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SMALL businesses have been given a lifeline following a Supreme Court ruling over insurance payouts for Coronavirus.
Thousands of Scots firms had been in limbo since the start of the pandemic, when the Scottish Government ordered the closure of many companies to stop the spread of the virus.
Insurers had refused to pay out in most cases, arguing that policies for business interruption did not cover the circumstances of the pandemic.
Now a judge has ordered insurers to pay compensation to firms affected in a test case taken by the Financial Conduct Authority (FCA).
The case was brought last year and, after exhausting the appeals process, the Supreme Court has ruled that businesses should be compensated.
Despite this, the understands there will still be many firms ineligible for compensation due to the specific terms of their policies.
It is thought insurers will have to pay out as much as £1.8bn in total to affected businesses, many of which are non-essential retailers, restaurants and other firms mandated to close by the government.
Yesterday the FCA said “many thousands of policyholders” would benefit from the ruling.
Sheldon Mills, Executive Director of 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.
“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.”
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The Federation of Small Businesses (FSB) Scotland also welcomed the ruling but questioned why it had taken a court to decide that companies should be covered.
Andrew McRae, the organisation’s policy chairman added that insurers must now pay out, and fast.
He said: “While this is good news for many smaller firms in Scotland, it is of great concern that it has taken a decision from the courts to get insurers to pay out on policies which responsible business owners bought in good faith.
“This victory for small businesses could deliver more than a £100 million boost for Scotland’s independent and local firms. But to save many operators that are already on the brink, we need to see providers pay out quickly. After a nightmare year, we can’t see the insurance industry drag their heels.”
Politicians said the decision was a “triumph for common sense”,
Glasgow Central MP and the SNP’s shadow chancellor Alison Thewliss said: ” I’m delighted for the many businesses in my constituency, and across the UK, that will now be able to have their claims re-examined by their insurers.
“To me – and many others – it seemed absurd that insurance companies would attempt to refuse payment on business interruption policies on the basis that Covid-19 was not a notifiable disease, especially after the virus was fully classified in the initial weeks of the outbreak. I pay tribute to the FCA, and to the many campaign groups, who worked tirelessly to help secure lifeline support for businesses.
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“The coronavirus pandemic has hit businesses hard, and it’s unthinkable that policies which were paid into in good faith would be deemed invalid on such a technicality.
“The ruling is a triumph of common sense, and for the many businesses whose insurers I hope will now expedite the financial support that their customers are entitled to”.
Labour’s shadow business minister Lucy Powell said the judgemenbt was “long overdue” but said it did not mean the government could now stop supporting firms through the pandemic.
She said: “This is long overdue, and will be of huge relief to all those businesses which took out business interruption insurance who have yet to receive a penny.
“The pressure businesses are under is huge, and even with these pay outs the cash crisis they face as a result of inadequate government support threatens the future of many.
“These pay outs do not absolve government of their responsibility to see firms through the pandemic. Business desperately needs a long term comprehensive plan from government to tide them through lockdown and on to recovery.”
While many Scottish firms will be overjoyed with the ruling, some will still lose out on receiving compensation from their insurers.
Chris McColl, who owns pizza restaurant NY Slice in Glasgow, has been unable to claim under his insurance policy, despite having specific infectious diseases cover.
The businessman has had his appeal to the FSA and the Financial Ombudsman rejected, with the authorities arguing that the diseases covered in his policy do not include Covid-19, despite the virus not emerging until after he purchased his insurance.
Mr McColl told the the court ruling was a “bittersweet” moment.
He said: “My phone started blowing up with messages of congratulations, support and excitement about the “great news” on the supreme court judgement.
“I was overjoyed reading it – finally some good news for my peers, competitors and the industry that I love, an industry that has been decimated this past 9 months.
“Unfortunately none of that joy was relevant to my own documented fight with my insurers and subsequent complaint to the financial ombudsman.
“[The ruling] is indeed terrific news for our industry, and it is a long time coming.
“Unfortunately it has come too late for many businesses that have already closed and is not wide ranging enough to help the majority of the struggling businesses.”
Insurers themselves say the judgement brings “clarity” to “complex issues” but warned it should not be seen as a “blank cheque”.
Huw Evans, director general of the Association of British Insurers (ABI), said: “All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.
“We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers.”
Daniel Lloyd-John, chief executive of Broadway Insurance Brokers, said the industry now faced its “biggest challenge” in generations.
He said: “Normally, policies only come in for intense scrutiny as a result of a severe economic downturn, not a pandemic. This shouldn’t, though, be interpreted as a blank cheque for policyholders.
“What it means is that insurers will now have to demonstrate why they don’t pay out on a case-by-case basis, so there’s still a lot of work to do.”