Bath Racecourse Ltd v Liberty Mutual Insurance Europe SE

The policyholders had suffered business interruption during the pandemic and claimed under their insurance. At the same time, furlough payments met part of their wage bill.

The question was not whether the businesses had experienced real loss. It was how the policy required that loss to be measured after accounting for costs saved because of the government support.

The Court applied the policies' savings clauses and the indemnity principle. The furlough payments were received because of the same interruption and reduced wage costs that would otherwise have been part of the insured loss.

That causal and economic connection meant the payments had to be brought into account. The appeal was dismissed unanimously.

The judgment concerned furlough, but the calculation problem is broader. After a fire, closure, cyber incident or supply interruption, a business may receive grants, supplier credits, rent relief, wage support, refunds or payments under another contract. It may also avoid expenses because trading stopped.

Whether an amount is deducted depends on the policy wording and its connection with the insured loss. The useful discipline is to identify every movement in the loss model and explain what caused it, rather than deciding in advance that a payment belongs inside or outside the claim.

A clean schedule makes disagreement easier to isolate. It also helps the business explain the claim consistently to its broker, accountant, insurer and legal team.