In handing down its decision, the court said it “substantially allows” the appeal by the Financial Conduct Authority (FCA) and campaign groups Hiscox Action Group and Hospitality Insurance Group Action which came after leading insurers contested insurance claims made by businesses faced with enforced closure or significant losses due to March’s lockdown.
The Supreme Court’s decision could potentially impact 700 types of policies, 60 insurers, and 370,000 policyholders, resulting in billions in claims, according to figures published in Insurance Business UK.
What’s more, the decision will have consequences for potentially thousands of pub and bar operators whose insurers refused to pay out amid widespread, pandemic-enforced, closures last year.
"We are glad that the Supreme Court has found that the vast majority of policyholders of non-property damage Business Interruption cover will have cover for their business interruption losses caused by the national response of Government to Covid-19,” Richard Leedham, partner at Mishcon de Reya – which represented the Hiscox Action Group – said.
“The Supreme Court has recognised that, just when this cover was needed most by thousands of UK businesses, insurers were wrong to argue that coverage was applicable only if there were narrow local restrictions, that they could deny claims because the cover had not been intended to be provided and/or because the interruption and therefore losses would have happened in any event.
“The judgment should be a massive boost to all businesses reeling from a third lockdown who can now demand their claims are paid," he continued.
"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."
‘Study the small print’
The decision refers to a four-day hearing which started on November 16 after Arch Insurance, Argenta, Hiscox, MS Amlin, RSA, QBE UK and a policyholder action group joined the FCA in seeking clarity on whether policy wordings cover business interruption caused by March’s Covid-19 lockdown.
The High Court initially backed insurance policyholders in September by ruling the majority of businesses that held business interruption insurance and were forced to close due to the Covid-19 pandemic were entitled to compensation.
It was also found that, subject to the limits of each policy, compensation should return businesses to the position they would have been in had the pandemic never occurred.
However, the case reached the Supreme Court in November after the aforementioned insurers and the FCA sought to appeal aspects of the judgement.
“At last, businesses that have been unable to trade or have lost money due to disruption caused by the Covid-19 pandemic, know where they stand with respect to their business interruption insurance,” Paul Smethurst, partner and forensic investigation specialist at accountancy firm, Menzies LLP, said of the Supreme Court’s judgement.
“Most of those that have been waiting for a resolution of their existing claims will now receive the compensation they are due.
“However, many will still need to study the small print of their policies to check what the Court’s decision means for them,” he added. “Only sample wordings were considered and underwriters may seek to distinguish their particular policy terms albeit a clear message has been sent to the insurance community regarding liability for claims.”
No ‘clear-cut resolution for all’
Smethurst caveated, however, that there will likely be both positive and negative fallout from the Supreme Court decision for businesses.
“Premiums will increase as insurers seek to recoup some of their losses perhaps with the requirement to buy separate pandemic or disease coverage and policy wording will certainly be tightened - particularly in clauses related to the circumstances of business interruption claims,” he explained.
“On a positive note, consumers can also be assured of a more proactive and protective regulator going forward, with the FCA having demonstrated that it is ready to intervene on their behalf where there is a matter of public interest and insurers appreciating the overarching requirement for clarity in policy wordings.
“While today’s Supreme Court ruling provides clarity for many claimants, it is unlikely to provide a clear-cut resolution for all,” he continued.
“There are still a number of un-tested issues, which could give rise to further litigation. For example, the question of aggregation and whether insurers should accept that the disruption caused by the pandemic is one event or more.”