Friday 15 January 2021 11:54 am

Business interruption case: Light at the end of the tunnel for SMEs

Hundreds of thousands of businesses will today breathe a sigh of relief after the Supreme Court ruled leading insurers must pay out on business interruption policies. 

The court “substantially allowed” the appeal brought by the Financial Conduct Authority (FCA) and campaign groups Hiscox Action Group and Hospitality Insurance Group Action. 

It brings months of uncertainty for businesses struggling with the implications of lockdown restrictions to an end. 

A glimmer of hope for SMEs 

The landmark decision has been welcomed by industries across the board as it will likely result in claims being settled for thousands of businesses that were forced to shutter in the first lockdown. 

National Chair of the Federation of Small Business (FSB), Mike Cherry hailed the ruling as a “big victory”. 

“For many, it has been a long and difficult road to get to this stage so this will bring clarity and hope to the thousands of firms which have been left in financial limbo for almost a year,” he added. 

One owner of a City-based small business told City A.M.: “There is hope!” 

In practical terms the ruling will allow businesses to recover losses caused by coronavirus cases within, for example, a 25 mile radius of their premises even if it would have been hit by cases outside of the area. 

The pub industry, which has been decimated by the introduction of three national lockdowns and the additional tier measures, is similarly pleased. 

“This landmark ruling is great news for pubs and brewers who hadn’t received payouts on Business Interruption insurance thus far. It is a glimmer of hope in what is an incredibly tough time for our sector,” said Emma McClarkin, chief executive of the British Beer & Pub Association. “While our sector is far from out of the woods yet, this announcement helps resolve the uncertainty it has faced on insurance cover and is warmly welcome.” 

‘Catastrophic’ outcome for insurance companies 

The Association of British Insurers has said that the ruling means the insurance industry is expected to pay out £1.8bn in Covid-19 claims including business interruption.

Given that this case is related only to the first lockdown and there have since been two more lockdowns the hit to the industry will be staggering.

This ruling alone will apply to more than 700 policies for up to 370,000 policyholders. 

The decision “only serves to broaden the circumstances in which affected policyholders can recover losses from those allowed by the lower Court last September… [and] will also have very significant implications for future insurance claims on other types of policy,” according to Naz Gauri, principal associate in Eversheds Sutherland’s insurance litigation team.  

Mark Pring, partner at Reed Smith said: “It can be said, without fear of hyperbole, that in principle at least this really is a catastrophic outcome for insurers… If it weren’t for remote working, we would likely have heard the collective groan of insurers as the Supreme Court issued its verdict.” 

And investors certainly seem spooked in the immediate aftermath. Hiscox shares plunged nearly five per cent before recovering to trade up 2.3 per cent by 11.45am. 

RSA shares also dipped between one and two per cent since the announcement.