May 23, 2024

Small firms celebrate after Supreme Court ruling forces insurers to pay out over COVID interruption claims worth £1.2bn

Small firms around the UK are celebrating after the Supreme Court delivered its judgment in the Financial Conduct Authority’s (FCA)’s business interruption insurance test case.

The Supreme Court allowed the FCA’s appeal on behalf of policyholders, which means that thousands of affected policyholders will now have their claims for coronavirus-related business interruption losses paid.

Many policyholders whose businesses were affected by the Coronavirus pandemic suffered significant losses, resulting in large numbers of claims under business interruption (BI) policies.

Most SME policies are focused on property damage and only have basic cover for BI as a consequence of property damage, while some policies also cover BI from other causes, in particular infectious or notifiable diseases (‘disease clauses’) and prevention of access and public authority closures or restrictions (‘prevention of access clauses’). While in some cases, insurers have accepted liability under these policies, other insurers disputed liability while policyholders considered that they had cover – this raised widespread concern about the lack of clarity and certainty so the FCA acted by bringing the test case.

Leadership Expert and CEO Coach Peter Ryding welcomed today’s decision, saying:

“We advise business leaders to plan for the unthinkable, to prepare, to adapt and to have a strategy in place when a situation throws you a curveball.  The pandemic was in many ways the ultimate curveball for many UK businesses, but good CEOs had planned ahead and sought out insurance policies in good faith to protect their business in the event of unforeseen challenges.  It is therefore somewhat of a relief to see the Court enforcing insurers to honour their policy obligations.  Many struggling business owners will be breathing a sigh of relief today.”

Luke Davis, CEO of IW Capital also welcomed the ruling, calling for high net worth individuals to consider investment at this time, so SMEs are able to fund future growth:

“The Supreme Court ruling is a great win for small businesses across the country who are in need of respite and support to allow them to trade post-Covid. Helping SMEs weather the storm of the pandemic is vital as they will be key to creating jobs and tackling unemployment in the future and will play an integral role in the resurgence of the UK economy,  with the SME community making up 99.9% of private sector businesses.

“Now there is a need for investment support from high net worth individuals to help these businesses recover from the financial hardship they have felt and enable future growth as we venture through the new year.”

Sheldon Mills, Executive Director, Consumers and Competition at the FCA, commented:

‘Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.

‘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. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

‘As we have recognised from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this. We are grateful to the Supreme Court for delivering the judgment quickly. The speed with which it was reached reflects well on all parties.’

For more information, and the next steps, visit the FCA’s page here: