Supreme Court rules insurers must pay £1.2bn compensation to businesses affected by Covid disruption

The Supreme Court has ruled that insurance firms will be forced to pay out on policies where money has been lost due to the Covid-19 pandemic.

The court has “substantially allowed” an appeal brought by the Financial Conduct Authority (FCA) over businesses’ ability to claim on insurance for coronavirus-related disruption.

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Insurers’ appeals ‘dismissed’

The landmark case is estimated to be worth £1.2 billion and could affect around 370,000 businesses.

Last year, the FCA brought a test case to court against insurers who said that people could not claim on policies for “business interruption” as a result of the pandemic.

The City watchdog previously said it was bringing the legal action following “widespread concern” over “the lack of clarity and certainty” for businesses seeking to cover substantial losses incurred by the pandemic and subsequent national lockdown.

In September, the High Court ruled on several “lead” insurance policies issued by eight separate insurers largely in favour of the FCA, which welcomed the judgment as “a significant step in resolving the uncertainty being faced by policyholders”.

However, the regulator argued that the judgment “paved the way for many insurance policies to pay indemnities on Covid-19 business interruption claims”, but also “took something away with one hand after giving more substantially and in detail with the other”.

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, which represents around 400 businesses insured by Hiscox.

In September, the High Court ruled on several "lead" insurance policies issued by eight separate insurers largely in favour of the FCA, which welcomed the judgment as "a significant step in resolving the uncertainty being faced by policyholders".

Later in November, the UK's highest court heard "leapfrog" appeals - which have bypassed the Court of Appeal - in a case which could have implications for hundreds of thousands of businesses affected by coronavirus.

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."

In a separate concurring judgment, Lord Briggs said: “On the insurers’ case, the cover apparently provided for business interruption caused by the effects of a national pandemic type of notifiable disease was in reality illusory, just when it might have been supposed to have been most needed by policyholders.

“That outcome seemed to me to be clearly contrary to the spirit and intent of the relevant provisions of the policies in issue.”

Claims to be paid

Following the ruling, Sheldon Mills, executive director of consumers and competition at the FCA, welcomed the decision and said the ruling “decisively removes many of the roadblocks to claims by policyholders.

Mills added that the FCA will be working with insurers to ensure payments will now be paid, including interim payments where possible.

He said: “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.”