Supreme Court backs small firms over Business Interruption Insurance Policies

Small firms have welcomed a Supreme Court ruling that appears set to force insurers to pay out on disputed coronavirus business interruption claims estimated to be worth at least £1.2bn.

Judges have dismissed arguments from the insurance industry over disputed claims and urge insurers to pay up without delay.

This means that tens of thousands of small businesses should receive insurance pay-outs covering losses from the first national lockdown.

Quick summary of the facts

In the first lockdown of spring 2020, many small businesses made claims through business interruption insurance policies for loss of earnings when they were forced to close.

Many insurers refused to pay, arguing that only very specialist policies had cover for such unprecedented restrictions.

The City watchdog, the Financial Conduct Authority (FCA), brought the test case, with eight insurers taking part in proceedings.

Giving the court’s ruling, Lord Hamblen said the court accepted the arguments from representatives of policyholders and dismissed appeals from insurers.

The FCA, the insurance sector, and the Financial Ombudsman will all now use the judgement to guide their decisions in other cases.

What does this mean for small businesses?

Since this issue emerged, insurance policies will have been amended for new and renewing customers, so losses from later lockdown measures would have to be clearly stated as part of the cover – or not – in new business interruption insurance policies.

But, this ruling provides guidance for a wider pool of 700 policies, potentially affecting 370,000 small businesses which could provide a lifeline for some of these businesses, allowing them to trade beyond the coronavirus crisis.

Sheldon Mills, from the FCA, said: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Today’s judgment decisively removes many of the roadblocks to claims by policyholders.

“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.”