Hundreds of thousands of small companies in the UK – including those operating in fitness and leisure – are set to receive payouts on interruption insurance policies, following a high court judgment in a test case brought by the Financial Conduct Authority (FCA).
The case examined the policy wording of eight major insurers to decide whether or not the COVID-19 pandemic should trigger a business interruption insurance (BI) pay out.
Overseen by Lord Justice Flaux, the review focused on eight insurers – Arch, Argenta, Ecclesiastical, MS Amlin, Hiscox, QBE, RSA and Zurich – and the court’s rulings are expected to apply to nearly 50 insurers, who have sold insurance to 370,000 customers, many of which are small businesses.
Most small and medium-sized (SME) BI policies focus on property damage and only have basic cover for interruptions as a consequence of property damage.
But some policies also cover for BI from other causes, in particular infectious or notifiable diseases (‘disease clauses’) and non-damage denial of access and public authority closures or restrictions (‘denial of access clauses’).
In some cases, insurers have accepted liability under these policies. In other cases, insurers have disputed liability while policyholders considered that it existed, leading to widespread concern about the lack of clarity and certainty.
The FCA sought to provide clarity on the "grey areas" within the disease and/or denial of access clauses – and whether the COVID-19 pandemic should trigger a payout.
In its 150-page judgement, the High Court ruled in favour of the FCA, saying that most, but not all, of the disease clauses provide cover.
"We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market," said Christopher Woolard, interim CEO of the FCA.
"We're pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues.
"Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.
"Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.
"They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps."
The FCA is now calling on all BI policy holders to follow updates on its dedicated business interruption insurance website (to visit the page, click here)
, as it is likely that the defendant insurers will appeal the high court judgement.
• To learn more about the hight court judgement, click here