Small businesses are eagerly awaiting a Supreme Court ruling on insurance payouts for those forced to close during the first national lockdown.
Many claimed on business interruption insurance policies, but insurers refused arguing there was no cover for such unprecedented restrictions.
It was agreed that a selection of policy wordings be tested in court.
The case has implications for 370,000 small businesses, and involved potential payouts of £1.2bn.
Judges at the Supreme Court will set the parameters of whether or not valid claims can be made under these policies.
The High Court earlier found mostly in favour of insurers having to pay out to policyholders, in what was regarded by many commentators as a surprise defeat for the insurance sector.
Friday’s ruling is the final judgement in the case, and will be used as guidance for any disputed business interruption insurance cases.
James Ollerenshaw’s hair salon was one of those businesses unable to operate during the first national lockdown.
The business – The Drawing Room in London’s Spitalfields – paid an annual premium of £1,200 for business interruption insurance, and disease cover came as part of it.
So when coronavirus struck, Mr Ollerenshaw – like many thousands of other small business owners – looked to their insurance company for compensation.
However, some insurers refused to pay out, in some cases because they said disease clauses in contracts did not cover such a scenario. Access to properties and timing were other issues in dispute.
Mr Ollerenshaw said the Supreme Court’s decision would not directly affect his policy, but would decide the principles on claims such as his – and were vital for the business.
“A payout would cover the major costs, which is the rent. We have debt sitting there,” he said.
He formed a Covid Claims Group, joining other small business owners in calling for a quick resolution.
“Time matters,” he said, pointing out that some small businesses have been forced to close down while waiting for the decision.
The City watchdog, the Financial Conduct Authority (FCA), brought a test case with eight insurers agreeing to take part in proceedings.
The High Court considered 21 policy types as part of the case. For two insurers, Zurich and Ecclesiastical, the judgement found entirely in their favour.
However, of another 13 policy types, the court said 11 should have led to payouts – decisions appealed against by insurers. Judges said two should not pay out, and these were the subject of appeal by the FCA.
The case was fast-tracked to the highest court in England and Wales – the Supreme Court, which heard four days of legal representations in November. The final ruling will provide authoritative guidance for these policies, and potentially of similar ones not part of the case.
The FCA, the insurance sector, and the Financial Ombudsman will all use the judgement to guide their decisions in other cases.
The Financial Ombudsman Service and courts in Scotland and Northern Ireland are expected to use the judgment to rule on other, similar cases.
Insurance policies would have been amended for new and renewing customers since this issue emerged, so losses from the latest lockdown measures in different parts of the UK would not be covered by this type of standard insurance.