Nearly 400,000 small businesses to get payouts for lockdown losses

Tens of thousands of small businesses are set to receive insurance payouts to cover their losses from the first national lockdown, a court has ruled.

The Supreme Court has ‘substantially allowed’ an appeal in a landmark £1.2 billion legal battle over the ability of firms to claim on insurance for coronavirus-related disruption.

Some insurers claimed their ‘business interruption’ policies did not cover the pandemic when shops, gyms, restaurants and other small companies were forced to close – and didn’t pay out.

But the Financial Conduct Authority (FCA) brought legal action last year over the wording of the policies.

The City watchdog previously said there was ‘widespread concern’ over ‘the lack of clarity and certainty’ for many firms through the pandemic.

These payouts may be a lifeline for a number of struggling businesses in the UK through the global crisis.

Insurers affected include Arch, Argenta, Hiscox, MS Amlin, QBE and RSA, but there are as many as 60 which offered similar products.

Richard Leedham, a partner at law firm Mishcon de Reya who represented around 400 firms insured by Hiscox, said: ‘This is a landmark victory for a small group of businesses who took on a huge insurance player and have been fully vindicated.

‘What is important now is that Hiscox accepts the Supreme Court’s verdict and starts paying out to its policy holders, many of whom are in danger of going under.

‘Today’s outcome is one of the most significant for business in modern times. The result should leave Hiscox and the rest of the insurance industry in no doubt that they should immediately start doing the right thing and settle these claims.’

The case was first heard in November, where a selection of policy wordings were tested by lawyers in court, setting the parameters for what would be considered a valid claim.

In a written ruling, Lord Hamblen and Lord Leggatt – with whom Supreme Court president Lord Reed agreed – concluded: ‘Although we have accepted some of the insurers’ arguments on their appeals, in no case has that affected the outcome of the appeal. It follows that the insurers’ appeals are dismissed.’

In a separate concurring judgment, Lord Briggs – with whom Lord Hodge agreed – said: ‘On the insurers’ case, the cover apparently provided for business interruption caused by the effects of a national pandemic type of notifiable disease was in reality illusory, just when it might have been supposed to have been most needed by policyholders.

‘That outcome seemed to me to be clearly contrary to the spirit and intent of the relevant provisions of the policies in issue.’

The ruling could cost the insurance sector hundreds of millions of pounds.

Sheldon Mills, executive director of consumers and competition at the FCA, welcomed the decision, saying the judgment ‘decisively removes many of the roadblocks to claims by policyholders’.

‘We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible,’ he added.

‘Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

‘As we have recognised from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this.’

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