Insurance ruling throws lifeline to virus-hit firms

INSURERS have been urged to “move quickly” to pay claims to thousands of small businesses after the Supreme Court ruled their policies “will provide cover” for business interruption caused by the Covid-19 pandemic.

In a landmark £1.2 billion case over businesses’ ability to claim on insurance for coronavirus-related disruption, the UK’s highest court “substantially allowed” an appeal by the Financial Conduct Authority (FCA) on Friday.

The City watchdog last year brought the test case, which could affect around 370,000 businesses, over the wording of business interruption insurance policies, which some insurers argued did not cover the Covid-19 pandemic.

The FCA’s executive director of consumers and competition Sheldon Mills said the Supreme Court’s judgment “decisively removes many of the roadblocks to claims by policyholders”. He called on insurers to “move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible”.

In September, the High Court ruled on several “lead” insurance policies issued by eight separate insurers - a ruling the FCA described as “a significant step in resolving the uncertainty being faced by policyholders”.

But the regulator also said that judgment “took something away with one hand after giving more substantially and in detail with the other” and brought a “leapfrog” appeal to the Supreme Court, bypassing the Court of Appeal.

Six of the insurers - Arch, Argenta, Hiscox, MS Amlin, QBE and RSA also appealed against aspects of the High Court’s ruling, as did the Hiscox Action Group (HAG), which represents around 400 businesses insured by Hiscox.

Announcing the Supreme Court’s ruling on Friday, Lord Hamblen said: “The appeals of the Financial Conduct Authority and the Hiscox Action Group are substantially allowed and the insurers’ appeals are dismissed.”

The court considered various types of clauses which featured in a number of insurance policies including “prevention of access clauses”, which are triggered by “public authority intervention preventing access to, or use of, the business premises”.

Summarising the Supreme Court’s decision, Lord Hamblen said the High Court’s interpretation of those clauses was “too narrow”.

The judge added: “An instruction given by a public authority may amount to a ‘restriction imposed’ if it carries the imminent threat of legal compulsion or is in mandatory and clear terms and indicates that compliance is required without recourse to legal powers.”

The Supreme Court also ruled on “trends clauses”, which generally require losses to be calculated by reference to how the business would have performed “had the insured peril not occurred”.

Recently appointed Business Secretary Kwasi Kwarteng said the Supreme Court’s decision “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”.

Richard Leedham, partner at law firm Mishcon de Reya representing HAG, hailed the result as “a landmark victory for a small group of businesses who took on a huge insurance player and have been fully vindicated”.