The ruling now means that the majority of the businesses that have been required to close due to COVID-19 are entitled to compensation under their business interruption insurance.
An already incredibly stressful time for UK businesses was made much worse in April when insurance provider, Hiscox, refused to pay out on business interruption claims. Ever since, the Financial Conduct Authority (FCA) has sought legal clarity on the claims brought by businesses impacted by the COVID-19 pandemic, and the eyes of the insurance sector and businesses up and down the country have been firmly fixated on the judgement.
This week, UK businesses had some much needed good news, as the High Court ruled that the majority of businesses who held business interruption insurance policies and were forced to close due to the COVID-19 pandemic are entitled to compensation from the insurers, subject to the limits of their policy.
The High Court has ruled that this compensation should return the businesses to the position they would have been in had the pandemic never happened.
A 162-page ruling was handed down on Tuesday 15th September as part of a “test” case which was brought forward by the FCA against eight insurance firms, including Hiscox and QBE. The High Court was provided a sample of 21 policy wordings which the FCA said covered the majority of key issues that were in dispute. The judgement ruled that most, but not all, of the “disease” clauses provided cover for the pandemic.
Other key parts of the ruling include “denial of access” clauses providing cover, depending on how the business has been affected, and also the fact that the COVID-19 pandemic and the Government and public response to it was a “single cause of the covered loss”. The FCA had argued that this was a key requirement for the claims to be paid.
Interim Chief Executive of the FCA, Christopher Woolard, commented on the positive ruling for businesses:
Today’s judgement is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgement quickly, and the speed with which it was reached reflects well on all parties.
Hiscox have estimated its liability due to the ruling to be less than £100m net of reinsurance.
What was the Business Interruption Claims dispute over?
Before COVID-19 brought the business world to a grinding halt, insurers, like Hiscox, sold companies business interruption insurance policies. The idea of these policies is that they pay out when a business is forced to shut down owing to a disaster which is out of their hands. This disaster could be a fire, a flood, or it could a global pandemic.
Business interruption insurance is not sold as a separate policy, but as an add-on to a property policy or is included in a comprehensive package policy.
Hiscox’s policy documents state that they will cover financial losses for businesses who are unable to use their premises following:
an occurrence of any human infectious or human contagious disease, an outbreak of which must be notified to the local authority.
However, Hiscox and other insurers argued that the policy does not provide cover for business interruption as a result of “general measures” taken by the Government in response to the pandemic.
Insurers also argued there would have to be a disease in the company’s “vicinity” for the policy to pay out. However, the FCA argued:
An occurrence of COVID-19 within at least the same city, town or village or other development is always likely to be within the Vicinity; and in any case the area involved remains relatively wide.
One of the first cases that brought the issue to light was that of Paul Daly back in April 2020. The disgruntled business owner runs Roadtrip and The Workshop bars in Shoreditch, London. He pays £18,000 a year for his business interruption insurance policy with Hiscox. Since the lockdown, his income has been decimated, and his claim for business interruption turned down. Back in April, he said of the matter:
People’s livelihoods are at stake here. I’m worried. It shouldn’t have to be into this when I’ve spent tens of thousands of pounds on insurance. It’s like someone came into my bar and bought a drink and then I don’t give it to them.
What the business interruption ruling means for businesses
The High Court ruling is massive news for UK businesses who needed some respite from an awful, COVID-19 affected year. It is a landmark ruling for the many thousands of businesses who are struggling to survive, with estimates of 370,000 being affected by the ruling.
Where applicable, insurers will now have to pay out on the business interruption insurance claims. It has been suggested that immediate interim payments are made to insurance policyholders, while the full losses are calculated.
There are also calls for the arbitration process to be accelerated for those businesses who are struggling and waiting weeks to hear back about their claim. FCA interim chief executive, Christopher Woolard, added that this is the perfect time for insurers to reflect on the clarity provided to policyholders, and insurance firms should consider the steps they must take to progress claims that the judgement has said should now be paid.
Will insurers appeal the High Court decision?
The Chartered Insurance Institute (CII) has advised insurance firms to act now and avoid any further legal proceedings like the FCA test case moving forward. CEO of CII, Sian Fisher also mentioned that the decision may be subject to an appeal. She stated:
Although the High Court decision will bring greater certainty to the situation, we must bear in mind that this decision may be subject to appeal.
Looking to the future, insurers, brokers and government must act now to reduce the need for court cases such as this one in future.
Christopher Woolard also warned businesses about the prospect of an appeal from insurers, but said that the process should be much quicker than the test case:
If any parties do appeal the judgement, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process.
As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this.
No formal appeal has been made by the insurers as of yet.
How can you claim business interruption compensation?
Claiming business interruption compensation through business insurance could be the only hope of survival for many UK business owners. Having said this, the wording of the insurance policies is often very complex and sometimes unique to each business.
If you believe you are entitled to business interruption compensation and your insurer isn’t paying out, our expert solicitors are able to go through your policy carefully to determine whether you may be able to claim.
If we believe you are eligible and your insurer disagrees, our team can calculate your potential losses and challenge the insurer for you. Our expertise with working with insurance companies, the FCA and the FSCS means that we can present your claim in a way that is dealt with promptly and efficiently.
Our legal team come from a financial services and compliance background. We are regulated and authorised by the Solicitors Regulation.
At Smooth Commercial Law we make claiming for compensation easy:
- No Win, No Fee*
- No Upfront Payments
- An Expert Team
- Regulated and Authorised by The Solicitors Regulation Authority