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Justice for SMEs

Written by Fiona Boswell on Thursday, 11 February 2021. Posted in Legal

The FCA’s recent victory at the Supreme Court was a red letter day for many SMEs, but who are the beneficiaries? Legal experts Knights PLC attempt to unravel the small print and explain what it all means.

Justice for SMEs

The FCA’s recent victory at the Supreme Court was a red letter day for many SMEs, but who are the beneficiaries? Legal experts Knights PLC attempt to unravel the small print and explain what it all means.

It’s fair to say that the Supreme Court’s recent judgement in favour of small companies, with regards to business interruption insurance policies, was certainly a shot in the arm for those SMEs struggling to remain afloat during the pandemic. The ruling, which was made public in mid-January, means tens of thousands of small businesses will receive an insurance pay out to help cover losses suffered during the first national lockdown.

The Supreme Court’s decision is being viewed as a lifeline that will help these businesses keep their heads above water while, at the same time, cost insurers hundreds of millions of pounds. The test case was brought by the Financial Conduct Authority (FCA) against eight insurers, one of whom was Hiscox Ltd which is listed on the London Stock Exchange. Others included MS Amlin and QBE, with more than 50 other insurers – who all sold similar polices – now having to raid their coffers to make these much-needed payments to businesses.

Following what many described as a landmark judgement, Huw Evans, director general of the Association of British Insurers, commented: "All valid claims will be settled as soon as possible and in many cases the process of settling claims has already begun. We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers."

So what was the Supreme Court asked to consider?

On January 15th, 2021, the Supreme Court gave its ruling on the FCA’s landmark and highly publicised business interruption insurance test case, in the context of the ongoing Covid-19 pandemic. The case was brought against eight named insurers, who all agreed to participate, with the Court asked to adjudicate upon 21 samples of policy wording utilised by several insurers in the market. This related to business interruption insurance and whether or not policyholders were entitled to claim for losses brought about by the pandemic, particularly in light of the Government’s mandatory lockdowns.

In September 2020, the High Court found in favour of the FCA on most points which meant policyholders – looking to claim for losses – would be entitled to do so based on the 21 samples of policy wording. This included cases where Covid-19 had directly affected business (because of staff members contracting the virus) and where trade had been interrupted due to enforced closures. These findings were appealed against, and subsequently taken to the Supreme Court for a final decision.

What was the Supreme Court’s decision?

The Supreme Court dismissed the insurers’ appeal and upheld the High Court’s decision. Although the Supreme Court disagreed with the scope of some of the ruling, with respect to the way in which policy wording should be interpreted, they more or less agreed with the High Court’s decision.

What does this mean for policyholders?

If you hold a policy relating to business interruption insurance, it is likely that you will be entitled to claim for losses. This is particularly so if your policy contains the wording referred to by the FCA in its test case, and your policy is underwritten by one of the insurers that were party to the test case. These eight companies were:

Arch Insurance (UK) Ltd
• Argenta Syndicate Management Ltd
• Ecclesiastical Insurance Office plc
• Hiscox Insurance Company Ltd
• MS Amlin Underwriting Ltd
• QBE Ltd
• Royal & Sun Alliance Insurance plc
• Zurich Insurance plc

While the Supreme Court’s ruling has resolved many issues that policyholders were likely to face, there are still a number of questions yet to be answered. These include aggregation and whether insurers should accept that the disruption caused by the pandemic is ‘one event or more’.

How we, at Knights PLC, can support you?

We can review your insurance policy and assist in the submission of any claim. Thanks to our many years of experience, we’ll advise you about the steps your insurer is likely to take. Insurers affected by the Supreme Court’s verdict should have contacted policyholders within a week of that ruling to provide further guidance on how such claims will be addressed. Insurance companies must commence a claim’s adjustment process immediately. 

However, some insurers who believe this ruling does not apply to them – because their policies displayed a different wording – may need to be pushed into action. If your insurer was not one of those eight companies involved in the Supreme Court’s test case, you should still review your policy, along with any claim previously submitted. You may feel confident of securing a better result if you revisit your claim in light of January’s landmark decision. 

Once your insurer has accepted cover is in place, it is almost certain that you will be required to justify and provide evidence of all losses claimed for. It’s important for policyholders to carry out a detailed investigation, so they can calculate all losses and, where applicable, provide documentary evidence to back up their claim. For loss of business or trade, accounting evidence will be needed.

As a policyholder hoping to claim, this should happen as soon as practicable. You should hear back from your insurer within a week, otherwise contact us and we’ll do our best to provide you with the necessary support so you can revisit your claim. We’ll help you to review and understand your policy wording in the context of the Supreme Court ruling. We will assist with your calculations, including consequential losses, so you can make a full and entitled claim.

About the Author

Fiona Boswell

Fiona Boswell

Fiona Boswell is a BFA Qualified Franchise Professional, partner and head of franchising and commercial services at Knights plc.

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