Covid BI submission: insurer payout reduction case implications

Bath Racecourse Company Ltd and others (Appellants) v Liberty Mutual Insurance Europe SE and others (Respondents) (UKSC/2025/0068)

Summary of the CoA Decision

The CoA decision dated 21 February 2025 addressed multiple appeals arising from Covid-19 business interruption insurance claims. The central – and most politically controversial – issue, concerns whether insurers are entitled to deduct payments received by policyholders under the Government’s Coronavirus Job Retention Scheme (“CJRS”) from business interruption insurance payouts. Under the CJRS, the Government reimbursed employers up to 80% of furloughed employees’ wages (capped at £2,500 per month). The CoA unanimously dismissed the insured’s appeals and upheld insurer’s entitlement to deduct CJRS payments, affirming both the earlier High Court decision by Jacobs J and the prior ruling of Butcher J in Stonegate (Stonegate Pub Company Ltd v MS Amlin Corporate Member Ltd and others [2022] EWHC 2548).

Upcoming Supreme Court Hearing

The Supreme Court hearing scheduled for 11 and 12 February 2026 will be the final appellate determination on the issue. The implications differ significantly depending on the outcome.

(a) If UKSC finds in Insurer’s favour – implications on future case law / existing claims

If the UKSC affirmed the CoA decision, this would establish precedent binding across all UK courts that government support payments designed to mitigate the effects of an insured peril must be credited against insurance indemnities under saving clauses. The CoA determined that, even though employers continued to pay wages to staff during the peril period, the government’s furlough payments reimbursed these costs and did reduce wage costs in “commercial and economic reality” (per Flaux J at [174]). Their reasoning prioritises substance over form – e.g. if the effect of the CRJS payments is that wage bills are reduced by 80%, this constitutes a saving that naturally falls under the savings clause. In essence, this reinforces the foundational insurance law principle that policies are contracts of indemnity, and policyholders should only be compensated for their actual loss.

For remaining claims payouts, insurers would be entitled to deduct CJRS payments from outstanding business interruption claims, reducing their total exposure substantially. This would impact on all pending Covid-19 business interruption claims where furlough payments were received, and savings clauses apply. The precedent would also likely apply to any analogous future government support schemes introduced in response to insured events.

(b) If UKSC finds the practice unlawful – implications on future case law / existing claims

If, on the other hand, the UKSC ruled against insurers, this would establish that government support payments introduced to respond to a crisis fall outside of standard savings clauses or are “collateral benefits” that cannot reduce insurance indemnities. Such a judgment would represent a significant departure from the reasoning of the lower courts (including the CoA). This would leave the door ajar for broader arguments about collateral benefits and when third-party payments should be disregarded in insurance claims.

For remaining claims payouts, insurers would be required to pay out business interruption claims with no CJRS reduction, which would cause an obvious increase in total liability. Policyholders whose claims are pending would receive a larger recovery, and those whose claims were concluded prior to a judgment of this kind may request to revisit settlement on the basis that a CJRS deduction was inappropriately applied (although their ability to make this request would depend on the settlement terms). In short, there would be significant financial implications for insurers who have reserved for or settled claims on the assumption that CJRS deductions were permissible.