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

The appeal concerned the long-running issue of whether furlough payments received by Business Interruption policyholders could be considered “savings” for which credit should be given against losses due to premises being closed on account of Covid-19.

The first instance judge (Jacobs J) said “yes”, the Court of Appeal said “yes”, and now the Supreme Court has said “yes”.

 

On the principal arguments, the Supreme Court provided 8 reasons at paragraphs 52 to 60, in summary:

(i) A reasonable person when interpreting the savings clauses would not differentiate between a policyholder paying a charge and expense and being funded or reimbursed for that payment, and the policyholder’s obligation to pay the charge or expense being waived or paid on its behalf by another person. The economic outcome for the policyholder is the same and the insurers’ construction of the savings clauses reflects this reality.

(ii) The context is policies which are concerned with the economic effects of insured perils on the policyholder’s business and the savings clauses would be expected to be concerned with the economic effects rather than the legal mechanics of the furlough payments.

(iii) The purpose of a savings clause is to prevent over-payment and over-indemnification of the policyholder. This purpose is served if all factual savings are taken into account, not just reductions in legal liabilities.

(iv) Where there are two possible meanings of a clause in an insurance contract it is appropriate to prefer the meaning which better fits the purpose of indemnification.

(v) The policyholders’ construction would lead to arbitrary and uncommercial results; had it not been for the receipt of furlough payments, they would have made some employees redundant thus saving on the costs of employment. On the policyholders’ case, they would get full insurance recovery without regard to the savings that would have been realised if furlough payments had not been made.

(vi) The insurers’ interpretation aligns with the reality reflected in UK Government statement that the UK Government was (effectively) paying the relevant employees’ wages / expenses.

(vii) The insurers’ interpretation is patently more commercial and has been unequivocal preferred by multiple Commercial Court judges.

(viii) The insurers’ interpretation avoids the operation of the savings clauses being dependent upon the artificial distinction between whether the furlough payments were received before or after the payment to the employee.

 

The insureds’ arguments on causation were also rejected. Furlough payments were paid on account of Government Action in consequence of Covid-19 and reduced the expense of employing the relevant employees.

The court found that furlough payments were not gratuitous, benevolent or voluntary “collateral” benefits as they were mandated by law to be paid and there was no discretion on their payment.

 

Comment

There are a large number of Business Interruption claims that have yet to be determined and had the outcome been different, this would have had a significant effect on the value of these claims.

Consequently, the outcome of the Supreme Court’s decision will come as a relief to insurers.

That said, the prospects of the appeal did not look promising considering the number of Commercial Court Judges at first instance and on Appeal who had previously determined the point and found against the insureds.

 

Analysis and review produced by John Meredith-Hardy of Farrar’s Building. John has a reputable Insurance and Property Damage practice. He has acted and continues to be instructed in multiple claims for business interruption coverage during the Covid-19 epidemic on an advisory basis and in relation to issued proceedings in the High Court.

 

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