Covid BI litigation nears conclusion as court prepares for furlough appeals

By Ryan Hewlett

Jan 28 - (The Insurer) - England’s Court of Appeal will later today begin hearing a legal challenge brought by businesses over whether their insurers are able to deduct furlough payments from payouts under business interruption policies.

A cohort of policyholders – including Bath Racecourse Company, Starboard Hotels and Gatwick Investments – will seek to argue that insurers should not be entitled to deduct the benefit of furlough payments received during the Covid-19 pandemic.

The court will be asked to consider the two forms of government support made available to businesses during the pandemic.

Firstly, the Coronavirus Job Retention Scheme, which provided grants to employers to retain and pay staff furloughed during lockdowns; and secondly, the Business Rates Relief scheme, which granted relief for payment of business rates to businesses affected by Covid-19.

The case is important and has potentially far-reaching consequences for the insurance market as it is the first time that the Court of Appeal will be asked to determine whether it is correct that insurers should be entitled to deduct the sums policyholders received from the government’s schemes.

The appeal concerns insurers Liberty Mutual Insurance Europe, Allianz and Aviva. The insurers are arguing that the wages and business support received by the insureds should be deducted from the sums recoverable under the policies.

The policyholders are seeking to overturn a January 2024 Commercial Court ruling handed down by Justice Jacobs, who found in favour of insurers, reasoning that payment of furlough monies to the policyholder engaged the savings provision in the policy wording.

The case before the Court of Appeal will be heard in London over two days starting Tuesday in front of three of England’s most senior judges: Lord Justice Popplewell, Lord Justice Phillips and Sir Julian Flaux.

The English Commercial Court has delivered a number of notable decisions addressing insurers’ treatment of the government support received by policyholders, however none have reached the Court of Appeal.

Most notable to date was the lower court finding in Stonegate’s £1.1bn legal action against MS Amlin and others, along with Various Eateries’ claim against Allianz, both of which concerned the effect of government support payments and whether it was necessary to take such payments into account when calculating sums recoverable under the relevant policies, either under the terms of the policies or the general law on subrogation.

As previously reported, the court found in favour of insurers in the landmark Stonegate action, reasoning that payment of furlough to the policyholder engaged the savings provision in the policy wording. Permission to appeal was granted to Stonegate, but the case settled before reaching court.

The cases being heard at appeal are Bath Racecourse Company Ltd & ors v Liberty Mutual Insurance Europe SE and ors, Starboard Hotels Ltd & ors v Liberty Mutual Insurance Europe SE, and Gatwick Investments Ltd & ors v Liberty Mutual Insurance Europe SE.