Supreme Court green lights Covid business interruption policy pay-outs

Daniel Fowler
January 18, 2021

"The Supreme Court has recognised that, just when this cover was needed most by thousands of United Kingdom businesses, insurers were wrong to argue that coverage was applicable only if there were narrow local restrictions, that they could deny claims because the cover had not been meant to be provided and/or because the interruption and therefore losses would have happened in any event".

The regulator has estimated that the fate of £1.2bn in claims pay outs for 370,000 policyholders of 60 insurers could hinge on the verdict.

"The judgment should be a massive boost to all businesses reeling from a third lockdown who can now demand their claims are paid", said Richard Leedham, a partner at Mishcon de Reya who represents the Hiscox Action Group of policy holders. His firm has stayed open during the pandemic, but some of the 12 staff have been furloughed, and the Doncaster office is out of use.Responding to the supreme court judgment, Young said: "That's fantastic".

Sheldon Mills, the FCA's consumers and competition director, said: "Coronavirus is causing substantial loss and distress to businesses and many are under vast financial strain to stay afloat".

"There are still a number of untested issues", he said, "which could give rise to further litigation". 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 numerous roadblocks to claims by policyholders.

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The FCA said it would be working with insurers to ensure they quickly settled claims they were not required to pay and to make interim payments if possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

"To this end, we welcome the comments from the Association of British Insurers and the proactive approach the organisation and its members are taking to ensure small businesses affected are contacted". We are grateful to the Supreme Court for delivering the judgment quickly. "The speed with which it was reached reflects well on all parties". Insurance companies argued that the pandemic did not meet the terms of either of those clauses. For many, it has been a long and hard 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 nearly a year.

Recently appointed business secretary Kwasi Kwarteng tweeted that the Supreme Court's decision "will be a lifeline for tens of thousands of hairdressers, bars, restaurants and other small businesses that did the right thing and closed their doors to protect the health of the nation". This placed hundreds of thousands of small businesses in peril as the first national lockdown gripped the country.

The legal process was fast-tracked to the highest court in England and Wales which rejected the insurers' arguments and said it had "substantially allowed" an appeal brought by the FCA and action group to clarify the position.

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