Covid-19 business interruption claims: Supreme Court appeal on furlough deductions

15 December 2025

Colin Peck

The hearing of the appeal to the Supreme Court is awaited in Bath Racecourse & Others v Liberty Mutual in what could have far reaching consequences for insurers (and reinsurers).

The issue relates to the treatment of furlough payments by insurers in assessing Covid-19 business interruption losses.

By way of reminder, the Court of Appeal heard certain preliminary issues in Gatwick Investment & Others v Liberty, Starboard Hotels & Others v Liberty and Bath Racecourse & Others v Liberty & Others in early 2025.

The appeal involved a 'prevention of access' wording which covered:

“...interference with the business carried out by the insured in consequence of action by the police or other statutory authority following danger or disturbance within one mile of the premises which shall prevent or hinder use of the premises or access thereto or interference with the business... ”

Court of Appeal ruling

The appeal was split into two four-day hearings. The first hearing considered issues of causation and aggregation and insurers’ arguments that the policies should have aggregate limits rather than separate limits per insured.

The second hearing related to the claimants’ appeal challenging the deduction of furlough payments from their claims, arguing that these payments were not directly caused by the insured peril and should not reduce their insurance recoveries.

The Court of Appeal handed down its judgment on 21 February 2025 unanimously dismissing both the insurers' and the claimants’ appeals.

It upheld the interpretation that composite policies should have separate limits per insured, stating that clear wording would be required in a composite policy to apply limits in the aggregate. The Court of Appeal also confirmed that the amendment in the Bath Racecourse policy did not remove the "any one loss" wording and that the claims preparation cover should be limited per claim or series of related claims, not in aggregate.

Furlough payment deductions: Court of Appeal applies indemnity and causation principles

Regarding the issue of furlough payments, the Court of Appeal found that they did reduce the claimants’ wage costs and were causally linked to the government-imposed restrictions, and they were therefore deductible under the policies. The Court of Appeal noted that this aligns with the principle that insurance policies are contracts of indemnity meant to reflect actual losses, adjusted for any savings or reductions.

The judgment noted that the causation analysis for determining whether losses are covered should align with the assessment of whether expenses were reduced by the insured peril, applying the concurrent causation approach from the FCA test case. The Court of Appeal rejected the claimants' arguments that furlough payments were collateral or unrelated to the insured peril, confirming that these payments satisfied the causation requirements of the savings clause in the policy.

The claimants were given permission to appeal the furlough issue to the Supreme Court, which is awaited.

Supreme Court appeal: Implications for insurers and reinsurers

The appeal to the Supreme Court in Bath Racecourse v Liberty Mutual represents a pivotal moment for the insurance industry's handling of pandemic-related business interruption claims.

For insurers and reinsurers, the ruling will determine whether furlough payments can be deducted from business interruption settlements under indemnity principles. If the Supreme Court reverses the Court of Appeal's decision it will have significant ramifications for adjusted claims, claims reserves, reinsurance recoveries, and future policy wording.