Businesses win pandemic insurance payouts after UK court ruling

(Reuters) — Small businesses, from restaurants to nightclubs and wedding planners to beauty parlors, on Friday won the right to insurance payouts after Britain's highest court ruled their policies should cover losses caused by coronavirus lockdowns.

Six of the world's largest commercial insurers — Hiscox Ltd., RSA Insurance Group PLC, QBE Insurance Group Ltd., Argenta Holdings Ltd., Arch Insurance Group Inc. and MS Amlin PLC —argued many business interruption policies did not cover widespread disruption after Britain's first national lockdown last March.

But the U.K. Supreme Court dismissed appeals by the insurers after scrutinizing non-damage insurance policy clauses — which cover disease, denial of access to business premises and hybrid clauses — in a victory for the regulator and policyholders.

The test case, which has been watched closely overseas, has pitched the industry regulator against major insurance companies since last May and has been expected to affect 370,000 policyholders, 60 insurers and billions of pounds in claims.

Alistair Handyside, executive chair of the Professional Association of Self-Caterers U.K., whose members had a policy with RSA, said he was delighted by a judgment that would mean survival for many amid a third lockdown.

But policyholders are now bracing for the next stage in their fight for payouts.

"It would appear we have won another battle this morning 10 months too late," said Murray Pulman, who runs The Posh Partridge cafe in Dorchester, southwest England.

"The war is not over, however," he said. "Getting payment, compensation and costs ... is another whole new fight which begins today."

Hiscox shares seesaw

Hiscox, MS Amlin, Argenta and RSA said they would be paying claims as soon as possible. Other insurers were not immediately available for comment. Hiscox estimated its 2020 COVID-19 estimate for business interruption had risen by $48 million net of reinsurance, bringing total claims to £136 million ($185.52 million).

Hiscox shares fell as much as 5.2% early on Friday before reversing losses to trade 2.6% higher by 1250 GMT.

Britain's Financial Conduct Authority (FCA) said it would work with the industry to ensure they settled claims quickly and made interim payments if possible.

The case turned on business interruption policies with clauses offering cover when insured premises cannot be accessed because of public authority restrictions, in the event of a notifiable disease within a specified radius and hybrid wordings.

Insurers said they were paying valid claims but that they could not provide limitless cover for losses amassed when almost the entire economy was shut down and healthy people consigned to their homes in the most stringent restrictions on public life since World War Two.

London's High Court ruled last September that some insurers had been wrong to deny cover, prompting six insurers, the FCA and the Hiscox Action Group of policyholders to challenge elements of the ruling they had lost in an appeal that leapfrogged the Court of Appeal because of its critical nature.

Christopher Croft, CEO of insurance brokers' association LIIBA, said the industry's reputation had been damaged. "We need to think hard about how we redress that," he said.

More insurance and risk management news on the coronavirus crisis here.