Supreme Court rules insurers must pay small firms for lockdown losses

The Supreme Court has today delivered its judgment in the Financial Conduct Authority’s business interruption insurance test case. It has substantially allowed the FCA’s appeal on behalf of policyholders, meaning that thousands of policyholders will now have their claims for coronavirus-related business interruption losses paid.

Sheldon Mills, executive director for consumers and competition at the FCA, said: “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.”

Several insurers now face significant payouts, including Hiscox – which was challenged by 30,000 policyholders as part of the case – as well as Arch, MS Amlin, QBE, Argenta, and RSA. Many other insurers also sold similar products too, and some of these will also now pay out.

Mills added: “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.”

The judgment brings to an end legal arguments under 14 types of policy issued by six insurers, and a substantial number of similar policies in the wider market which will now lead to claims being successful. The FCA says its decision to bring the test case has removed the need for policyholders to resolve many key issues individually with their insurers.

Huw Evans, ABI director-general, said: “Insurers have supported this fast-track legal process every step of the way and we welcome the clarity that the judgment will bring to a number of complex issues.

“The insurance industry expects to pay out over £1.8bn in COVID-19 related claims across a range of products, including business interruption policies. Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim.”

Evans said all valid claims will be settled as soon as possible and in many cases the process of settling claims has begun. He added that some payments have already been made where valid business interruption claims have not been impacted by the test case ruling.

Matt Connell, director of policy and public affairs of the Chartered Insurance Institute, said:
“This judgement will have huge ramifications for insurance beyond business interruption and it is important this is also looked at as openly as possible. Rest assured insurance professionals will be examining how this affects policies and will reach out to policyholders about what this means for them, indeed in some cases this process will have already begun.”

He adds that the CII has long discussed the importance of trust and confidence in insurance and believes both can be restored if this process remains open and transparent to the public. "We recently released guidance in collaboration with the ABI, BIBA, and our members, to support professionals close the gap between what customers expect insurance products to do and what they deliver, and we will continue to engage on this matter.”

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