What is the effect of an insured business receiving Government support in circumstances where they would otherwise have been entitled to a business interruption (BI) insurance payment? Unsurprisingly, the answer is that an insured who receives Government support that relates directly to the insured peril has not suffered loss to the extent of that support, so it must be deducted from its BI insurance claim.
It cannot be treated as a separate gift or windfall that does not impact upon its insurance claim. In a recent decision in Bath Racecourse Company Limited & Ors v Liberty Mutual Insurance Europe SE & Ors [2025] EWCA Civ 153, the Court of Appeal of England and Wales delivered a ruling on the treatment of furlough payments in COVID-19 BI insurance claims.
The Appeals: Two sides, two issues
The case involved appeals from both insurers and insureds:
- The insurers challenged the High Court’s finding that each insured under a composite policy was entitled to a separate limit of indemnity, rather than a single aggregate limit.
- The insureds contested the ruling that CJRS payments should be deducted from their BI claims under the policies’ savings clauses.
While the composite policy issue was swiftly dismissed, the Court’s detailed analysis of the furlough deduction issue provides crucial guidance for future BI claims.
Furlough payments: A saving, not a windfall
Under the CJRS, employers could recover up to 80% of wages paid to furloughed staff during pandemic-related restrictions. Many businesses claimed under both the CJRS and their BI policies. Insurers argued that CJRS payments reduced wage costs and should therefore be deducted under savings clauses such as the following example:
“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.”
The insureds pushed back, making the following arguments:
- Wages were not reduced — they were still paid in full.
- CJRS payments were not caused by the insured peril — they were a separate government initiative.
- CJRS payments were collateral benefits — akin to gifts, and not deductible from insurance entitlements.
Did wage costs “cease” or “reduce” for the purposes of the policies?
The Court’s answer to this was “yes”. Even though wages were paid, the CJRS reimbursed 80%, effectively reducing the insureds’ wage expenditure. That reduction was a saving, and the savings clause applied: “The economic reality is that the wage bill was reduced. That’s a saving, and it must be deducted.”
Were CJRS payments “In consequence of” the insured peril?
The Court applied the causation test from FCA v Arch Insurance [2021] UKSC 1 (which we discuss in another article here, which links the insured peril to:
- COVID-19 cases near the premises;
- Government restrictions; and
- Hindrance in using the premises.
It found that CJRS payments were directly tied to the Government-imposed restrictions, which were part of the insured peril. The Scheme was introduced to mitigate the very losses the insurance covered.
Were CJRS payments collateral benefits?
The insureds likened CJRS payments to benevolent gifts, arguing they should not reduce the insurance payout. The Court firmly rejected this, commenting that:
“There is no analogy whatsoever with benevolent gifts. CJRS was not a windfall — it was a targeted mitigation measure.”
Unless a third party intends to benefit only the insured (to the exclusion of insurers), such payments must be deducted.
Key takeaways
This decision confirms that CJRS payments and other similar Government support payments must be deducted from entitlements under standard BI policy savings clauses where the insured peril is the same. The Court emphasised commercial realism and policy wording, reinforcing that government support aimed at reducing loss must be factored into indemnity calculations.
This article was co-authored by Raksha Tiwari, a Solicitor in our Litigation team.
