Tens of thousands of small businesses, including many in East Lancashire, will receive insurance payouts covering losses from the first national lockdown, following a Supreme Court ruling.

The Supreme Court, the highest court of appeal in England, ruled in favour of small firms, like Dolly's Tearoom in Darwen, receiving payments from business interruption insurance policies, after some insurers refused to pay up, arguing many policies did not cover them for pandemic-like eventualities.

For some small firms, it could provide a lifeline, allowing them to trade beyond the coronavirus crisis.

Owner of Dolly's Tearoom, Suzanne Halliwell, whose business was affected after her insurance company failed to cough up during the first lockdown, said: "We had a business interruption insurance policy that cost hundreds of pounds a year and covered us for the pandemic.

"But the insurers argued that because the Government forced us to close, instead of us being forced to close because we had the virus, they didn’t need to pay out.

"The Supreme Court's decision is great news for many businesses like ours who pay for cover for their business.

"To be told we weren’t eligible for a payout when we were forced to close due to something completely out of our control was devastating.

"You insure your business for this purpose.

"I’m waiting to hear what this means for Dolly’s but am hopeful for us and many other businesses that we can finally get the help we so badly need to guarantee our survival.

"It feels like light at the end of a very long tunnel."

The landmark £1.2billion case could cost the insurance sector hundreds of millions of pounds, after the Financial Conduct Authority appealed the decision by many insurance companies to prevent small businesses claiming for losses due to coronavirus-related disruption.

The City watchdog brought the test case to court in November, over the wording of business interruption insurance policies, which some insurers argued did not cover the Covid-19 pandemic.

The FCA’s executive director of consumers and competition Sheldon Mills said the Supreme Court’s judgment “decisively removes many of the roadblocks to claims by policyholders”, and called on insurers to “move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible”.

The Federation of Small Businesses welcomed the ruling, saying many firms had been left in “financial limbo” over the past year.

Chairman Mike Cherry said: “Today’s judgment is a big victory. It cements the High Court’s decision to grant businesses left on the brink the insurance payouts they are rightfully owed.

“For many, it has been a long and difficult road to get to this stage so this will bring clarity and hope to the thousands of firms which have been left in financial limbo for almost a year.”

He also called for insurance providers to “pay out quickly”, saying businesses deserve to be better protected.

One of the insurers set to make significant payouts is Hiscox, which was challenged by thousands of its policyholders as part of the case.

As many as 60 other insurers sold similar products and they will now pay out on many, but not all, policies.

Huw Evans, director general of the Association of British Insurers, said: "All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.

"We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers."