Insurance Ruling a “Massive Boost” for Small Businesses

The Supreme Court has ruled that many small businesses should be allowed to claim on insurance for losses resulting from Coronavirus. Judges at the Court tossed out insurers' appeals, paving the way for policyholders across the UK to launch claims for losses related to the pandemic.

The case was brought by the UK's financial watchdog, the Financial Conduct Authority, on behalf of small businesses. Previously, the FCA has estimated that up to 370,000 policyholders could be affected by the ruling, which together may lay claim to up to £1.2 billion under business interruption clauses.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:

As we have recognized from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this. We are grateful to the Supreme Court for delivering the judgment quickly. The speed with which it was reached reflects well on all parties

The FCA and consumer interest groups brought the test case to settle whether businesses could claim for losses due to Coronavirus under clauses in 14 different types of policy that relate to 'disease' and 'prevention of access.

Mischon de Reya partner Richard Leedham, who represented a collection of Hiscox Group policyholders at the Court, urged insurers to start issuing payouts 'without delay'

The judgment should be a massive boost to all businesses reeling from a third lockdown who can now demand their claims are paid

he said

Hiscox, one of the eight insurers which is legally bound by the case*, issued a statement saying they 'welcomed the clarity' provided by the judgment and would wait for the Court's final guidance to start processing claims.

Law firm Reed Smith told City AM that the ruling was "catastrophic" news for insurers. Today's ruling decided that cover may be available for either full or partial closure of business premises- even in cases where closure resulted from guidelines that are not legally binding.

It also found that payouts should not be reduced just because earnings would have otherwise been lower due to the pandemic. This means more small businesses will be able to claim on their insurance policies, and many will receive higher payouts than they were previously offered.

The FCA said it brought the case as a 'comparatively quick and cost-effective solution' to resolve confusion and 'uncertainty' about the level of cover businesses with 14 different types of an insurance policies are entitled to.

At least eight insurers* are legally bound by the findings, although the ruling is expected to guide other insurers' decisions when interpreting similar policies.

A consultation is open until January 22nd for business owners and policyholders to review the FCA's guidelines on how to prove the presence of Coronavirus.

According to the FCA, the Supreme Court's judgment will then be refined into a set of declarations.

Small businesses can stay up to date with developments in the guidance here https://www.fca.org.uk/firms/business-interruption-insurance