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High Court rules insurers should have paid out for lockdown losses

The High Court has ruled some insurers should have paid businesses for losses caused by the COVID-19 lockdown following a test case brought by the Financial Conduct Authority.

Judges ruled that the disease clauses in some business interruption policies should have meant they were covered, despite many insurers refusing to pay out.

The Financial Conduct Authority estimates the ruling could affect 370,000 mostly small businesses.

Insurers can appeal against the decision, while policyholders should hear from their insurer within seven days.

Richard Moore (pictured), a commercial litigation specialist at national law firm Clarke Willmott LLP, is handling a number of high value claims against several of the insurers targeted by the FCA’s legal action.

He said: “Arguments over business interruption insurance coverage – or the lack thereof – have been widespread since the outbreak of the coronavirus pandemic, which has seen an across the board shutdown of many business sectors in the UK. Thousands of businesses now have severe cash flow problems. Many have already entered into formal insolvency arrangements. The retail, travel and leisure industries have been particularly hard hit with little to suggest that their positions will improve any time soon.

“This decision is, on the whole, very positive for the FCA and the policy holders affected.

“The High Court found in favour of the FCA on the majority of the key issues in dispute in relation to the 21 policy wordings examined by the court. The decision will be welcomed with a sense of relief by the thousands of policy holders affected. The speed of the judicial process should also be welcomed.

“However, it may be premature to celebrate just yet. The most important question in the short term is whether or not any of the eight large insurers involved in the test case will appeal to the Court of Appeal to overturn the judgment and upon what basis.

“The case was a representative test case only. There are many other insurers who were not involved in the case who may rely on the fact that their own policy terms and conditions differ from those examined by the court and therefore the judgment may be of indicative interest only. Policy holders who are covered for business interruption for property damage only will also be unlikely to be covered by their policies.”

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