A test case against eight insurers has been issued to find out whether companies – including law firms – have business interruption cover in the wake of the pandemic.

The Financial Conduct Authority is seeking declaratory relief in order to clarify uncertainty around business interruption insurance for companies which have suffered loss because of coronavirus. Small and medium-sized enterprises are believed to have been particularly badly hit. 

Insurers argue that certain policies which they underwrite and which provide cover in principle for business interruption losses, without the need for physical or property damage, do not cover losses resulting from Covid-19. However, in a claim filed with the High Court, the FCA contends that some policy wordings do respond to the events of Covid-19 and the governmental action that followed.

The FCA said business interruption insurance is unlikely to cover the current emergency in the ‘majority of cases’, but ‘there remain a number of policies where it is clear that the firm has an obligation to pay out on a policy’.

The FCA’s claim will be the first and only case run on the financial markets test case scheme, which was set up five years ago and is now coming to an end.

Litigation analytics start-up Solomonic said the case is expected to move quickly, with insurers due to file a defence by 23 June and a court date set for the latter part of July.

Solomonic managing director, Edward Bird, said: ‘From the data it looks like the courts will need to break several records to deliver on the desired timescales, but the impact is hugely important and we will be tracking it very closely.’

The FCA is represented by Herbert Smith Freehills.