On 22 April 2026, the United Kingdom Supreme Court (UKSC) handed down its unanimous judgment. In a decisive outcome for insurers, the UKSC held (in line with previous decisions of the Court of Appeal and Commercial Court) that furlough payments received by policyholders under the Coronavirus Job Retention Scheme (CJRS) must be deducted from business interruption claims by way of the relevant policies’ savings clauses.

The policyholders' appeals were dismissed on both grounds: first, the meaning and scope of the savings clauses in the relevant policies (the construction issue); and second, the required causal link between the insured losses and the savings derived from furlough payments (the causation issue). 

The judgment resolves one of the last major outstanding questions arising from the pandemic-era business interruption disputes. It will have significant implications for the thousands of claims that remain open and confirms the validity of the estimated £1 billion in furlough-related deductions that insurers have already applied across the market.

We consider each ground of appeal in turn below.

Construction 

The UKSC considered two formulations of the savings clause. The first provided:

“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.”

The second provided that the amount payable as indemnity shall be:

“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.”

Although the wording of the two clauses differed, both raised the same question: do CJRS furlough payments constitute a "reduction" in employment costs falling within the scope of these clauses, such that the payments must be deducted from business interruption claims?

The policyholders argued that their employment costs had not "ceased" or been "reduced" because they had incurred and paid those costs in full before being reimbursed by the Government by way of the CJRS payments. The UKSC rejected this argument and held that a reasonable person would not distinguish between being reimbursed for an expense and having the obligation waived or paid by a third party – the economic effect is the same. Business interruption cover is concerned with the economic impact of the insured peril on the policyholder’s business, and the nature of that cover provides important context for interpreting savings clauses. 

Importantly, the UKSC emphasised that the purpose of savings clauses, is best achieved by accounting for actual savings and assessing the factual economic position of the business, and not solely reductions in legal liability. Where two meanings were available, the UKSC preferred the construction that better served the indemnity principle and produced the more commercial result. The policyholders' interpretation risked permitting recovery in excess of actual loss and was therefore rejected. 

Causation

On causation, the UKSC found a straightforward causal connection between the business interruption losses and the savings from the insured peril. Instructing employees to cease work was a predictable and direct consequence of the insured peril, which reduced employment expenses through furlough payments in a manner analogous to redundancy. 

The policyholders' argument that furlough payments would have been received irrespective of the insured peril was rejected. The UKSC held that this was simply a repackaged "but for" test of causation – the very test rejected in the FCA Test Case. The correct test is one of proximate causation. 

Further, the UKSC considered that the policyholders' position was potentially internally inconsistent: they relied on proximate causation to establish their losses but reverted to "but for" causation to exclude furlough savings. 

The UKSC also rejected the characterisation of furlough payments as gratuitous collateral benefits. The court considered that, in order for the payments to be a collateral benefit the third-party payment would need to expressly intend to benefit the policyholder to the exclusion of the insurer – and nothing in the CJRS suggested such an intention. Furlough payments were not voluntary donations: eligible businesses had a legal right to the payments, and the Government had a corresponding legal obligation. The CJRS was designed to support the wider UK economy and was not an exercise in benevolent giving. 

Practical Implications

The practical effect is clear: CJRS furlough payments will be deducted from business interruption claims, reducing the sums recoverable by policyholders and potentially leaving them significantly out of pocket. More broadly, the decision signals that government support payments in future systemic loss events may similarly be treated as deductible savings, thereby narrowing the scope of effective business interruption cover at precisely the moments when businesses are most vulnerable. 

For those renewing their business interruption cover, the message is equally important. Policyholders and their brokers should scrutinise the pricing and terms of their policies at renewal, ensuring that policy wording, limits, and any savings or deduction clauses adequately reflect the risk that government support may be offset against claims. Preparation for the unexpected remains key; businesses must now build proactive liquidity buffers into their contingency planning, by treating government relief as a potential offset, and not an addition, to their insurance recoveries.