreasonable, and for this reason it drafted a policy on gap cover to be implemented by its members. South Africa is not yet a full OECD member, and this article investigates whether a South African court would have a similar approach to radius clauses, which are considered unreasonable. To understand unreasonableness, the Vienna Convention on the Law of Treaties, 1969, which regulates the interpretation of treaties, is also discussed in this article.