High Court rules in favour of struggling SMEs in business interruption insurance case

Royal Courts of Justice

Insurers may have to pay out to hundreds of thousands of British firms who had business interruption claims turned down during the pandemic, following a landmark ruling.

The High Court today ruled in favour of policyholders in a test case brought by the Financial Conduct Authority (FCA).

The Court ruled on a representative sample of 17 policy wordings by 16 insurers. It found that most, although not all, of the clauses provide cover.

Interim FCA boss Christopher Woolard today said: “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.”

“We are 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.”

Two action groups – the Hiscox Action Group and the Hospitality Insurance Group Action – were given permission to intervene on behalf of certain policyholders.

The Hiscox Action Group hailed the business interruption insurance test case as a “landmark victory”. Its law firm Mishcon de Reya has written to insurer Hiscox for interim payments to be made to policyholders.

The FCA said policyholders with affected claims can expect to hear from their insurer within the next seven days.

Huw Evans, the director-general of the Association of British insurers, said: “Insurers have supported this fast-track court process led by the FCA… The judgment divides evenly between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts.”

“Individual insurers will be analysing the judgment, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead”, he added.

Michael Frisby, a Stevens & Bolton dispute resolution partner who represented a group of 34 nurseries whose policy wording was tested in the case, said it was a “shining example of regulatory intervention”.

“Whilst the judgment doesn’t determine every claim or point of confusion, it provides clear guidance to identify which claims are covered in the wake of the pandemic. It will have the effect of reducing the disputes over coverage arising from the pandemic, and should also help resolve some individual disputes”, he added.

Julie Hunter, senior associate solicitor in the commercial litigation department at Stephensons Solicitors, added her thoughts on the judgement saying: “While this ruling is still subject to an appeal and there are some intricacies to unpick in the finer details of The High Court’s decision, particularly around policy wording, today’s judgment will undoubtedly bring some good news to many business owners who have been left in limbo for the past six months. The coronavirus pandemic has had a catastrophic impact on many businesses, both large and small, and forced many into significant financial hardship; those businesses will now feel there is finally some light at the end of the tunnel.”

Speaking about the judgement Adam Kerr, commercial lawyer and Managing Partner at law firm, Primas said:  “The High Court’s judgment today will be welcome news to many businesses who have suffered terribly as a result of Covid-19, but who (inexplicably) found themselves without assistance from their business interruption policies. The insurance sector’s initial approach to claims will no doubt have reinforced many people’s already unflattering perceptions of that sector. It is right, and encouraging, to see the FCA and the Courts step in to provide a much needed lifeline to mostly small and medium sized businesses who have been so harshly affected by the pandemic.

“However, it’s important for business owners to remember that whilst the judgment is undoubtedly positive news, it’s definitely not going to be a ‘one-size fits all’ solution in all cases. Much will now turn on the specific wording within individual policies as well as the specific impact of the pandemic on the business in question. With this in mind, those who think they may have a claim (or those who may have had previous claims denied by an insurer) should seek professional advice from their lawyers or insurance brokers. As a matter of principle, this judgement is certainly a welcome relief for many business owners, although this will more than likely have a knock on effect on insurance premiums as a result.”