Tom Tilbrook, head of civil litigation at Best Solicitors, on the potential relief awaiting SMEs as a result of the Supreme Court’s ruling on business interruption claims arising from Covid-19
If you own a business, how would you sum up 2020? There are probably no words that can explain how Covid-19 has affected your business.
In March 2020, the prime minister ordered many businesses to close to prevent the spread of Covid-19. Such action was needed to save lives and the NHS. While this was necessary to prevent further casualties and deaths, the cost was a huge effect on the income, turnover and profits of small- and medium-sized enterprises (SMEs) up and down the country. Many of those SMEs had taken out various insurance policies that provided cover for business interruption.
Obviously, if your business was struggling, the most sensible and economic thing to do would be to make a claim against your insurance. Unfortunately, many claims made by SMEs as a result of Covid-19 were refused as coronavirus was not a specified, or a notifiable, disease.
The insurers’ refusal to accept any claims led to a growing outcry that was heard by the Financial Conduct Authority (FCA). The FCA commenced proceedings on behalf of policyholders against numerous insurers to obtain clarity on insurance policies for business interruption.
The judgment was handed down on 15 January 2021 and consists of 96 pages, but it only considers 21 policies of a possible 60 so it is not determinative of every policy. The result was a big win for the FCA, policyholders and many SMEs. This judgment may result in claims made against policyholders’ insurers now being successful and providing a lifeline of cash to struggling SMEs.
What policyholders can take particular relief from is that compensation should be related to what a business would have generated in a “normal” financial year, rather than what the losses were during the pandemic.
The judgment is a huge success for policyholders and SMEs up and down the country but it is a setback for insurers. The Association of British Insurers has estimated that the UK will pay out more than £2.5 billion in claims related to the pandemic, of which £2 billion will be for business interruption.
It is estimated that there are approximately 700 types of policies across 60 insurers and 370,000 policyholders. While the result is a success, the judgment may not apply to every single policyholder. You should read your insurance document very carefully and consider whether the judgment applies to your policy.
This judgment may just be the tip of the iceberg as the litigation was limited to SMEs. There is likely to be further litigation in respect of consumer policies (holidays, weddings), income protection for the self-employed, payment protection, and landlord insurance. Watch this space!
The steps taken by the FCA are commendable and the regulator’s swift action and positive determination to obtain clarity on insurance provisions has resulted in many SMEs covering much needed losses, thus keeping businesses in business.
This last year has caused substantial losses and distress to businesses and the families that rely on those businesses. Many are now struggling to remain viable. This judgment paves the way for some of those SMEs and policyholders that obtain policies with business interruption clauses to recover some losses and provide clarity. The nation is now watching the insurers and hopes that they comply with their obligations swiftly to pay damages to SMEs and policyholders that have been hard hit over the last year.
Following judgement, the FCA has advised insurers to make their intentions clear to policyholders quickly. In the event you consider your business is affected, then you must review your policy document(s) and present a claim to your insurer.
Myself and my team at Best Solicitors are now assisting a number of policyholders in evaluating whether they have potential claims. It is important that we keep our economy moving and the only way to do this is to ensure the safety and success of every business.
