Separate Insured Limits in Composite Policies and the Concurrency of Causation in Furlough Benefit Assessments

Introduction

In Liberty Mutual Insurance Europe SE & Ors v Bath Racecourse Company Ltd & Ors ([2025] EWCA Civ 153), the England and Wales Court of Appeal (Civil Division) addressed a series of complex issues arising from business interruption insurance claims related to the Covid-19 pandemic. The consolidated appeals involved multiple insurers and claimants from distinct sectors – including hotels, racecourses, and related hospitality facilities – which were insured under composite policies.

Key issues focused on (i) whether policy limits specified for certain extensions – such as Denial of Access (DOA) and Prevention of Access (Non-Damage) (POAND) clauses – applied on a per insured basis or as a single aggregate limit, and (ii) whether payments made under the Government’s Coronavirus Job Retention Scheme (CJRS), commonly referred to as furlough payments, should be deducted under the savings clause in the policies. The case, tried in the Commercial Court at first instance, raised questions of contractual construction, application of legal precedents, and the economic realities underlying the indemnity principle.

Summary of the Judgment

The Court of Appeal ultimately dismissed both the insurers’ appeals on policy limits and the insureds’ furlough appeals. The judgment confirmed that:

The composite nature of the policies did not imply a single, aggregate limit; rather, each insured was covered by a separate contract within the composite policy. Accordingly, the limits on the DOA and POAND clauses – including the amended higher limit in the Bath Racecourse policy – apply individually to each insured.
With respect to furlough payments under the CJRS, the court followed previous decisions (notably Butcher J’s analysis in Stonegate) by holding that such payments reduce the insured’s wage costs as a “saving” under the applicable savings clause. In the court’s view, when the Government reimbursed the employer for 80% of wage expenditures, there was an effective reduction in costs, thereby affecting the indemnity calculation.
The reasoning underpinning the insured peril was interpreted in light of a concurrent causation approach. The insured’s loss was determined by a combination of the insured peril – defined by a composite of elements including local Covid-19 cases, government restrictions, and interference with business operations – together with the effects of the furlough scheme.

Analysis

Precedents Cited

The judgment draws heavily on established authority and case law. Key precedents include:

New Hampshire Insurance Co Ltd v MGN Ltd and the later decision in Corbin & King Ltd v AXA Insurance UK plc – where the courts addressed the nature of composite policies. These cases supported the proposition that separate contractual relationships are created under one policy document, allowing for individual limits.
The Court’s reliance on the reasoning in Stonegate Pub Company Ltd v MS Amlin Corporate Member Ltd and others was fundamental for the furlough payments issue. Butcher J’s analysis emphasized that CJRS payments, despite being received from a government scheme, reduce employment costs and must be credited under the savings clause.
Notably, reference was made to decisions from jurisdictions such as Australia (LCA Marrickville Pty Ltd v Swiss Re International SE and Princess Theatre Pty Ltd v Ansvar Insurance Limited) as well as considerations from older cases like Samuel v Dumas to underscore the long-established interpretation of composite insurance. Although some international cases raised contrasting views, the Court of Appeal clarified that English law as applied in this context aligns with the view that each insured’s contract stands on its own.

Legal Reasoning

The court’s reasoning rested on two major pillars:

Construction of Composite Policies: The Court concluded that a composite policy is not a single insurance contract with one overarching limit but rather a series of distinct contracts, each covering the individual interests of multiple insureds. The absence of language suggesting an aggregate limit meant that the insured parties could reasonably expect their policy limits to apply exclusively to their own losses. The judgment emphasized that if a shared limit was intended then clear and explicit wording – such as “in the aggregate” or provisions dealing with competing claims – would have been present.
Application of the Savings Clause and Concurrent Causation: The Court analyzed whether CJRS payments should reduce the indemnity payable. Drawing on the principles laid out in the FCA test case and the decision in Stonegate, the court adopted a concurrent causation approach. It held that even if the components of the government scheme did not strictly mirror every element of the insured peril, the economic consequence was identical—the insured’s wage costs were effectively reduced. Hence, the payments, regardless of being received post-factum or from a third-party source (the Government), were to be credited in calculating the loss.

Impact on Future Cases and the Relevant Area of Law

This judgment reinforces two key legal principles that will have significant implications on future business interruption claims:

Separate Limits in Composite Policies: Insurers and brokers will now need to take into account that, absent express language indicating otherwise, composite policies will be construed as comprising separate contracts for each insured. This will likely influence policy drafting, underwriting risk assessments, and claims handling.
Concurrent Causation in Savings Clauses: The decision clarifies that in the calculation of losses under business interruption policies, government schemes such as the CJRS are seen as reducing business expenses. This sets a clear precedent that the reduction in cost—regardless of the source of funding—should be accounted for, reinforcing the principle of indemnity.

Complex Concepts Simplified

Several legal concepts central to the decision are clarified below:

Composite Policy: Rather than being a single policy that pools all insured risks under one limit, a composite policy is understood as a single document that, by its construction, creates separate, individual contracts for each insured party. Each insured’s claim is limited to its own exposure.
Savings Clause: This clause requires that any savings (i.e. reductions in costs) resulting from the insured peril be deducted from the indemnity payable. In this case, since the CJRS payments effectively reduced the wage burden—an operating expense—the reduction must be recognized.
Concurrent Causation: Instead of requiring a “but for” causation test, the court applied a concurrent causation analysis. This means that if multiple factors (such as the insured peril and government-imposed restrictions) jointly cause the loss, it is sufficient to show that the loss is the product of the combined effects.

Conclusion

The Court of Appeal's decision in Liberty Mutual Insurance Europe SE & Ors v Bath Racecourse Company Ltd & Ors provides a clarifying precedent on two interrelated issues in business interruption insurance. First, it confirms that composite policies must be construed as creating individual contracts with separate limits unless expressly stated otherwise. Second, it upholds that furlough payments received under the CJRS must be credited against a claim under the savings clause, as they effect a reduction in the insured’s wage cost.

These conclusions reinforce the fundamental principle that insurance contracts are to limit losses to what is actually incurred and prevent over-indemnification. The ruling not only aligns with earlier precedents such as New Hampshire, Corbin & King, and Stonegate but also sets a robust framework for the evaluation of similar claims arising from systemic events such as pandemics. In practical terms, both insurers and policyholders can expect that the drafting and interpretation of composite policies will be scrutinized closely to reflect the “per insured” effect. Moreover, the accepted view on concurrent causation will influence future disputes where governmental schemes interact with insured events, ensuring that commercial reality remains at the forefront of contractual interpretation.

In sum, this Judgment offers significant guidance for practitioners in the insurance industry and the judiciary alike. Insurers are reminded to articulate policy terms with clarity, while policyholders can rely on the principle that their individual limits are preserved even within composite arrangements. The decision’s approach to concurrent causation and the treatment of government reimbursement schemes under the savings clause solidifies the legal landscape for business interruption claims in a post-Covid era.