The Financial Conduct Authority has warned insurers to pay up quickly and not create extra barriers for businesses awaiting Covid payouts after a landmark Supreme Court ruling this month.

The watchdog wrote to insurance bosses telling them that they must not refuse any Covid-related business interruption claims simply because customers delayed contacting their insurer while the legal case rumbled through the courts.

Following a fast-tracked High Court test case last year, the Supreme Court this month found in favour of policyholders represented by the FCA after a series of points from the original decision were appealed.

The test case was expected to affect up to 370,000 firms such as bars, restaurants and nail salons, which had bought cover from up to 60 different insurers.

In a letter to insurance chief executives, Sheldon Mills, a director of the FCA, said the Supreme Court’s decision will mean “more policyholders will have valid claims and some pay-outs will be higher”.

One reason for this is that the Supreme Court’s ruling will force insurers to pay out to some businesses that had to close only part of their premises as well as those that were ordered to close where this instruction was not legally binding.

Hiscox, one of the insurers involved in the case, has already said it expects to pay out an extra $48m (£35m) as a result of the decision.

Mr Mills reiterated that despite the judgment most small firms with business interruption insurance were unlikely to be covered.

But he warned insurers to re-examine claims they had previously rejected or where they refused to pay out in full. He told them to review the information provided to customers who have already settled their claims to make sure they were not misled.

The Supreme Court is expected to issue declarations in the near future that will explain how its judgment should apply to different types of insurance policies.