TENS of thousands of small business owners are in line to receive a coronavirus insurance payout.
Insurers must pay as much as £1.2billion to cover losses from the pandemic after a landmark ruling by the Supreme Court today.
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Some insurers had been refusing to pay out for disruption caused by coronavirus lockdowns, such as temporary closures, arguing policies didn’t cover pandemics.
Around 370,000 businesses, such as cafes, pubs and beauty salons are thought to be affected, although not everyone is guaranteed a payout as it still depends on the exact wording of the policy.
The Supreme Court has “substantially allowed” an appeal brought by the Financial Conduct Authority on behalf of policyholders.
Many businesses made claims under business interruption (BI) policies when the pandemic first hit last year.
‘My photography business has lost £400,000’
PHOTOGRAPHY business owner Wendy Mackney estimates her business has lost £400,000 due to coronavirus.
Like millions, the 41-year-old had to close during the first lockdown and was hoping to rely on business interruption insurance.
Her policy offered cover of up to £100,000 if the business had to close – but her insurer claimed the pandemic was an “exceptional circumstance”.
Wendy, who lives in Derby, started her business with her husband Simon in 2012 offering family portraits from her studio at English Heritage site Darley Abbey.
They have a six-year-old daughter and another child on the way. Wendy is ecstatic about today’s ruling but is disappointed it took so long.
She told The Sun: “It is disappointing they have dragged their feet for so long
“A small business like ours has lots of employees with families of their own and bills to pay.
“If they had originally paid out it would have alleviated a lot of the stress.
“Other businesses have had to liquidate as they couldn’t afford their overheads.
“Even with furlough there are expenses such as landlord rents, loan repayments and utility bill.”
Mackney is waiting to see if she can claim for all three national lockdowns and said the money will help pay off a £100,000 coronavirus business interruption loan.
By Marc Shoffman
They believe they were covered by these policies but some insurers disputed this.
The Financial Conduct Authority (FCA) last year brought a test case over the wording of the policies last year to provide clarity for businesses affected.
In September the High Court ruled in favour of the FCA concerning a sample of several policies from a number of insurers.
Six of the insurers – Arch, Argenta, Hiscox, MS Amlin, QBE and RSA – against aspects of the High Court’s ruling, as did the Hiscox Action Group, which represents around 400 businesses insured by Hiscox.
‘Court ruling is a lifeline for my business’
BEAUTY salon owner Nicola Oakley says the Supreme Court is a “lifeline” for her business.
Her salon, The Treatment Room in Bristol, was one of the millions of business forced to close in March 2020.
Her business interruption insurance policy said she could claim for up to £50,000 of losses if she had to shut and she immediately contacted her broker.
However, she was quickly told her claim would be rejected due to the “exceptional circumstances” of the coronavirus outbreak.
The salon would usually earn up to £800 per week at the salon but was left with nothing until businesses were able to reopen in July.
She says her business has now lost up to £10,000 due to Covid.
She also had to furlough her three staff while she was closed.
Nicola also had to close during the second lockdown but was able to open over Christmas until the latest restrictions were imposed.
She told The Sun: “The bills don’t stop just because we are shut.
“We are still paying salon rent and I have to pay energy bills and costs at home such as nursery fees.”
“It has damaged my trust in insurance companies
“I wasn’t paying £600 a year cover for the fun of it.”
She is waiting to see how much she may get from her insurer as she was able to get a local council business grant for £10,000.
By Marc Shoffman
The complex case was fast-tracked to the Supreme Court bypassing the Court of Appeal.
Announcing the Supreme Court’s ruling, Lord Hamblen said: “The appeals of the Financial Conduct Authority and the Hiscox Action Group are substantially allowed and the insurers’ appeals are dismissed.”
Around 700 types of policies across over 60 different insurers and 370,000 policyholders could potentially be affected by the ruling.
Sheldon Mills, executive director of consumers and competition at the FCA, said in a statement after the ruling: “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.
“We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible.
“Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
What help is out there for businesses and self-employed workers?
THE government has introduced the following measures to help self-employed workers and businesses during the coronavirus outbreak:
Rent support: Businesses who are struggling to pay their rents are protected from eviction until the end of March 2021.
Coronavirus business interruption loan scheme: SMEs can get loans and overdrafts of up to £5million for up to six years and the government will guarantee up to 80 per of these.
Bounce back loans: Businesses can apply for loans worth up to £50,000. The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.
Grants of up to £10,000: Small firms can get grants of up to £10,000 to help with ongoing business costs.
Tax bill help: SMEs that cannot afford their tax bills can ask HMRC for a “time to pay” arrangement so any debt collection is suspended.
Business rates holiday: A 12-month business rates holiday has been introduced for many businesses.
“As we have recognised from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this.
“We are grateful to the Supreme Court for delivering the judgment quickly. The speed with which it was reached reflects well on all parties.”
The FCA said it is working on publishing information on what the decision means for for small businesses.
Richard Leedham, a partner at law firm Mishcon de Reya who represented the Hiscox Action Group (HAG), welcomed the verdict.
He said: “What is important now is that Hiscox accepts the Supreme Court’s verdict and starts paying out to its policy holders, many of whom are in danger of going under.”
“The result should leave Hiscox and the rest of the insurance industry in no doubt that they should immediately start doing the right thing and settle these claims.”
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The insurance industry body the Association of British Insurers welcomed “the clarity that the judgement will bring to a number of complex issues”.
Huw Evans, director general of the ABI said: “Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim.
“All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.”
Chancellor Rishi Sunak outlines available economic support during coronavirus lockdown
