Supreme Court confirms furlough payments reduce business interruption insurance claims

In Gatwick Investment Ltd and Others v Liberty Mutual Insurance Europe SE [2026] UKSC 14 (“the Gatwick Case”), the Court unanimously dismissed an appeal by policyholders and confirmed that insurers are entitled to take furlough payments into account when assessing the amount payable under certain non‑damage BII policies.

The latest Court decision brings long‑running Covid‑19 BII litigation closer to an end and provides authoritative guidance on how government support measures interact with the indemnity principle in insurance. 

The judgment will be disappointing for some policyholders, but it also offers much‑needed clarity for future claims which involve consideration of government intervention and support to businesses during unprecedented times of business interruption.

The Background

The CJRS was introduced by the UK Government at the height of the Covid‑19 pandemic in 2020 to support employers whose businesses were disrupted by public health restrictions requiring lockdown.

Employers who furloughed staff were able to recover a substantial proportion of employee wage costs from the state.

At the same time, many businesses claimed under BII insurance policies for losses arising from lockdowns in 2020 and 2021, closures and restrictions on access. A series of legal challenges followed, beginning with the Financial Conduct Authority test case, as courts were asked to interpret policy wording in the unprecedented context of a global pandemic.

The specific issue in the Gatwick Case was whether furlough payments should reduce the amount payable under BII policies that included , these are provisions requiring insurers to deduct expenses “saved” during the indemnity period.

What was the issue before the Supreme Court?

The policyholders accepted that they had received furlough payments but argued that those payments should not reduce their BII insurance recovery.

In simple terms, they said:

• Their legal obligation to pay wages never reduced or ceased, even though the government reimbursed part of the cost; and
• Furlough payments were a form of state support intended to benefit businesses directly and should therefore be treated as “collateral benefits”, not losses avoided.

The insurers, by contrast, argued that furlough payments clearly reduced the businesses’ wage costs in economic terms, and that allowing policyholders to recover their full BII loss without accounting for those payments would result in over‑compensation under the policies in question.

The Supreme Court’s decision

The Supreme Court agreed with the insurers and confirmed that furlough payments must be deducted where the policy wording requires savings made by the insured business to be taken into account when considering the correct amount of the indemnity under the policy.

Two aspects of the judgment are particularly important.

• Economic reality over legal form

The Supreme Court endorsed a practical, commercial approach to interpreting savings clauses. It rejected the argument that liability must reduce “as a matter of law” before a saving can arise.

From an economic perspective, a business that pays wages and later recovers most of that cost from the state has genuinely saved the expense. Whether that saving arises because the obligation was never incurred, or because the cost was reimbursed later, is a matter of mechanics rather than substance.

The Court emphasised that BII insurance is concerned with the actual economic loss suffered, and savings clauses exist to prevent insurers paying more than that loss.

• Furlough payments are not collateral benefits

The policyholders also failed in their argument that furlough payments should be treated as collateral benefits, akin to charitable gifts or benevolent payments.

The Supreme Court held that CJRS payments do not fall into that category. They were made under a structured statutory scheme, subject to eligibility criteria, and were intended to support the economy as a whole, not to provide an additional windfall to insured businesses.

There was nothing to suggest that the government intended furlough payments to be insulated from insurance recoveries or to benefit policyholders to the exclusion of insurers, although some have suggested that insurers should not benefit from what was essentially UK taxpayers’ money.

Why this matters: furlough and BI insurance in practice

The decision in the Gatwick Case confirms that, where savings clauses apply, furlough payments which were made during the Covid-19 pandemic will usually reduce the recoverable BII loss claimed as arising as a result of the pandemic.

For many policyholders, this may reduce the value of pandemic‑related claims that remain outstanding or under review. For insurers, it provides clarity and finality on a question that has been litigated for several years.

More broadly, the case reinforces three important principles.

1. The indemnity principle remains central

The Supreme Court reaffirmed that insurance contracts are generally contracts of indemnity. 

Unless the policy clearly provides otherwise, the purpose of BII insurance is to put the insured back in the position it would have been in but for the insured event; they should be in no better and no worse a position than if the event had not occurred.

Allowing businesses to recover full wage costs from insurers while also retaining furlough payments would have undermined that principle.

2. Government support will usually be taken into account

The judgment in the Gatwick Case establishes a clear framework for analysing state support in insurance claims in England and Wales, especially in respect of BII policies.

Where government intervention reduces the financial impact of an insured peril in this jurisdiction, whether through furlough payments, grants, subsidies or otherwise, those amounts are likely to be taken into account unless the policy wording or the scheme’s structure points clearly in the opposite direction.

This judgment clearly has implications beyond Covid‑19. 

Future large‑scale events involving government support, such as natural disasters or economic emergencies, may raise similar issues.

3. Policy wording remains critical

While the outcome in the Gatwick Case turned on savings clauses, the Supreme Court was careful not to suggest that all state support will always be deductible from claims under insurance policies.

As with all insurance disputes, everything depends on the particular policy wording at issues. 

Policies without savings clauses, or with bespoke provisions dealing expressly with grants or subsidies, may produce different outcomes.

What this means for policyholders

Policyholders with unresolved BII claims should carefully review:

• The presence and wording of any savings clauses;
• How furlough payments were applied during the indemnity period; and
• Whether their claims already reflect those savings.

Businesses planning for future risk should also consider with their brokers how their insurance programmes would respond in scenarios involving state intervention.

What this means for insurers

For insurers, the decision provides authoritative confirmation that savings clauses operate in line with economic reality, and that furlough payments are not immune from deduction simply because they originate from the state.

It should reduce uncertainty in claims handling and assist in resolving outstanding disputes.

Final thoughts

We are now over six years on from the start of the pandemic and in the Gatwick Case judgment, the Supreme Court has delivered a clear and pragmatic judgment that brings one of the final Covid‑19 BII battles to an end.

While not all policyholders will welcome the outcome, the decision provides certainty, reinforces well‑established insurance principles, and offers a coherent approach to the interaction between insurance and government support.

For future national crises, that clarity may prove to be one of the judgment’s most lasting contributions.

Limitation

There is one critical factor now faces policyholders: the limitation date. 

The contractual limitation period refers to the specific timeframe during which a party must bring a claim or commence Court proceedings, failing which the right to pursue the claim may be lost. 

The statutory limitation period for a breach of contract claim is set out in the Limitation Act 1980 and allows for a period of six years from the date on which the breach occurred for an action to be brought. In summary, this may be the date upon which the claim was first made under the BII policy or the date upon which the claim was refused by the insurer.  Many BII related claims may therefore have lapsed in March or April 2026, although some policyholders may still have some (but not much) time left to make their claims.