This January, the Supreme Court ruled largely in favour of the Financial Conduct Authority (FCA) and businesses receiving payments from business interruption insurance policies. This verdict has been regarded as a huge win for businesses, with many suggesting that thousands of businesses are due a payout. But in truth, the majority of businesses are unlikely to benefit at all from this court ruling, even if they have business interruption insurance policies in place.

Case summary

The purpose of business interruption insurance is to cover loss of income when businesses are unable to operate due to unexpected events. Eight insurers and the FCA went to court to investigate clarification about disputed words in different types of business insurance policies. Insurance companies were confident that only very specialist policies covered losses that arose from the pandemic. As a result of the complex issues involved around businesses and COVID-19, some policyholders questioned whether the wording did in-fact exclude them. This resulted in the FCA launching a test case to find clarity over a range of specific wording.

Court ruling

Overall, The High Court largely ruled in favour of the FCA and businesses. Both sides are seeking further clarity and an appeal has been submitted to the Supreme Court. This verdict resulted in a different conclusion on some key points, but overall, still expanded the number of policies that should result in a payout.

Why is this not a landmark victory?

It has been found that this court ruling applies only to specific wording in a select number of clauses and contracts. Therefore, the FCA has stated that this would only affect a maximum of 370,000 businesses in the UK. There are approximately six million businesses in the UK. Whilst this is a significant victory for businesses the actual proportion of those affected is reasonably low and most may be unaffected by this verdict.

How can businesses find out if their policy is affected?

Affected policy-holders should have received written communication from their insurer in September 2020. We recommend that policyholders contact their insurance provider to understand the impact of the court ruling.

 

How can we help?

At Hawsons we have a dedicated team of accountants at our offices in Sheffield, Doncaster, and Northampton. Our Business Services Department is dedicated to helping smaller businesses, providing a range of tax and accountancy services to small and growing businesses.

Please contact Richard Burkimsher, on 01604 645600 or [email protected] .

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Richard Burkimsher

Richard Burkimsher

Partner, Northampton

01604 645 600

[email protected]

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