Six years on from the pandemic, businesses across the UK have struggled to recover from the disastrous economic effects of the draconian measures imposed by the UK Government to contain the spread of the disease.
This article was originally published on Insurance Post.
It is fair to say that the episode has not cast UK insurers in a flattering light. Despite an estimated 370,000 businesses holding potentially relevant coverage, the uniform response of the market in March 2020 was to raise the drawbridge. Six years of litigation, kicked off by the FCA test case, has established in a majority of cases that insurers were wrong to do so, and that policyholders did in fact have coverage. In February the Supreme Court heard argument over perhaps the last key issue in Bath Racecourse v Liberty Mutual: whether insurers were entitled to take the benefit of furlough payments received by struggling businesses.
From a legal perspective, then, the story has largely been a successful one from the policyholder’s perspective. But the reality tells a different tale. Six years on from the most severe restrictions to be imposed on UK society since the Second World War, many businesses remain without compensation. Some simply did not carry the necessary coverage, but many others have had their claims wrongly denied or have not been advised that changes in the legal position may have given rise to viable claims.
Despite the FCA setting clear expectations of Insurers to review their policy wordings and claims portfolios following court rulings affecting their policies, there is scant evidence of this occurring in practice, for example following the outcome of test cases such as International Exhibition Centre v RSA and Bath Racecourse v Liberty Mutual, which ought to have led to large volumes of further claims. The FCA has declined to provide any information regarding any steps it has taken to monitor and compel insurers’ compliance in this regard, and stopped collecting data from insurers in March 2023, despite many of the key test case decisions following long after that date.
Under English law, most insurance claims become time barred after six years after the loss was suffered, meaning that in March 2026, unpaid claims for Covid-19 business interruption compensation will begin to expire. The only way to preserve the policyholder’s rights will be by legal proceedings being commenced or binding standstill agreements executed. For most small businesses without legal representation, proceedings are not an option, and some insurers are simply refusing to execute standstill agreements in that knowledge.
For that reason, Stewarts with the support of six industry associations, representing over 155,000 hospitality venues in the UK, recently wrote to the FCA, asking them to step in and extend the period for consideration of BI claims by a further two years.
Regretfully, the FCA has declined to take action, advising that “policyholders or their advisers themselves need to consider what may be a prudent course of action … given the impending time limits.”
The FCA failure to intervene can only mean one thing: further legal action between larger policyholders and insurers, increasing costs for all concerned, and placing a further burden on the country’s already strained court system. For many small businesses without access to legal representation on the other hand, this may represent the end of the line.
In the meantime, it is now vital that any business wishing to pursue a claim for the first national UK lockdown in 2020 takes protective steps ahead of 20 March 2026. This is also a crucial moment for brokers, who will need to take care to advise their clients of the impending deadline and ensure that advice is sought in good time, to avoid criticism and potential professional negligence claims after the deadline has passed. It is now or never.
