A landmark legal battle between the City regulator and leading insurers over business interruption payouts heads to the Supreme Court today.
Hundreds of thousands businesses that were forced to close or faced significant losses amid the pandemic made claims on their business interruption insurance. But leading insurers disputed the claims arguing their policies did not cover the restrictions.
High Court and Appeal Court judges have ruled largely in favour of policyholders but the Supreme Court will have the last word in a hearing that is expected to last four days.
What is the case about?
Businesses often pay huge premiums for business interruption cover to ensure they are covered for any income lost.
The FCA launched legal proceedings in June after it failed to come to an agreement with insurance companies on their business interruption policies.
Some small businesses were thrown a lifeline in September when the High Court ruled that some policyholders would be covered for losses.
However it also ruled that losses arising from a general reduction in consumer demand and the government’s lockdown measures were said to be distinguishable and thus not covered.
Why is the case being heard at the Supreme Court?
The test case against the eight insurance companies was fast-tracked for an appeal earlier this month.
The FCA and Hiscox Action Group of policyholders sought to appeal some aspects of the judgment, as did insurers Arch, Argenta, Hiscox, MS Amlin, RSA and QBE.
Insurers Zurich and Ecclesiastical have dropped out of the process after saying the court had found in their favour.
The regulator is seeking further clarification over whether 21 policy wordings cover disruption and government-ordered closures, which could affect around 700 types of policies and just under 400,000 policyholders.
Despite an expedited process, the appeal has delayed payouts on some of the disputed claims just as businesses grapple with the effects of the second lockdown in England.
What will the Supreme Court consider?
The Supreme Court will look at the 21 policy types included in the test case at the High Court, and rulings on the 13 which have been appealed against.
The lower court said 11 of the policies should have led to payouts, which are being appealed against by the insurers. The FCA is appealing the two policies which judges ruled should not be paid out.
The ruling, which will come some weeks after the hearing, will provide a benchmark for other insurance policies. It will prove important over the next few months as businesses grapple with losses during the second lockdown and over the Christmas period.
The Financial Ombudsman Service and courts in Scotland and Northern Ireland are expected to base rulings on the Supreme court’s ruling.