Business interruption cover - furlough payments and savings clauses

We saw further Court judgments in 2025 on Covid-19 BI policy coverage points, in particular as to policy triggers, aggregation and the treatment of furlough payments.

Summary

In Bath Racecourse Co Ltd & Others v Liberty Mutual Insurance Europe SE & Others the Court of Appeal construed policy wording to find that policy limits applied separately to each insured entity rather than aggregating across all insureds. The Court of Appeal also held that Covid furlough payments fall to be deducted from the indemnity payable to the insured by reason of the savings clauses in the policies. Permission to appeal to the Supreme Court has been granted on the furlough point, with a hearing listed in February 2026.

In a subsequent first instance decision on different aspects of the same dispute the court concluded that (a) the British Racing and Greyhound bodies constituted “competent authorities” for the purposes of the denial of access cover; and (b) the reference in the limits being to “any one loss” meant a limit per each relevant measure or action and separately for each facility (i.e. each insured racecourse/golf course/hotel owned or operated by each claimant).

For the purposes of this update, we refer to the Court of Appeal Decision and the subsequent First Instance Decision by those terms.

Policy wording

This appeal arose from five conjoined Covid BI actions, a number of which we have looked at previously (see our round up of insurance law in 2024). By the time of this appeal, the remaining BI claimants comprised the “Bath Racecourse claimants”, insured by Liberty Mutual, Allianz and Aviva under Bluefin/Liberty wording, and the “Starboard claimants”, insured under Liberty’s Commercial Combined Policy wording (and the “Gatwick claimants” on essentially the same terms).

The key policy terms are summarised below.

Bath Racecourse (Bluefin) wording:

• Denial of Access (DOA) cover with limits of £1m "any one loss", amended by Condition 22 up to "GBP 2,500,000 and a maximum indemnity period of 3 months.";
• A savings clause which providing that "…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."
• A claims preparation clause (CPC), which stated that the insured’s costs "necessarily and reasonably incurred" in preparing a claim(s) would be paid subject to a limit of "GBP 50,000 in respect of any one claim or series of claims arising from a single occurrence."

Starboard wording:

• Cover under Prevention of Access (Non-Damage) "POAND" extension, which referred to "Business Interruption loss following interference with the Business carried out by the Insured in consequence of action …. following danger or disturbance within 1 mile of the Premises which shall prevent or hinder use of the Premises";
• Various endorsements identified a number of individual companies as named insureds, and a schedule listed a number of different sites as the insured premises; and
• The BI cover was written as “Gross Revenue including Increase in Cost of Working - Declaration Linked Basis… limited to a) Loss of Gross Revenue and b) Increase in Cost of Working …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.”

Competent Authority – the First Instance Decision

In the First Instance Decision, the court concluded that both the British Horseracing Authority and the Greyhound Board of Great Britain were “competent authorities” since they had power and a role in the relevant context which went beyond those of ordinary citizens. They have the power to make decisions and enforce obedience or compliance. The term “authority” did not imply that the body needed to be a public body nor that it was an “organ of the state”. The reasonable policyholder would have expected an industry body of these types to get involved in safety matters at public events over which they had a supervisory role, which included for example the power to require race meets to be cancelled.

Aggregation

Court of Appeal Decision

It was common ground that the policies were composite insurance. The Court of Appeal held that the starting point was that the composite policy “contains in one document what is, as a matter of legal analysis, a series of separate contracts of insurance insuring each of the insureds”.

The Court rejected insurers’ argument that the respective DOA and POAND clauses contained a single, aggregate limit in respect of all the individual contracts of insurance included within the composite policy. Properly construed, the policy limits for the DOA and POAND clauses applied separately to each insured entity rather than being an aggregate limit across all insureds.

Here, each of the policyholders only had an interest in its own premises, and no interest in premises operated by the other insureds. Whilst there is no general principle that composite policies are always interpreted in a particular way, in the absence of clear wording to the contrary, as here, the “reasonable policyholder” would not expect its own limits to be eroded by another policyholder’s claim. Had it been intended that there was only one shared aggregate limit for the DOA or POAND cover, one would have expected that to be clearly set out in the policy wording, together with some provision to deal with priority of competing claims.

The Court also rejected arguments that the Bath Racecourse policy should be construed so that the amendment to the DOA clause brought about by Condition 22 affected both the quantum of the limit and the basis on which it applied, by changing the limit from "any one loss" to "a maximum indemnity period of 3 months". If the intention had been to change the basis of cover so fundamentally - i.e. to move from "any one loss" per insured to an aggregate limit across all insureds – the Court considered that the wording would have made this clear. The opening words of the Condition "Notwithstanding anything contained herein to the contrary" did not override the “any one loss” words in the original clause.

First Instance Decision

With the Court of Appeal having concluded that there was no overall aggregate limit in the Policy, the court in the First Instance decision was faced with the challenge of determining further what was meant by the “any one loss” limit. In particular, did this mean a limit (a) per relevant measure or action; or (b) per premises; and/or (c) per affected race?

The issue of policy triggers and aggregation has proven to fundamental to many of the judgments issued following the Supreme Court judgment in the FCA Test Case. According to the court in the First Instance decision:

1. In Stonegate (and the associated cases, Greggs and Various Eateries) at first instance, Butcher J emphasised that policy trigger and aggregation are two different issues. The former means the “matters which give rise to a right to claim under a policy” (Stonegate), whereas aggregation means “a plurality of losses which fall to be aggregated as one [aggregated loss]” (Greggs). The relevant policy trigger turns on the policy wording and, in particular, the insured perils covered. For example, a policy that covers closure of all or part of an insured location might have the same number of policy triggers as there were locations closed. In contrast, a policy which insured against the actions or advices of a relevant authority to have prevented or hindered the use of or access to insured locations, the number of policy triggers was the number of actions or advices, not the number of closed locations.

2. In IEHL v Allianz, held that where there are separate locations and a radius clause, the ability to claim on the policy for each location would require proof of a relevant occurrence within the set radius. Crucially, that would be so whether the incidents in question were different in character (for example, an outbreak of Legionnaires’ disease in one location and a student riot in the other) or the same (two cases of Covid-19, one within the required radius of the first location, and the other meeting this requirement in relation to the second location).

3. In Unipolsai v Covea, the Court of Appeal concluded that individual loss occurs when a covered peril strikes the premises, with one occurrence irrespective of how long the financial loss is suffered for. In that case, where numerous nurseries were closed during lockdown, the initial closure following government action on 20 March 2020 was “functionally equivalent” to each nursey sustaining physical damage on that date. Where the cover is damage or non-damage BI, a single individual loss occurs once the business is interfered with by a closure and continues as a single loss until that interference with the business comes to an end.

Applying these principles, the judge concluded that:

• In any BI context, it is useful to ask how many loss calculations would be undertaken. For example, if there was a fire at a racecourse that would lead to one calculation comparing the amount that was in fact earned during the period of interference with the equivalent period in the previous year (with any necessary adjustments). If there was a fire, following by a new fire, there would be two loss calculations. The indemnity would not be calculated race-by-race.
• There is a separate loss calculation (with a new indemnity period) undertaken following each insured peril. Further, loss calculation is synonymous with loss in this context. This means that loss is what happens as a result of the policy trigger event. This is the interruption to the business caused by the insured peril, which generates one loss calculation. As such, the exercise is to identify the trigger event then work out how the indemnity will be calculated.
• Since the loss calculation seeks to determine the totality of the losses caused by the policy trigger event, it cannot mean the amount per race. It would not sensibly be argued that a new indemnity period was triggered for each race which remained interfered with as a result of a single policy trigger event. Nor could it sensibly be argued that the policy trigger event stopped affecting the revenue generated by the business at the end of each scheduled race meeting, and there was new indemnity period which commenced when the next scheduled race meeting was to take place.
• However, the limit did apply separately to each insured location. This turns on the wording for the cover. But in the current case, where there were various references to interference with the business at “the Premises”, this was construed to mean at the particular place the use of which has been prevented or hindered by the action of the relevant authority. This also probably meant that the limits applied separately per facility within the same Premises. This would follow the way in which the parties had divided up the facilities for the purposes of identifying maximum indemnity periods and aggregate sums insureds (although the judge made no findings in this regard).
• Regulations which reduced the level of restrictions did not give rise to new losses.

Furlough payments – Court of Appeal Decision

The Court of Appeal considered that the reimbursement of 80% of the insured’s wages bill via the furlough scheme constituted a saving under the respective savings clauses, properly construed. The charges or expenses of the insured's businesses were reduced by the payments as a matter of commercial and economic reality.

The insured’s arguments, for example that the insureds' employee costs did not "cease" and were not "reduced" by furlough payments, "embrace form over substance". The Court of Appeal cited, with approval, Butcher J’s conclusion in Stonegate that "…employment costs were at least 'reduced' pro tanto by reason of the payment of corresponding amounts under the [furlough scheme] ...the natural meaning of the definition, including its savings clause, is that it is referring to costs to the business. Insofar as such costs were defrayed by the government,…they were 'reduced'…”.

The Court of Appeal considered that a payment by a third party which reduces the loss of an insured will reduce the amount for which the insured can claim under the policy, unless it can be established that the third party, in making the payment, intended to benefit only the insured to the exclusion of the insurers.

The Court agreed that the savings clauses should be construed to accord with the basic principle that the policies are contracts of indemnity, and in so doing, rejected the insured’s arguments that the losses should be calculated by reference to the gross revenue formula set out in the policy. The clear intention of the policy wording is that adjusted figures for gross revenue under the formula "shall represent as nearly as may be reasonably practicable the results which but for the [Damage/Incident] would have been obtained during the relative period after the [Damage/Incident]”. The “policy is seeking to identify the actual loss suffered by the insured”.

On arguments as to causation and collaterality, the Court of Appeal adopted the concurrent causation analysis of the decision of the Supreme Court in the FCA Test Case. Taking as the starting point that the purpose of the savings clause is to ensure the deduction of sums saved “because the charges or expenses of the business have ceased or been reduced as a consequence of the insured peril”, those savings clauses should be construed consistently with the insuring clauses in the policies. The proximate cause test should apply to the savings clauses, focussing on whether the reduction in the charges and expenses of the businesses was in consequence of the insured peril. The furlough scheme was announced at the same time as the Government restrictions, and was intended to mitigate their effects, “so that the incidence of Covid-19 and the restrictions imposed as a consequence were a sufficient effective cause of the furlough scheme”.