Supreme Court backs small firms over business interruption insurance claims

Information as of 15 January 2021

Further to our article which reminded you to check your insurance policy for business interruption claims, the Supreme Court today delivered its judgment in the Financial Conduct Authority’s (FCA)’s business interruption insurance test case.

The court ruled in the favour of small firms, meaning that thousands of small businesses forced to close during the first lockdown could receive insurance payments.

The FCA brought the case after several insurers refused to pay small business claims on the basis that only specialist policies covered such unprecedented restrictions. However, the court accepted the policyholders’ arguments and dismissed appeals from six insurers against an earlier High Court judgment which also found in policyholders’ favour.

While the majority of small business commercial insurance policies focus on property damage and contain only basic business interruption cover, some also cover interruption from other causes, in particular infectious or ‘notifiable’ diseases and public authority closures or restrictions. While a number of insurers accepted liability under such policies others disputed liability, leading to a lack of clarity and the FCA’s test case.

The FCA has published draft guidance for policyholders on how to prove the presence of coronavirus, which is a condition in certain types of policy. They are also planning to publish a set of Q&As for policyholders to assist them in understanding the test case.

You can find this information along with other useful guidance on the FCA’s dedicated business interruption insurance webpage. The FCA also have a useful ‘policy checker’ and FAQs to help find out if your insurance policy may cover business interruption losses caused by COVID-19.