High Court tells insurers to pay businesses forced to close by the coronavirus pandemic - but firms could be kept waiting for months for payout

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Business owners forced to close their doors amid the coronavirus lockdown have been told their insurance claims must be paid following a High Court judgment. 

The Financial Conduct Authority brought a test case in front of the High Court earlier this year after insurers rejected business interruption insurance claims - even where lost earnings due to a pandemic appeared to be covered in policy wordings. 

This morning, the Court ruled on a representative sample of 17 policy wordings used by 16 insurers, after an eight-day hearing. 

The judgment found that most, though not all, of the disease clauses in the sample do provide cover. 

 Hiscox, RSA and QBE are among the insurers whose policies were tested by the Court

The test case also clarified that the Covid-19 pandemic and the government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover.

Insurers argued that the insurance policies in question don't cover pandemics, even though some explicitly stated that cover was provided for notifiable diseases. 

Christopher Woolard, interim chief executive of the FCA, said: 'We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues. 

'Today's judgment is a significant step in resolving the uncertainty being faced by policyholders.  

'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 judgment says should be paid. 

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

 Small businesses faced bankruptcy during lockdown after having their claims turned down

While the FCA says that the majority of business interruption customers are not covered for coronavirus, there remains a dispute over policies which contain certain clauses. 

Lloyd's of London underwriter Hiscox, FTSE 100 giant RSA and Australia's QBE are among insurers accused by policyholders of unfairly denying claims.  

As a result of the ruling, insurers should pay out hundreds of millions of pounds to policyholders. Hiscox expects to have to pay out £100million as a result of the ruling, for example.

Before that happens, insurers are likely to appeal the decision, delaying claim payouts further.  

Will insurers now pay out?    

Unless successfully appealed, the High Court judgment is legally binding on the eight insurers that were part of the test case. 

For insurance policies with similar policy wordings and claims, the FCA says today's rulings provides 'persuasive guidance' - meaning it will be much harder for insurers to wriggle out of paying. 

However the majority of business interruption policies will not be affected and policyholders are being urged to carefully check their policy wordings.

It's likely that insurers will now appeal the decision. This means they may not pay out in the meantime until the appeals process has fully finished. 

Huw Evans, director general of the Association of British Insurers said: 'This is a complex judgment spanning 162 pages and 19 policy wordings and it will take a little time for those involved in the court case to understand what it means and consider any appeals. 

'Individual insurers will be analysing the judgment, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead.' 

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