When the Supreme Court handed down the FCA business‑interruption test case in 2021, it answered most of the big questions about whether Covid‑19 losses were covered by business‑interruption (BI) policies — but not all of them. One question it left open has been worth around a billion pounds to the insurance market: when a policyholder received furlough money from the Government, does that money reduce what the insurer has to pay?
On 22 April 2026, in Gatwick Investment Ltd v Liberty Mutual Insurance Europe SE [2026] UKSC 14, the Supreme Court answered it — and the answer favours insurers.
What the case was about
The appeals were brought by two groups of policyholders. In the "Arena proceedings," subsidiaries of the Arena Racing group — operating racecourses, greyhound tracks, golf clubs and hotels — claimed under a composite policy. In the "Gatwick proceedings," six hotel businesses claimed under separate commercial policies with Liberty Mutual. In both, the insurers had accepted they were in principle liable for Covid‑related business‑interruption losses; the fight was over how much.
The dispute turned on "savings clauses" — standard wording, derived from an Association of British Insurers form, that reduces a payout by any business charges or expenses that cease or reduce as a consequence of the insured event. The insurers argued that furlough payments under the Coronavirus Job Retention Scheme (CJRS) were exactly that: they reduced the wage costs the businesses would otherwise have borne, so credit had to be given for them. The court noted that an estimated £1 billion had already been deducted across the market on this basis.
The policyholders resisted on two main grounds: that wages had to be paid before being reimbursed, so the underlying charges never actually "ceased" or "reduced"; and that furlough money was not received "in consequence" of the insured peril — it was, they said, a collateral and essentially gratuitous benefit that the law should disregard, in the same way that charitable payments to accident victims are ignored when assessing damages.
What the Supreme Court decided
The Court dismissed the appeals. Furlough payments must be deducted from a policyholder's lost revenue when calculating the indemnity. On the proper construction of the savings clauses, the CJRS payments both reduced the charges and expenses of the business and did so in consequence of the insured peril. The first‑instance judge (Jacobs J) and the Court of Appeal had been right.
The reasoning, in brief
The heart of the decision is the Court's rejection of the "gratuitous benefit" analogy. Payments under the CJRS, it held, were not charity or benevolence and were not voluntary — they were made pursuant to a legal obligation, against defined eligibility criteria. That distinguishes them from the kind of voluntary gift or benevolent‑fund payment that the law leaves out of account when assessing a claimant's loss.
If anything, the Court reasoned, the closer analogy is to state benefits payable as of right to an injured claimant — which, at common law, are taken into account (the Court drew on the House of Lords' analysis in Hodgson v Trapp [1989] AC 807). The Court also noted an important structural difference between insurance and the law of tort and contract: insurance indemnity is not damages for a wrong, and the usual mitigation rules do not apply unless the policy says so. Whether a third‑party benefit reduces an insured loss therefore comes back to the wording the parties chose — and here, the savings clauses caught the furlough money.
Why it matters
This is the most consequential Covid BI ruling since the FCA test case, and it resolves a point that has sat over a very large book of claims:
- For policyholders and their advisers: where a savings clause of this type applies, furlough receipts come off the payout. Businesses still negotiating or litigating Covid BI claims, or reviewing past settlements, should assume credit for CJRS is now firmly established at the highest level.
- For insurers: the roughly £1 billion already deducted across the market has been vindicated, and the construction of the standard ABI‑derived savings wording is now settled.
- For everyone drafting or reading BI cover: the decision is a reminder that whether a government or third‑party payment reduces an indemnity is, first and last, a question of the policy wording — not a free‑standing rule of causation.
The judgment is also a useful companion to the FCA test case for anyone researching Covid BI: Arch settled coverage and causation at the level of the insured peril; Gatwick settles how a major category of government support feeds into quantum.
Research the Covid business‑interruption line of authority on Search the Law:
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