A Supreme Court decision has opened the door for thousands of arts and entertainment companies to claim business interruption insurance over Covid-19.
Michael D Beckwith
Thousands of arts and entertainment businesses could receive insurance payouts worth billions following a landmark Supreme Court ruling.
Businesses fighting their insurers for payment will now receive settlements for losses sustained during both full and partial closures due to Covid-19, even if they shut before the Government required them to do so.
What's more, companies that have already been paid out can go back for more after the court determined insurers should cover what claimants earn in normal times, not just what they could be expected to make during the pandemic.
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The decision late last week upheld the Financial Conduct Authority's (FCA) case on 11 policies offered by eight insurers - Arch, Argenta, Ecclesiastical, MS Amlin, Hiscox, QBE, Royal & Sun and Zurich - that are expected to affect 370,000 policyholders.
However, much of the policy wording is standard for the industry and the judgment will likely have wider implications.
Big payday
While it is impossible to calculate the exact financial boon this represents to UK arts and entertainment sector, Government figures suggest up to 26,800 companies could benefit.
The FCA says the policyholders affected are mostly small-to-medium-sized businesses. Larger businesses are more likely to have standalone interruption cover, rather than as part of one of the wider policies that the court considered.
The turnover of arts, entertainment and recreation businesses with between 10 and 100 staff was £14.27bn in 2020.
Given payments will be based on income during a regular year, the total bill for insurers will likely be billions of pounds.
Emergency grants
Receiving emergency grants from bodies like Arts Council England may reduce the amount arts businesses can claim for.
Lawyer Neil Adleman of Harbottle & Lewis said settlements will be made on a case-by-case basis and outside funding might affect cultural organisations' ability to prove the level of loss suffered.
"It's going to be a question of looking at what the funding was and when the period was that they were needing insurance for."
Because the judgment ruled partial closures should be covered, businesses with the appropriate policy are able to claim for periods where their activities were restricted.
"It's not a one-size-fits all, but people should look at their policy and carefully attribute money to different periods," Adleman said.
The FCA website has a list of policies that may be affected by the judgment, as well as draft guidance for policyholders looking to make a claim.
Not all winners
Adleman added that the judgment was "certainly great news" for arts businesses whose claims are on hold.
Blackpool Grand Theatre Chief Executive Ruth Eastwood did not return a request for comment this week, but a letter from the theatre to its insurer, Hiscox, in April shows a dispute over its business interruption coverage.
"Our business interruption loss is due solely and directly to the denial/hindrance in access to, or inability to use, our premises. We are not looking to claim for any general economic downturn," Eastwood wrote.
Its policy was one of the types considered by the Supreme Court. Hiscox had denied coverage because the policy insured against losses arising from an incident within a one-mile radius of the theatre, which the court rejected as inapplicable to Covid-19.
The judgment, while significant and broad-reaching, will not help everyone.
Belgrade Theatre Executive Director Joanna Reid said the Supreme Court ruled only on the wording of specific business interruption clauses.
"Our [policy's] wording was very clear, which meant that Covid was not covered."