UK Supreme Court settles billion-pound question: furlough payments must be deducted from business interruption claims
Insurers across the UK market can now close the book on one of the most contested questions to emerge from the pandemic.
On April 22, 2026, the Supreme Court unanimously ruled that payments employers received under the Coronavirus Job Retention Scheme are to be deducted from business interruption insurance claims. The decision in Gatwick Investment Ltd and others v Liberty Mutual Insurance Europe SE [2026] UKSC 14 upholds the position that has already been applied market-wide, with an estimated £1 billion in deductions made on this basis.
The case brought together two sets of policyholders. Six hotel operators held policies with Liberty Mutual. Twenty-two companies in the Arena Racing group - which run racecourses, greyhound racing tracks, golf clubs, hotels, and a pub across England and Wales - were insured under a composite policy underwritten by Liberty Mutual, Allianz Insurance, and Aviva Insurance. All had business interruption cover that included prevention of access clauses. And all had received furlough payments after the government shut down large parts of the economy in 2020.
The fight was over the savings clauses in these policies - standard wordings derived from the Association of British Insurers template. In simple terms, those clauses say that if expenses of the business cease or reduce because of the insured event, the savings get knocked off the insurer's payout. The insurers said furlough payments did exactly that: they reduced the wage bill, so the savings should be deducted. The policyholders disagreed, arguing that the wages were still paid in full and that the CJRS reimbursements were separate income that had nothing to do with the insured peril.
The Supreme Court sided with the insurers on every front. On construction, the Court accepted that both readings of the savings clauses were linguistically possible but found the insurers' interpretation far more commercially sound. Looking at economic substance, the Court said the government was plainly bearing a share of the wage costs, and the policyholders' reading would produce arbitrary results most unlikely to have been intended. It was an agreed fact that without furlough payments, these businesses would have made some employees redundant - generating savings that would have reduced their claims anyway.
On causation, the Court was blunt. The policyholders had relied on the FCA Test Case to establish that their losses were caused by the insured peril. But they then turned around and tried to use the very "but for" test of causation that the Supreme Court rejected in that same decision - this time to argue that the furlough savings were not caused by the insured peril. The Court called this internally inconsistent and dismissed it.
The policyholders also tried to characterise furlough payments as voluntary, gratuitous government support that should be treated as collateral benefits and left out of the calculation. That argument did not survive scrutiny either. The Court found that CJRS payments were made as a matter of legal obligation, not charity. Employers who met the qualifying conditions had a statutory entitlement to reimbursement. That is not a gift.
The ruling puts the matter beyond doubt for insurers, loss adjusters, and brokers still handling Covid-era claims. The standard ABI savings clause wording works as the market has been applying it. Furlough payments reduce the insured loss. The £1 billion in deductions already made stands on solid ground.
