£1billion
That’s the bill insurers face after landmark win for small firms hit by lockdown
INSURANCE giants will have to pay out almost £1billion to small businesses forced to close during lockdown after a landmark ruling by the Supreme Court.
The victory over the insurers yesterday is expected to save thousands of jobs at beleaguered firms struggling to survive.
Small businesses were forced to close their doors last March after the first national lockdown. Many hoped their business interruption insurance policies – designed to cover losses in the event that they had to suspend operations – would help make ends meet.
Yet many insurers refused to pay out, claiming that their policies were not designed to cover a nationwide pandemic.
City watchdog the Financial Conduct Authority (FCA) took seven insurers to the Supreme Court – which yesterday dismissed almost all of the insurers’ arguments.
The decision will now apply to the whole industry, potentially affecting 370,000 policyholders and leading to almost £1billion of payouts.
Richard Leedham, a partner at law firm Mishcon De Reya, represented customers of insurer Hiscox – one of the firms challenged by the FCA.
He said: ‘This is a great win for small businesses, but it’s tinted with sadness because it’s taken so long. We’ve got firms going out of business by the week because of the delay in insurers paying out.’ Sheldon Mills, the FCA’s executive director of consumers and competition, said: ‘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.’
Business Secretary Kwasi Kwarteng wrote on Twitter: ‘This will be a lifeline for tens of thousands of hairdressers, bars, restaurants and other small businesses that did the right thing and closed their doors to protect the health of the nation.’
Even though the Prime Minister’s order for businesses to close in March did not have the ‘force of law’, the five judges agreed that the lockdown was enough to qualify under the insurance policies as a ‘restriction imposed’ by a public authority.
Even if companies were able to use part of their premises, such as restaurants being open for takeaways, they should still be able to claim for business interruption, the judges added. This made their decision more generous to small businesses than the High Court judgment last September, which insurers and the FCA had appealed.
The pandemic is now expected to cost insurers around £1.8billion in payouts across all policies, including business interruption cases. Yesterday’s decision will come as a huge relief to hospitality businesses such as pubs and restaurants, which were hit particularly hard by the lockdowns.
The British Beer and Pub Association (BBPA) found last year that more than half of the firms in its sector had seen their business interruption claims rejected, leaving many struggling to survive.
Emma McClarkin, chief executive of the BBPA, said: ‘This landmark ruling is great news for pubs and brewers who hadn’t received payouts on business interruption insurance thus far.’
Mr Leedham, however, cautioned that it may take time for customers to prove the size of their claim and that all conditions in their specific policy are fulfilled.
Tory MP Mel Stride, chairman of the Treasury Committee, said: ‘As the Treasury Committee has been urging, it’s right that the FCA will now ensure that valid claims are paid by insurers as quickly as possible.’
The other insurers involved in the case were Arch Insurance, Zurich, Argenta, MS Amlin, QBE and RSA.
Hiscox said it ‘welcomes the clarity that the judgment provides and the processing of claims has begun’. The insurer said it would pay out another £35million.
Huw Evans, director-general of trade body the Association of British Insurers, 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.’