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

Although March 2025 marked the fifth anniversary since the first UK nationwide lockdown, litigation arising from the restrictions imposed continued to be heard in the Commercial Court throughout 2025. Here, we run through the major decisions of 2025 and what's in store for 2026 in this ongoing saga.

Bath Racecourse & Others v Liberty Mutual  

The hearing of the appeal to the Supreme Court on 11-12 February 2026 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: 

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 Financial Conduct Authority 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 on 11-12 February 2026.

Supreme Court appeal: Implications for insurers and reinsurers

The appeal to the Supreme Court represents a pivotal moment for the insurance industry's handling of pandemic-related business interruption claims. The Supreme Court’s decision will determine, once and for all, whether furlough payments can be deducted from Covid BI claim settlements. 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.

Forthcoming expiry of the limitation period and attempts to extend it

March 2026 will mark the six-year anniversary of the imposition of Government restrictions and the cut off date for commencing any new claims in the Commercial Court.   

Claimant law firms are now urging policyholders who have not yet issued proceedings to consider doing so, while at the same time also urging the FCA to issue urgent ‘stop the clock’ guidance to insurers relating to the handling of further Covid BI claims. They are asking the FCA to issue guidance to insurers to disregard time limits applying to Covid BI claims until further test cases have been concluded and to require insurers to confirm that they won’t decline Covid BI claims on the basis that any relevant time period has expired. It remains to be seen whether the FCA will be swayed by this. The FCA responded on 23 January 2026 rejecting the call for further direct intervention, stating that their position is already adequately set out on the FCA website.