Small businesses have a huge opportunity to get back on their feet as the Supreme Court has ruled that insurers will pay out for losses caused by lockdown. 

It is estimated that 370,000 businesses will be affected by the outcome of the ruling, with most companies being small.

Background

During the 2020 lockdown, many small businesses made claims through business interruption BI insurance policies for loss of earnings when they had to close. However, insurers refused to pay, arguing only the most specialist policies had cover for such unprecedented restrictions.

It was recognised that the BI policies are complex and if they had the potential to create ongoing uncertainty for both customers and insurance firms in relation to claims for loss of earnings due to COVID-19 restrictions. The Financial Conduct Authority (FCA) sought clarification from the High Court as part of a test case.

It was agreed that a selection of policy wordings should be tested, setting the parameters for what would be considered a valid claim. The FCA selected 21 policies from eight insurance companies as a representative sample for the test case. The case explained that the COVID-19 pandemic and the Government and public response were a single cause of the covered loss, resulting in a key requirement for claims to be paid.

The Supreme Court has substantially allowed the FCA appeal on behalf of policyholders, and that cover may be available for full and partial closure of premises and for mandatory closure orders that were not legally binding. 

What this means for business owners

The FCA test case has removed the need for policyholders to resolve many issues individually with their insurers, it will not settle all disputes but will help to clear up uncertainties for both sides. 

The FCA will be working with insurers so that they fast-track their claims processes on claims that the Supreme Court has said should be paid, providing interim payments wherever possible. 

Policyholders with affected claims can expect to hear from their insurer soon, those who remain unhappy following their insurer's assessment of their claim may be able to refer their claim to the Financial Ombudsman Service. 

The FCA will publish a set of Q&As for policyholders to assist them to understand the test case. They have published draft guidance for policyholders on how to prove the presence of coronavirus and a list of BI policy types that potentially respond to the pandemic. They are asking for feedback by the 22 January (extended from 18 January) and will issue finalised guidance as soon as possible after that.