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Insurers to pay small firms for lockdown losses

The UK Supreme Court has ruled in favour of small firms receiving insurance payouts to cover losses during the first national lockdown in the spring of last year. The ruling means insurance firms will have to pay out on previously-disputed coronavirus business interruption claims totalling at least £1.2bn.

Tens of thousands of businesses are expected to benefit, after the announcement on Friday morning following a court case launched by the Financial Conduct Authority (FCA), with 8 insurers taking part in the proceedings. The ruling is set to cost insurers hundreds of millions of pounds.

One of the insurers at the centre of the case is British-owned Hiscox, who were challenged by 30,000 policymakers on their mid-pandemic insurance policies. Other high-profile defendants included RSA, QBE, Argenta, Arch and MS Amlin.

In the 2020 spring lockdown – which lasted roughly from March until June – many small businesses made claims through business interruption insurance policies for loss of earnings when they had to close, but many insurers refused to pay out. They argued that there were few policies which were designed to cover such an unprecedented situation, and most cases were therefore ineligible.

The FCA took the matter to court, raising issue with a selection of policy wordings which had effectively ruled out small businesses receiving insurance payouts during the strict lockdown. The ruling has now redefined the parameters of what is considered a valid insurance claim in the context of the pandemic, and sets a precedent that could affect as many as 700 policies.

It now covers issues such as disease clauses – whether business were denied access to their properties – and the timing of lost earnings in respect to lockdown and tier restrictions.

One of the judges who presided over the case, Lord Briggs, said in the ruling: “On the insurers’ case, the cover apparently provided for business interruption caused by the effects of a national pandemic type of notifiable disease was in reality illusory, just when it might have been supposed to have been most needed by policyholders.

“That outcome seemed to me to be clearly contrary to the spirit and intent of the relevant provisions of the policies in issue”.

Huw Evans, director general of the Association of British Insurers, stated: “All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.

“We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers”.

Celebrating the win, Richard Leedham – who represented the Hiscox Action Group – on behalf of small businesses, commented: “This is a landmark victory for a small group of businesses who took on a huge insurance player and have been fully vindicated”.

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