The Supreme Court’s ruling in a landmark £1.2 billion legal battle over businesses’ ability to claim on insurance for coronavirus-related disruption “decisively removes many of the roadblocks to claims by policyholders”, the City watchdog has said.
The Financial Conduct Authority (FCA) last year 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.
In September, the High Court ruled on several “lead” insurance policies issued by eight separate insurers largely in favour of the FCA, which welcomed that judgment as “a significant step in resolving the uncertainty being faced by policyholders”.
— Financial Conduct Authority (@TheFCA) January 15, 2021
The regulator, however, argued the judgment “took something away with one hand after giving more substantially and in detail with the other”, while six of the insurers – Arch, Argenta, Hiscox, MS Amlin, QBE and RSA – also appealed against aspects of the High Court’s ruling.
Following a four-day hearing in November, the UK’s highest court “substantially allowed” appeals brought by the Financial Conduct Authority and the Hiscox Action Group, which represents around 400 businesses insured by Hiscox.
Announcing the Supreme Court’s ruling on Friday, Lord Hamblen said: “The appeals of the Financial Conduct Authority and the Hiscox Action Group are substantially allowed and the insurers’ appeals are dismissed.”
The FCA’s executive director of consumers and competition, Sheldon Mills, welcomed the ruling, saying: “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.
“As we have recognised from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this.”
The @UKSupremeCourt has today delivered its verdict on the appeals heard in the #businessinterruption insurance test case. The response from ABI Director General, Huw Evans, can be read here – https://t.co/wcMx1u126p
— ABI (@BritishInsurers) January 15, 2021
Recently-appointed Business Secretary Kwasi Kwarteng said in a tweet that the Supreme Court’s decision “will be a lifeline for tens of thousands of hairdressers, bars, restaurants and other small businesses that did the right thing and closed their doors to protect the health of the nation”.
Richard Leedham, a partner at law firm Mishcon de Reya who represented the Hiscox Action Group (HAG), said: “This is a landmark victory for a small group of businesses who took on a huge insurance player and have been fully vindicated.
“What is important now is that Hiscox accepts the Supreme Court’s verdict and starts paying out to its policyholders, many of whom are in danger of going under.”
Mr Leedham added: “Today’s outcome is one of the most significant for business in modern times.
“The result should leave Hiscox and the rest of the insurance industry in no doubt that they should immediately start doing the right thing and settle these claims.”
Huw Evans, director general of the Association of British Insurers (ABI), said in a statement after the ruling: “Insurers have supported this fast-track legal process every step of the way and we welcome the clarity that the judgment will bring to a number of complex issues.
A very welcome decision by the Supreme Court
This will be a lifeline for tens of thousands of hairdressers, bars, restaurants and other small businesses that did the right thing and closed their doors to protect the health of the nation https://t.co/kWPtjeEZcp
— Kwasi Kwarteng (@KwasiKwarteng) January 15, 2021
“Today’s judgment represents the final step in the appeal process.
“The insurance industry expects to pay out over £1.8 billion in Covid-19 related claims across a range of products, including business interruption policies.
“Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim.
“All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.
“Some payments have already been made where valid business interruption claims have not been impacted by the test case ruling.
“We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers.”
The Night Time Industries Association said it was “pleased” with the ruling, but added: “We also know that the devil is in the detail and therefore we are currently engaged in a meticulous reading of this judgment in order to ensure that we provide as many clients as possible with the maximum available coverage in light of the Supreme Court’s directions.”
Summarising the Supreme Court’s decision in relation to “prevention of access clauses” – which are triggered by “public authority intervention preventing access to, or use of, the business premises” – Lord Hamblen said the High Court’s interpretation was “too narrow”.
The judge said: “An instruction given by a public authority may amount to a ‘restriction imposed’ if it carries the imminent threat of legal compulsion or is in mandatory and clear terms and indicates that compliance is required without recourse to legal powers.”
In a written ruling, Lord Hamblen and Lord Leggatt – with whom Supreme Court president Lord Reed agreed – concluded: “Although we have accepted some of the insurers’ arguments on their appeals, in no case has that affected the outcome of the appeal. It follows that the insurers’ appeals are dismissed.”
In a separate concurring judgment, Lord Briggs – with whom Lord Hodge agreed – said: “On the insurers’ case, the cover apparently provided for business interruption caused by the effects of a national pandemic type of notifiable disease was in reality illusory, just when it might have been supposed to have been most needed by policyholders.
“That outcome seemed to me to be clearly contrary to the spirit and intent of the relevant provisions of the policies in issue.”