There’s no denying that it has been a tough, tumultuous year for small businesses in the UK. With numerous lockdowns and changing consumer expectations, most businesses have experienced unprecedented loss due to business interruption. However, while business interruption insurance is designed to protect companies in the case of unavoidable losses, there has been confusion around whether the government’s actions in closing or limiting the operation of these businesses qualified for insurance payouts.
A test case submitted by the Financial Conduct Authority (FCA) has now received a court ruling by the Supreme Court in favour of small businesses receiving the insurance payouts that they deserve. Here’s what we know about the latest development.
The FCA submitted a test case in June 2020, designed to determine whether small businesses should be or could be eligible for making insurance claims for business interruption during Covid-19. With over 370,000 businesses said to be affected by this, the case was a huge step in the right direction for supporting small and medium businesses here in the UK. Pubs, cafes, restaurants, beauty salons and more have all been drastically affected by changing guidelines, including having to shut completely, or only being able to operate on a limited and not always profitable basis. When trying to make claims with their insurance companies for business interruption, as a result, they were turned down.
The FCA’s decision to implement the test case was a huge point of hope for these businesses, though it was still unclear whether the test case was likely to be successful at that time. The case did see a response from six of the largest commercial insurers in the world, including Hiscox, RSA, QBE, Argenta, Arch and MS Hamlin, though they appealed the case, stating that the policies businesses held did not cover widespread and government-issued disruption. The Supreme Court rejected this appeal, and the case was fast-tracked.
During the case, the court was found in favour of the arguments brought forward for policyholders and in January 2021, we have now had the official ruling stating that insurers across the country will need to review the claims and may be required to pay out on all relevant and qualifying claims. The test case was designed to clarify the wording and details surrounding insurance policies and whether claims could be made and has resulted in providers now having to answer claims under three distinct categories:
- Disease – These clauses will protect the insuree from any losses incurred as a result of business closure due to nearby or prevalent local diseases.
- Prevention Of Access – These clauses protect the insuree in case of closure of business in the case of recommendations or orders from authorities – in this case, the government.
- Hybrid – This protects the insuree against both restrictions on the property and closure due to disease within the vicinity of the business.
The ‘Disease’ clauses also brought with them further clarification, in that a joint main judgement was agreed that insurance policies should cover businesses upon any occurrence of Covid-19 within a 25-mile radius of the premises, providing that the cover runs through that date. Similarly, on discussions regarding partial interruption, including businesses such as restaurants and pubs where takeaway or delivery services could still go ahead, the Supreme Court ruled that ‘interruption’ could definitely encompass any disruption, without the need for full shut-down of a business or it’s activities.
What Does This Mean For Businesses?
These new clauses and clarifications will provide a huge number of claimants with the payouts they need and deserve, with up to or even above £1.8bn set to be paid out by insurers in the coming months. This ruling will cost insurers a great deal, but for small businesses, this could be the lifeline and cash injection that they need to stay afloat throughout the uncertainty.
The fight isn’t entirely over, however. While the ruling has clarified that Covid-19 closures are typically worthy of an insurance payout, it will be up to the insuring companies themselves to tackle any claims on a case-by-case basis as normal and pay any associated funds accordingly. For this reason, not all businesses will see their claims accepted.
However, while only Hiscox, Arch, Argenta, MS Amblin, QBE and RSA were directly involved in the test case, as many as 60 insurers or more currently sell similar products as these leading companies, and will also need to adhere to and take into account the new ruling.
Director-General of the Association of British Insurers, commented, “All valid claims will be settled as soon as possible and in many cases, the process of settling claims has begun. We recognise that 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.”
For more information about business interruption insurance, and whether your business can now make a claim, talk to our expert team for advice and guidance on your next steps. If you’re unsure as to whether your existing business insurance policy covers what’s needed, or you’re looking to get a quote on a new, more comprehensive policy, please get in touch with a member of our friendly team today on freephone 0800 1696137.