Posted by jonathanfullarton - January 29, 2021 9:23 am Are you due an insurance payout?

What you need to know

Background of FCA Business Interruption Test Case

The Supreme Court has ruled in favour of small businesses to receive insurance payouts as a result of the first national Covid lockdown

The Supreme Court delivered its judgement on 15 January 2021 in the Financial Conduct Authority’s (FCA’s) business interruption test case.

The ruling has found in favour of the FCA’s appeal on behalf of small business policyholders.  This will support thousands of small businesses claims for coronavirus-related business interruption struggling as a result of Covid-19.  

Why was there a need for a test case?

In the first lockdown, many SMEs made claims through their business interruption (BI) policies.  This included loss of earnings as a result of being forced by the Government to close their business in response to the pandemic.

Alas, many insurers refused to pay on the grounds that only specialist BI policies had cover for such cases and therefore those policyholders without specialist cover were not eligible for payout.

FCA involvement

The FCA explained the necessity for bringing this test case to The Supreme Court as follows: 

“The FCA’s aim in bringing the test case was to urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible. The FCA did this by selecting a representative sample of 21 types of policy issued by eight insurers. The FCA’s role was to put forward policyholders’ arguments to their best advantage in the public interest. 370,000 policyholders were identified as holding 700 types of policies issued by 60 insurers that may be affected by the outcome of the test case.  

The High Court’s judgement last September resolved most of the key issues but, because we were unable to reach agreement, insurers and the FCA made ‘leapfrog’ appeals to the Supreme Court (without going to the Court of Appeal first).”

Result of test case

The Supreme Court ruling had provided further guidance for over 700 policies, which could affect as many as 370,000 small businesses, although some of these will not, unfortunately, end up with payouts.

The complex ruling covered issues such as disease clauses, whether businesses were denied access to their properties and, the timing of lost earnings.

FCA further involvement

The FCA are now working with the insurance sector and with the Financial Ombudsman who will be using their judgement to guide decisions in cases.

Since the first lockdown, insurance policies will have been adapted for new and renewal customers to clearly state what is covered in their BI policies.  Therefore, this ruling will support losses for the first lockdown only.  However, if you made losses during this period then do contact your insurer to review your position. 

A list of affected insurance companies affected can be found here.  

Do ensure you check your eligibility as this could represent valuable support for you and your business.

If you are struggling with your claim through your insurer you can seek help from  The Financial Ombudsman.

For more information and help please contact your relevant MFW office.