Supreme Court rules in favour of FCA over Small Business Interruption insurance case

The Supreme Court has ruled in favour of the FCA, and subsequently small businesses across the UK, in a Business Interruption…

Author Photo by Olivia Bufton

The Supreme Court has ruled in favour of the FCA, and subsequently small businesses across the UK, in a Business Interruption insurance test case. The six insurers involved will be forced to pay an outstanding £1.2bn in CBI claims, meaning thousands of policyholders will have their claims for coronavirus-related Business Interruption losses paid.

Sheldon Mills, executive director for Consumers and Competition at the FCA, said of the win: “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,” he continued. “Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.”

Business Interruption test case background

Many policyholders whose businesses were affected by the Coronavirus pandemic suffered considerable losses, resulting in an unprecedented number of Business Interruption (BI) claims.

Most SME policies are primarily focused on property damage, meaning that they typically include basic cover for business interruption as a consequence of things like fires, floods, and earthquakes. However, some policies also protect against 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 the wake of the Coronavirus pandemic, there has been no standard response by insurers, with some accepting and others disputing liability under these policies. This in turn has caused widespread confusion for policyholders, which is where the FCA stepped in with a test case.

As written in a press release from the FCA today, the case was intended to ‘urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible’. A representative sample of 21 types of policy issued by eight insurers was taken to the Supreme Court, while the FCA put forward policyholders’ arguments to their best advantage in the public interest.

In the end, 370,000 policyholders were identified as holding 700 types of policies issued by 60 insurers that may be affected by the outcome of the test case.

What does the Business Interruption ruling mean for UK SMEs and contractors?

Following the appeals to the Supreme Court, insurers have been urged by the High Court to process any valid claims without delay. The FCA has pledged to work with insurers to rapidly conclude their claims processes on the claims ordered paid by the Supreme Court.

In a wider scope, each Business Interruption policy needs to be considered against the detailed judgment to conclude whether a legitimate BI claim regarding Coronavirus can be made. Policyholders with affected claims can expect to hear from their insurer soon.

Commenting on the Supreme Court’s decision to rule in favour of policyholders in the landmark FCA business interruption insurance test case, Federation of Small Businesses (FSB) National Chair Mike Cherry said:

“Today’s judgement…cements the High Court’s decision to grant businesses left on the brink the insurance pay-outs they are rightfully owed. For many, it has been a long and difficult road to get to this stage so this will bring clarity and hope to the thousands of firms which have been left in financial limbo for almost a year.”

“Providers must now pay-out quickly and consider the steps they can take to progress these claims in a swift and seamless manner,” he continued. “Small businesses contribute trillions to the economy. The Financial Conduct Authority (FCA) was right to argue that disease or denial of access clauses within interruption policies should trigger pay-outs in the event of Coronavirus-linked disruption.”

What does the Business Interruption ruling mean for Kingsbridge Contractor Insurance customers?

Here at Kingsbridge Contractor Insurance, our contractor insurance package product is built to protect you against claims as a result of any errors, omissions, and negligence made during the course of your work, and does not include Business Interruption protection. Business Interruption insurance is not something that Kingsbridge Contractor Insurance currently offers in any of our policies.

Our core contractor insurance package covers:

Professional Indemnity

This particular cover will protect you against claims for negligence (making a mistake, for example, or giving bad advice.)

Public Liability 

This part of the policy provides cover for damage to third party property, as well as injury to third party persons. It’ll also cover any legal fees that come about as a result of claims you have to defend.

Personal Accident 

This cover provides for payments to be made if Actual Bodily Injury is sustained. Actual Bodily Injury, by definition, excludes sickness, disease or any other naturally occurring condition, such as COVID-19.

Employers’ and Public Liability 

Liability cover protects the policyholder against their legal liabilities to their employees or the public. To mitigate your risk as an organisation/employer, you should avoid any potential breach of your duty of care to the public, your clients or any employees.

Directors’ and Officers’ Liability 

If your business is accused of financial mismanagement, a legislative breach, a health and safety failure, or of breaching company law, then your contractor insurance policy with Kingsbridge steps in.

If you have any questions about our policies, please call on 01242 808 740 or email and we’d be happy to help.

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