Small Businesses Threw A Lifeline On Insurance Test Case Failure

Small businesses were threatened after the Superior Court ruled that some insurers should have paid for the losses caused by the closure.

The judges ruled that sickness clauses in some business interruption policies should have meant they were covered.

After the closure, a number of companies had to close and many turned to insurers to cover their losses.

But many insurers disputed the claims, arguing that the policies were never intended to cover unprecedented restrictions.

The test case was presented by the Financial Conduct Authority and had the potential to affect 370,000, mostly small businesses.

Insurers can appeal against the decision. Policyholders must hear from their insurer within seven days.

• ‘We have spent £ 10,000 on invalid virus insurance’

Christopher Woolard, acting executive director of the FCA, said the ruling removed “a great number” of obstacles to successful claims, as well as clarifying those that may not be successful.

“We are pleased that the court has ruled substantially in favor of the arguments we make on most of the key issues.

“Today’s trial is an important step in resolving the uncertainty policyholders face.

“The coronavirus is causing substantial losses and distress for businesses and many are under immense financial pressure to stay afloat.”

‘We have been under immense stress’

Anna Smart runs a photography studio in Oxfordshire with her husband Robin and thought she was covered by business interruption insurance.

But when she was turned down by her insurer, she was forced to fire a staff member and move out of their premises.

He said it was “painful” to let someone go and it felt like “getting rid of a family member.”

Instead, they have used a loan from Bounce Back to build a studio in their backyard.

Companies like hers were under “immense” stress, she said, while some had already been forced to close permanently, regardless of the outcome of the case.

Hospitality Insurance Group Action (Higa), one of the campaign groups backing the FCA case, said thousands of UK hotel companies should now be able to receive payments as a result of the ruling.

Sonia Campbell of the Mishcon de Reya law firm, representing Higa, said: “This is fantastic news that has shown that we were right to go after insurers who generally denied coverage for Covid-related losses.

“I would now urge other hotel companies to join us in ensuring that they can successfully recover payments from insurers in accordance with the court’s decision.”

The Hiscox Action Group (HAG), which has more than 400 members and also intervened in the case, called Tuesday’s ruling a “milestone.”

Steering committee member Mark Killick said: “The most important thing now is that insurers accept this decision and start paying rather than embarking on a fruitless appeals process that will only cause more suffering to the very policyholders they were meant to protect.” .

‘General denials’

As of July, some 400 companies had complained to the financial ombudsman, saying they had been wrongly denied coverage for losses related to the lockdown.

In response, the FCA presented its test case, arguing that while some insurers had made payments to customers, many claims had been “rejected” under “general denials of coverage.”

He asked the High Court to decide on the correct interpretation of a selection of policies, and the judges ultimately analyzed 21 issued by eight separate insurers, including giants Hiscox, RSA, QBE and Zurich.

The ruling could affect many more policies. However, the regulator added: “Although the ruling will bring good news for many policyholders, the ruling did not say that the eight defendant insurers are responsible for the 21 different types of policy writing in the representative sample considered by the court.

“Each policy must be considered against detailed judgment to determine what it means for that policy.”

Insurer Hiscox said it was “evaluating the ruling in detail” to see how it applied to claims made by individual policyholders.

Huw Evans, Managing Director of the Association of British Insurers, said: “Insurers have supported this expedited court process led by the FCA to help provide clarity to clients and we appreciate the speed with which the court has rendered a ruling.

“The trial is divided evenly between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that raised understandable questions of interpretation for some commercial insurance contracts.

“Insurers always regret any contractual dispute with their clients and will continue to reflect on comments from recent events.”