London judges have ruled that some of the world’s biggest insurers were wrong to reject tens of thousands of claims from small firms battered by the COVID-19 pandemic, Britain’s Financial Conduct Authority (FCA) said on Tuesday.

The closely watched business interruption (BI) insurance test case brought about by the FCA  sought to clarify whether 21 types of business interruption policy wordings should pay out for closures and disruption caused by the pandemic.

The High Court judgment says that most, but not all, of the disease clauses in the sample provide cover, according to the FCA.

It also says that certain denial of access clauses in the sample provide cover, but this depends on the detailed wording of the clause and how the business was affected by the government response to the pandemic, including for example whether the business was subject to a mandatory closure order and whether the business was ordered to close completely.

In addition, the test case 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.

The FCA, which brought the test case against eight insurers, said the court had found in favor of policyholders’ arguments on the majority of key issues in a complex, 162-page judgment.

However, some of the insurers said the ruling meant they wouldn’t have to pay out, or would have to pay out much less than modeled in a worse-case scenario, and Britain’s Federation of Small Businesses called the judgment a “partial” victory.

The lawsuit has been closely watched because it is estimated to affect 370,000 businesses and claims between £3.7 billion and £7.4 billion of claims could be on the line..

FCA interim chief executive Christopher Woolard said the judgment was a “significant step” in resolving the uncertainty faced by policyholders and called on insurers to “reflect on the clarity provided,” irrespective of any possible appeal, and consider how to progress claims.

“Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful,” said Woolard.Woolard said insurers should now consider the steps they can take to “progress claims of the type that the judgment says should be paid” as well as communicate directly with policyholders who have made claims to explain next steps.Hiscox said the judgment clarifies that fewer than one third of its 34,000 UK business interruption policies may respond and it estimates additional COVID-19 claims arising from business interruption to be less than £100 million net of reinsurance

The FCA brought the case against the insurers, including Hiscox, RSA, QBE and Zurich, in June to clarify whether 21 types of business interruption (BI) policy wordings should pay out for closures and disruption caused by the pandemic.Small businesses – from cafes, wedding planners and beauty parlors to events businesses – have said they faced ruin after attempts to claim compensation for business losses during the pandemic, which has prompted the most stringent government restrictions in peacetime history, were rejected by insurers.

Meaning for Policyholders

While many policyholders will be advantaged, the judgment did not say that the eight defendant insurers are liable across all of the 21 different types of policy wording in the representative sample. Each policy needs to be considered against the detailed judgment to work out what it means for that policy. Policyholders with affected claims can expect to hear from their insurer within the next seven days.

The ruling also does encompass all possible disputes, but to resolve some key contractual uncertainties and “causation” issues to provide clarity for policyholders and insurers. The judgment does not determine how much is payable under individual policies, but will provide much of the basis for doing so.

However, the test case has removed the need for policyholders to resolve a number of the key issues individually with their insurers, according to the FCA.\


But the devil was in the detail.

The Association of British Insurers (ABI) said the judgment “divided evenly” between insurers and policyholders on the main issues.

Zurich Insurance and Ecclesiastical, a smaller insurer, said the judgment confirmed their disputed policies did not need to pay out.

Hiscox said fewer than one third of its 34,000 UK BI policies would have to pay out and that the net cost would be less than 100 million pounds ($129 million) – compared with initial guidance of up to 250 million pounds.

Shares in Hiscox and RSA, which restored its canceled 2019 dividend and pointed out that some of its policy interpretations had been upheld by the court, leapt by 15% and 6% respectively, as the market welcomed the removal of uncertainty and a fresh focus on growth.

The other four insurers did not respond to requests for comment.


But some policyholders were jubilant.

Justin Stead, CEO of accessories firm Radley London, said the judgment was “an extremely important outcome to secure the future for Radley,” adding insurers should pay out quickly “to save as many businesses as possible.”

Sonia Campbell, partner at law firm Mishcon de Reya, which represented two business action groups in the case, said the outcome was a “resounding victory” for many firms.

The FCA lawsuit offered a new legal route by pooling together a group of company policies and taking insurers to court with minimal costs to businesses.

The case was designed to quickly clarify whether the pandemic and a government lockdown in March should trigger BI policies, which provide cover when insured premises cannot be used because of restrictions imposed by a public authority and in the event of a notifiable disease or infection.

Insurers have argued that most policies did not cover the pandemic, that they were paying out valid claims as quickly as possible and that being forced to stump up for all losses from the pandemic would be catastrophic for the insurance industry, and its backup, the reinsurance industry.

If the judgment is appealed it could leapfrog straight to the Supreme Court, the highest UK court, to reduce delay for buckling businesses, lawyers say.


QBE, Australia's biggest insurer by market capitalisation, said in a statement that a London court had largely ruled in its favour in a case that examined the reading of policy wordings by eight insurers

in relation to business interruptions caused by the COVID-19 pandemic.the high court ruled in its favour on two out of three of its disease policy wordings examined and in favour of insurers generally with respect to denial of access, said QBE.

However, the company said it was considering its options to appeal a ruling that was in favour of policyholders with respect to one of its disease policy wordings.

QBE reaffirmed that its catastrophe reinsurance programme would limit the net cost of the UK business interruption claims to $70 million, which it has already accounted for as part of COVID-19 provisions announced in its first-half results. The company said given the possibility of appeals from all parties and further legal action, the gross cost to QBE could change, but the net cost would not vary.

Case Background

The 162-page judgment on coverage for covid-19 business claims is complex. The FCA’s legal team at Herbert Smith Freehills have provided a summary, which is referenced in the following background and analysis.

While most small-to-medium enterprise policies are focused on property damage and only have basic cover for business interruption as a consequence of property damage, the FCA argued that some policies also cover for BI from other causes, in particular infectious or notifiable diseases and non-damage denial of access and public authority closures or restrictions.

The FCA noted that in some cases, insurers have accepted liability under these policies, while in other cases, they have disputed liability.

The FCA sought to establish liability under a representative sample of policy wordings. The FCA argued for policyholders that the “disease” and/or “denial of access” clauses in the representative sample of policy wordings provide cover in the circumstances of the Covid-19 pandemic, and that the trigger for cover caused policyholders’ losses.