Authored by Patrick Bracher.
In April 2026 the UK Supreme Court decided that Covid 19 furlough payments made by the UK government under their job retention scheme to reimburse employers for a significant proportion of the wages and costs of employing staff furloughed during the pandemic were to reduce the sums otherwise payable by insurers for business interruption cover provided for Covid 19 interruption losses.
The policies under consideration included clauses requiring the deduction charges or expenses saved during the indemnity period from the amounts payable.
The basis of the decision was the indemnity principle that a policy should be interpreted as providing an indemnity for the loss suffered and not for more than such loss. Indemnification against loss is the purpose of most types of non-life insurance policies, including business interruption policies. Under the savings clause, the furlough payments “reduced” the charges or expenses of the policyholder’s business and were deducted from the loss and therefore from the amount to be indemnified by the insurers.
The reduction occurred in consequence of the “damage” or “incident” insured, namely the prevention of access clause in the policies. Secondly, both the losses and the payment of the furlough amounts proximately resulted from the insured peril. The court rejected the argument that the government payments were collateral benefits because they were allegedly paid gratuitously, benevolently or voluntarily. The court held that any payment made by a third party to the insured in respect of the insured loss, even if made voluntarily or gratuitously, will diminish the loss and enure for the benefit of the insurer except where the intention of the third party in making the payment, expressly stated or inferred, that it was to benefit only the insured to the exclusion of the insurer. This was not the case for government-made payments which were made to provide emergency support to businesses in the time of crisis with no express stipulation or other clear indication that the government wanted the money to go to the recipients without benefiting their insurers. It was untenable to characterise the government payments as voluntary donations nor gratuitous payments when they were made pursuant to a legal obligation.
The same result, on similar reasoning, would follow in South Africa in relation to the TERS payments. Under South African law, some gratuitous or voluntary payments are not taken into account, but this is not one of those circumstances.