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Supreme Court approves Covid insurance payouts

The Supreme Court found in favour of small businesses receiving payments from business interruption insurance policies. It is estimated that the decision will cost the insurance sector hundreds of millions of pounds, while providing a lifeline for small firms struggling during the latest lockdown.

What were the details of the case?

During the first lockdown in spring of 2020, small businesses across the UK, which were forced to close, made claims on their business interruption insurance policies for loss of earnings. However, many insurers refused to pay up, stating that only specialist policies covered the unique situation.

Thousands of angry business owners complained about being refused Covid insurance pay-outs, and even set up action groups to lobby for something to be done. It was eventually agreed that a selection of policies would be used as a test case to establish the basis for a valid claim.

The legal proceedings were instigated by the Financial Conduct Authority (FCA), with eight insurers agreeing to take part, including Hiscox, Arch, Argenta, MS Amlin, QBE and RSA.

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."

Will the insurance firms actually pay up?

The Supreme Court ruling is thought to cover as many as 60 insurance firms and hundreds of policies, affecting nearly 400,000 small businesses. The insurers will now be expected to pay out on many of these policies, but certainly not all.

Speaking after the verdict, Huw Evans, director general of the Association of British Insurers (ABI), said: "All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.

We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers."

Mike Cherry, national chair of the Federation of Small Businesses (FSB) National, said: “While this is good news, and while the law has to follow procedure, it’s disappointing that so many small businesses have had to wait to get the money they desperately need under policies they believed were there to protect them, policies they bought in good faith.

Businesses deserve to be protected in a timely way, but instead they have been failed by their insurers and are now trying to make up for lost time. Providers must now pay-out quickly, and consider the steps they can take to progress these claims in a swift and seamless manner. Any paperwork required of claimants shouldn’t be onerous or time-consuming.”

How does this affect my current business insurance?

Since the issue of Covid insurance pay-outs first surfaced, policies have been amended for new and existing customers, so lockdown losses will either be included, or not included, depending on the level of cover purchased. 

What happens next?

The FCA will digest the ruling and, in consultation with insurers, will produce more detailed guidance to policy-holders, including FAQs. 

How do I make a claim? 

Policyholders with relevant claims can expect to hear from their insurer soon. If you are not sure if you are affected or have any questions about your policyholders, you should contact your broker or insurer. 

If you are unhappy about the insurer's assessment of your claim, you can refer your claim to the Financial Ombudsman Service who resolve individual disputes. For more information visit www.financial-ombudsman.org.uk 

Covid-19 support

Businesses across the UK are facing unprecedented pressure as a result of the coronavirus pandemic and subsequent lockdowns. From in-depth survival guides to professional tax advice, the experts at UHY Hacker Young are on hand to help businesses navigate the road to recovery. 

If you require further information on this, please contact your usual UHY adviser. 

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