The Supreme Court’s Insurance Pay out Hearing and its Meaning for Your Business

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The Supreme Court’s Insurance Pay out Hearing and its Meaning for Your Business

Last month, insurance companies were criticised for their decision to appeal a High Court ruling[1] clarifying hundreds of small businesses’ rights to insurance pay outs after they were unable to trade during Britain’s first lockdown. To read our article about this, click here.

Today, the Supreme Court will begin the appeal hearing[2] brought by insurers, which is expected to last four days. After this, the Court will make its final judgment on whether insurers are expected to pay out to certain policyholders.

What is the case about?

Thousands of small businesses were forced to stop operating during the UK’s first lockdown, which began in March, resulting in many being forced to downsize, relocate or even go out of business. Many business owners turned to their insurance companies for a pay-out via what is known as a business interruption insurance policy, where firms are supposed to receive insurance compensation where they cannot trade due to an unexpected event, but insurers refused to pay out.

The Financial Conduct Authority (FCA) brought a test case to the High Court in September, during which the Court examined a random sample of insurance policies. In most of the policies, it found that insurance policyholders were entitled to pay outs, notably where there was a notifiable disease clause, or a clause where public authority restrictions denied customers access to the business premises.

This ruling was expected by the FCA to have directly affected as many as 370,000 policyholders and was expected to throw many small businesses a much-needed lifeline after months of lost income. However, the decision by insurance companies to appeal means that insurance companies have been able to hold off making payment, with many businesses receiving no pay outs from policies that they pay thousands in premiums for each year.

“Ultimately, this is a case of decency. Many businesses are struggling to survive, and holding off payment, at this stage, is morally contestable.” –  Stephen Meade, partner at Capital Law.

What will happen at the Supreme Court Hearing?

The insurance companies involved in the case will be: Arch Insurance, Argenta, Hiscox, MS Amlin, QBE, and RSA. 13 of the 21 policy types involved in the case have been appealed against and the Supreme Court will look at arguments discussing whether they cover the circumstances brought about by the Covid-19 pandemic.

The final ruling is expected to be made a few weeks after the conclusion of the hearing. When this ruling is made, the decision will be binding and will not be open for appeal.

What will the decision mean for small businesses?

The decision will clarify whether small businesses who have protection under the contested policies will be entitled to pay outs from their insurance company. The decision will provide authoritative guidance for other insurance policies, potentially even similar ones that did not form part of the case. The Financial Ombudsman Service and courts in Scotland and Northern Ireland are expected to use the judgment to rule on other similar cases that come before them.  

The FCA expects that insurers will respond quickly to the final judgment if they are required to do so.

The ruling is expected to only affect older policies effective during the first national lockdown, as many businesses will have renewed their annual policies since, and these will have Covid-19 exclusions.

Stella Maris Solicitors LLP are experts in business law and are here to help with any issues or queries that you may have as a business owner. We will also endeavour to provide updates on the insurance case as they come in and can provide advice on the outcome and whether it will apply to your business. to contact us, telephone 01793 296118 or email mail@stellamarissolicitorsllp.co.uk.


[1] Claim Number: FL-2020-000018.

[2] Financial Conduct Authority (Appellant) v Arch Insurance (UK) Ltd and others (Respondents) UKSC 2020/0177.

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