Small businesses have dropped a lifeline saying some insurers should have paid for losses due to lockdowns after the high court ruled.

The judges ruled that some of the business barrier policies that should have meant the disease were covered.

Following the lockdown, several businesses had to close and many people turned to insurers for losses.

But while many insurers have argued the claims, the rationale is never meant to cover such unprecedented restrictions.

The trial case was brought by the Financial Conduct Authority and was likely to affect 37370,000 small businesses.

Insurers can appeal the decision. Policyholders should hear from their insurer within seven days.

• ‘We spent £ 10,000 on illegal virus insurance’

Christopher Wallard, the FCA’s interim chief executive, said the ruling removed “a large number” of roads for successful claims, as well as cleared those who could not succeed.

“We are satisfied that the court has found sufficient evidence to support the argument we have made on most of the key issues.

“Today’s ruling is an important step in resolving the uncertainty that policymakers face.

“The coronavirus is causing considerable damage and crisis to the business and many are under a lot of financial pressure to stay afloat.”

‘We are under a lot of pressure’

Anna Smart runs a photography studio in Oxfordshire with her husband Robin and thinks she is covered by business barrier insurance.

But when he was rejected by his insurer, he was forced to make him a member of staff unnecessary and go out on their premises.

He said it was “painful” to let someone go and it felt like “removing a family member”

Instead, they used a bounce back loan to build a studio in their back garden.

He said businesses like his were under “lots” of pressure, although some were already forced to close permanently regardless of the outcome of the case.

Hospitality Insurance Group Action (HIGA), one of the campaign groups supporting the FCA case, said the ruling should result in thousands of UK hospitality businesses now having the opportunity to pay their salaries.

The law firm Mishcon de Rare Sonia Campbell, representing Hager, said: “This is fantastic news which proves that we have been able to follow the insurers who have denied compensation for covid-related losses across the board.

“I will now request you to join us with other hospitality businesses so that they can successfully collect payments from insurers in line with the court’s decision.”

Hiscox Action Group (HAG), which has more than 400 members and has intervened in the case, called Tuesday’s ruling a “landmark.”

Mark Klick, a member of the steering committee, said: “The most important thing now is that the insurers will accept the verdict and start paying instead of starting a fruitless appeal process which will only cause more misery for those who were there to protect policymakers.”

‘Blanket denial’

As of July, about 400 companies had complained to Financial Local that they had been wrongly denied cover for lockdown-related losses.

In response, the FCA brought its test case arguing that while some insurers paid customers, many claims were rejected under the “denial of coverage blanket”.

It asked the High Court to decide on the correct interpretation of the policy selection, saying the judges had finally seen 21 people issued by eight different insurers – including giants such as Hezbollah, RSA, QBE and Zurich.

This verdict could affect many more principles. However, the regulator added: “While the ruling would be welcome for many policymakers, the ruling did not mention that the eight defendants in the representative sample considered by the court were liable for all 21 different policy terms.

“Each policy needs to consider detailed judgments to understand what that policy means.”

Insurer Hiscox said it “evaluated the judgment in detail” to see how it was applied to individual policymakers’ claims.

Hugh Evans, director general of the Association of British Insurers, said:

“The ruling divides the insurers and policyholders equally on key issues. The national lockdown was an unprecedented situation that raised understandable questions about the interpretation for some business insurance contracts.

“Insurers always regret any contract dispute with their customers and will continue to reflect responses to recent events.”