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Business Interruption Insurance – Supreme Court Ruling in Favour of Businesses

January 2021

The Supreme Court’s verdict on the Financial Conduct Authority (FCA)‘s business interruption insurance claims has brought long-awaited clarity for small businesses.

The ruling confirms that insurers will pay out on most disputed coronavirus business interruption claims, worth an estimated £1.2bn.

During the initial UK lockdown which began in March 2020, many small businesses made claims through their insurance policies. Under their ‘business interruption’ insurance policies, they expected to receive cover due to loss of earnings for when they were forced to close.

However, many insurers argued that only specialist policies had cover for such restrictions, meaning that for many small businesses, their insurance coverage was redundant and received no payout.

Due to the masses of businesses affected by these policy restrictions, it was agreed that a selection of policy wordings should be tested in court, with the intention to clarify what would be considered a valid claim.

The High Court judgment delivered in September 2020 was widely seen as supportive for the majority of the 370,000 companies believed to be affected by the dispute, but prompted appeals by both sides.

The legal process was fast-tracked to the Supreme Court, the highest court in England and Wales, which delivered its verdict on 15 January 2021. The appeals delivered in court included those of the FCA, Hiscox Action Group and six of the eight insurers involved in the test case.

As of 15 January, the Supreme Court ruling provided guidance for a wider pool of around 700 policies. The complex ruling covered issues such as disease clauses, whether business were denied access to the properties, and the timing of lost earnings.

The Supreme Court found largely in favour of small firms receiving payments from business interruption insurance policies. Six of the world’s largest commercial insurers, Hiscox, Arch, Argenta, MS Amlin, QBE and RSA (but as many as 60 insurers who sold similar products) which claimed that their business interruption policies did not cover widespread disruption will now pay out on many, but not all, policies.

This has come as a relief for many businesses as it could provide a financial lifeline, allowing them to trade beyond the pandemic.

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