Hiscox Insurance Company Limited · DRN-5920375

The complaint Mrs H, a sole trader, complains about the settlement of her business interruption insurance claim by Hiscox Insurance Company Limited. The claim was made due to the impact of the COVID-19 pandemic. What happened The following is intended only as a summary of the key events leading to this point. Additionally, although other parties have been involved in the claim and complaint process, for the sake of simplicity, I have just referred to Mrs H and Hiscox. Mrs H operates a beauty salon. And held a commercial insurance policy underwritten by Hiscox. In March 2020, Mrs H’s business was interrupted by the government-imposed restrictions introduced as a result of the COVID-19 pandemic. Mrs H claimed on the policy for her losses. Hiscox ultimately agreed to meet the claim and calculated the settlement it considered was payable under the policy. Hiscox also offered Mrs H £500 compensation for the handling of the claim, as well as adding interest to the settlement. Mrs H was unhappy with the offered settlement for a number of reasons, including the period Hiscox said there was an insured claim and the deduction of payment(s) Mrs H received through the Self-Employment Income Support Scheme (SEISS). Hiscox offered Mrs H a further £150 for customer service issues, but did not change its stance on the claim settlement. Mrs H brought her complaint to the Financial Ombudsman Service. Our Investigator did not think that Hiscox had acted incorrectly in limiting the period of the claim – the indemnity period – in the way it had. He also thought that SEISS payments could be deducted from the claim settlement. However, in line with the existing approach of the Financial Ombudsman, he said that no adjustment should be made to the rate of gross profit (ROGP) relating to SEISS payments. Mrs H disagreed with the outcome in terms of the indemnity period, and Hiscox disagreed with the outcome on the SEISS payment. As our Investigator has not been able to resolve this complaint, it was passed to me for a decision. I issued my provisional decision on 16 October 2025. The following is an extract from that decision: “There are two main aspects to this complaint. The first relates to the indemnity period applicable to the claim. The second relates to the treatment of SEISS. I have considered each of these in turn below. The indemnity period Mrs H’s policy requires there to be an inability to use the premises due to particular

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circumstances. It is not disputed that at times these circumstances existed and that Mrs H experienced an inability to use the premises. Largely speaking, this relates to the period of national lockdown. The issue is whether there were restrictions imposed outside of this period that caused an inability to use the premises – or a discrete part of the premises – for the purpose of Mrs H’s business – or a discrete part of this business. Mrs H has argued that there were restrictions relating to social distancing that meant that only a limited number of people could use the premises. And that this also meant certain areas of the premises couldn’t be used. I am not entirely satisfied that the guidance relating to social distancing would amount to a restriction imposed. But even if they did, this merely created a hindrance of use of the premises not an inability to use them. Mrs H has referred to not being able to offer “the same level of service” and that “This resulted in a reduced percentage of customers being able to attend the premises”. But being able to only provide a service to a limited number of people at a given time is not a prevention of being able to provide that service. It is a limitation of the quantity and quality of normal service – and this would be a hindrance of use. I am also not persuaded that having to socially distance – and therefore being able to use all of the individual spaces within the premises at the same time – would amount to a prevention of use of a discrete area of the premises. Whilst these areas might not be used concurrently, there would seem to be nothing to prevent them being used alternately. Ultimately, I am not persuaded that Mrs H has demonstrated that she suffered an inability to use the premises outside of the periods Hiscox has already included in the indemnity period. SEISS The position of the Financial Ombudsman on SEISS has evolved somewhat over time, as our understanding developed due to exposure to more complaints involving the issue, and as new case law emerged. The first question that needs to be addressed is whether SEISS should be deducted from claim settlements at all. Mrs H’s argument is that it should not. During the COVID-19 pandemic, the UK Government introduced a number of grant schemes to support businesses. These included SEISS, the Coronavirus Job Retention Scheme (“furlough”), and a number of other grants such as the Small Business Grant Fund. HM Treasury and the Financial Conduct Authority (“FCA”) made a number of comments around how government support should be treated in insurance claim calculations. And insurers largely agreed that money received through the Small Business Grant Fund – and similar schemes – would not be deducted from claim settlements. However, no such agreement was provided in relation to SEISS or furlough. I do think that it was probably not the Government’s intention for these payments to be deducted from claim settlements. The underlying intention appears to be that the grants were to provide emergency support and help businesses survive, rather than to channel taxpayers’ funds into savings for insurers.

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But it also isn’t clear that the Government gave any thought to this at the time it introduced the payments. And it has not said anything in relation SEISS that means insurers are unable to deduct these payments from settlements. The letter from HM Treasury, that Mrs H has referred to, did not mention SEISS (or furlough) when setting out its view of how government support grants should be treated. I also need to take into account the case law that has emerged since the Treasury made these statements in 2020. The judgment in Stonegate Pub Company v MS Amlin and Others [2022] EWHC 2548 (Comm) ("Stonegate") set out the relevant tests in relation to the principle of indemnity. The judge explained this in detail, but ultimately said there were three matters to consider in terms of a payment received from a third party. There were set out at paragraph 284 as: "(1) If a third party has made a payment which has eliminated or reduced the loss to the insured against which it had insurance, then, subject to the exception below, the insurers are entitled to the benefit of that payment, either in reducing any payment that they might have to make under the policy or, if they have already paid, by claiming the amount from the insured. (2) This will not be the case, however, if it can be established that the third party. In making the payment, intended to benefit only the insured to the exclusion of the insurers ... (3) In assessing the intentions of the third party payor, it does not matter whether that payor gave any thought to the position of insurers. A payment can still diminish the loss even if no such thought is given." Mrs H was insured against a loss of “gross profit”. But in order to calculate this it is necessary to identify the reduction in income. Income is defined in the policy was being, “The total income of the business.” There is some argument in terms of whether SEISS should fall into this category. I think income would normally be understood to be the money received from work (providing goods or services) and from investments. I don’t think this would include all money a business receives. But it would be money that the business generates through its insured activities (in Mrs H’s case, through providing beauty salon services). Not all government grants would fall into this. However, a number of these were based on the recipient providing the business’ services. SEISS payments were calculated by looking at the amount the relevant business historically generated. The payment(s) Mrs H received were intrinsically linked to her business having carried out the activity that her insurance policy is providing cover for. So, I do think the SEISS payment would be considered income. Receipt of SEISS payment(s) reduced the loss of income Mrs H experienced as a result of the interruption. It follows that the first part of the test above would be met. I will just add here that whilst the receipt of SEISS payments was intrinsically linked to the historic business, the size of the payment was not directly linked to the amount lost due to the pandemic. I have returned to this point below. The second part of the test is largely what Mrs H seems to be relying on. The judge in Stonegate (and also the judges in later court cases on furlough) will

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have likely been aware of the Treasury’s comments. But they did not consider that the claimant had shown receiving furlough payments, “was with the intention of benefiting [the recipient] alone to the exclusion of insurers. There is no express statement by the Government to that effect. The Government did not indicate that the payment was being made only in respect of uninsured losses.” Court cases such as Stonegate have not addressed SEISS specifically, and have instead been focused on how furlough payments should be assessed. However, the judgments in Stonegate and in later court cases have been clear that furlough payments can be deducted from claim settlements. And the Government’s position on payments being to the exclusion of insurers is the same in relation to furlough as it is SEISS – i.e. no express comment has been made on these payments. So, I consider the comments in the judgments can be applied when thinking about the issue of SEISS payments. And I consider a judge would most likely reach the same conclusion in relation SEISS on this point. I do note that the Treasury letter states, “…if grant deductions continue to be made, the Government will consider further action to protect the financial support being issued to businesses.” However, the Government has not taken any further action in relation to furlough or SEISS at this time. The purpose of the Government, in introducing the various grants, may well not have been to benefit insurers. However, taking into account points 2 and 3 as set out in Stonegate and above, as well as the conclusions in relation to furlough in that judgment and others, I don’t think it can be said that it has been shown that the Government intended to benefit the recipients only to the exclusion of insurers. Having reconsidered this issue carefully, I remain of the view that SEISS payments can be deducted from claim settlements. The next issue is how these payments should be treated in terms of the claim calculation. It is here that I consider it is necessary to reach a different outcome to our Investigator – and to change the existing approach of the Financial Ombudsman. In previous complaints relating to SEISS, I have concluded that no adjustment should be made to the ROGP relating to the generation of SEISS. However, having considered matters afresh, my conclusions here have changed. In order to calculate the claim settlement, essentially, Mrs H’s policy requires Hiscox to firstly calculate the sum produced by applying the historic/standard ROGP to any reduction in income during the indemnity, less any business expenses or charges which cease or are reduced. So, considering this term in isolation, Mrs H’s claim settlement should be the amount of income she did not receive from providing beauty salon services during the indemnity period, less the amount of SEISS received – which acted to reduce the loss of income – and less any expenses or charges that were reduced. And then for the historic ROGP to be applied to this figure. However, the policy does include a “trends clause”. This says the settlement will be amended to reflect any special circumstances or business trends affecting your business, either before or after the loss, in order that the amount paid reflects as near

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as possible the result that would have been achieved if the insured event had not occurred. The Supreme Court judgment in The Financial Conduct Authority v Arch Insurance (UK) Ltd & others [2021] UKSC 1 (the Test Case) made a number of comments in terms of how trends clauses should be applied. I have previously interpreted these to mean that the ROGP should not be amended to take into account the fact that a recipient would not incur any cost in relation to SEISS income. However, having reconsidered the comments in this judgment, I realise that my previous conclusions were incorrect. The judgment makes a number of comments. These include: “287. For the reasons given, we consider that the trends clauses in issue on these appeals should be construed so that the standard turnover or gross profit derived from previous trading is adjusted only to reflect circumstances which are unconnected with the insured peril and not circumstances which are inextricably linked with the insured peril in the sense that they have the same underlying or originating cause. Such an approach ensures that the trends clause is construed consistently with the insuring clause, and not so as to take away cover prima facie provided by that clause. 288. We therefore reach a similar conclusion to the court below, by a slightly different route. We consider, as they did, that the trends clauses do not require losses to be adjusted on the basis that, if the insured peril had not occurred, the results of the business would still have been affected by other consequences of the COVID-19 pandemic.” My previous conclusions were that this meant no adjustment should be made to the ROGP applied to income received in the indemnity period – where the cost of generating this income was altered as a result of the COVID-19 pandemic. However, the comments in the Test Case set out that – as applied to the loss covered by Mrs H’s policy – no adjustment should be made to the standard ROGP by the other consequences of the underlying cause (the pandemic). But this purely means that the expected income/profit of the business should not be altered. This is supported by the declaration set out following the Test case, which include: “11.2 The correct counterfactual when calculating the quantum of those losses proximately caused by the insured peril is to assume the absence of both (i) the insured peril and (ii) the circumstances arising out of the same underlying or originating cause (namely the COVID-19 pandemic).” So, what should not be amended by the other consequences of the pandemic is the counterfactual situation – i.e. what would otherwise be expected to have happened. This will not only take into account what happened prior to the claim event (pre- trigger losses), but also events after the initial claim event. For example, there was a downturn in many businesses due to the wider impact of the pandemic on people’s behaviour. Many individuals were wary of engaging in public, which will have impacted a business’ income. And this took place both before the introduction of the restrictions on businesses such as Mrs H’s, and during the period these restrictions were in place.

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So, for the period Mrs H was open in early March 2020, she may have experienced a downturn. And, even if she had been able to operate during the lockdown period, she would still likely have experienced a change in the level of business – either a downturn due to public wariness or an uptake due to being the only salon somehow open. The Test Case said that these changes should not be used to adjust the income that would otherwise have been expected to have been received in the indemnity period. An insurer should not say that, due to public wariness, Mrs H would always have only achieved less than usual income. Nor should a claimant say that if they were to have been able to open, they would have received the entire business of the market. But it is the expected income here that the Test Case says should not be amended. And the Test Case does not say that, as I had previously concluded, actual income should not be adjusted to take into account relevant circumstances. SEISS payments were an “other consequence of the COVID-19 pandemic”. But so were furlough payments. And the courts have found that businesses receiving furlough payments should have these taken into account when their insurance claim is calculated. So, it can be seen that the adjustment should still take into account the fact such payments have been made – even though these are a consequence of the pandemic. Applying this to the current complaint, Mrs H could have been expected to have received around £18,700 (according to Hiscox’s calculations) over the relevant period. This amount should not be altered by the fact that, ultimately, Mrs H also received SEISS payment(s). These payments should not be seen to increase the amount that Mrs H could have, prior to the pandemic, expected to receive. But what Mrs H actually received did include these payments. And the Test Case doesn’t say that adjustment should not be made to take into account the actual situation – as opposed to the hypothetical counterfactual situation. And nor does the Test Case say that no adjustment should be made to the standard/historic ROGP to account for the relative cost of receiving this income. So, the profit Mrs H could have expected, had the pandemic not occurred, would be the level of income normally received at the standard/historic ROGP. And this expected profit should not be adjusted to take into account what was then received – i.e. the SEISS payment(s). But what was actually received was the SEISS payment. And this was received without Mrs H incurring any costs associated with this – during the pandemic. So, it is appropriate that this “other circumstance” be taken into account to adjust the ROGP that is applied to this income. I.e. that the income from SEISS be considered to have a 100% ROGP. I have considered whether it is fair and reasonable that SEISS payments should be deducted from the claim settlement, and that this be at a 100% ROGP. Having thought about this in detail, I consider this is fair and reasonable. In many cases it is possible that there is not one single outcome that is fair and reasonable. Similarly, it also needs to be recognised that calculating business interruption loss is not an exact science. Such calculations are largely based on a number of assumptions and there may be more than one way of fairly calculating a

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claim settlement. Hiscox has carried out its claim settlement, and Mrs H has argued that it has done so in a manner that is not fair or reasonable. Hiscox’s settlement does though put Mrs H back in the position that she would have been in had there been no pandemic – at least insofar as this relates to losses that are insured by her policy. I do appreciate that the impact of the pandemic will likely have been more severe on Mrs H and her business than is addressed by the settlement offered by Hiscox. But Hiscox can only be required to settle the losses that are insured by the policy. As Hiscox has referred to in some detail, one of the tenets of insurance is the principle of indemnity. Mrs H is covered for a loss of money. And her policy should only cover her for a loss of the money that she has actually experienced. In receiving SEISS payment(s), the amount of money she lost as a result of the interruption to her business was reduced. And Mrs H did not have to bear any cost, during the period of indemnity, to receive these payments. So, it does make sense that the insurance settlement she receives should take this into account. As I have said above, the amount of money a recipient received through the SEISS was not directly linked to the amount of loss sustained. An individual might receive more from SEISS than they had actually lost as a result of the impact of the pandemic. But these individuals would not then need to make an insurance claim, as they would not have suffered a loss overall. So, even though SEISS payments were not necessarily intended to directly replace the amount of income lost, where a payment was received this did replace the lost income to the amount of the payment. I appreciate this is a reversal of previous conclusions that I have reached on this issue. And I can only apologise. I also appreciate that this is not the outcome Mrs H was hoping for. But, having thought about this matter carefully, I am satisfied that Hiscox adjusting the ROGP that applies to SEISS income to reflect the actual circumstances around Mrs H receiving this income is fair and reasonable.” I asked both parties to provide me with any further evidence they wanted me to consider. Neither party provided anything further. However, given the wider circumstances, I consider it is appropriate to issue a final decision in this case. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Neither party provided any further evidence disagreeing with the findings of my provisional decision. These findings and the reasons for them are set out above. Having considered the evidence that is available, I have come to the same conclusions as in my provisional decision, for the reasons set out above. My final decision My final decision is that I do not uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs H to accept or reject my decision before 28 November 2025. Sam Thomas Ombudsman

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