Gatwick Investment Ltd and others v Liberty Mutual Insurance Europe SE [2026] UKSC 14

Hotel and racecourse operators claimed business interruption insurance for Covid-19 losses. The Supreme Court held furlough payments under the Coronavirus Job Retention Scheme reduced recoverable losses under policy savings clauses, as they reduced employment expenses in consequence of the insured peril.

Facts

The appellants comprised subsidiaries of the Arena Racing group (operating racecourses, greyhound tracks, golf clubs, hotels and a pub) and six hotel operators in the Gatwick proceedings. Each held business interruption insurance policies containing ‘Denial of Access’ or ‘Prevention of Access (Non Damage)’ extensions. Following Covid-19 lockdown restrictions imposed from March 2020, the appellants suffered business interruption and made claims under their policies. They also received substantial payments under the Coronavirus Job Retention Scheme (CJRS), which reimbursed employers for a significant proportion of wages (initially 80%, up to £2,500 per month) and related employment costs of furloughed employees.

The policies each contained a ‘savings clause’. In the Arena policy:

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.

In the Gatwick policies, indemnity was to 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.

It was agreed that, but for receipt of CJRS payments, the appellants would have made some employees redundant. Jacobs J and the Court of Appeal held the furlough payments must be deducted. Approximately £1 billion had reportedly been deducted across the market on this basis.

Issues

Two issues arose:

(1) Construction issue: Whether employee costs were ‘reduced’ by CJRS payments within the meaning of the savings clauses, given that the appellants had to pay wages before being reimbursed.

(2) Causation issue: Whether CJRS payments were received ‘in consequence of’ the insured peril, given (a) that proof of the insured peril was unnecessary for CJRS entitlement, and/or (b) that payments were said to be gratuitous collateral benefits.

Arguments

Appellants’ arguments

On construction: the clauses referred to legal liability for charges/expenses. The wages liability was incurred and discharged; later reimbursement did not alter that. CJRS payments constituted ‘other income’ (as treated by HMRC and under FRS 102). The insureds relied on the Australian decision in Princess Theatre, Branson J’s dictum in Polikoff, and argued the courts below had placed undue reliance on the indemnity principle.

On causation: CJRS payments were not proximately caused by the insured peril because entitlement did not require proof of the peril’s elements (the ‘irrelevance argument’); and payments were gratuitous/voluntary collateral benefits (the ‘collateral benefits argument’), relying on Burnand v Rodocanachi, Castellain v Preston, Hart and Honoré’s theory of causation, and the Australian decision in LCA Marrickville.

Respondents’ arguments

Insurers argued the clauses should be read pragmatically, addressing economic substance. CJRS payments were hypothecated to wages, the Government bearing a specified share of wage costs. On causation, the ‘but for’ test had been rejected in the FCA test case and the appellants’ argument was inconsistent with that decision. The savings clause operated as a complete code, displacing general law collateral benefits principles.

Judgment

Construction

The Supreme Court (Lord Hamblen, Lord Leggatt and Lord Burrows, with whom Lord Reed and Lord Briggs agreed) held that while either construction was linguistically possible, the respondents’ interpretation was correct for eight reasons: (1) no reason to differentiate between incurring and bearing an expense; (2) business interruption insurance concerns economic effects; (3) the savings clause’s purpose is to avoid over-indemnification; (4) where two meanings exist, the one fitting indemnification should be preferred; (5) the appellants’ construction produced arbitrary results (since redundancies would have reduced claims); (6) the Government itself described CJRS as helping ‘to pay people’s wages’; (7) five experienced Commercial Court judges and McDonald J in the Irish High Court (Hyper Trust) had adopted the respondents’ construction; (8) CJRS payments could be made before wages were paid to employees.

The Court clarified that the indemnity principle is a legitimate interpretative consideration where language is ambiguous, rejecting the suggestion that Synergy and Mobis were fundamentally inconsistent.

Causation

The Court held the proximate cause test applied equally to gains as to losses. Applying the FCA test case framework, the insured peril (prevention of access following Government action in response to Covid-19 cases within one mile) proximately caused the policyholders to furlough employees and claim CJRS payments.

Irrelevance argument: This was ‘patently flawed’ and internally inconsistent. It amounted to a ‘but for’ test of causation, which had been rejected in the FCA test case. The appellants could not simultaneously rely on the FCA test case analysis for their losses while deploying a ‘but for’ test to exclude savings.

Collateral benefits argument: The Court examined Burnand v Rodocanachi, Castellain v Preston and subsequent cases (Stearns, Merrett, Colonia Versicherung, Talbot Underwriting, Atlas Navios). These established that any third-party payment reducing insured loss enures to the insurer’s benefit unless the third party intended to benefit only the insured to the exclusion of the insurer. Nothing in the CJRS terms or surrounding circumstances indicated such an intention. The Glen letter of 25 September 2020 concerned different grant schemes, not the CJRS.

Fundamentally, CJRS payments were not voluntary, gratuitous or benevolent. They were made pursuant to legal entitlement and obligation under Treasury Directions. Employers continued to bear detriments (continuing employment, national insurance contributions, pension contributions, and unreimbursed wage portions). The scheme served broader economic and public health objectives, not charity.

Disposition

Both the construction and causation issues were decided against the appellants. The appeals were dismissed.

Implications

The decision confirms that furlough payments received under the CJRS must be deducted from business interruption insurance claims under standard ABI-derived savings clauses. This validates the market-wide approach said to have resulted in approximately £1 billion of deductions.

The judgment clarifies several points of broader significance:

• Savings clauses in business interruption policies refer to economic burden, not strict legal liability—commercial and economic reality guides construction.
• The indemnity principle remains a legitimate interpretative aid where policy wording is ambiguous, helping to favour constructions consistent with the purpose of indemnification.
• The same proximate causation test applies to gains as to losses under a policy, ensuring consistency between insuring clauses and savings clauses.
• The ‘subrogation’ line of authority (properly understood as concerning reduction of insured loss rather than strict subrogation) establishes that third-party payments reduce insured loss unless the third party intended to benefit only the insured to the exclusion of the insurer—a test of intention, not causation.
• Payments made pursuant to legal obligation, even where the underlying scheme was established voluntarily by the state, are not ‘gratuitous’ or ‘benevolent’ for collateral benefits purposes.

The decision is principally significant to insurers, policyholders and those adjusting Covid-19 business interruption claims. It builds upon the FCA test case framework, with the Court emphasising that parties cannot selectively deploy the causation analysis from that case. The judgment also provides authoritative guidance on the interrelationship between insurance policy drafting and the general law of collateral benefits, clarifying that the policy provisions constitute a complete code but import general law concepts via terms such as ‘in consequence of’.

Verdict: Appeals dismissed. The Supreme Court held that furlough payments received under the Coronavirus Job Retention Scheme must be deducted from sums otherwise payable under the business interruption policies, as they reduced the charges or expenses of the business in consequence of the insured peril.

Linked case: Bath Racecourse Company Ltd and others v Liberty Mutual Insurance Europe SE and others [2026] UKSC 14

Source: Gatwick Investment Ltd and others v Liberty Mutual Insurance Europe SE [2026] UKSC 14