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High Court ruling 'provides hope' for small firms on coronavirus insurance claims

Tom Belger
·Finance and policy reporter
·3-min read
File photo dated 22/04/20 of a view of The Royal Courts of Justice in London. Court of Appeal judges are set to rule on a legal challenge over voter ID trials in last year's local elections.
The FCA welcomed a high court ruling on business insurance claims over COVID-19. Photo: PA

A new High Court ruling on business insurance claims over coronavirus disruption will be “welcome news” for many firms, according to a UK watchdog.

Around 370,000 firms could be affected by Tuesday’s ruling, which is part of a test case looking at key issues around firms’ entitlements to payouts over the impact of the government-imposed lockdown.

A judgement was handed down on Tuesday in the case, resolving disputes over the terms used in many common business interruption policies.

Watch: Small firms fighting for insurance pay-outs due to the coronavirus lockdown have welcomed a court judgment

The Financial Conduct Authority (FCA), Britain’s financial watchdog, had brought a case on behalf of many firms which have been unable to succeed making claims so far. It said the court found “substantially” in its favour on most key issues.

But insurance chiefs and investors had a different verdict on the 162-page ruling, which parties on both sides called “complex.” Huw Evans, director-general of the Association of British Insurers (ABI), said the judgement “divides evenly” between insurance providers and policyholders, and shares in insurance firms rose on the announcement.

Mel Stride, a Conservative MP and chair of the influential Treasury committee in parliament, said: “This ruling will provide hope for many businesses that have been put through the mill whilst seeking insurance payouts.”

But Stride warned the “devil will be in the detail” for some firms, and the number of policyholders likely to succeed making claims or miss out overall is not yet clear.

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Hiscox (HSX.L), one insurance firm involved, saw its stocks slip 3.3% immediately after the FCA's announcement but then quickly skyrocket 16.3%.

Hiscox said the judgement means fewer than a third of its 34,000 business interruption policies will provide cover for the pandemic. It said in a statement the ruling meant it now estimated additional claims at £100m ($128.5m), lower than the £150m upper end of previous risk estimates.

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“Coverage under these policies is essentially limited to those customers who were mandatorily closed by government orders, and then only in certain circumstances," it said.

Meanwhile another insurer, RSA (RSA.L), saw the biggest daily gains on the FTSE 100 (^FTSE), jumping 7.2%. It said it expected a gross additional hit of £104m.

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The FCA had argued policies which cover firms for business interruption from infectious or so-called ‘notifiable’ diseases should have cover for COVID-19 disruption. It argued firms with clauses on “denial of access” or “public authority closures or restrictions” should likewise receive payouts.

Some insurers have paid out on such clauses, according to the FCA, but some have denied liability, prompting the FCA to bring the case to achieve clarity.

The said the judgement had found “most, but not all” of the policies with disease clauses provide cover, while “certain” policies on limited access and authority restrictions similarly provide cover.

“We are pleased that the court has substantially found in favour of the arguments we presented on the majority of the key issues,” said Christopher Woolard, interim chief executive of the FCA.

“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat.”

The FCA noted the judgement did not show eight defendant insurers were liable across all 21 types of policy wording it had brought before the court. It also does not determine how much is payable under individual policies. Insurance firms could also appeal the ruling.

“Each policy needs to be considered against the detailed judgment to work out what it means for that policy. Policyholders with affected claims can expect to hear from their insurer within the next 7 days,” it said.