Thousands of businesses are to receive payouts for losses from the covid-19 pandemic after the Supreme court has set out when insurance claims should be paid.
The Supreme court has upheld the arguments that have been made by the financial regulator and dismissed those of the insurance industry. The result of this will be millions of pounds in payouts to firms who have been waiting months for funds from business interruption insurance policies to cover damage caused during the crisis.
This case could affect over 370,000 policy holders from a range of different business sectors including hotel operators, restaurants, dentists and holiday lets.
Throughout the pandemic, many businesses have approached their insurance agency to receive some compensation after their business has been heavily hit financially. However, many of these claims were declined as the insurance companies explained that the policy did not cover the damages. Many business owners were hysterical, and this led to the Financial Conduct Authority bringing a test case to clarify the situation as quickly as possible.
Judges have now ruled that compensation should be paid in multiple situations that had been in dispute, including when businesses had to close due government guidance and not just as a legal requirement.
Additionally, coronavirus should be counted as the cause in each case. This is because it is now fully valid to claim for losses caused by the impact of the pandemic and not just as a result of an individual becoming ill.
The compensation that a business is to receive is to be calculated based on its earnings prior to the pandemic. Insurance companies tried to argue that claims should only be valid for specific losses caused by being forced to close due to the pandemic, but this has since been dismissed.
Sheldon Mills, Executive director of the Financial Conduct Authority, said: “coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. We will be working with insurers to ensure that they will now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible.”
Around £1.8 Billion in covid-related claims is set to be paid out by insurance companies across a range of policies.
The ruling of the case brought together by the FCA has been overwhelmingly in favour of policyholders. However, these businesses are still required to apply for their compensation and have it agreed by their insurers. This means that businesses will have to show that a significant proportion of their losses have been caused by the pandemic which may still be difficult, although much easier than it was before this ruling.
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