Insurers may now have to pay out to hundreds of thousands of British firms who had their coronavius claims turned down following a landmark High Court ruling.
Small and medium-sized companies have faced bankruptcy since the pandemic began after being denied the financial lifeline, even though many spent years paying for insurance policies they thought covered them for pandemics.
Many of these firms are likely to have already closed their doors for good, while taxpayers have footed the bill for others as businesses turned away by insurers were forced to put staff on furlough.
Today’s ruling comes from a case brought about by the Financial Conduct Authority, which sought to clarify the wordings of business interruption insurance policies.
Hiscox, RSA and QBE are among the insurers whose policies were tested by the Court
And after months of waiting there might now be light at the end of the tunnel for some of those affected as the High Court ruled in favour of policyholders on the majority of key issues.
Insurers argued that the insurance policies in question don’t cover pandemics, even though some explicitly stated that cover was provided for notifiable diseases.
The FCA set the legal proceedings in motion in July after it selected a representative sample of 17 policy wordings used by 16 insurers, which were considered at an eight-day hearing.
Eight insurers agreed to assist the FCA by taking part in the test case.
Christopher Woolard, Interim chief executive of the FCA, said: ‘We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues.
‘Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders.
Small businesses faced bankruptcy during lockdown after having their claims turned down
‘Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.
‘They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.’
Why didn’t insurers pay out?
While the FCA says that the majority of business interruption customers are not covered for coronavirus, there remains a dispute over policies which contain certain clauses.
Lloyd’s of London underwriter Hiscox, FTSE 100 giant RSA and Australia’s QBE are among insurers accused by policyholders of unfairly denying claims.
Insurers argue that the policy wordings were never intended to cover coronavirus – a stance that hasn’t gone down well with policyholders.
Huw Evans, director general of the Association of British Insurers said back in June that the policies were ‘never intended’ to cover global pandemics as ‘no insurance industry in the Western world’ provides cover for pandemics as standard.
Will insurers now pay out?
Unless successfully appealed, the High Court judgment is legally binding on the eight insurers that were part of the test case.
For insurance policies with similar policy wordings and claims, the FCA says today’s rulings provides ‘persuasive guidance’ – meaning it will be much harder for insurers to wriggle out of paying.
However the majority of business interruption policies will not be affected and policyholders are being urged to carefully check their policy wordings.
It’s likely that insurers will now appeal the decision. This means they may not pay out in the meantime until the appeals process has fully finished.
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