Hospitality business owners have been urged not to accept “derisory” initial offers from insurers who previously denied them pandemic pay outs.

In January the Supreme Court supported the findings of a previous High Court judgment on the circumstances in which business interruption indemnities from the first coronavirus lockdown should be triggered.

The result of the test case, brought by the Financial Conduct Authority (FCA), is estimated to cost insurance companies around £2billion.

Many small firms are still waiting for payments that could keep them in business until they are allowed to reopen.

Robert Skyner, a barrister and joint head of chambers at 39 Park Square in Leeds, said: “The judgment of the High Court from September 2020 made it abundantly clear when and in what circumstances indemnity would be triggered under most business interruption policies.

“In January, the Supreme Court affirmed the findings of the High Court and again, in a very clear and easy to understand judgment, set out precisely the circumstances required for indemnity to be triggered.

“Two months have now passed since the Supreme Court judgment was handed down. The insurance industry has had more than enough time to digest the judgments, consider them and understand the obligations placed upon them as a result of the two judgments.

Despite the Supreme Court ruling, there are many instances of policyholders being told that they have no cover. “That is simply not the case,” said Skyner. “We are seeing instances of policyholders being offered derisory sums – a one-off settlement in the sum of £1,000 when insured losses run into the tens of thousands.

“We are seeing instances where insurers are telling policyholders they have no duty to pay out on a policy of insurance, only for liability to quickly be established once the policyholder engages the services of specialist lawyers.”

Richard Conroy, founder of Stratton Richards, a claims management company, added: “Few of us could have foreseen an event such as the Covid-19 pandemic and the effects it would have on the economy, but that’s exactly why many small businesses take out insurance – to protect themselves from the unexpected.”