Supreme Court rules against insurers on Covid-19 payouts

RSA, Hiscox and other insurers will have to pay out on thousands of business interruption policies because of Covid-19 after losing an appeal to the Supreme Court.

The Financial Conduct Authority said the Supreme Court largely allowed the regulator's appeal on behalf of policyholders. In a 112-page judgment the Supreme Court ruled in policyholders' favour for different reasons than the High Court, meaning more policyholders will have valid claims and some payouts will be higher, the FCA said.

The FCA and six companies brought the test case after insurers refused to pay out to small and medium-sized enterprises for the costs of business disruption caused by Covid-19. The Supreme Court ruling ends the legal proceedings and opens the way for policyholders to receive the money they were due.

Sheldon Mills, the FCA's consumers and competition director, said: "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."

Hiscox, one of the six insurers involved in the test case, said less than a third of its 34,000 UK business interruption policies would be open to claims as a result of the ruling. The company increased its estimate for 2020 Covid-19 business interruption by $48m.

"Hiscox welcomes the clarity that the Judgment provides and the processing of claims has begun," the company said.

An additional $40m loss estimate for event cancellations if government restrictions stretch into 2021 will be recognised in Hiscox's 2020 results, it said. Hiscox shares rose 1.8% to 983.4p at 11:34 GMT.

Stephen Roper, professor of enterprise at Warwick Business School, said: "This verdict is great news for many small firms and sole traders who feel they have been let down by their insurance providers. The key factor now is that claims are progressed rapidly to get cash into the hands of small business owners who are struggling financially due to the latest lockdown restrictions.

"Sadly this verdict will come too late for other firms which have already gone to the wall due to the pandemic but might have been saved if insurers had paid claims earlier."