Small businesses win insurance test case ruling

Judges have today (15 September) ruled that the clauses in some business interruption policies were “misleading”, which resulted in thousands of businesses wrongly denied pandemic-related payouts.

It comes as many policyholders whose businesses were affected by the pandemic suffered financial losses, resulting in an increase in claims under business interruption (BI) policies.

While most SME policies are focused on basic property damage, some policies also cover for BI from other causes, including infectious or notifiable diseases.

In some cases, insurers have accepted liability under these policies, but other insurers have disputed liability while policyholders considered that it existed, leading to “widespread concern about the lack of clarity and certainty”.

Insurers disputed the claims, arguing policies were never meant to cover such unprecedented restrictions.
This test case was brought by the Financial Conduct Authority and had the potential to affect 370,000 mostly small businesses.

The authority selected a representative sample of policy wordings issued by eight insurers, whilst putting forward the arguments of policyholders affected by the lack of clarity in wordings.

The FCA ultimately argued for policyholders that ‘disease’ and ‘denial of access’ clauses in the representative sample of policy wordings provide cover in light of the pandemic, and that the trigger for cover caused policyholders’ losses.

According to the FCA, the case sought to resolve the “lack of clarity and certainty” that existed for many policyholders making business interruption claims.
Insurers can still appeal against the decision, however, and policyholders should hear from their insurer within seven days.

Christopher Woolard, interim CEO 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. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.”

He added: “Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.

“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.”

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