The Supreme Court has "substantially allowed" an appeal brought by the Financial Conduct Authority in a landmark £1.8 billion legal battle over businesses' ability to claim on insurance for coronavirus-related disruption.

The Financial Conduct Authority (FCA) last year brought a test case, which could affect around 370,000 businesses, over the wording of business interruption insurance policies, which some insurers argued did not cover the Covid-19 pandemic.

The City watchdog previously said it was bringing the legal action following "widespread concern" over "the lack of clarity and certainty" for businesses seeking to cover substantial losses incurred by the pandemic and subsequent national lockdown.

In September, the High Court ruled on several "lead" insurance policies issued by eight separate insurers largely in favour of the FCA, which welcomed the judgment as "a significant step in resolving the uncertainty being faced by policyholders".

The regulator, however, argued the judgment "paved the way for many insurance policies to pay indemnities on Covid-19 business interruption claims", but also "took something away with one hand after giving more substantially and in detail with the other".

Six of the insurers - Arch, Argenta, Hiscox, MS Amlin, QBE and RSA - also appealed against aspects of the High Court's ruling, as did the Hiscox Action Group, which represents around 400 businesses insured by Hiscox.

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In November, the UK's highest court heard "leapfrog" appeals - which have bypassed the Court of Appeal - in a case which could have implications for hundreds of thousands of businesses affected by coronavirus.

Announcing the Supreme Court's ruling on Friday, Lord Hamblen said: "The appeals of the Financial Conduct Authority and the Hiscox Action Group are substantially allowed and the insurers' appeals are dismissed."

Summarising the Supreme Court's decision in relation to "prevention of access clauses" - which are triggered by "public authority intervention preventing access to, or use of, the business premises" - Lord Hamblen said the High Court's interpretation was "too narrow".

The judge said: "An instruction given by a public authority may amount to a 'restriction imposed' if it carries the imminent threat of legal compulsion or is in mandatory and clear terms and indicates that compliance is required without recourse to legal powers."

In a written ruling, Lord Hamblen and Lord Leggatt - with whom Supreme Court president Lord Reed agreed - concluded: "Although we have accepted some of the insurers' arguments on their appeals, in no case has that affected the outcome of the appeal. It follows that the insurers' appeals are dismissed."

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In a separate concurring judgment, Lord Briggs - with whom Lord Hodge agreed - said: "On the insurers' case, the cover apparently provided for business interruption caused by the effects of a national pandemic type of notifiable disease was in reality illusory, just when it might have been supposed to have been most needed by policyholders.

"That outcome seemed to me to be clearly contrary to the spirit and intent of the relevant provisions of the policies in issue."

In a statement after the ruling, Sheldon Mills, executive director of consumers and competition at the FCA, welcomed the decision, saying the judgment "decisively removes many of the roadblocks to claims by policyholders".

He added: "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.

"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."

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Richard Leedham, a partner at law firm Mishcon de Reya who represented the Hiscox Action Group (HAG), said: "This is a landmark victory for a small group of businesses who took on a huge insurance player and have been fully vindicated.

"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."

Mr Leedham - who acted for HAG, which represents around 400 businesses insured by Hiscox - added: "Today's outcome is one of the most significant for business in modern times.

"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."

Huw Evans, Association of British Insurers director general, said: "Insurers have supported this fast-track legal process every step of the way and we welcome the clarity that the judgment will bring to a number of complex issues. Today’s judgment represents the final step in the appeal process.

“The insurance industry expects to pay out over £1.8bn in Covid-19 related claims across a range of products, including business interruption policies. 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. Some payments have already been made where valid business interruption claims have not been impacted by the test case ruling.

“We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers. We will continue to work together as an industry to ensure customers have the clarity they need when it comes to what they can expect from their business insurance policies.”

HeraldScotland: Crerar sold the Craiglynne Hotel to Bespoke Hotels in August 2019Crerar sold the Craiglynne Hotel to Bespoke Hotels in August 2019

Edinburgh hotel firm slides into red amid hit from Covid and property disposals

Crerar Hotels has fallen into the red after losses linked to the sale of three properties combined with a “dramatic adverse impact” of business closure caused by the first coronavirus lockdown.

READ MORE: The Edinburgh-based hospitality group swung to a pre-tax loss of £1.9 million for the year ended March 28, 2020, from a £7.6m profit the year prior, accounts newly filed at Companies House show.

Glasgow's Linear in fire safety expansion


Contracting and fit-out specialist Linear Group has acquired a stake in Kyle Management Solutions to create a new fire safety solutions consultancy.

READ MORE: The newly-created Linear Fire Safety (LFS) is part of Glasgow-based Linear’s drive to continue its growth across the UK, having seen turnover exceed £30 million in the latest financial year. 

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