UK insurers expect to pay out more than £1.8 billion ($3.2 billion) in COVID-19 related claims for products including business interruption, the Association of British Insurers said following a Supreme Court test case judgment in favour of policyholders.

“We welcome the clarity the judgment will bring to a number of complex issues,” ABI Director General Huw Evans said. “All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.”

The Supreme Court decision handed down last month was the final avenue for appeal following a High Court ruling on a business interruption test case brought by the Financial Conduct Authority (FCA).

The High Court, which looked at 21 policy types issued by eight insurers, accepted many of the FCA’s arguments, leading to the lodgement of appeals by both sides.

The Supreme Court judgment dismissed all of the insurers’ appeals and allowed the FCA’s four grounds of appeal, with some qualifications attached to two.

Law firm Mishcon de Reya, which represented policyholders through the Hiscox Action Group and the Hospitality Insurance Group Action says the judgment “comprehensively dismissed” insurers’ arguments.

“In a detailed analysis of insurance law on proximate cause and causation, the Supreme Court has clearly and efficiently torpedoed the academic and convoluted arguments of insurers and laid down clear guidance as to how these claims should be paid,” Partner Sonia Campbell said.

“The Supreme Court has also paved the way for policyholders to make additional claims for delayed payment of claims.”

The British Insurance Brokers’ Association (BIBA) says the judgment is welcome but does not detract from the need for the insurance sector to provide greater clarity about the operation of cover.

“Looking forwards, the UK needs a long-term answer that provides a solution to help businesses and people cope financial with any future pandemic and BIBA is committed to working across industry and Government to help deliver this,” CEO Steve White said.

AM Best says actions to more clearly define business interruption cover should mean the majority of COVID-19 related exposures will have run-off soon after the anniversary of the initial lockdown in March.

“However, possible disputes with reinsurers over existing BI claims loom and the industry faces a challenge rebuilding its reputation among SME clients,” it says.