Supreme Court victory for small firms on business interruption insurance

The Supreme Court found in favour of thousands of small firms in a test case bought by the Financial Conduct Authority (FCA). The judgment is another boost to small companies following an earlier high court victory for policy holders in September.

The FCA said the Supreme Court decision meant “many thousands of policy holders will now have their claims for coronavirus-related business interruption losses paid”.

While Abta said the judgment meant "welcome clarity for those travel businesses with business interruption insurance".

Sheldon Mills, executive director, consumers and competition at the FCA, added: “Today’s judgment decisively removes many of the roadblocks to claims by policy holders.

“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.”

The FCA said it will be working with insurance companies to “ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible”.

“Tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this,” added Mills. “We are grateful to the Supreme Court for delivering the judgment quickly. The speed with which it was reached reflects well on all parties."

The case centred around the wording of business interruption policies and whether insurance firms were required to make payments to businesses forced to close during the first lockdown of the pandemic in spring 2020.

The FCA’s test case featured a “representative sample” of 21 types of policy from eight insurers and was designed to “remove the need for policy holders to resolve many key issues individually with their insurers”.

An Abta spokesperson said: "What it means in practice is that insurers can’t point-blank refuse to pay out citing the pandemic being unprecedented. Instead, it will depend on what is in the terms of the insurance.

"We encourage members who have business interruption insurance, and have had their claim denied, to speak to their insurer or broker about next steps. If the terms account for the circumstances of the pandemic, then the ruling means they should now be entitled to a payout.”

Huw Evans, director general of the Association of British Insurers (ABI), said: "Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim.

"All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun. Some payments have already been made where valid business interruption claims have not been impacted by the test case ruling."

But the judgment will not benefit all holders of business interruption insurance, depending on what types of diseases the policies specifically cover.

Read our guide to business interruption insurance