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Full impact of Supreme Court ruling yet to be revealed for insurance industry

The Supreme Court ‘s ruling to substantially allow the Financial Conduct Authority’s (FCA) appeal on behalf of policyholders in a 112-page judgment means many thousands of policyholders will now have their claims for coronavirus-related business interruption losses paid. 

Crucially, the judgment brings to an end legal argument under 14 types of policy issued by six insurers, and a substantial number of similar policies in the wider market which will now lead to claims being successful.

However, Simon Thew Group Managing Director of W Denis Insurance Brokers believes that while the ruling does help small businesses, commercial policies remain an issue.

He explained: “Although this is good news for many small businesses, the majority of commercial policies issued by UK Insurers have “specified disease” type cover which will still not respond to a claim despite the Supreme Court ruling”.

What has yet to be confirmed following the ruling is whether policyholders are now entitled to claim not just the value of their losses covered under the policy, but also to claim damages where there has been an unreasonable delay in payment of the claim.

The FCA has indicated it will be publishing a Q&A for policyholders which should help brokers, insureds and their representatives understand how claims will be adjusted going forward.

Sheldon Mills, Executive Director, Consumers and Competition at the FCA, said: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.

“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.”

The FCA issued a statement highlighting that “many policyholders whose businesses were affected by the Coronavirus pandemic suffered significant losses, resulting in large numbers of claims under business interruption (BI) policies.

“Most SME policies are focused on property damage and only have basic cover for BI as a consequence of property damage.   But some policies also cover BI from other causes, in particular infectious or notifiable diseases ('disease clauses') and prevention of access and public authority closures or restrictions ('prevention of access clauses'). In some cases, insurers have accepted liability under these policies.  In other cases, insurers have disputed liability while policyholders considered that they had cover leading to widespread concern about the lack of clarity and certainty.”  

With the implications of the ruling still being studied, Simon Thew has some words of caution after some media comments state that insurers will pay out £1.2bn between 380,000 policyholders which equates to an average claim of £3,159 per policyholder. He added: “Whilst this is welcome news to many micro-businesses, it is not going to make a significant difference to many businesses who continue to suffer from the fallout of Covid-19.”

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