Covid insurance interest test ruling paves way for hundreds of businesses to benefit

The UK financial ombudsman’s ruling that interest must be paid on businesses whose Covid insurance pay out were delayed by insurers has been welcomed by the hospitality industry – but it warned that it came too too late for some. 

The decision came last week after a test case involving a dental practice whose claim for business interruption cover had initially been declined by its insurer, and only approved after a High Court ruling. The UK Financial Ombudsman has now ruled that the insurer should pay interest on the delayed pay-out, which paves the way for hundreds of thousands of small businesses, including hospitality venues, restaurants, and bars, who were shuttered during lockdown to claim interest on their own delayed pay-outs.

The disputed business interruption insurance dates back to the early days of the pandemic in 2020 when a number of insurers refused to pay businesses that had taken business interruption cover but were shuttered during the first lockdown.

The Financial Conduct Authority brought a case against a total of eight insurers in June 2020 to clarify whether 21 policy wordings covered disruption and government-ordered closures to curb the virus, which affected around 700 types of policies, 60 insurers, 370,000 policyholders and billions in insurance claims, it was reported at the time.  The Night Time Industries Association (NTIA) also formed an alliance with the Hiscox Action Group, representing more than 200 businesses, to compel Hiscox to honour its business interruption insurance claims.

The case was eventually settled by a UK Supreme Court judgment in January 2021, which Michael Kill, CEO at the Night Time Industries Association (NTIA) called “a moral victory for thousands of businesses”.

Speaking to the drinks business last week, Kill said that the new test case would have a “considerable” bearing on thousands of businesses who had been affected by the legal wrangling over business insurance interruption, but that it was too late for many who had had had legitimate claims.

“This will have a considerable bearing on thousands of businesses across the sector, sadly the subsequent delays and legal process, although supported by the FCA, and in many ways expedited, meant that businesses who had legitimate claims were lost and therefore claims were lost with the business closure. The feeling from many within the industry is that insurers wilfully delayed payments to reduce the level of claims, due to business vulnerabilities,” he said.

“It would be interesting to see if one of these lost businesses would have the same consideration, if proven that the delay in claims was the primary reason for the loss of the business.”

UKHospitality CEO Kate Nicholls added that it was a welcome decision for UK businesses, albeit “one that is overdue”.

“Given the raft of other pressures currently facing operators in all sectors, we hope this move will bring some relief to those that have been affected and aid further recovery and growth,” she said.