The Supreme Court has handed down an important judgment for the insurance industry in Gatwick Investment Limited & Ors v Liberty Mutual Insurance Europe SE [2026] UKSC 14.
The issue was whether furlough payments paid by the UK Government under the Coronavirus Jobs Retention Scheme (“CJRS”) fell to be deducted from the amounts otherwise payable by insurers to insureds for business interruption losses suffered as a result of the Covid-19 pandemic. Approximately £1bn has been deducted by insurers from claims paid to policyholders on the basis that furlough payments reduce the losses suffered.
The Supreme Court, upholding the judgments of Jacobs J and the Court of Appeal, held that furlough payments fell to be deducted.
The Court accepted the insurers’ case that the payments engaged the savings clauses: the furlough payments caused the insureds’ wage costs to ‘cease’ or ‘reduce’ and the payments were ‘in consequence of’ the insured peril, and rejected policyholders’ arguments that furlough payments were collateral or res inter alios acta.
In their judgment, the Supreme Court clarified the approach to the construction of contracts of insurance which it had set out in FCA v Arch [2021] UKSC 1. At paragraph 40, Lords Hamblen, Leggatt and Burrows (with whom Lords Reed and Briggs agreed) explained that the previous judgment of the Court was: “not seeking to suggest that the objective approach to construction involves focusing on one party, the “ordinary policyholder”, rather than the construct of a reasonable person in the position of the parties”.
The full judgment can be found here.
Josephine Higgs KC (together with Jeffrey Gruder KC of Essex Court Chambers) appeared for Gatwick Investment Limited, instructed by Roger Franklin and Lauren Allan of Edwin Coe LLP.
