The Financial Conduct Authority (FCA) has started a test case on behalf of thousands of businesses that claim they should have been paid by insurers to cover closures during the pandemic.

Insurers were inundated with claims under business interruption policies – many of them from small companies – after the government enforced closures in March.

Many insurers have declined to pay out, arguing the policies weren’t designed to cover a government-imposed lock-down.

The refusal of some insurers to pay out sparked anger among businesses that believed they were covered, prompting the FCA to start a test case covering many of the disputed policy wordings.

Two other groups, representing clients of Hiscox and companies in the hospitality industry, have joined the FCA as claimants.

The regulator hopes the test case will be the quickest route to clarity for companies and insurers without the need for each claimant to bring individual cases at a time when many smaller companies face the threat of going out of business.

Last month the FCA said some insurers had paid out under business interruption policies after previously arguing the pandemic wasn’t covered.

The FCA has whittled the claim down to 17 representative policy wordings a judge will scrutinise.

The case will be streamed live online over eight days, ending on Thursday, 29 July.

Eight insurers are directly involved in the case but the FCA believes the trial’s outcome will be relevant to about 370,000 policyholders, although only a small proportion of those are likely to have a claim affected by the ruling.

The insurers defending the case are Arch Insurance, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox, MS Amlin Underwriting, QBE, Royal & Sun Alliance, and Zurich. Policies from Allianz, American International Group, Aspen, Aviva, Axa, Chubb, Liberty Mutual and Protector also include the wording to be tested in court.