Will businesses now get their insurance payouts?

ROSIE MURRAY-WEST looks at how firms affected by covid-19 could be eligible for some money back on their policy

MANY businesses forced to close due to the coronavirus pandemic have had little help from their insurers, even if they had bought policies that were supposed to cover them for socalled ‘business interruption’ (BI).

These policies should pay out when businesses have to close their doors due to infection or an order from a public authority, but those who tried to claim were told the cover didn’t apply to pandemics. The decision left many reeling, since BI claims can run into tens of thousands of pounds.

However, a High Court judgement last week might be a lifeline. A test case brought by UK regulator the Financial Conduct Authority (FCA) aimed to bring clarity to what was covered and what was not. In many cases it found with the regulator.

It looks like good news, but experts warn it is not as simple as it seems on the surface. Whether or not a claim is valid will depend on the small print and wording in the policy documents. Some will be disappointed.

‘This ruling can only be celebrated as a partial victory, as it still leaves many with little certainty around whether they will receive payouts for policies that have cost them thousands,’ says Mike Cherry, National Chairman of the Federation Of Small Businesses (FSB).

What happened in court?

Last week’s judgement concerned the wording of two different types of clauses in insurance policies.

The first, known as ‘disease clauses’, state that an insurer should pay out if a business is closed due to certain infections. The second, known as ‘denial of access clauses’, state that an insurer will pay out if something out of their control prevents customers accessing the premises.

Lord Justice Flaux and Mr Justice Butcher looked at the wording on policies written by 16 different insurers, and decided that some should be paid out, but others should not. They concluded that most of the disease clauses in the sample should result in a payout, and some of the denial of access clauses.

The decision is binding on the insurance companies that were part of the sample, but also has an impact on policies written by other insurers, who must consider whether their policies are similar.

The FCA was pleased the judge had substantially found in favour of the arguments it presented on the majority of key issues. They urged insurers to pay out quickly.

‘Coronavirus is causing substantial loss and distress to businesses. Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as

possible. The judgment removes a large number of those roadblocks to successful claims, and clarifies those that may not be successful,’ said Christopher Woolard, interim chief executive of the FCA.

Rafi Saville, forensic partner at accountancy firm HW Fisher said the landmark case was ‘one of the most controversial legal issues resulting from the coronavirus crisis’.

‘The decision will affect 400,000 small and medium businesses particularly in the leisure, property and hospitality industries, who were forced to close back in March,’ he said.

‘The ruling is likely to considered as a partial victory. It could have a ripple effect for the entire marketplace.’

However, business insurers also declared a victory. Zurich and Ecclesiastical, said that the judgment meant they would not have to pay out, while Hiscox said it would affect less than a third of its BI policies.

What happens next?

The FCA says that affected policy holders should hear an update from their insurer within seven days, but experts say immediate payouts are unlikely. Insurers may also decide to appeal, which could hold matters up.

Clive Zietman, head of commercial litigation at law firm Stewarts, says that although the FCA ruled on 21 sample policy wordings, different texts will mean lots more decisions.

‘The case will give rise to litigation on specific policies and no doubt insurers may, in individual cases, rely on other defences such as failure to make full disclosure at the time the policy was taken out or failure to notify in good time,’ he says.

Rafi, at HW Fisher, warns there will be “continued confusion” for many business owners, who will not know whether their case is covered or not.

The case is expected to affect £1.2billion worth of policies from 50 insurers – among those looked at in the case were: Arch, Argenta, Ecclesiastical, MS Amlin, Hiscox, QBE, RSA and Zurich. Neither Zurich nor Ecclesiastical believe they have to pay out on any policies after the ruling