Insurers urged to pay claims quickly following BI ruling

Claims blocks

The Supreme Court concluded the Covid-19 business interruption dispute by substantially ruling in favour of policyholders.

The insurance industry has welcomed the clarity offered by the Supreme Court’s final verdict over payment of Covid-19 related business interruption claims arising from the first lockdown in 2020.

Supreme Court judges ruled substantially in favour of policyholders in their final judgment delivered this morning (15 January 2021).

The CEO of the British Insurance Brokers’ Association, Steve White, urged providers to “act swiftly to settle claims fairly”.

He also called on them to communicate next steps with brokers in order to help them advise their customers.

It is believed that up to 370,000 policyholders and up to 60 insurers could be affected by the decision. Overall the Association of British Insurers predicts £900m of BI claims and £1.8bn of Covid claims overall. 

The Financial Conduct Authority (FCA), which originally brought the case on behalf of policyholders, has already issued comment on the decision.

Sheldon Mills, executive director, consumers and competition at the FCA, said “the judgment decisively removes many of the roadblocks to claims by policyholders”.

He commented: “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.”

Mills continued: “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.”

Hospitality industry
Broker NDML had a number of clients in the hospitality sector affected by the business interruption dispute.

MD Simon Mabb said the team was “thrilled” about the result. The broker had been working with the Night Time Industries Association (NTIA) in order to support clients involved in the case.

He explained: “We’re particularly thrilled at this outstanding result for our Hiscox clients for whom today’s judgement has ruled completely in their favour.

“Huge thanks must be given to our customers, for trusting in us to achieve this result for them. As well as Michael Kill [NTIA CEO] & The NTIA alongside Philip Kolvin QC who have worked tirelessly with us to make this result happen.”

He added: “Thanks to this work, our Hiscox clients will now benefit from a full settlement of their claim, with no deductions or legal fees.

“Unlike many businesses who will see their settlement chipped away, the faith our customers have shown in us means every penny of these essential claims will go to exactly where they’re needed; supporting the survival of the businesses who are the lynchpin of our invaluable leisure & hospitality industry.”

Kill described the decision as a “moral victory for businesses”.

He commented: “We still have some detail to interpret on many of the other policies that have been reviewed by the Supreme Court, and will update throughout the day on the results.

“I would like to thank the FCA and NDML for their support throughout this process and the legal guidance of Philip Kolvin QC through a very dark period for many businesses.

“It is now very important that insurers do the right thing and expedite the payment process.”

The Association of British Insurers also responded to the judgment on behalf of its members.

Huw Evans, ABI director general, pledged that “all valid claims will be settled as soon as possible”.

He 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.

He added: “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.”

The ABI had been criticised for its initial response to businesses trying to claim amid the first lockdown.

Action group
Hiscox was one of the first providers to be dragged into the row last year and an action group, Hiscox Action Group (HAG), was formed to fight the decisions the insurer then made on BI claims. The HAG was also a party in the court case.

Richard Leedham, partner at Mishcon de Reya who represents the Hiscox Action Group said: “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.

“This includes most of the members of the Hiscox Action Group, whom we represented in the case, and RSA and now all QBE policyholders whom we represented at first instance through my partner Sonia Campbell and Hospitality Insurance Group Action.

“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.”

Hiscox stated that fewer than one third of its 34,000 BI policies would respond following the decision.

The provider commented: “Hiscox welcomes the clarity that the Judgment provides and the processing of claims has begun.

“As a result of the Judgment as well as further government restrictions announced during 2020, the total Hiscox Group 2020 Covid-19 estimate for business interruption increased by $48 million net of reinsurance.

“In addition the previously disclosed additional loss estimate of up to $40 million for event cancellation if government restrictions continued into 2021, will now be recognised in our 2020 financial result due to the expectation that covered events will be cancelled.”

Going forward, White said the insurance industry must do more work to provide clarity about cover.

He added: “Though the judgement is welcome, it does not detract from the need for the insurance sector to provide greater clarity about the operation of cover.  We will be taking the time to study the judgement in detail and will provide guidance to our members on what it means for them and their customers.  

“Looking forwards the UK needs a long-term answer that provides a solution to help businesses and people cope financially with any future pandemic and Biba is committed to working across industry and Government to help deliver this.”

A committee was set up by Stephen Catlin last year to explore the possibility of a Pandemic Re but it has yet to report its findings.

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