Covid lifeline for businesses

Following a landmark court ruling hundreds of thousands of businesses hit by coronavirus restrictions could be entitled to an insurance pay-out.

In a £1.2bn legal ­battle that began last year, companies with business interruption insurance policies have been demanding pay-outs for losses suffered when they were forced to shut during the first lockdown. However, insurers argued that most policies were never intended to cover losses caused by a global pandemic.

Most business interruption insurance policies are focused on property damage however some also cover public authority closures and infectious diseases, which lead to confusion. Lawyers for the FCA attacked the insurers’ argument that many firms’ losses were not covered because they had already shut voluntarily after the initial advice for people to stay at home. They also argued that the “disease” clauses in the representative sample of policy types provided cover in the circumstances of the coronavirus pandemic and that the trigger for cover caused policyholders’ losses.

The Supreme Court has now “substantially allowed” a closely-watched appeal brought by the City watchdog on behalf of the companies, potentially affecting up to 370,000 firms (including bars, restaurants and nail salons) holding 700 types of policies issued by 60 insurers. Lawyers said the ruling could, however, affect less conventional businesses, such as landlords, though it will depend on the type of policy they have, and not all of these policyholders will be eligible for a pay-out.

The Financial Conduct Authority brought the case after a flood of claims following last spring’s national lockdown triggered concerns over who was eligible. The Government first ordered businesses to close last March.

The ruling could cost insurers hundreds of millions of pounds, with Hiscox estimating a claims hit of $48m (£35m). The head of the insurance trade group the ABI, Huw Evans, said: “valid claims will be settled as soon as possible”.