Bath Racecourse Company Ltd & Ors v Liberty Mutual Insurance Europe SE & Ors [2026] UKSC 14
Judgment Text: 22 April 2026
The Supreme Court has handed down judgment upholding the Court of Appeal’s decision and confirming that furlough payments received under the Coronavirus Job Retention Scheme (“CJRS”) fall to be deducted from business interruption indemnities under standard “savings” clauses. In reaching this decision, the Supreme Court has set out principles of enduring importance for policyholders, well beyond the Covid-19 context.
The proceedings arose from non-damage business interruption claims brought by policyholders (including the Arena Racing and Gatwick hotel groups) under denial of access and prevention of access coverage extensions for losses arising from Covid-19 closures. As explained in our earlier briefing, the Court of Appeal confirmed that the policyholders were entitled to separate limits of indemnity for each insured entity as the policies in question operated on a composite basis. That aspect of the decision was not before the Supreme Court.
The issue on appeal concerned furlough payments: Do ‘furlough’ payments paid by the UK Government under the Coronavirus Job Retention Scheme (“CJRS”) to policyholders fall to be deducted from the indemnity payable by insurers?
The issue arises because the policies in question contain “savings” clauses which provide for a deduction from the indemnity payable by the insurers if “any of the charges or expenses” of the policyholder “cease or reduce in consequence of the Damage” (or words to similar effect). These appeals concern the correct construction of such clauses, and whether the CJRS payments constitute ‘savings’ for this purpose.
The policyholders argued that CJRS payments did not reduce employee costs at all: wage liabilities continued in full and were merely refunded by subsequent UK Government grants. They further contended that, in any event, CJRS payments were collateral or benevolent benefits, not legally caused by the insured peril, and that entitlement to CJRS did not depend on proof of the insured peril.
The insurers, by contrast, argued that the savings clauses must be construed pragmatically by reference to the economic reality. CJRS payments were designed to defray wage costs arising because of Covid‑19 restrictions and therefore did reduce the policyholders’ expenses during the indemnity period. Insurers also relied on concurrent causation principles, contending that the insured peril was at least a proximate cause of the savings achieved.
The Supreme Court acknowledged that there were two possible readings of the savings clauses. The Supreme Court held it was appropriate to prefer the meaning which better fits the purpose of indemnification. In this instance, the Supreme Court found the insurers’ construction more compelling because it reflected the economic and commercial reality of the situation. Furlough payments were, effectively, the UK Government paying the relevant employees’ wages / expenses – irrespective of the ‘artificial distinction’ between whether the furlough payments were received before or after the payment to the employee. The Supreme Court emphasised that business interruption policies are concerned with the economic effects of insured perils on the policyholder’s business. Therefore, the savings clauses should likewise be concerned with the economic effects, rather than the legal mechanics, of the furlough payments.
On the causation issue, the Supreme Court found that there was a straightforward causal connection between the business interruption losses falling within the insurance cover and the savings from the furlough payments.
This decision brings finality to a long running issue. It should enable resolution of many outstanding Covid-19 business interruption claims.
The Supreme Court has clarified the way in which ‘savings’ clauses in business interruption policies are intended to operate under English law. The Court’s approach focused on the economic and commercial reality of the situation. Whether in a Covid-19 or other context, this guidance will assist policyholders and insurers alike to resolve quantum.
This judgment will have broader application. The Supreme Court has made clear that insured losses will be reduced by any payments to policyholders by third parties in relation to the subject matter of the insured loss - except where the third party intended to benefit the policyholder to the exclusion of the insurer. This is a key point.
The judgment underscores once again that precise drafting is critical in determining the value of business interruption cover – and the operation of insurance policies more generally.
Policyholders should review the savings clauses in their business interruption policies to ensure they understand how the language operates.
If you have any questions concerning the material discussed in this client alert, please contact the following members of our Insurance Recovery practice.
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