Small businesses affected by coronavirus disruption to get £1.2billion insurance payout after high court ruling

HUNDREDS of thousands of small businesses are to receive a payout from insurers if they have been negatively impacted by the coronavirus pandemic.

Up until now, insurers had been refusing to pay out arguing that policies didn't cover pandemics.

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Following the landmark ruling by the High Court today, the Financial Conduct Authority (FCA) said that insurers should apply the clarifications to future claims and reassess ones that have been rejected on these grounds.

It's estimated that 370,000 policy holders will be affected by the ruling and claims that need to be paid out are worth around £1.2billion, according to the regulator.

But there is a strong chance that the insurers will appeal the decision, which could see the ruling overturned.

The FCA brought the case to the courts in May to get legal clarification over the wording of business interruption (BI) insurance policies.

What help is out there businesses and for self-employed workers?

THE government has introduced the following measures to help self-employed workers and businesses during the coronavirus outbreak:

Income-tax deferrals: Self-assessment income tax payments, that were due in July, can be deferred to the end of January next year.

Rent support: Businesses who are struggling to pay their rents are protected from eviction until the end of June.

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.

Grants of up to £10,000: Small firms can get grants of up to £10,000 to help with ongoing business costs.

VAT payments: VAT payments can be deferred for three months.

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.

It said there was "widespread concern" over "the lack of clarity and certainty" for businesses seeking to cover substantial losses incurred because of the national lockdown.

Some insurers said that policies only cover business disruption caused by issues in the local area or within a 25miles or one mile radius of the business for it to count as being directly affected.

Today's result will help set out the framework for how insurance companies should respond to claims going forward.

Christopher Woolard, interim chief executive of the FCA, called it a "significant step" in resolving the uncertainty over coronavirus BI claims.

He said: "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 judgement says should be paid.  

"They should also communicate directly and quickly with policyholders who have made claims affected by the judgement to explain next steps."

The FCA selected a representative sample of 17 policy wordings used by 16 insurers, which were considered at an eight-day hearing in July.

Eight insurers agreed to assist the FCA by taking part in the test case, which the regulator has said it hopes will provide "clarity and certainty for everyone involved".

The ruling was delivered by Lord Justice Flaux and Mr Justice Butcher.

The FCA said the government's coronavirus public health controls had caused "substantial loss and distress to businesses", particularly small and medium enterprises (SMEs).

It argued that, while some insurers had provided payouts to customers, many businesses had had claims "rejected" under "blanket denials of cover".

Lawyers on behalf of the FCA argued that the outbreak of Covid-19 had triggered a "national response" driven by "the danger and the emergency" of the disease.

Leigh-Ann Mulcahy QC said all businesses had a "legal duty" to follow the government's advice, guidance and lockdown rules to protect staff, customers and contractors.

The FCA has said that most SME insurance policies have basic cover that was focused on property damage, meaning insurers were not obliged to pay out due to the coronavirus pandemic.

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