Bath Racecourse & Others v Liberty Mutual: Supreme Court hearing on furlough

As anticipated in our December 2025 update, the Supreme Court heard the furlough appeal in Bath Racecourse & Others v Liberty Mutual & Others over two days on 11 and 12 February 2026. The five-Justice panel comprised Lords Leggatt, Reed, Briggs, Hamblen and Burrows. Judgment was reserved at the close of the hearing.

The issue

The central question is whether furlough payments received under the Coronavirus Job Retention Scheme (CJRS) should be deducted from Covid-19 business interruption settlements. The policies contained a Savings Clause, which provided that if any charges or expenses of the business that are “payable” ceased or reduced as a result of the insured event, those savings should be deducted from the amount payable. 

The policyholders’ case

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

On the question of causation, policyholders argued that furlough payments should be treated as a ‘collateral payment’ under English law and therefore sit outside the scope of what insurers can deduct.

Their case was that the furlough scheme had a broader economic purpose, to protect employer-employee relationships and prevent mass redundancies across the country and was therefore independent of the insured event rather than a direct consequence of it.  Such payments are equivalent to ‘benevolent’ or ‘gratuitous’ payments from a third party or the state and English common law cases as to quantification of loss or damages from a tortfeasor are to the effect that such payments are regarded as collateral and do not go to reduce the loss.  

The insurers’ case

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.

On causation, insurers argued that there is no general rule that gratuitous or benevolent payments, let alone payments from the State, should not be taken in account when assessing an insurance loss. The Court had to look at whether the purpose of the payment was to "make whole" the person who had suffered the loss or whether it was for some additional purpose. If it was to make whole the loss, then it should be taken into account and deducted for insurance purposes. The purpose of the CJRS payments were to reimburse the wage costs of the business. Had the scheme not existed then businesses would have laid off staff and the wage costs would have reduced or ceased.

What to expect

The Supreme Court’s decision will finally settle whether furlough payments can be deducted from Covid-19 business interruption settlements, with significant financial consequences for insurers, reinsurers and policyholders alike.

A key point will be whether the Court accepts the insurers’ argument that because the furlough scheme made no provision for recoupment where insurance was in place, businesses should not be able to benefit from both. We will report on the judgment as soon as it is handed down.