As reported in in our March edition, the Supreme Court heard the eagerly awaited appeal in early February in Bath Racecourse & Others v Liberty Mutual & Others relating to the whether insurers were entitled to deduct Furlough payments received under the Coronavirus Job Retention Scheme (CJRS) from COVID-19 BI insurance payments.  

The issue had market-wide significance and turned on the effect of the 'savings clause' in the relevant policies. The appeal proceeded before Lord Reed, Lord Briggs, Lord Hamblen, Lord Leggatt and Lord Burrows and judgment was given on 22 April 2026. 

The Supreme Court unanimously rejected the policyholders’ appeals and held that Furlough payments should be adjusted for under the Savings clause and reduce the amounts payable by insurers under business interruption policies. 

Key issues

1. Construction 

The first issue the court considered, was whether, under the savings clauses, employee costs were ‘reduced’ by the CJRS scheme. 

The policyholders argued that under the CJRS scheme wages didn’t "cease or reduce" because employers remained legally liable and paid them before then being reimbursed by the government. They argued that the savings clause focuses on what the business is actually liable to pay, and that Furlough did not reduce that liability.

Insurers argued for a more practical approach. The savings clause does not refer to a "legal liability to pay". The economic reality was straightforward: the financial burden of the wage bill on policyholders was reduced by CJRS payments, and that is precisely what the Savings Clause is concerned with. Reimbursements received during the indemnity period which reduce the charges or expenses should be taken into account.

The Court agreed with insurers that, on the proper construction of the savings clauses, payments under the CJRS scheme 'reduced' the charges or expenses of the policyholder’s business. 

The Court held that where a savings clause is ambiguous, the construction consistent with the purpose of indemnification should prevail. Although the clauses could linguistically bear either reading, the Court preferred the insurers’ factual construction: the economic effect of being reimbursed for a cost is identical to that cost never having been incurred, and to hold otherwise would allow policyholders to profit from the insured peril. 

2. Causation 

The second issue for the court to consider was whether the Furlough payments were caused by the insured peril, specifically, whether proof of the insured peril was irrelevant to CJRS scheme eligibility, and/or whether the payments were ‘collateral payments’ of a gratuitous nature. 

The wording of the savings clauses required deduction of any savings that arise “in consequence of” the insured peril. 

The policyholders argued that CJRS scheme eligibility did not depend on the specific insured peril conditions. The Court held this was internally inconsistent with the policyholders’ own reliance on the FCA Test Case rejection of the ‘but for’ causation test to establish their own cover, yet sought to apply precisely that ‘but for test’ to avoid giving credit for furlough savings (effectively having it both ways).

Secondly, the policyholders argued that CJRS scheme payments were gratuitous collateral benefits which should be left out of account. The Court also rejected this, as no third party payment reduces an insured’s loss unless the payer clearly intended to benefit the insured alone to the exclusion of the insurer. Nothing in the CJRS scheme evidenced such an intention. The payments were also not gratuitous; they were made pursuant to a legal obligation on the government for broad public and economic purposes.

Implications for insurers

The practical significance of this ruling is substantial. An estimated £1bn had already been deducted by the insurance market on this basis, and the judgment now provides definitive Supreme Court authority confirming that approach was correct. 

Insurers can rely on similarly worded savings clauses to reduce COVID-19 BI insurance payouts by the value of CJRS scheme payments received by policyholders.