Small businesses entitled to insurance payouts covering losses during first lockdown following supreme court ruling

Small firms across the UK are today celebrating a ruling by the Supreme Court, which will ensure that some of the nations leading insurers will have to pay out on disputed coronavirus business interruption claims.

The Supreme Court announced its verdict regarding the FCA Test Case and Business Interruption Insurance (BII). In total, these payouts are set to be worth up to £1.2bn.

The Supreme Court handed down the definitive judgment after it was considered if a sample of BII policies/clauses should payout to policyholders as a result of the Covid-19 pandemic. The judgment was a result of several appeals made in respect of the previous decision given by the High Court on 15 September 2020.

In total, 375,000 companies have been affected by the decision on both sides of the ruling.

The pandemic has created a situation where a lot of companies in a wide range of sectors struggling to stay in business – mostly in leisure and retail – and many argued they faced closing their doors should they not receive payouts by their insurers for business interruption policy claims. Several of the largest commercial insurers including Hiscox and RSA told the court that many business interruption policies did not cover widespread disruption.

Lord Briggs, one of the ruling judges, said: “On the insurers’ case, the cover apparently provided for business interruption caused by the effects of a national pandemic type of notifiable disease was, in reality, illusory, just when it might have been supposed to have been most needed by policyholders. That outcome seemed to me to be clearly contrary to the spirit and intent of the relevant provisions of the policies in issue.”

Industry reaction

Stephen Roper is Professor of Enterprise at Warwick Business School, Director of the Enterprise Research Centre, and an expert on small businesses, said: “This verdict is great news for many small firms and sole traders who feel they have been let down by their insurance providers. The key factor now is that claims are progressed rapidly to get cash into the hands of small business owners who are struggling financially due to the latest lockdown restrictions.

“Sadly this verdict will come too late for other firms which have already gone to the wall due to the pandemic but might have been saved if insurers had paid claims earlier.”

Andrew Morgan, a Solicitor in the Commercial Dispute Resolution team at Blacks Solicitors discusses the recent verdict handed down by the Supreme Court in the FCA Test Case: “The Supreme Court largely found for the policyholders, meaning that many businesses may now be entitled to pursue payments from their insurers under BII policies/clauses.

“The decision goes as far as to consider the evidential thresholds policyholders will be required to satisfy for each particular policy type/wording to be entitled to cover.

“For policyholders, whilst the wording of each policy will have to be carefully considered, the decision opens the door to the potential recovery of large losses as a result of the Covid-19 pandemic and the public health measures taken by the UK authorities. For insurers, the decision is likely to lead to an increase in claims received and the potential for a landslide of litigation. Policyholders who believe they may have BII, are advised to contact their insurers as a matter of urgency.”

Flora Hamilton, CBI Financial Services Director, 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.”

More from Business Leader

Businesses throughout the country have been sweating over cashflow and the effects of the pandemic are still being tallied with no end in sight. However, a landmark test-case, brought by the Financial Conduct Authority (FCA), means that owners of business interruption insurance may be eligible for pay-outs.

We spoke to Russell Williamson, Senior Associate at renowned international law firm Bird & Bird, to find out why owners of business interruption insurance should review their policies now.

Watch the interview here!