Legal Experts Comment on The High Court Insurance Test Case Ruling Which Has Given SMEs A Lifeline

closed covid

Small and medium businesses in the UK have been given a lifeline after the High Court ruled that some insurers should have paid out for losses caused by the COVID-19 lockdown.

The test case which took place yesterday, was brought by the Financial Conduct Authority (FCA), with the potential to affect 370,000 SME’s.

The judges ruled that certain clauses in some business interruption policies should have meant businesses were covered during the pandemic.

It is no surprise, that during lockdown, many businesses struggled and had to close. A majority of these were relying on their insurers to cover any losses, however many insurers disputed such claims, stating that their policies did not cover an unprecedented situation like the pandemic. This of course put many SMEs under ‘immense stress’ as Photography Studio owner Anna Smart told BBC News.

Consequently, by July 2020, approximately 400 companies had complained to the financial ombudsman about their unfair situation of not being paid for their losses. The FCA accordingly brought its test case in response, arguing that whilst many insurers had paid out, others had rejected claims under denials of cover.

During the test case, the High Court therefore decided on the correct interpretation of a selection of these policies from high profile insurers such as QBE and Zurich. As a result of this, the ruling could also affect many other insurance policies which will need to be considered against the detailed judgement of the policies brought before the court yesterday.

For these SME policyholders this ruling is promising as it brings progress towards the pay-out, they believe they should be entitled to. Policyholders should hear from their insurer within seven days. However, a pay-out isn’t completely guaranteed and may take longer than expected to come through.

For insurers on the other hand, there is some relief as they may not have to pay out as much as they could have had to in their worst-case scenario. They can also appeal against the court’s decision.

However, the regulator added: “Although the judgement will bring welcome news for many policyholders, the judgement 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.

Following yesterday’s judgement on the FCA’s test case, expert lawyers who work alongside UK SMEs have spoken out on the ruling.

Adam Kerr, commercial lawyer and Managing Partner at law firm, Primas works closely with many small and medium sized businesses who were severely impacted without business interruption support. He said:

“The High Court’s judgment today will be welcome news to many businesses who have suffered terribly as a result of Covid-19, but who (inexplicably) found themselves without assistance from their business interruption policies. The insurance sector’s initial approach to claims will no doubt have reinforced many people’s already unflattering perceptions of that sector. It is right, and encouraging, to see the FCA and the Courts step in to provide a much-needed lifeline to mostly small and medium sized businesses who have been so harshly affected by the pandemic.

“However, it’s important for business owners to remember that whilst the judgment is undoubtedly positive news, it’s definitely not going to be a ‘one-size fits all’ solution in all cases. Much will now turn on the specific wording within individual policies as well as the specific impact of the pandemic on the business in question.

“With this in mind, those who think they may have a claim (or those who may have had previous claims denied by an insurer) should seek professional advice from their lawyers or insurance brokers. As a matter of principle, this judgement is certainly a welcome relief for many business owners, although this will more than likely have a knock-on effect on insurance premiums as a result.”


Meanwhile Stephen Netherway, partner and head of the insurance practice at national law firm Devonshires, has commented:

“Today’s judgment gives a much-needed lifeline to struggling businesses across the UK and could prevent many from going bankrupt. It provides for many a basis for presenting their Covid business losses under their commercial insurances.  As a result, today’s victory for the FCA, provided payments are to be made now, will save thousands of people from losing their jobs. Fundamentally it will mean many millions of pounds being paid out to some of the businesses that are desperate for a cash injection.

“While this is a victory for the person on the street, the small business, there will undoubtedly be an appeal from the insurance industry, so we are effectively only at half time in this case. There is devil in the judgment detail and not all policyholders are in the same box seat with their insurers, depending on what actual insurance wording they hold.

“What is important now is that the FCA sits down with the insurance sector to discuss how they move forward and discuss if business can secure interim payments from their insurers pending any appeal. For the insurance industry this is a blow, but they will I am sure continue to fight this all the way to the Supreme Court where the final judgment will most likely be made.”

Following the ruling it seems SMEs can hopefully look forward to being compensated money for their losses. However, with this being a challenge for both sides of the case, it seems the dispute won’t be without future obstacles.