Small businesses handed lifeline as Supreme Court rules insurers must pay out for Covid claims

Tens of thousands of businesses can claim for lockdown losses, judges say

Payouts could help many small firms survive through the latest restrictions (Angela Christofilou)

Tens of thousands of small businesses have been handed a lifeline after Supreme Court judges ruled that insurers must pay out for coronavirus-related losses.

Many firms took out business interruption insurance policies to cover them for unexpected events that caused them to stop trading but then found that insurance companies rejected claims for losses resulting from lockdowns.

Payouts could help many small firms survive through the latest restrictions.

Richard Leedham, partner at Mishcon de Reya who represents one group of policyholders, said he hoped insurers would assess and pay out on claims quickly after the decision was announced on Friday. 

He added: "We are glad that the Supreme Court has found that the vast majority of policyholders of non-property damage business interruption (BI) cover will have cover for their business interruption losses caused by the national response of Government to Covid-19.  

“The Supreme Court has recognised that, just when this cover was needed most by thousands of UK businesses, insurers were wrong to argue that coverage was applicable only if there were narrow local restrictions, that they could deny claims because the cover had not been intended to be provided and/ or because the interruption and therefore losses would have happened in any event.”

The City regulator brought a test case last year after thousands of businesses complained about being unable to claim on their insurance policies during the first lockdown.

It asked High Court judges to rule on whether the wording in a selection of common insurance policies meant that they should cover losses caused by coronavirus restrictions.

The case was fast-tracked to the Supreme Court which dismissed appeals from insurers, meaning that in many cases policyholders will have grounds for a valid claim. Judges also provided guidance for a further 700 policies, potentially affecting as many as 370,000 small businesses.

A key issue was whether so-called disease clauses in the policies mean that insurers should pay out to cover losses caused by businesses being ordered to shut under coronavirus restrictions. The court ruled that disease clauses to apply to coronavirus closures.

Companies with valid cover may be able to claim for multiple periods over the past 10 months during which they have had to close.

Labour’s shadow business minister, Lucy Powell said the news would come as huge relief for British businesses.

“The pressure businesses are under is huge, and even with these pay outs the cash crisis they face as a result of inadequate government support threatens the future of many," Ms Powell said.

“These payouts do not absolve government of their responsibility to see firms through the pandemic. Business desperately needs a long term comprehensive plan from government to tide them through lockdown and on to recovery.”