Victory for small businesses in landmark Covid insurance case

Michael O'Dwyer
·2 min read
City of London
City of London

The City regulator claimed a partial victory for small businesses in its groundbreaking legal action against insurers over their refusal to pay out on claims by businesses decimated by the coronavirus pandemic. 

The High Court ruling will bring hope to up to 370,000 businesses starved of cash during the economic crisis triggered by the pandemic. 

Thousands of firms are expected to benefit from the ruling, but many are likely to be disappointed as judges found insurers were not liable under some of the most disputed contracts. 

The Financial Conduct Authority (FCA) brought the case against insurers on behalf of businesses that believed they should have received payouts under business interruption policies after the pandemic decimated trading. 

The policies cover profits lost if businesses are forced to shut but insurers argued that losses caused by the pandemic were excluded under most contracts. 

The FCA said judges found in favour of the watchdog “on the majority of the key issues”. 

The Covid High Court insurance industry case in numbers
The Covid High Court insurance industry case in numbers

Chris Woolard, interim FCA chief executive, hailed the decision as "a significant step in resolving the uncertainty being faced by policyholders".

The watchdog called on insurers to move swiftly following the judgment and said customers should be contacted within seven days. Any appeal by insurers is expected to delay payouts under affected policies, however. 

Huw Evans, director-general of the Association of British Insurers, said: “The judgment divides evenly between insurers and policyholders on the main issues.” 

The court considered 21 sample policies from eight defendants including Hiscox, QBE, RSA and Zurich but the decision will affect the interpretation of policies from more than 60 insurers

FCA insurance test case
FCA insurance test case

The court did not find the insurers liable under every one of the sample contracts meaning that thousands of businesses will be disappointed by the outcome. 

Shares in London-listed Hiscox soared 17pc after it said less than a third of its 34,000 business interruption policies would pay out, costing less than £100m net of reinsurance, far lower than the maximum £250m it had signalled previously. 

Shares in fellow defendant RSA which also won on some arguments and lost others said it expected the judgment would cost it about £85m but that this would be reduced by its reinsurance cover. Shares rose 4.7pc.