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Last year, hundreds of thousands of businesses that were forced to close or suffer significant losses due to the outbreak of the coronavirus pandemic and subsequent lockdown, made claims on their business interruption insurance.

However, many insurers disputed the claims, arguing that their policies did not cover the COVID-19 restrictions for a variety of reasons. This prompted the FCA to bring a test case on behalf of policyholders to seek legal clarity over the wording of business interruption insurance policies.

In September, policyholders were thrown a lifeline when the High Court ruled that claims should be paid in most cases where policies had pandemic or disease clauses. Our previously published article on this High Court ruling can be viewed here.

The City regulator along with six insurers (Arch, Argenta, Hiscox, MS Amlin, QBE and RSA) sought to appeal aspects of the High Court’s ruling, as did the Hiscox Action Group, which represents around 400 businesses insured by Hiscox, and in November the case was heard by the Supreme Court, bypassing the Court of Appeal.

Announcing the Supreme Court’s ruling on 15 January 2021, Lord Hamblen said: “The appeals of the Financial Conduct Authority and the Hiscox Action Group are substantially allowed and the insurers’ appeals are dismissed.”

It is estimated that a further 700 policies across over 60 different insurers and up to 370,000 policyholders could potentially be affected by the outcome of this litigation, with the insurance industry expected to pay out over £1.8bn in coronavirus claims related to the first lockdown.

Partner and Head of Dispute Resolution, Nick Wells, comments on the new landmark ruling:

“Businesses all around the UK have been hugely affected by the pandemic and insurers originally came up with a variety of reasons why their losses were not covered on strict application of the policy terms. The court had to acknowledge that many of the specifics of the pandemic were not entirely consistent with policy terms, but equally acknowledged that pandemics by their very nature are inconsistent.

“The outcome is a generally liberal approach to interpretation of policy terms, with many of the policies considered being held to cover the financial impact of closures and losses from COVID-19. This will be a welcome outcome for businesses, but insurers will feel the brunt of thousands of claims and £millions in outlay.

“Businesses should, however, note that whilst positive, the outcome does not mean individual claims will definitely succeed. The court considered policy wording of 21 common policies across several insurers, with some rulings more positive than others. There are hundreds of other policies on the market and each will need to be considered on its own wording, by reference to the 164 pages of judgment in the first hearing and 114 pages of judgment of the Supreme Court. So this ruling is positive for claims generally, but the process could still be long and complicated for many.”

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