Covid-hit SMEs get business interruption insurance lifeline
Thousands of small businesses will have their claims coronavirus business interruption loss claims paid after the Supreme Court substantially allowed the FCA’s appeal on behalf of policy holders.
In today’s landmark ruling, the Supreme Court dismissed appeals from six insurers. Their ruling that insurance clauses offering cover for notifiable diseases extended to losses resulting from Covid-19 means small businesses forced to shut their doors during the first lockdown will now have their business interruption (BI) claims paid.
“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat,” explained Sheldon Mills from the Financial Conduct Authority (FCA), which brought the original test case to clarify policy wordings that many insurers had used to deny cover to affected businesses.
“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. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps,” Mills added.
Many small businesses in the leisure, property and hospitality industries had to close or suffered losses that prompted them to make claims under their BI policies during 2020. However, thousands of policy holders were left empty-handed as most small business policies concentrated on property damage and not on unprecedented scenarios like a global pandemic.
In order to clarify the contractual uncertainty for policyholders and insurers, the FCA selected a representative sample of 21 types of policy issued by eight insurers. The FCA identified 370,000 policyholders that may be affected by the outcome of the test case.
The case was not intended to encompass all disputes, but the ruling provides a basis for insurers and policy owners to determine how much is payable under individual policies.
Today’s ruling follows on from the High Court's judgement in September that resolved some issues, but neither the FCA nor the insurers could reach an agreement.
While working with insurers to ensure claims are rapidly settled, the FCA added that each policy will need to be considered against the detailed judgment .
Claims need paid as quick as possible
MP Mel Stride and chair of the Commons Treasury select committee said the Supreme Court ruling will “provide a lifeline” for many businesses struggling through the pandemic. He backed the FCA’s undertaking to ensure that “valid claims are paid by insurers as quickly as possible”.
Offering a similar message, BDO’s Richard Cameron-Williams recognised that the judgement gives finality to the framework for interpreting the cover afforded by the policies, but warned that the industry still faces a huge challenge in working through the vast numbers of claims.
Rafi Saville, forensic partner at accountancy firm HW Fisher, said the ruling could have a ripple effect for the entire marketplace, with its conclusions likely to extend to other affected claims.
“Businesses who think they have a claim to make should consult their insurance documentation with a view to understanding whether their Covid related losses will be covered and start the claim process,” Saville said.
“We understand that policies covering ‘notifiable diseases’ will be covered under the ruling, so that is what businesses should be looking out for on their documentation.”
When Bill Mew wrote about the looming Supreme Court case on AccountingWEB back in November last year, he questioned the extent to which businesses can rely on insurers to cover black swan events: “Not all black swan events are entirely unforeseen, but interpreting signals among the background noise can be almost impossible even when we are risk-aware. Unfortunately, few organisations are sufficiently risk-aware or able to spot the signals – even when clear warnings are made.”