Supreme Court paves way for coronavirus insurance claims for struggling businesses after FCA appeal

Payouts have been held up for months while the courts poured over how the smallprint in a series of policies should be interpreted
Shoppers walk through the city centre in Chester, Britain
REUTERS

Supreme Court judges today unlocked insurance claims for struggling business shutdown by the pandemic following a landmark £1.2billion legal battle.

The Financial Conduct Authority (FCA) brought a test case last year over the wording of insurance policies as business owners sought payouts for loss of earnings caused by the Covid-19 pandemic.

Payouts have been held up for months while the courts poured over how the smallprint in a series of policies should be interpreted.

Today at the Supreme Court, Lord Hamblen announced the FCA and campaigners had “substantially” won their case against insurers, paving the way for compensation for hard-hit businesses.

The legal battle has been fast-tracked through the justice system, and today’s ruling will be a relief for many companies who are relying on payouts for survival.

Paul Smethurst, partner and forensic investigation specialist at accountancy firm Menzies said after the ruling: “At last, businesses that have been unable to trade or have lost money due to disruption caused by the COVID-19 pandemic, know where they stand with respect to their business interruption insurance.

“Most of those that have been waiting for a resolution of their existing claims will now receive the compensation they are due.”

The test case is believed to affect around 370,000 businesses, and was found in favour of insurers in a High Court ruling in September.

The City regulator and the Hiscox Action Group brought an appeal, with Supreme Court president Lord Reed explaining: “The purpose of the proceedings is to determine what liability, if any, the policies impose on the insurers towards businesses that have been affected by the Covid-19 pandemic.”

The FCA argued that some businesses who shut down when told to by the government in March could miss out on compensation under a limited interpretation of the insurance policy, while other firms that stayed open until forced to close by legislation would benefit.

Lord Hamblen said judges had decided “an instruction given by a public authority” could amount to a restriction on businesses’ ability to open, adding that the case for a payout would be particularly strong after Prime Minister Boris Johnson announced the first lockdown in late March.

Another wrangle was over how the pandemic should be measured, and how a business could show the virus caused its loss of trade.

Lord Hamblen said the test for when Covid-19 has affected a business should be broad, applying “when at least one case of Covid-19 within a geographical area” can be identified.  

Legal experts said that while today’s ruling will lead to a payout for many, firms will still have to study the small print of their insurance policies and be prepared to argue their case.

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