The Supreme Court has considered whether Covid-19 furlough payments must be deducted from business interruption insurance payouts under "savings" clauses, a question affecting policyholders and insurers.
Key facts
- Who: Businesses that claimed under business interruption policies containing savings clauses for Covid-19 losses, and the insurers who dealt with those claims.
- From: 22 April 2026 (judgment date)
- Source: Gatwick Investment Ltd and others v Liberty Mutual Insurance Europe SE; Bath Racecourse Company Ltd and others v Liberty Mutual Insurance Europe SE and others [2026] UKSC 14
Background
The Supreme Court (Lord Reed, Lord Briggs, Lord Hamblen, Lord Leggatt and Lord Burrows) gave judgment on 22 April 2026, after a hearing on 11 and 12 February 2026. The appeals were from the Court of Appeal ([2025] EWCA Civ 153).
In 2020 and 2021 the pandemic and the public health measures taken by the UK Government caused heavy losses to businesses. Many made claims under business interruption policies. An earlier test case, Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1, decided a number of coverage issues, but not the effect of furlough payments under the Coronavirus Job Retention Scheme (CJRS). That scheme reimbursed employers for a significant proportion of the wages and related costs of furloughed staff.
The question
The question was whether CJRS payments reduce the sums otherwise payable by insurers. The answer depends on the "savings" clauses in the policies. Two slightly different versions were in issue, both variants of a standard Association of British Insurers wording. One deducts savings where charges or expenses of the business "cease or reduce in consequence of the Damage". The other deducts any sum saved in respect of charges that "may cease or be reduced in consequence of the incident". It was agreed that nothing turned on the differences.
The courts below held that furlough payments were deductible, because they reduced the charges or expenses of the business and did so in consequence of the damage or incident. The Supreme Court was told this reflects the general position in the insurance market, and that an estimated £1 billion has been deducted on this basis.
The arguments
The policyholders argued that wages had to be paid before being reimbursed, so those charges did not "cease" and were not "reduced". They said the payments were instead other income, treated as income by the tax authorities and under accounting standards. They also argued that the payments were not received "in consequence" of the damage.
The insurers argued that a reasonable person would take a pragmatic view of whether, in economic reality, a cost had reduced. They said CJRS payments had to be spent on wages and met a specified share (initially 80%) of the cost.
It was not in dispute that an insurance policy is interpreted objectively: by asking what a reasonable person, with the background knowledge reasonably available to the parties when they made the contract, would have understood its language to mean.
What this means for businesses with business interruption claims
The case concerns how savings clauses of this kind apply to furlough payments, and the sums involved across the market are large. Whether a particular claim is affected depends on the exact wording of the policy concerned.
Sources
- Gatwick Investment Ltd and others v Liberty Mutual Insurance Europe SE; Bath Racecourse Company Ltd and others v Liberty Mutual Insurance Europe SE and others [2026] UKSC 14, Supreme Court, 22 April 2026: https://caselaw.nationalarchives.gov.uk/uksc/2026/14