A High Court ruling over business interruption policies has been described as a lifeline for small businesses hit by the coronavirus lockdown.
Judges ruled that the disease clauses in some business interruption insurance policies should have meant they were covered for losses.
The test case was brought by the Financial Conduct Authority (FCA) after a number of insurers disputed claims, arguing that policies were never meant to cover such unprecedented restrictions.
The case has the potential to affect 370,000 mostly small businesses. The insurers can appeal against the decision. A BBC report said that policyholders should hear from their insurer within seven days.
The FCA says that the court found in favour of the arguments advanced for policyholders on “the majority of the key issues.”
Christopher Woolard, interim chief executive of the FCA, said: “We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market.”
He added that the judgement was “a significant step in resolving the uncertainty being faced by policyholders”.
Mr Woolard added: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat.
“Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and the judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.
“Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.
“They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
“If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process. As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this.”
Federation of Small Businesses (FSB) National Chairman Mike Cherry, said: “This ruling marks a big step forward. It can only be celebrated as a partial victory, however, as it still leaves many with little certainty around whether they will receive pay-outs for policies that have cost them thousands.
“And for many others with standard interruption cover, this judgement will have no bearing.
Huw Evans, director general of the Association of British Insurers (ABI), said: “The judgment divides evenly between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts.
“Insurers always regret any contract dispute with their customers and will continue to reflect on feedback from recent events.
“We recognise this continues to be a difficult time for many businesses, small and large, and for society as a whole.
“That is why insurers have made a range of commitments to help both businesses and individual customers through the crisis and why the industry expects to pay out over £1.7bn in Covid-19 claims.”
He added: “This is a complex judgment spanning 162 pages and 19 policy wordings and it will take a little time for those involved in the court case to understand what it means and consider any appeals.
“Individual insurers will be analysing the judgment, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead.”