Covid Insurance test case heads to Supreme Court

A highly controversial case over insurance payments for small businesses that have been unable to negotiate due to the lockdown heads to the Supreme Court on Monday.

Many businesses have closed or suffered significant losses and have therefore made claims on their business interruption insurance.

But many insurers have disputed the claims, arguing that the policies were never designed to cover such unprecedented restrictions.

Supreme Court justices will deliver a final judgment after the hearing, which is expected to last four days.

The problem will have had implications for 370,000 businesses – mostly small ones – and involves potential payments of £ 1.2 billion.

High Court justices earlier ruled in favor of insurers having to pay policyholders a selection of policy types. Some of these decisions are currently under appeal to the Supreme Court.

Several thousand businesses were unable to operate during the first nationwide lockdown because they were unable, for example, to enter their premises.

This meant that some had ceased their activities. Others – like Anna and Robin Smart’s photography studio in Oxfordshire – have had to downsize, lay off staff or move.

The Smarts moved their studio to their back garden and said the whole situation was causing “immense stress”.

Like others, they turned to their insurer for compensation through their business interruption insurance policies. Some companies paid premiums of several thousand pounds per year for such coverage.

Some insurers refused to pay, in some cases because they claimed that the health clauses in the contracts did not cover such a scenario.

The city’s watchdog, the Financial Conduct Authority, has filed a lawsuit with eight insurers agreeing to participate in the proceedings.

It went to the High Court, where judges found that most, but not all, of the politicians involved would have to pay off, offering a potential lifeline for many of these small businesses.

But many still had to wait as proceedings were speeded up before the highest court in England and Wales – the Supreme Court.

The High Court reviewed 21 types of policies in one test case, and the decisions out of 13 were appealed.

These will be discussed in complex legal arguments for four days in the Supreme Court.

Of those, the lower court said 11 should have led to payments – decisions now under appeal by insurers. The judges said two should not pay, and these are under appeal by the FCA.

For two insurers, Zurich and Ecclesiastical, the judgment was ruled entirely in their favor and the FCA decided not to appeal the findings.

The final decision of the Supreme Court justices will provide authoritative guidance for other policies, and potentially for similar policies that are not part of the case.

For example, the Financial Ombudsman Service and the courts of Scotland and Northern Ireland should use the judgment to adjudicate other similar cases.

The Supreme Court will deliver its judgment a few weeks after the hearing next week.

The FCA will expect insurers to respond quickly to the final judgment, if the outcome means they are required to do so.

Many companies will have renewed their annual policies since the start of the first lockdown and these will have Covid exclusions, so the claims are mostly relevant to older policies during the first lockdown in the UK.