No Double Recovery: The UK Supreme Court Rules on Furlough and Business Interruption Insurance

On 22 April 2026, the UK Supreme Court handed down judgment in the linked appeals of Gatwick Investment Ltd and others v Liberty Mutual Insurance Europe SE (the “Gatwick Proceedings”) and Bath Racecourse Company Ltd and others v Liberty Mutual Insurance Europe SE and others (the “Arena Proceedings”).

1. The Facts

These linked appeals concerned business interruption insurance claims arising from losses suffered during the Covid-19 pandemic. In the Gatwick Proceedings the policyholders owned or operated hotels in England. In the Arena Proceedings the policyholders operated racecourses, greyhound racing tracks, golf clubs, hotels and a pub in England and Wales. Following the decision of the Supreme Court in Financial Conduct Authority v Arch Insurance (UK) Ltd¹ (the “FCA Test Case”), the insurers accepted in principle that they were liable to indemnify the policyholders for Covid-19 related losses. The sole issue was whether ‘savings clauses’ in the respective policies required credit to be given for furlough payments received under the Coronavirus Job Retention Scheme (the “CJRS”).  The savings clause in the Gatwick Proceedings provided that the amount payable as indemnity would be:

“less any sum saved during the Indemnity Period in respect of such of the charges of the Business payable out of Gross Revenue as may cease or be reduced in consequence of the incident.”

In the Arena Proceedings, the relevant savings clause provided that:

“If any of the charges or expenses of The Business payable cease or reduce in consequence of the Damage such savings during the Indemnity Period shall be deducted from the amount payable.”

2. Judgments by the High Court and Court of Appeal

At first instance, Jacobs J² held that furlough payments did fall to be deducted from amounts payable by insurers. Applying concurrent causation principles from the FCA Test Case, he concluded that the payments had reduced business expenses in consequence of the insured peril, within the meaning of the relevant savings clauses.  He therefore decided the preliminary issue entirely in favour of the insurers.

The Court of Appeal unanimously dismissed the policyholders' appeal in February 2025. The judgment emphasised the commercial and economic reality: the CJRS meant employers did not ultimately bear the full cost of their wage bills, and that the source of reimbursement (the Government) was irrelevant. On causation, the Court agreed that the same analysis had to apply symmetrically to both losses and savings, such that policyholders could not assert, in reliance on the FCA Test Case, that their loses were proximately caused by the insured peril, whilst simultaneously maintaining that their savings from a consequent reduction in expenses were not.

3. Submissions to the Supreme Court

The policyholders appealed arguing: (1) that there was in fact no reduction of charges or expenses, because wages had to be paid before being reimbursed; and (2) that as a matter of law the furlough payments were not caused by the ‘insured peril’.

On construction, the policyholders contended that the savings clauses were concerned with legal liability. As the wages remained legally payable and were discharged before reimbursement, no liability ever ceased or reduced. They drew support from accounting treatment under FRS 102 and from an Australian court's treatment of equivalent ‘JobKeeper’ payments (in Princess Theatre Pty Ltd v Ansvar Insurance Ltd³).

On causation, the policyholders advanced two arguments – irrelevance and collateral benefit. The policyholders argued that they would have received furlough payments even if the insured peril had not occurred, meaning the insured peril was simply not causative of the receipt of those payments (the “Irrelevance Argument”). They also asserted that a gratuitous or voluntary benefit conferred by a third party is not regarded in law as caused by the insured peril and should be left out of account when calculating the indemnity (the “Collateral Benefits Argument”).

4. The Decision

The Supreme Court unanimously dismissed the appeals.

On construction, the Court found that either reading was linguistically possible but preferred the insurers' construction for eight principal reasons. Chief among them was that a reasonable person would not differentiate between a liability being waived and a liability being paid and then reimbursed. The economic outcome of both constructions remained the same. The specific purpose of a savings clause is to prevent over-indemnification, and that purpose is best served by taking all factual savings into account, not merely reductions in formal legal liabilities.

In the Irrelevance Argument, the policyholders were in substance relying on the "but for" test of causation that the Supreme Court had already rejected in the FCA Test Case. The Court held that they could not assert that their losses were proximately caused by the insured peril whilst maintaining that their savings from a consequent reduction in expenses were not.

The Collateral Benefits Argument also failed. CJRS payments could not be characterised as voluntary donations: a payment is not voluntary in the sense required to negative causal connection if it is made pursuant to a legal obligation (in this case, pursuant to a Treasury Direction). There was also no express stipulation or other clear indication that the Government intended the furlough payments to enure solely for the benefit of the insured to the exclusion of the insurers.

5. Conclusions

This is a landmark decision for the insurance market, providing binding authority that CJRS payments are deductible under standard savings clause wordings. For insurers, it validates deductions already made and removes all remaining uncertainty on a point worth approximately £1 billion.

For policyholders, the ruling is a setback. It is now clear that an insured cannot expect both to recover the full value of a business interruption loss and to retain government support received in respect of the same costs. Businesses and their advisers should note that any future government support scheme structured as a legal entitlement (as most government schemes are) is likely to be treated in the same way, reducing the insured loss and diminishing recovery accordingly. Policy wording and subsequent claims strategies should be reviewed with this in mind.