Hundreds of thousands of UK businesses have won the right to claim on insurance for losses caused by the Covid-19 pandemic after the country’s top court ruled that many policies should pay out because of coronavirus and the government’s lockdown measures.
In a ruling handed down on Friday, judges at the Supreme Court said they had unanimously dismissed insurers’ appeals against an earlier High Court ruling that found they should pay most claims.
The original case was brought by the UK’s Financial Conduct Authority on behalf of 370,000 affected policyholders. Paul Lewis at Herbert Smith Freehills, who acted for the FCA, said: “This is a very positive result for policyholders . . . Importantly also, for the insurance industry, the judgment brings definitive guidance to how business interruption insurance wordings should operate in the context of the Covid-19 pandemic.”
About 700 types of insurance policies issued by 60 different insurers could be affected by the ruling.
Nicholas Hamblen, the Supreme Court justice who handed down the landmark decision, said: “The FCA’s appeal is substantially allowed and the insurers’ appeals are dismissed.”
As a result of the judgment, policyholders will be able to claim for losses caused by the government’s instructions to close their premises — even though these were not immediately made law. In addition, the fact that public health worries may have also reduced their income — even without lockdown — will not be taken into account when calculating payouts.
When it first brought the case, the FCA estimated that each successful claim could run to tens of thousands of pounds. Figures from the Association of British Insurers during the first 2020 lockdown put the cost of UK business interruption claims at £900m.
Six insurance companies and the FCA had appealed different aspects of the original High Court judgment. This had found that payouts were triggered under certain “non-damage” clauses that covered disease and denial of access to business premises. It also concluded that payouts should put businesses back in the position they would have been in had Covid-19 never occurred at all, rather than in a situation where lockdown did not happen but the presence of disease had still curtailed their trading.
However, in a four-day hearing in November, lawyers for the insurers argued that payouts should be denied or greatly reduced because of strict policy definitions. They said the pandemic and the government’s lockdown measures were different “perils” and could not be treated as a single and “indivisible cause” of loss, as the FCA and policyholders had believed.
The Supreme Court largely rejected the insurers’ arguments. It ruled that it was enough for a policyholder to show at the time of the government measures that there was at least one case of Covid-19 within the geographical area covered by the policy.
Shares in Hiscox, one of the insurance companies most exposed to “denial of access” Covid-19 claims, fell 5 per cent on Friday morning. Shares in RSA, another of the insurers appealing against the judgment, were unchanged.
“The judgment should be a massive boost to all businesses reeling from a third lockdown who can now demand their claims are paid,” said Richard Leedham, a partner at law firm Mishcon de Reya representing policyholders in the Hiscox Action Group.
Huw Evans, director-general of the ABI, said: “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.”