The Supreme Court has largely ruled in favour of policyholders and the City regulator in the landmark business interruption insurance case.
In a judgment handed down today, the court said it “substantially allowed” the appeal by the Financial Conduct Authority (FCA) and campaign groups Hiscox Action Group and Hospitality Insurance Group Action.
The insurers Arch, Argenta, Hiscox, MS Amlin, RSA and QBE, have had their appeals dismissed.
The ruling will provide guidance for a further 700 policies, potentially affecting up to 370,000 policyholders.
Richard Leedham, partner at Mishcon de Reya who represents the Hiscox Action Group today said: “The judgment should be a massive boost to all businesses reeling from a third lockdown who can now demand their claims are paid.”
“The hope and expectation of our clients is that the claim adjustment process starts immediately and that insurers will not continue to cause further distress by further unnecessary delay.”
Insurers set to pay nearly £2bn in claims
Following today’s decision, the insurance industry is expected to pay out over £1.8bn in coronavirus claims related to the first lockdown, which includes business interruption policies.
The FCA, which brought the test case, 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.”
Chair of the Treasury Comittee Mel Stride said: ““This ruling will be welcomed by many businesses who are struggling through the pandemic; it may provide a lifeline for many of them.”
“As the Treasury Committee has been urging, it’s right that the FCA will now ensure that valid claims are paid by insurers as quickly as possible.”
Huw Evans, director general of the Association of British Insurers (ABI) confirmed insurers would settle claims as soon as possible.
“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,” he said after the judgment.
Shares in leading insurers sunk following the judgment, with Hiscox down over four per cent.
What was the case about?
Hundreds of thousands of businesses that were forced to close or faced significant losses made claims on their business interruption insurance. But leading insurers disputed the claims arguing their policies did not cover the restrictions.
This prompted the watchdog to bring a test case on behalf of policy-holders seeking legal clarity on the issue.
High Court and Appeal Court judges had ruled largely in favour of the policyholders. Some businesses were thrown a lifeline in September when the High Court ruled that claims should be paid in most cases where policies had pandemic or disease clauses.
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.
The Supreme Court case between the FCA and six insurance companies was heard in November after the regulator and the insurance companies sought to appeal aspects of the ruling.
The Supreme Court was asked to rule on provisions in policies relating to disease clauses, prevention of access clauses and hybrid clauses.
The Financial Ombudsman Service and courts in Scotland and Northern Ireland are expected to base their decisions on the Supreme Court’s ruling.