Lifeline for up to 370,000 UK firms as court backs COVID-19 insurance claims

Tom Belger
·Finance and policy reporter
·3-min read
Supreme Court in London. Photo: PA
Supreme Court in London. Photo: PA

The Supreme Court has handed a lifeline to many UK firms in a battle over COVID-19 insurance cover, after dismissing appeals by insurers.

Around 370,000 firms could be affected by a ruling on Friday, part of a test case looking at firms’ entitlements to payouts over the impact of government lockdown restrictions.

Many hospitality and other firms found themselves denied cover under their business interruption insurance policies for substantial losses suffered during the pandemic.

The Financial Conduct Authority (FCA), Britain’s financial watchdog, brought a legal test case on behalf of many firms last year, in a bid to clarify how policies should apply.

The High Court ruled in the case in September, but its mixed verdict failed to hand either side a clear victory and parties on both sides lodged appeals on different points.

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The Supreme Court’s verdict on Friday provides much better for many firms, as it dismissed appeals by six insurers but “substantially” upheld ones lodged on behalf of policyholders. The insurance industry now expects to pay out £1.8bn for all pandemic-linked claims, including those affected by the case.

“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, partner at Mischon de Reya. The law firm represented the Hiscox Action Group in the case, a group representing around 400 firms insured by Hiscox.

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Leedham said the Supreme Court’s verdict showed insurers were wrong to say policies were not meant to offer such cover and coverage was only applicable if there were narrow local restrictions.

Paul Smethurst, a partner at accountancy Menzies LLP, added: “Most of those that have been waiting for a resolution of their existing claims will now receive the compensation they are due.”

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But he struck a note of caution: “However, many will still need to study the small print of their policies to check what the Court’s decision means for them – only sample wordings were considered and underwriters may seek to distinguish their particular policy terms albeit a clear message has been sent to the insurance community regarding liability for claims.”

He also warned some issues had not been tested in court, and that premiums could rise as insurers look to recoup losses.

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Huw Evans, director general of the Association of British Insurers (ABI), said insurers would contact firms whose claims were affected by the case and said many would be settled “as soon as possible.”

“Insurers have supported this fast-track legal process every step of the way and we welcome the clarity that the judgment will bring to a number of complex issues,” he said.

“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.”