Article written and provided by Sophie Kingwell- Meader, Account Executive at Estate Insurance Group, for Beacon Gainer, private wealth advisory services group.

The insurance market, like all areas of commerce in the UK, has been affected by COVID-19. This has not only been through a necessitated, fundamental shift in the way that people work but also in claims made. All insurance policies contain parameters for cover, including exclusions for non-insured events.

During the first lockdown, many businesses turned to their insurance for Business Interruption cover claims, primarily based on lack of access to premises for trading. The majority of insurers had very tight wordings around pandemics that only covered a pre-specified list, however, a select few did not which resulted in a test case being brought against them in the High Court. The case in the High Court was found in favour of the insureds, which has since been contested and is in the process of being heard in the Supreme Court. The High Court looked at 21 policy types as part of a test case, and rulings on 13 have been appealed and have been presented to the Supreme Court. Of these 13, the lower court advised 11 should have led to claim settlements and on the final 2, the judgements that insurers should not pay out are being appealed by the FCA.

What are the implications for businesses?

The Supreme Court judgements, whatever these may be, will have had implications for around 370,000 mostly small, independent businesses with potential settlements of up to £1.2bn. If the Supreme Court confirms the judgements that took place in the High Court, claims will be remade and reviewed in 2020. Many businesses will have renewed annual policies since the first lockdown began and these will have new COVID-specific exclusions, so any validated claims are mostly relevant for older policies during the first UK lockdown, rather than those affected by the Tier system or second lockdown.

What are the implications for the named insurers?

During the first High Court case, For two insurers, Zurich and Ecclesiastical, the judgements were found entirely in their favour and the FCA decided not to appeal against the findings. For the remaining 13, they are likely to see an influx of claims from their insureds which will begin to be reviewed in 2021 if the Supreme Court rules against them. The impact of the payment of these claims on the insurers themselves will be unique to each company, but it is likely to have significant impacts on their solvency and operations.

What are the implications for the wider insurance market?

The final ruling by the Supreme Court judges will provide authoritative guidance for the other policies, and potentially of similar ones not part of the case. For example, the Financial Ombudsman Service and courts in Scotland and Northern Ireland are expected to use the judgment to rule on other, similar cases. In anticipation of a ruling for the insureds rather than the insurers, many markets have restricted their appetites, tightened terms, and increased their renewal and new business rates to assist with claims reserving. These actions are contributing to an already hardening insurance market, which began in earnest in 2019.

When can we expect a conclusion?

The appeal hearing in the Supreme Court concluded on November 19 and a final decision is expected to be reached in just a few weeks. Having recognised the urgency of the case, the court hasn’t ruled out a judgement before the end of the year but it is most likely that we will receive this in January.