Positive news for SMEs who could gain thousands in pandemic pay-outs

Date published: 28 January 2021


SMEs impacted by the Coronavirus pandemic now have an insurance lifeline thanks to a recent Supreme Court decision which could see a surge in pay-outs and may keep some businesses afloat.

The Financial Conduct Authority brought the test case against big name insurers to seek clarity on the interpretation of business interruption insurance (BI) policies. It is thought up to 370,000 policy holders could be affected.

Many business insurance policies have a BI clause relating to an outbreak of an ‘infectious or notifiable disease’ or ‘denial of access’ to business premises following public authority action in an emergency.

In this case BI policy was supposed to pay for any losses incurred by a business if it cannot remain open due to an ‘infectious disease’ or ‘denial of access’. However, insurance companies rejected these claims. They argued that the policies did not cover government-imposed lockdowns or that Coronavirus was not covered under a list of ‘infections diseases’.

Hundreds of high street business across Oldham and Tameside who have been unable to remain open for business during the lockdowns such as hairdressers, beauty salons, guest houses and bars and restaurants; or remained partially open such as takeaway services, now have some legal come back against their BI insurers thanks to the Supreme Court ruling.

“This is positive news for BI policy holders and those businesses impacted. Insurers have been held to account by the highest Court in England and Wales and insurers need to pay out, or face further legal action,” said Usman Anwar, Litigation Solicitor at Pearson Solicitors.

“We welcome the clarity brought about by the recent case. Small firms pay insurance in good faith and some will have paid their BI insurance for years and when the insurance companies were not paying out because of technicalities it could have meant some shutting down or making staff redundant. Now they have a legal claim to an insurance pay out and can legitimately pursue it.”

In the recent case one of the Supreme Court judges, Lord Briggs, said the insurers lack of cover was “clearly contrary to the spirit and intent of the relevant provisions of the policies in issue”.

He added: “This was not, of course, a disease which anyone could have had specifically in mind when the policies in issue were written and marketed. But it is clear from the use of the definition of a ‘notifiable disease’ in most of the relevant clauses, and equivalent wording in the remainder, that Covid-19 [when it appeared] fell squarely within the types of disease for which all the relevant disease and hybrid clauses provided cover.”

It has taken some time for this case to come to fruition. Lockdown in 2020 shut the doors of small businesses in March and some have not reopened, but this latest case does give hope for the future.

The case was initially heard in the High Court against eight insurers, but six: Arch Insurance, Argenta, Hiscox, MS Amlin, QBE and RSA appealed and the FCA further appealed against some aspects of the High Court ruling to the higher Supreme Court, who then found in favour of the policyholders.

The nature of a BI claim and calculating losses will continue to be complex and inevitably the insurers will challenge the losses claimed by the policy holder.

“All policyholders should now receive notification on the findings of the Supreme Court and then subsequent payments should be forthcoming. Those who have submitted claims can seek clarification on the status of their claim, others can begin the claim process but as always if matters are not forthcoming it is always useful to talk to your solicitor and seek further advice and clarification,” added Usman.


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