The UK’s Supreme Court has found in favour of small firms receiving payments from COVID-19 business interruption insurance policies.
The test case was brought against insurers by the Financial Conduct Authority (FCA).
A significant number of policyholders whose businesses were affected by the Coronavirus pandemic suffered significant losses. This resulted in a large number of claims under business interruption (BI) policies.
Most SME policies are focused on property damage and only have basic cover for BI as a consequence of property damage. But some policies also cover BI from other causes, in particular infectious or notifiable diseases (‘disease clauses’) and prevention of access and public authority closures or restrictions (‘prevention of access clauses’). In some cases, insurers have accepted liability under these policies. In other cases, insurers have disputed liability while policyholders considered that they had cover leading to widespread concern about the lack of clarity and certainty.
The FCA’s aim was to clarify key issues of contractual uncertainty for as many policyholders and insurers as possible. The FCA selected a representative sample of 21 types of policy issued by eight insurers. 370,000 policyholders were identified as holding 700 types of policies issued by 60 insurers that may be affected by the outcome of the test case.
The High Court’s judgment last September resolved most of the key issues but, because we were unable to reach an agreement, insurers and the FCA made ‘leapfrog’ appeals to the Supreme Court (without going to the Court of Appeal first).
What does this mean for Small Businesses?
The ruling means that thousands of small businesses are now set to receive insurance payouts covering losses from the first national lockdown.
Flora Hamilton, Financial Services Director at the Confederation of British Industry (CBI), said: ‘At such an uncertain time, this court case provides much-needed clarity to companies across the UK, and relief for smaller firms struggling with cash flow.
‘This is significant news for insurers, and regulators will need to work closely with the industry as policies, products and processes are updated to reflect this ruling.’
Each policy needs to be considered against the detailed judgment to work out what it means for that policy. Policyholders with affected claims can expect to hear from their insurer soon.
Policyholders with questions should approach their broker, other advisers or insurer. Policyholders who remain unhappy following their insurer’s assessment of their claim may be able to refer their claim to the Financial Ombudsman Service, whose role is to resolve individual disputes.