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High Court rules in favour of policyholders in BI test case

Insurers may have to pay out hundreds of millions of pounds to restaurants and takeaways after the High Court ruled in favour of policyholders in a landmark business insurance (BI) interruption case.

The ruling today follows a test case which was brought to court by the Financial Conduct Authority (FCA) after many small businesses that closed due to coronavirus had their business interruption claims turned down.

The FCA sought to clarify the wording of policies after insurers argued that they were never intended to cover pandemics despite some clearly stating cover for infectious or notifiable diseases and non-damage denial of access and public authority closures or restrictions.

The FCA selected a representative sample of policy wordings issued by eight insurers.

Approximately 370,000 policyholders are likely to be affected by the outcome of the test case.

Although welcome news for many policyholders, the judgment did not say that the eight defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the Court. Each policy needs to be considered against the detailed judgment to work out what it means for that policy. Policyholders with affected claims can expect to hear from their insurer within the next seven days.

It is also highlighly anticipated that insurers will appeal the decision.

Christopher Woolard, interim chief executive of the FCA, commented: “Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders.We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.

“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.

“Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

“If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process. As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this.”

The eight insurance companies that took part in the test case were Arch Insurance, Argenta, Ecclesiastical, Hiscox, MS Amlin, QBE, RSA Group and Zurich.

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