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Law360, London (January 18, 2021, 5:58 PM GMT ) Credit ratings agency Fitch has said that its rankings for most U.K. insurers should not be damaged after the Supreme Court ruled that insurance companies must pay out to cover lockdown losses caused by the COVID-19 pandemic.
The judgment upheld a High Court ruling in September in a landmark case brought by the Financial Conduct Authority over business interruption cover.
Fitch said that the ratings of British general insurers are likely to be unaffected by the Supreme Court ruling on the validity of business interruption claims linked to the coronavirus pandemic.
"The ruling largely went in favor of policyholders, but the ultimate claims costs should still be within Fitch's rating sensitivities for the insurers affected," the company added.
Fitch said that the updated claims estimates that have so far been published by insurers in response to the ruling have suggested only modest increases to previous estimates of the total payouts they will face as a consequence of the COVID-19 crisis.
However, the ratings agency said that the ruling would mean that insurers will probably have to face higher business insurance costs in the future.
The court overturned a ruling from 2010, which set out key principles for calculating losses under business interruption policies. That ruling, from the case of Orient-Express Hotels Ltd. v. Assicurazioni Generali SpA
, held that a company's claim for business interruption coverage can be limited if its turnover would have suffered regardless of the immediate event that forced it to close because of wider circumstances beyond the scope of the policy."Insurers have relied on this decision for the past 10 years to reduce payouts for business interruption claims claims," Fitch said.
The ratings agency added that insurers "could face a substantial increase in business interruption claims claims costs — and not just those connected to the pandemic — following the court's decision to overturn the 2010 ruling."
The Supreme Court's ruling brought to a close more than six months of litigation and delivered clarity for businesses battered by the pandemic.
Huw Evans, director general of the Association of British Insurers, said on Friday that insurance companies will respect the Supreme Court ruling judgment.
"Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim," he said. "All valid claims will be settled as soon as possible."
Hiscox, one of the insurers in the case, said that it had begun processing claims. The insurer also noted that the decision and the latest round of government-ordered lockdowns would add an extra $48 million to the amount it would pay out for business interruption claims. It did not give a figure for the full estimate.
--Additional reporting by Martin Croucher. Editing by Joe Millis.
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