Tens of thousands of small businesses are set for a £1.2billion windfall after the Supreme Court ordered insurers to pay out for losses from the first Covid lockdown.
Cafes, pubs, beauty parlours, holiday firms and wedding planners are among the 370,000 firms that had policies which should now pay out.
Former footballer Gary Neville, who owns two luxury hotels in Manchester with his former teammate, Ryan Giggs, is one of the business owners in line to receive thousands.
The news is a boon to small firms that have been crippled by the impact of the harsh restrictions, but it is unclear if any of the money will go to customers of travel or events companies who have had bookings cancelled.
Kim Roe, managing director of Sussex-based events company Circa Group, said: ‘We’re very relieved. As a business that makes money from putting on events, we’ve lost a whole year of revenue during the pandemic.
‘This ruling is a life-saver for us and will make all the difference in the world. It will hopefully allow us to continue functioning through these difficult times.
‘I will never know why this wasn’t just settled in the first place, so many businesses that have gone bust could have been saved much earlier.’
Meanwhile, insurance firms said the decision was a ‘watershed moment’ for the industry which presented providers with ‘the biggest challenge it’s faced in many generations’.
Ex-footballer Gary Neville, who owns two hotels in Manchester with his former teammate Ryan Giggs, was one of those previously denied compensation. Pictured is his Hotel Football by Old Trafford
Neville tweeted in November: ‘We have paid BI [business interruption] insurance for years and they won’t pay out! Due to ‘technicalities”
Daniel Duckett, 40, who owns Lazy Claire Patisserie in Belfast, said: ‘This pandemic has very nearly put us out of business and without the support from insurers, me, my staff and our families have been through a lot of mental stress.
‘For months we were unable to open our doors, everything has been up and down and there were times where I thought I’d have to close for good.
‘I’m extremely excited and pleased by this ruling, it’s just the clarity we needed and may help us through the rest of the pandemic.’
The case centered around whether firms who held business interruption policies were entitled to compensation after having to close during the first national lockdown.
These policies usually only cover disruption to commercial activity caused by property damage, but they can also included losses from ‘infectious’ or notifiable diseases.
Six insurers who had sold business interruption insurance products – Arch, Argenta, Hiscox, MS Amlin, QBE and RSA – unsuccessfully argued that their policies did not cover Covid because it was a global pandemic rather than a local event.
Owners with business interruption cover ‘can be confident they will be paid’, lawyers say
Graham Small, Partner at JMW Solicitors, said: ‘This is a good day for the thousands of businesses who hold business interruption insurance – those that have made a claim can be confident that they will be paid and any businesses that have had a claim rejected previous to today’s ruling should certainly be thinking about revisiting it. A lot of companies will be entitled to multiple claims for disruption incurred throughout the last 10 months.
‘The ruling will also increase the value of claims paid to businesses – instead of claims starting on the day legislation was introduced, they should be made from the day that initial direction or guidance was given by the government. The ruling also prevents insurers from arguing that turnover of a business should take into account any downturn before the formal lockdown resulting from the Covid scare.’
The majority of businesses who will now receive payouts will be customers of these six insurers, but firms who hold similar policies with other insurance companies now stand a far greater chance of success.
Gary Neville owns Hotel Football and the Stock Exchange Hotel in Manchester with his former teammate Ryan Giggs.
He tweeted in November: ‘We have paid BI [business interruption] insurance for years and they won’t pay out! Due to ‘technicalities’. So many in the same boat. @RishiSunak made a speech in parliament stating insurers needed to pay. It’s not happening.’
Both hotels should be able to successfully claim for money following today’s ruling. MailOnline has contacted the venues for comment.
Another business that is set for a payout is The Drawing Room, a hair salon in London’s Spitalfields.
Its owner, James Ollerenshaw, paid £1,200 a year for business interruption insurance, including disease cover, so he was furious when his claim was denied.
The Drawing Room’s policy was not provided by one of the six insurers named in today’s ruling, he told the BBC, but nonetheless it will help his own battle for compensation.
The Federation of Small Businesses welcomed the ruling, saying many firms had been left in ‘financial limbo’ over the past year.
Chairman Mike Cherry said: ‘Today’s judgment is a big victory. It cements the High Court’s decision to grant businesses left on the brink the insurance payouts they are rightfully owed.
‘For many, it has been a long and difficult road to get to this stage so this will bring clarity and hope to the thousands of firms which have been left in financial limbo for almost a year.’
He also called for insurance providers to ‘pay out quickly’, saying businesses deserve to be better protected.
The Financial Conduct Authority previously said it was bringing the legal action following ‘widespread concern’ over ‘the lack of clarity and certainty’ for businesses seeking to cover substantial losses incurred by the pandemic and subsequent national lockdown.
In September, the High Court ruled on several ‘lead’ insurance policies issued by eight separate insurers largely in favour of the FCA, which welcomed the judgment as ‘a significant step in resolving the uncertainty being faced by policyholders’.
The Butt House Keld B&B in North Yorkshire was refused a payout under the Business Interruption scheme and could now be entitled to money
The Drawing Room in London’s Spitalfields is one of the thousands of businesses who could now be in line for cash
The regulator, however, argued the judgment ‘paved the way for many insurance policies to pay indemnities on Covid-19 business interruption claims’, but also ‘took something away with one hand after giving more substantially and in detail with the other’.
Six of the insurers – Arch, Argenta, Hiscox, MS Amlin, QBE and RSA – also appealed against aspects of the High Court’s ruling, as did the Hiscox Action Group, which represents around 400 businesses insured by Hiscox.
In November, the UK’s highest court heard ‘leapfrog’ appeals – which have bypassed the Court of Appeal – in a case which could have implications for hundreds of thousands of businesses affected by coronavirus.
Q&A: What was today’s ruling and how will it affect my claim?
The ruling by the Supreme Court is likely to force insurers to pay out to around 370,000 businesses who were impacted by the Covid-19 crisis last year.
The Financial Conduct Authority (FCA) brought what experts believe could be a £1.2 billion case over when insurers have to pay out.
The Supreme Court found largely in favour of the FCA’s case.
Why were insurers taken to court?
In the run-up to, and during, the Covid-19 lockdown that started in March, many small businesses were asked, and later forced, to close by the Government.
Some did so thinking they would be able to claim on their insurance, under so-called business interruption clauses, but many insurers argued otherwise.
The FCA brought several test cases, designed to test 21 types of insurance policy from eight insurers. This aimed to allow a quick ruling which could act as guidance to other insurers and other policies on whether they should pay out.
What kind of policies did businesses have?
Before the pandemic, many businesses only had insurance covering direct damage to their property.
However some had policies designed to pay out if their business was interrupted by disease, and others had paid for policies that would activate if access to their business was prevented by a public authority, or if they were ordered to close.
There were many different policies, but the ones tested by the courts included some of the most common wording.
Why were insurers not paying out?
The insurance companies had several arguments why they should not have to pay. Some said their business interruption clauses were only activated if a local disease caused a business to suffer. Because the coronavirus lockdown was nationally mandated, insurers argued they did not have to pay out.
Other arguments hinged on a precedent set in a 2010 High Court case which found that an insurer did not have to pay out business interruption insurance to a New Orleans hotel after hurricanes Katrina and Rita.
The insurer only had to compensate the hotel for direct damage the hurricane caused, and argued that the hotel’s business would have been interrupted whether or not it was directly damaged, so only paid out part of the insurance.
What happens next?
The case was never meant to iron out all difficulties, just to get clarity on some common issues that many policyholders were running into when trying to get a payout.
‘Today’s judgment does not determine how much is payable under individual policies, but provides much of the basis for doing so,’ the FCA said.
Insurers decided to pay out claims on some policies after an earlier High Court ruling on the issue. They had also been asked by the FCA to progress some applications so they were ready to be settled rapidly when the Supreme Court ruled.
Policyholders who are affected can expect to hear from their insurer soon, the FCA said, and should approach their advisers or insurers with any questions.
The FCA has already published draft guidance on how a business can prove Covid-19 was present in their local area, which is required for some policies.
Announcing the Supreme Court’s ruling today, Lord Hamblen said: ‘The appeals of the Financial Conduct Authority and the Hiscox Action Group are substantially allowed and the insurers’ appeals are dismissed.’
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.’
In a statement after the ruling, Sheldon Mills, executive director of consumers and competition at the FCA, welcomed the decision, saying the judgment ‘decisively removes many of the roadblocks to claims by policyholders’.
He added: ‘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.’
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 policy holders, many of whom are in danger of going under.’
Mr Leedham – who acted for HAG, which represents around 400 businesses insured by Hiscox – 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.’
Recently appointed Business Secretary Kwasi Kwarteng said 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’.
Flora Hamilton, the financial services director at the Confederation of British Industry, said: ‘At such an uncertain time, this court case provides much-needed clarity to companies across the UK, and relief for smaller firms struggling with cashflow.
‘This is significant news for insurers, and regulators will need to work closely with the industry as policies, products and processes are updated to reflect this ruling.’
Shares in Hiscox tumbled after the ruling, dropping 6.3% between 9.45am and 10.20am.
However once the markets had time to digest the results, shares quickly rebounded, and were trading up 0.9% at around 11.10am.
Among the other insurance companies on the FTSE 100, Aviva gained 0.2%, Admiral Group had already been in the red, trading down 1.6% after the verdict,
Phoenix Group’s shares had dropped 1.5%, Prudential was down by 0.5%, while RSA Insurance dropped 0.1%.
Huw Evans, Director General of the Association of British Insurers, said: ‘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.
‘Today’s judgment represents the final step in the appeal process.
‘The insurance industry expects to pay out over £1.8bn 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.’
Britain’s highest court has ‘substantially allowed’ an appeal by the Financial Conduct Authority over the wording of business interruption insurance policies