Kristen Zanoni  |  August 4, 2020

Category: Covid-19

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Woman sitting at desk holding business insurance claim form - test case

A final judgment in the Financial Conduct Authority’s business interruption test case is expected next month.

The FCA said Lord Justice Flaux anticipates an answer in the test case by mid-September, Insurance News reported.

The last of the hearings in the test case ended last week. The judgment will affect small businesses that have been forced to close down during the coronavirus pandemic. 

In June, the FCA brought the business interruption test case against eight insurance companies who refused to pay out premiums to small businesses who were forced to close during the coronavirus lockdowns. The business interruption test case sought to find insurance firms liable for paying businesses who had no choice but to shut down. 

Businesses claim they have been forced to shut down by the government and the pandemic’s mandated closures were out of their control.

On the other hand, insurance companies claim they are not liable because policies do not cover pandemics, and there is nothing in the policies that states anything about the coronavirus pandemic.

Still, business owners are claiming they are owed for business interruption.

The FCA was made aware of business interruption grievances with insurance firms largely by policyholder complaints. Reportedly, about 400 companies complained, criticising insurance firms for not covering business interruption during the pandemic. 

Overhead shot of man sitting at desk holding a tablet with a business insurance form on the screen - test caseWhile the past months have been unusual and ever-changing, small businesses expected that they would be covered by insurance were left without payment or were impacted by delays in payouts from insurance firms, the BBC reported.

Business interruption is usually covered by insurers for reasons, such as property damage, that would force a business to close its doors. Another cause covered by some insurance firms is infectious disease that affected onsite business operations, but many policies fall short of saying they protect businesses due to a pandemic. 

Businesses that have been severely affected by the pandemic’s limitations on operations want to see insurers pay out money for business interruption.

However, policies do not particularly include pandemics as a reason for a claim.

Insurers believe the FCA winning the test case would be an injustice because there is nothing concrete in most policies that states insurance firms are liable for covering businesses during a pandemic. 

Hearings proceeded over an eight-day period. Hospitality Insurance Group Action, Hiscox Action Group, Ecclesiastical Insurance Office, QBE, Royal & SunAlliance, Zurich, Argenta Syndicate Management, MS Amlin, Arch, and the FCA were involved in the test case hearings, the BBC reported. 

The test case affects small businesses and the people who run them. Small business owners are particularly anxious for a judgment in the case because their lives and businesses depend on a ruling in their favour. 

Business owner Nigel Manton, of the Fresh Skin Clinic, told the BBC he has paid over £10,000 on business insurance that “wasn’t valid” during a time when the business needed it the most. 

“All businesses thought they’d inoculated themselves by buying this insurance and they have found that this financial vaccine doesn’t work,” Manton said on behalf of all business owners.

Manton’s business is just one out of thousands of firms that have been affected by the coronavirus pandemic.

Many businesses may have to close permanently if they cannot make ends meet or get reimbursed for business interruption by insurers. The BBC has reported that as many as 370,000 policyholders have been affected.

The final decision in the case affects them all. 

In a statement regarding the test case’s upcoming judgment, the FCA indicated it is hopeful that the case will determine that the small businesses are owed money and the insurance firms are liable for paying during these uncertain times. 

What do you think the judgment will be in the case? Do you think the FCA will be victorious and small businesses will be paid? Let us know in the comments.

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