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Published: 2 July 2026
Authors: Susie Wakefield

Just over 6 years on from the UK’s first Covid-19 lockdown, the Supreme Court has recently handed down judgment in Bath Racecourse Company Ltd and others v Liberty Mutual Insurance Europe SE and others^[1] on the question of whether furlough payments made to businesses under the Coronavirus Jobs Retention Scheme (the Scheme) fall to be deducted from the amounts otherwise payable to them by their business interruption (BI) insurers.

Upholding the High Court and Court of Appeal decisions on the issue, the Supreme Court held that the payments did reduce the losses claimable under the policies, marking the end of the road for this particular line of argument in the wider BI litigation spawned by the pandemic.

In this article we briefly consider the Supreme Court’s judgment and where matters now stand in relation to post-Covid BI litigation generally.

The Supreme Court’s decision on furlough payments

Each of the relevant BI policies contained a ‘savings’ clause in either of the following terms:

• the amount payable shall be “less any sum saved during the Indemnity Period in respect of such of the charges of the Business payable out of Gross Revenue as may cease or be reduced in consequence of the incident”
• “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 courts below held (following a separate High Court decision in 2022 in Stonegate^[2]) that the furlough payments paid to the policyholders under the Scheme “reduced” the charges or expenses of the business and did so “in consequence” of the “incident” or “damage” (which in turn refer to the occurrence of the “insured peril”).  Accordingly the amounts received in furlough payments should be deducted from the amounts the policyholders could otherwise claim under their BI insurance policies.

The policyholders appealed to the Supreme Court on the basis that:

• there was no “reduction” of charges or expenses, as the wages and other employment costs had to be paid out by the policyholder before being reimbursed under the Scheme (the Construction Issue)
• as a matter of law, the furlough payments were not caused by the insured peril and were therefore not “in consequence” of it (the Causation Issue).
• the Supreme Court unanimously dismissed the policyholders’ appeal.
• in relation to the Construction Issue, the Supreme Court found that:
• the insurers’ construction of the savings clauses (whether the payments reduced the businesses’ charges and expenses as a matter of fact) was to be preferred over the policyholders’ construction (whether the liability for a charge or expense was reduced as a matter of law).
• the insurers’ construction better reflected reality of the Scheme and the purpose of the policies and savings clauses (their being concerned with overall economic outcomes/effects rather than the legal mechanics).  It was also more commercial, and not dependent on artificial distinctions around the timing of payments.

In relation to the Causation Issue:

• there was a straightforward causal connection between the BI losses and the savings from the furlough payments.  Given the existence of the Scheme, it was a predictable and direct consequence of the insured peril that the policyholders ‘furloughed’ employees while claiming (at least most of) the costs of doing so.  The Supreme Court noted that “[had] it not been for the skill of the appellants' counsel in arguing otherwise, we would have thought this conclusion indisputable”.
• the Court rejected the policyholders’ argument that the insured peril was “irrelevant” to their receipt of furlough payments and the savings made as inconsistent with the approach to establishing causation for the BI losses themselves as set down in the FCA test case^[3] and the policyholders’ own position in that respect.
• the Court also rejected the argument that the payments were “collateral” to the insured peril, rather than caused by it, on the basis they were voluntary, gratuitous or benevolent.  The Scheme involved legally enforceable rights and obligations, and was implemented to benefit both the UK Government and the public in the circumstances at the time.

The end of an era?

It is coincidentally poignant that the Bath Racecourse proceedings reached their conclusion just over 6 years after Covid-19 was declared a notifiable disease in the UK and the nation subsequently went into lockdown – a point in time at which any BI claims which were yet to be issued (or preserved through a standstill agreement) likely became time-barred.  While the outcome was perhaps relatively predictable, the Supreme Court’s decision puts to bed a long-fought issue and parties with similar disputes on hold can now finally resolve them accordingly.  Recent data from Solomonic suggested that more than 54% of Covid-related BI claims were still in active dispute as at 11 March 2026^[4] and it will be interesting to see how that percentage shifts in light of the Bath Racecourse judgment.  It is not impossible that further case law in the BI space may yet be generated by the cases which remain live (whether issued or in standstill), although this now seems increasingly unlikely.  There has certainly been no shortage of other global events since Covid to present yet more stark challenges to insurers, policyholders and brokers alike.

[1] Gatwick Investment Limited & Ors v Liberty Mutual Insurance Europe SE [2026] UKSC 14 (22 April 2026)
[2] Stonegate Pub Company Ltd v Ms Amlin Corporate Member Ltd & Ors [2022] EWHC 2548 (Comm) (17 October 2022)
[3] The Financial Conduct Authority & Ors v Arch Insurance (UK) Ltd & Ors [2021] UKSC 1 (15 January 2021)
[4] Covid-19 Business Interruption Claims: Six Years of Litigation Trends — Solomonic