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A Not So Happy Ending to the Business Interruption Insurance Debacle

On the 15th January the Supreme Court handed out it’s long-awaited judgement on the FCA’s business interruption test case.  When Lord Hamblem threw out the case and ruled in favour of the 370,000 policyholders who had claims totalling around £1.2 billion, it brought to conclusion a period of huge uncertainty for business owners across the country who had taken out and paid in good faith premiums to cover issues that would interrupt their ability to operate.

The ruling, in favour of the thousands of small businesses who have been impacted by their insurers refusing to pay out on claims related to Business Interruption (BI) Insurance, it finally provided long awaited clarity, enabling many small business owners to now reclaim and recover losses caused by Covid-19.

Unfortunately for McAra an existing clause in our policy (our wording is tied to damage to the premises) means that we have been unable to take advantage of this ruling, leaving us significantly out of pocket despite us paying our insurance premiums for many years just to cover eventualities just like this. 

It has been hard enough running a small business through the last twelve months, and like many businesses we have been significantly affected by the pandemic without also having to also worry that our insurers would not step up when we needed them most.

Whilst many business owners up and down the country owe a huge debt of gratitude to Richard Leedham, partner at Mishcon de Reya, who represented the one of the key Action Groups formed on behalf of small businesses, who said “We are glad that the Supreme Court has found that the vast majority of policyholders of non-property damage Business Interruption (BI) cover will have cover for their business interruption losses caused by the national response of Government to Covid-19.  The Supreme Court has recognised that, just when this cover was needed most by thousands of UK businesses, insurers were wrong to argue that coverage was applicable only if there were narrow local restrictions, that they could deny claims because the cover had not been intended to be provided and/ or because the interruption and therefore losses would have happened in any event.”

Mr Leedham added, “This is a landmark victory for a small group of businesses who took on a huge insurance player and have been fully vindicated. What is important now is that insurers accept the Supreme Court’s verdict and start paying out to its policyholders, many of whom are in danger of going under”.

Sheldon Mills, from the FCA, which brought the case on behalf of policyholders, said: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This 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.”

The question remains, how exactly it has come to this?  How was the insurance industry allowed to try and wriggle it’s way out of thousands of eligible claims, payments that were essentially a lifeline to many of the businesses whose operations have been severely impacted by the pandemic?  And, although common sense has now prevailed, how many businesses have ceased trading because of the delays in receiving these payments.

It’s time the insurance companies are held to account for how they have handled this process.  In many cases these organisations sell the support and value they add to small business owners, but when their customers faced their greatest need, these companies were nowhere to be found and impossible to contact, and whilst I commend the fast action of the FCA and the Supreme Court in fast tracking the process, the FCA needs to ensure that learnings are taken from this in the future to ensure this never happens again.

The approach of insurers has been absolutely scandalous, but in some ways predictable how the insurance industry managed initially to try to absolve themselves of their obligations, even though in many cases (unlike ours) there was no reference to exclusions due to pandemics.

What does the future hold now for insurance for small business owners?  Although it remains incredibly important to ensure that your business remains fully protected, the reputations of those insurers leading the case will surely have been severely impacted.  Whilst insurance policies have now been amended for new and renewing customers since this issue emerged, we can also expect increases in premiums to cover the payments to businesses for the pandemic.

Going forward insurers need to provide greater clarity over what is covered within their policies to ensure policyholders are clear on what their policy does and does not cover for the premium paid.  

However, whilst cost is always important, I for one, will also certainly be looking for a much more ethical organisation to insure my business (but also my personal insurance items such as house, car and travel) and ensure these companies finally understand that the consumer does have a choice.

What are your thoughts on this issue, and are you struggling to get your claim paid by your insurers?  How are you planning to manage this going forward?  I’d love to hear your thoughts in the comments below.