LONDON (Reuters) - Business interruption insurance is designed to pay out when firms are required to close due to a local outbreak of disease but not for a national lockdown, the London High Court was told on Thursday.
Small businesses, from restaurants to leisure groups, said they faced ruin after insurers rejected their attempts to claim millions of pounds collectively in compensation for lost business.
The Financial Conduct Authority says the coronavirus pandemic should trigger payments under the policies, which provide cover when insured premises cannot be used because of restrictions imposed by a public authority and in the event of a notifiable disease within the local area.
The policies typically use a radius of 25 miles to represent the local area.
Gavin Kealey, a lawyer representing the insurers, said the policies did not cover a wider outbreak, such as the coronavirus pandemic which triggered a country-wide lockdown in March.
“That is not the peril insured against or remotely the peril insured against.”
This was in contrast to a recent local lockdown due to a resurgence in cases in the Midlands city of Leicester.
“There is no doubt in my mind that according to the correct wording, there will be coverage for that,” Kealey said.
“The lockdown is within a circle of 25 miles.”
The FCA, which is concerned customers should be treated fairly, said in its skeleton argument last week that the policyholders in the case were “generally not sophisticated or well-resourced insurance buyers”.
Kealey said that the insurers should also be treated fairly.
“These insurers are not bad people.”
The FCA says the policy wordings under scrutiny in the eight-day case are similar to wordings used by more than 60 insurers in total. Around 370,000 policyholders could be affected.
The hearing is due to conclude on July 30.
Editing by Elaine Hardcastle