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Landmark ruling opens door to pandemic business interruption insurance claims

The national lockdowns, brought about by the Coronavirus pandemic, have decimated many small businesses, with a record number of owners planning to close their firms over the coming twelve months and putting the UK on course to lose up to 250,000 businesses.

In fact, according to the Federation of Small Businesses’ (FSB) Small Business Index (SBI), confidence is at its second-lowest ebb in the report’s 10-year history – second only to the result recorded in March 2020 when the first lockdown started.

However, a new legal ruling could be a lifeline for small business owners, after the Supreme Court found in favour of small firms receiving payments from business interruption insurance policies.

The court “substantially allowed” the appeal brought by the Financial Conduct Authority (FCA) and campaign groups Hiscox Action Group and Hospitality Insurance Group Action, bringing hope to businesses struggling with the implications of lockdown restrictions.

The ruling means that a business could recover losses caused by Coronavirus cases within, for example, a 25-mile radius of their premises, even if it would have been hit by cases outside of the area.

According to the Association of British Insurers (ABI), the insurance industry could pay out as much as £1.8 billion in claims as a result of this ruling.

A spokesman for the FSB hailed the ruling as a “big victory, adding that it is “disappointing” that so many firms have had to wait for so long.

However, he said he was delighted that it will, at last, bring clarity and hope to the thousands of firms left in financial limbo.

Many insurers have already said they will now make payouts to businesses that are affected by this Supreme Court’s findings, which clarified the parameters of a valid business interruption insurance claim.

Although the initial test case only targeted a handful of insurance firms, the FCA has said that it is likely to affect more than 700 insurance policies held by more than 370,000 small businesses.

To ensure that businesses losses are properly covered by their claim, Roger Isaacs, Forensic Partner at Milsted Langdon, said that they should assess the total value of their loss of earnings.

“Each business has been affected differently by the pandemic and the first lockdown in the spring last year,” said Roger.

“Before accepting any payment from an insurer, businesses should assess whether it is a fair calculation of their losses for the period of cover.

“By engaging a forensic accountant to assist them in quantifying the losses they can ensure they are claiming the correct amount because these experts in the field have experience in the calculation of losses and understand well what rules insurers and the courts apply.”

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