Gatwick Investment Ltd and others v Liberty Mutual Insurance Europe SE; Bath Racecourse Company Ltd and others v Liberty Mutual Insurance Europe SE and others

Under a business interruption policy, a savings clause referring to charges or expenses which cease or reduce is concerned with the economic burden borne by the insured, not merely its legal liability. Government reimbursement of employment costs may therefore constitute a saving.

The same test of proximate causation applies to insured losses and associated gains. A third-party payment relating to the insured loss benefits the insurer unless the payer objectively intended it solely for the insured. Payments made as of right under a statutory scheme are not voluntary or benevolent collateral benefits merely because the scheme was introduced voluntarily.

Businesses operating hotels, racecourses and other venues claimed indemnities for interruption caused by government action during the Covid-19 pandemic. Their insurers accepted that the relevant prevention or denial of access clauses responded, but maintained that payments received under the Coronavirus Job Retention Scheme had to be deducted under the policies’ savings clauses.

Jacobs J decided preliminary issues for the insurers in [2024] EWHC 124 (Comm). The Court of Appeal dismissed the policyholders’ appeal in [2025] EWCA Civ 153. The policyholders appealed on two questions: whether the reimbursements reduced charges or expenses, and whether any reduction was proximately caused by the insured peril rather than constituting a collateral benefit.

1. The appeals were dismissed. The savings clauses required payments received under the Coronavirus Job Retention Scheme to be deducted when calculating the indemnities. Lord Hamblen, Lord Leggatt and Lord Burrows gave the joint judgment, with which Lord Reed and Lord Briggs agreed.

2. The objective construction principle stated in Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1 remained applicable. Its reference to an ordinary policyholder did not replace the reasonable person in the position of the parties with a construction focused on one contracting party. Where quantification language has more than one possible meaning, the indemnity purpose of insurance may properly favour the meaning which better avoids over-indemnification.

3. “Reduced” referred to the economic burden of charges or expenses, not only to a reduction in the insured’s legal liability. Reimbursement produced the same economic outcome as payment by another person or waiver of the obligation. This construction accorded with the commercial context, the purpose of the savings clauses and the fact that the scheme bore a specified share of employment costs. Accounting or tax treatment did not determine the parties’ agreement.

4. “In consequence of” required proximate causation. The same test applied to gains under the savings clause as to losses under the insuring clause. Applying the same-underlying-fortuity analysis from the FCA test case, the insured peril caused the policyholders to furlough employees and receive the reimbursements. The contrary argument impermissibly relied on the “but for” reasoning rejected when establishing cover.

5. The policy’s quantification provisions formed a complete code, although general principles of legal causation informed the meaning of proximate cause. Under the insurance authorities, a third-party payment concerning insured loss diminishes that loss, even if voluntary or gratuitous, unless the payer objectively intended to benefit the insured alone and exclude the insurer.

6. That exception did not apply. The scheme contained no stipulation that payments were confined to uninsured losses or reserved solely for employers. More fundamentally, qualifying employers had a legal entitlement to payment from HMRC. The payments were neither gifts nor benevolent donations and flowed from the circumstances which entitled the employers to claim them. They therefore reduced the businesses’ expenses in consequence of the insured peril.

1. United Kingdom Supreme Court: In [2026] UKSC 14, unanimously dismissed the policyholders’ appeals and affirmed that furlough payments were deductible under the savings clauses.
2. Court of Appeal: In [2025] EWCA Civ 153, dismissed the appeals from Jacobs J. Sir Julian Flaux C gave the leading judgment, with which Popplewell and Phillips LJJ agreed.
3. High Court, Commercial Court: Jacobs J decided the preliminary savings-clause issues for the insurers in [2024] EWHC 124 (Comm).