Thousands of business interruption (BI) insurance policy pay-outs contested by insurers who claimed that they did not include COVID-19 cover will be paid out following a ruling in the Supreme Court.

The Financial Conduct Authority (FCA) investigated 21 policy types in an attempt to resolve the issue that impacted an estimated 370,000 policyholders with 700 types of policy issued by 60 insurers.

It said that the action was deemed necessary after insurers contested business’s COVID-related claims, causing what was described as “widespread concern about the lack of clarity and certainty”.

Last week’s Supreme Court judgement brings to an end legal arguments under a total of 14 types of policy issued by six insurers who contested an earlier judgement in the High Court, along with a substantial number of similar policies in the wider market, however, ensuring that claims will now be successful.

Sheldon Mills, executive director, Consumers and Competition at the FCA, said: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat.

“This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.

“We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible.

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

Mills added: “As we have recognised from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this.

“We are grateful to the Supreme Court for delivering the judgment quickly. The speed with which it was reached reflects well on all parties.”

Last week’s Supreme Court judgment is complex, running to 112 pages, and deals with many issues. The FCA’s legal team at Herbert Smith Freehills have published a bulletin on their website, which may be referred to for further detail.

The FCA said that, despite last week’s ruling, each BI policy would still need 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 soon”, it said, adding that policyholders with questions should approach their broker, other advisers or insurer. 

Policyholders who remain unhappy following their insurer's assessment of their claim may be able to refer their claim to the Financial Ombudsman Service, whose role is to resolve individual disputes.