Video report by ITV News Correspondent Richard Pallot
A landmark High Court ruling on coronavirus-related insurance claims has been welcomed as “a significant step in resolving the uncertainty" over Covid payouts.
The Financial Conduct Authority (FCA) brought a test case, which could affect around 370,000 businesses, over the wording of business interruption insurance policies, which some insurers argued did not cover the Covid-19 pandemic.
The ruling "will provide a lifeline for small businesses across the country" after they faced substantial losses in the wake of the the coronavirus pandemic and resulting lockdown.
In a statement after the ruling, the FCA said the court determined that the “disease clauses” in most – but not all – of the policies in the test case provide cover to policyholders.
The FCA brought the legal action following “widespread concern” over “the lack of clarity and certainty” for businesses seeking to cover substantial losses incurred by the Covid-19 pandemic and subsequent national lockdown.
According to the regulator, the value of policies likely to be affected by the test case is approximately £1.2 billion.
In a 150-page judgment, which was delivered remotely on Tuesday, Lord Justice Flaux and Mr Justice Butcher considered 21 “lead” insurance policies issued by eight separate insurers.
But the regulator urged caution: “Although the judgment will bring welcome news for many policyholders, the judgment did not say that the eight defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the court.
“Each policy needs to be considered against the detailed judgment to work out what it means for that policy.”
The FCA’s interim chief executive Christopher Woolard 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.”
He added: “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.
“If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process.
“As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this.”
The Hiscox Action Group, which has over 400 members and intervened in the High Court case, also welcomed Tuesday’s ruling.
The group’s solicitor, Richard Leedham from Mishcon de Reya, said: “Today’s judgment by the High Court is one of the most significant in recent years and will provide a lifeline for small businesses across the country.
“We joined the court case as we believed it was vital for businesses to have a voice in the proceedings and we are delighted they have finally been heard.”
At an eight-day hearing in July, the FCA’s barrister Colin Edelman QC said about 370,000 policyholders “could potentially be affected by this litigation”.
He suggested this “ballpark figure” pointed to the importance of the case for businesses “confronting the financial impact of the coronavirus epidemic”.
The FCA said the Government’s coronavirus public health controls had caused “substantial loss and distress to businesses”, particularly small and medium enterprises.
It argued that, while some insurers had provided payouts to customers, many businesses had had claims “rejected” under “blanket denials of cover”.
A witness statement by the FCA’s director of general insurance and conduct specialists Matthew Brewis said that, up to early May, about 8,500 claims had policy wordings likely to be affected by the test case, with a value of approximately £1.2 billion.