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Supreme Court rules insurers must pay small businesses for Covid claims

Hundreds of thousands of businesses are expected to be able to recover losses caused by the pandemic from their insurers, following the Supreme Court ruling.

The Financial Conduct Authority (FCA) says it will now work with insurers to make sure they ‘move quickly’ to pay claims to businesses, many of which are struggling to stay afloat.

What is behind this case?

The FCA brought the test case against eight insurers after 400 companies complained of unfair treatment. It argued that while some insurers had provided pay-outs to business customers, many claims had been rejected under ‘blanket denials of cover’.

In September 2020, the High Court found in favour of policyholders on most key issues but eight insurers then appealed the decision.

The Supreme Court has now dismissed these appeals, potentially paving the way for insurance pay-outs worth more than £1 billion.

Headline summary of the Test Case:

  • the Supreme Court took a narrower approach in relation to the insured peril, focusing on individual cases and confirmed that those individual cases could satisfy the test of causation. In other words, the court recognised a lot of covers under the disease clauses entitling small businesses to claim compensation;
  • the court also confirmed that prevention of access/hybrid clauses will be triggered more often than at first instance which means that there is no requirement to order closure of businesses to claim the relevant compensation
  • Cases that are linked to the insured peril will be assessed individually by the courts, rather than by one set of rules

How many businesses are affected by the outcome of this case?

According to the FCA, 370,000 policyholders holding 700 different types of policy issued by 60 insurers may now be in line for a pay-out.

What next?

While the Supreme Court’s judgment provides some clarity, it may not be plain sailing for everyone with some insurers still expected to argue over things like policy wording.

While the test case has resolved a number of key issues, it was not meant to cover all possible disputes.

That is why it is important for businesses to look at the type of policy they hold with an eye on both the High Court and Supreme Court judgments before pursuing their claims in relation to the business interruption resulted from Covid 19.

What action should I take if I think I am owed a pay-out?

The first step is to check your business interruption insurance cover, identify any claims and urgently notify your insurer of any potential claim that you consider pursuing because some of the policies contain time sensitive provisions.

What if I am currently considering a business interruption claim settlement?

Following the Supreme Court ruling, you may wish to consider whether your claim should be revised. Our experienced business disputes solicitors can advise you on this.

What if my insurer is still disputing my claim?

If your claim is valid, and your insurer is still refusing to pay, we can assess your prospects of successfully challenging this decision.

What should I do if my insurer wasn’t named in the FCA test case?

The insurance companies involved in the test case were Arch Insurance (UK), Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox Insurance, MS Amlin Underwriting, QBE UK, Royal & Sun Alliance Insurance and Zurich Insurance.

If you believe your business has a claim for losses with another insurer, we can advise you on what to do next.

Background

Here’s what we have written previously on this subject:

Get in touch

For further advice on business interruption insurance claims and related issues, please contact Commercial Disputes Partner, James Taylor, at james.taylor@wards.uk.com or Solicitor, Richard Darbinian, at richard.darbinian@wards.uk.com.

Or click here to view Wards’ Business Disputes team.

 

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