Tens of thousands of small businesses could be in line for insurance payouts to compensate them for losses incurred during the first lockdown.
The Supreme Court ruled today (Friday) that retail and hospitality businesses told to close during the first national lockdown will now be able to claim for loss of income on their ‘business interruption’ policies.
Around 700 types of policies from 60 insurers could be affected by the landmark ruling and it is estimated by insurance experts that claims may amount to £900 million.
The Supreme Court ruling applies in England and Wales, but it is expected that the Financial Ombudsman Service and courts in Scotland and Northern Ireland will make use of this judgment to decide similar cases.
KBB retailers were required to close for a short period during the first lockdown, before being told they could open again, so this landmark ruling could mean they may have a claim under such policies and should probably seek advice on whether they would also cover the current lockdown.
City watchdog the Financial Conduct Authority set the ball rolling last year by bringing a test case before the High Court, with eight insurers taking part. These included Arch, Argenta, Hiscox, MS Amblin, QBE and RSA, accounting for around 370,000 policyholders. The case was then appealed at the Supreme Court.
With the Supreme Court upholding the appeal, policyholders can now claim for losses under their ‘business interruption’ policies.
FCA executive director for consumer and competition, Sheldon Mills, commented: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.
“We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
“As we have recognised 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.”
Federation of Small Businesses (FSB) national chair Mike Cherry welcomed the Supreme Court judgment: “Today’s judgement is a big victory. It cements the High Court’s decision to grant businesses left on the brink the insurance payouts they are rightfully owed. For many, it has been a long and difficult road to get to this stage so this will bring clarity and hope to the thousands of firms that have been left in financial limbo for almost a year.
“While this is good news, and while the law has to follow procedure, it’s disappointing that so many small businesses have had to wait to get the money they desperately need under policies they believed were there to protect them, policies they bought in good faith.
“Businesses deserve to be protected in a timely way, but instead they have been failed by their insurers and are now trying to make up for lost time. Providers must now pay out quickly, and consider the steps they can take to progress these claims in a swift and seamless manner. Any paperwork required of claimants shouldn’t be onerous or time-consuming.
“Small businesses contribute trillions to the economy. The Financial Conduct Authority (FCA) was right to argue that disease or denial of access clauses within interruption policies should trigger payouts in the event of coronavirus-linked disruption. We are hugely grateful for its work in this space.”