Business interruption insurance test case
By DTA | 18th January 2021 | News
The BBC has reported tens of thousands of small businesses will receive insurance payouts covering losses from the first national lockdown, following a court ruling.
In the lockdown of last spring, many small businesses made claims through business interruption insurance policies for loss of earnings when they had to close.
But many insurers refused to pay, arguing only the most specialist policies had cover for such unprecedented restrictions.
It was agreed that a selection of policy wordings should be tested in court, setting the parameters for what would be considered a valid claim.
The ruling provides guidance for a wider pool of 700 policies, potentially affecting 370,000 small businesses - although only some of these will end up with payouts.
Read more on the BBC website.
The FCA, the insurance sector, and the Financial Ombudsman will all use the judgement to guide their decisions in other cases.
The FCA detail on their website what the judgment means for policyholders:
The judgment brings to an end legal arguments under 14 types of policy issued by six insurers, and a substantial number of similar policies in the wider market which will now lead to claims being successful.
The FCA's decision to bring the test case has removed the need for policyholders to resolve many key issues individually with their insurers. It enabled them to benefit from the expert legal team assembled by the FCA, providing a comparatively quick and cost-effective solution to the legal uncertainty in the business interruption insurance market.
The test case was not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and 'causation' issues to provide clarity for policyholders and insurers. Today's judgment does not determine how much is payable under individual policies, but provides much of the basis for doing so.
Following the High Court's judgment, insurers decided to pay claims on some policies and we asked insurers to progress claims on other policies that the High Court said provided cover so that they could be settled quickly following the appeals to the Supreme Court.
We will now work with insurers so that they rapidly conclude their claims processes on claims that the Supreme Court has said should be paid, providing interim payments wherever possible.
Each policy needs to be considered against the detailed judgment to work out what it means for that policy. Policyholders with affected claims can expect to hear from their insurer soon. Policyholders with questions should approach their broker, other advisers or insurer. Policyholders who remain unhappy following their insurer's assessment of their claim may be able to refer their claim to the Financial Ombudsman Service, whose role is to resolve individual disputes.