Gatwick Investment v Liberty Mutual: Supreme Court rules furlough payments reduce business interruption insurance claims

The Supreme Court has dismissed appeals brought by hotel and racecourse operators against insurers' deduction of Coronavirus Job Retention Scheme (CJRS) furlough payments from business interruption insurance claims. In Gatwick Investment Ltd and others v Liberty Mutual Insurance Europe SE [2026] UKSC 14, handed down on 22 April 2026, Lords Reed, Briggs, Hamblen, Leggatt and Burrows unanimously held that furlough payments reduced charges or expenses within standard savings clauses, and did so in consequence of the insured peril.

The appeals arose from claims under "prevention of access" cover, under which insurers had admitted liability for losses flowing from government restrictions imposed during the Covid-19 pandemic. The central dispute concerned whether savings clauses in the relevant policies required furlough payments to be deducted when calculating the indemnity. The clauses — both variants of standard ABI wording — required deduction of any sums saved during the indemnity period in respect of charges or expenses that ceased or reduced in consequence of the insured peril. Insurers had deducted approximately £1 billion across the market on this basis.

The policyholders argued that wages and related employment costs had not been "reduced" because they were incurred and paid before being reimbursed by the CJRS; the furlough payments were, on this analysis, new income rather than a reduction in liability.

The Court rejected this, preferring the insurers' construction that the savings clauses were concerned with the economic burden of expenses rather than the legal liability for them. Eight reasons were given, including the purpose of savings clauses — to prevent over-indemnification — and the commercial reality that the Government was bearing a specified share of employment costs. The Court also noted the internal inconsistency of a construction under which policyholders would recover the full insured loss in circumstances where, without the CJRS, they would have made employees redundant and their claim would have been correspondingly reduced.

Two arguments were advanced against the requirement that the reduction occurred "in consequence of" the insured peril.

The first — that the insured peril was irrelevant to eligibility for furlough payments — was rejected as relying on the very "but for" test of causation that this court had refused to apply in Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1. Since policyholders relied on that decision to establish cover for their losses, they could not simultaneously invoke a stricter causation test to resist deductions under the savings clause. The same test applies to both sides of the calculation.

The second argument — that CJRS payments were gratuitous, voluntary or benevolent and therefore collateral — also failed. Drawing on the line of authority from Burnand v Rodocanachi (1882) and Castellain v Preston (1883), the Court confirmed that a third-party payment reduces an insured loss unless the third party clearly intended to benefit the insured to the exclusion of the insurer. No such intention could be derived from the CJRS. Crucially, the payments were not voluntary at all: an employer meeting the qualifying conditions was legally entitled to reimbursement, and HMRC was legally obliged to pay. A scheme operating by way of legal entitlement and obligation cannot properly be characterised as an act of charity or benevolence.

The Treasury letter of September 2020 from the Economic Secretary expressing an expectation that certain emergency grant funds should not be deducted from business interruption claims was of no assistance: it did not reference the CJRS, and the government had sought no equivalent commitment in respect of furlough payments.