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Supreme Court backs Covid-19 insurance payouts

The Supreme Court has mostly accepted an FCA appeal which opens the door to Covid-19 business interruption (BI) insurance payouts.

An estimated 370,000 SME policyholders could be helped by the judgment.

Last year the FCA launched a business interruption insurance test case to seek a judicial judgment on whether insurers should pay out after many argued Covid-19 interruption was not covered by policies. 

The Supreme Court today delivered its judgment on the test case and substantially allowed the FCA’s appeal on behalf of policyholders. 

The FCA says this should complete the legal process for impacted policies and means that many thousands of policyholders will now have their claims for coronavirus-related business interruption losses paid. Payouts could total millions of pounds and help thousands of small firms as well as preserving jobs.

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Sheldon Mills, executive director, consumers and competition at the FCA, said: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat.

“This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and 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. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

There have been large numbers of claims under business interruption (BI) policies but insurers argued that Covid-19 was an exceptional event and many refused to pay out.

Most SME policies are focused on property damage and only have basic cover for BI as a consequence of property damage, the FCA said. But some policies also cover BI from other causes, in particular infectious or notifiable diseases and prevention of access and public authority closures or restrictions.

Some insurers accepted liability but many did not and there have been a number of disputes.

The FCA selected a representative sample of 21 types of policy issued by eight insurers to provide a test case. Some 370,000 policyholders were identified as holding 700 types of policies issued by 60 insurers that may be affected by the outcome of the test case.   

The FCA says it believes the judgment will bring to an end legal arguments under 14 types of policy issued by six insurers but it remains to be seen whether insurers will continue to oppose payouts or take further legal action.

The FCA will soon be issuing a Q&A and guidance on the judgement.

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