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UPDATE 2-FCA insurance test case appeal heads to Supreme Court

* Supreme Court to consider fast-tracked case by year-end

* Qatar’s QIC Europe fails in bid to join the proceedings

* Appeal spells “nail in coffin” for small businesses-lawyer (Adds comment from small business, QIC Europe intervention attempt, lawyer quote, details)

LONDON, Oct 2 (Reuters) - A test case brought by Britain’s markets regulator against some of the world’s biggest insurers will jump straight to the Supreme Court after London’s High Court agreed to a fast-track appeal on Friday.

Although expedited, the appeal will further delay payouts on disputed claims for thousands of struggling businesses battered by the coronavirus pandemic, hoping for a speedy payout after a judgment delivered two weeks ago.

At a webcast hearing on Friday, judges allowed the case to leapfrog to the UK’s highest court, which is expected to consider it by year-end.

The Financial Conduct Authority (FCA) brought a case against eight insurers in June to clarify whether 21 policy wordings, affecting potentially 700 types of policies, 60 insurers, 370,000 policyholders and billions in insurance claims, covered disruption and government-ordered closures to curb the virus.

Judges examined policy wordings that cover business interruption when insured premises cannot be accessed because of public authority restrictions, in the event of a notifiable disease within a specified radius -- and hybrid wordings.

The FCA said the judgment ruled mainly in the favour of policyholders, although some insurers were more circumspect. Subsequent negotiations over which policies should now pay out hit a stumbling block and collapsed on Wednesday.

The FCA brought the case against QBE, Hiscox , RSA, MS Amlin, Ecclesiastical , Argenta, Zurich and Arch.

Zurich and Ecclesiastical, which previously said the court found in their favour, are not seeking a further appeal. QIC Europe, part of Qatar Insurance Company, failed in an 11th-hour bid to join the proceedings.

Sonia Campbell, a partner at law firm Mishcon de Reya who is leading one of two action groups of policyholders, said the decision by insurers to appeal was another “nail in the coffin for small businesses”.

“...it is disgraceful that insurers continue to drag their feet and watch more and more of their own policyholders go to the wall,” she said.

Small businesses - from cafes and wedding planners to events businesses - have said they faced ruin after attempts to claim compensation for business losses during the pandemic, which prompted a three-month national lockdown in March followed by other restrictive measures, were rejected by insurers.

Kim Roe, managing director of Circa Group, an events group based in Tunbridge Wells in southeastern England that once ran events for London blue-chip companies, said the firm was tearing through reserves since being shuttered in March.

Roe, a 20-year Hiscox customer, said events businesses were “the forgotten people”, because they had been unable to trade even in a limited capacity.

“If I knew I was going to get some form of settlement, I could sleep at night,” she said.

Businesses across the world have been locked in disputes with insurance companies over pandemic-related payouts. Insurers say they are paying valid claims but that many policies exclude pandemics, require physical damage to premises or do not apply to widespread lockdowns and paying out all claims could be catastrophic for the industry. (Reporting by Kirstin Ridley, editing by Louise Heavens and Elaine Hardcastle)

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