Liberty Mutual Insurance Europe SE & Ors v Bath Racecourse Company Ltd & Ors

Factual and Procedural Background

These five appeals arise from the decision of Judge Jacobs dated 26 January 2024 concerning multiple business interruption insurance claims related to the Covid-19 pandemic. The claims were case managed and tried together in the Commercial Court, addressing preliminary issues. The insurers appealed on policy limit issues under two policies, while the insureds appealed on whether Government Coronavirus Job Retention Scheme ("CJRS") furlough payments must be deducted under the policies' savings clauses.

The Starboard claimants consist of twenty-one companies operating hotels in England; the Gatwick claimants comprise six insured companies also operating hotels in England; and the Bath Racecourse claimants include twenty companies operating racecourses and related facilities in England and Wales. Liberty Mutual is the main insurer defendant, along with Allianz and Aviva for the Bath Racecourse claimants, under various policies covering periods from 2019 to 2020.

The Covid-19 outbreak led to government-imposed restrictions starting 21 March 2020, including closures of hospitality venues and strict social distancing measures, culminating in a 10pm curfew from 24 September 2020. The CJRS was announced on 20 March 2020 and enacted by Treasury Direction on 15 April 2020, reimbursing employers up to 80% of wages for furloughed employees not working for more than 21 days, capped at £2,500 per month per employee.

The insurance policies contain various cover provisions, including Denial of Access (DOA) and Prevention of Access (Non-Damage) (POAND) clauses, with specified limits and maximum indemnity periods. The Bath Racecourse policy includes a savings clause requiring deduction of any charges or expenses of the business that cease or reduce due to damage. The Starboard and Gatwick policies have similar savings clauses referencing the insured peril.

The judgment below addressed narrow issues concerning whether policy limits apply per insured or aggregate across insureds, the interpretation of amendments to policy limits, and whether furlough payments under the CJRS reduce indemnity payable under the savings clauses. The court also considered relevant authorities and submissions from both parties on these issues.

Legal Issues Presented

1. Whether policy limits under composite insurance policies apply separately to each insured or as a single aggregate limit across all insureds.
2. Whether the amendment to the Denial of Access clause in the Bath Racecourse policy changed the limit from "any one loss" to an aggregate limit tied to a maximum indemnity period.
3. Whether the Claims Preparation Clause limit is per insured or an aggregate limit.
4. Whether payments received under the Government Coronavirus Job Retention Scheme (CJRS) must be deducted under the policies' savings clauses.
5. Whether CJRS payments are causally connected ("in consequence of") to the insured peril for the purpose of the savings clauses.
6. Whether CJRS payments are collateral or benevolent gifts and thus excluded from deduction under the savings clauses.

Arguments of the Parties

Insurers' Arguments

• The reasonable policyholder would not expect multiple limits simply because the policy is composite; limits should be aggregate unless expressly stated otherwise.
• The amendment in Condition 22 to the Bath Racecourse policy removed the "any one loss" wording, converting the limit to an aggregate limit tied to a maximum indemnity period.
• The Claims Preparation Clause limit is an aggregate limit applicable collectively to all insureds.
• CJRS payments do not reduce employment costs because the insured still pays wages; the payments are merely reimbursements or funding, not cessation or reduction of costs.
• The causation requirement for deductions under the savings clause is not satisfied because eligibility for CJRS depends on financial criteria unrelated to the insured peril.
• CJRS payments are not collateral or benevolent gifts but statutory payments; however, collaterality is intertwined with causation and does not exclude deduction if causation is established.

Insureds' Arguments

• The composite policy creates separate contracts of insurance for each insured, each with its own distinct limits.
• The amendment in Condition 22 did not remove the "any one loss" basis but only increased the limit and added a maximum indemnity period.
• The Claims Preparation Clause limit applies per insured, not in aggregate.
• CJRS payments do not cause employment costs to cease or reduce as the insured continues to pay wages; the payments are external funding and should not reduce indemnity.
• The payments are not "in consequence of" the insured peril because eligibility for CJRS does not require proving the insured peril elements; the payments are collateral or res inter alios acta.
• Precedent and legal principles support a narrow construction of savings clauses and a presumption against over-indemnification.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
New Hampshire Insurance Co Ltd v MGN Ltd [1996] CLC 1692; [1997] IRLR 24	Composite policies create separate contracts of insurance for each insured; limits generally apply per insured.	The court accepted the principle that composite policies comprise separate contracts with separate limits for each insured.
Corbin & King Ltd v Axa Insurance UK plc [2022] EWHC 409 (Comm); [2023] 1 All ER (Comm) 429	Composite policies are treated as a series of contracts with separate limits per insured; expectation of separate limits.	The court followed this reasoning and rejected insurers' arguments against multiple limits in composite policies.
Technip Saudi Arabia Ltd v The Mediterranean & Gulf Insurance and Reinsurance Co. [2023] EWHC 1859 (Comm); [2024] EWCA Civ 48	Composite policy with explicit provision of aggregate limits; limits apply collectively to all insureds.	Distinguished on facts; no such express aggregate limit in the present policies.
Stonegate Pub Company Ltd v MS Amlin Corporate Member Ltd [2022] EWHC 2548 (Comm); [2023] 1 All ER (Comm) 981	Savings clause requires deduction of furlough payments; CJRS payments reduce employment costs.	The court followed Butcher J's decision and reasoning on the effect of CJRS payments under savings clauses.
Financial Conduct Authority v Arch Insurance (UK) Ltd and ors [2021] UKSC 1; [2021] AC 649 ("FCA test case")	Concurrent causation approach to insured peril and trends clauses; proximate cause test.	The court applied the Supreme Court's concurrent causation test to both coverage and savings clause causation.
Burnand v Rodocanachi (1882) 7 App Cas 333	Third party payments intended solely for insured's benefit may be excluded from reducing insurer's liability.	The court distinguished CJRS payments from benevolent gifts, holding they reduce insurer liability.
Merrett v Capital Indemnity [1991] 1 Lloyd's Rep 169	Payments made solely for insured's benefit and not to reduce insurer's loss are disregarded in loss assessment.	The court found CJRS payments were not analogous to such payments and must be deducted.
Hodgson v Trapp [1989] AC 807	State benefits generally reduce claimant's loss under insurance policies.	The court treated CJRS payments similarly as reducing the insured's loss.
Lowick Rose LLP v Swynson Ltd & Anor [2017] UKSC 32; [2018] AC 313	Collateral payments may not reduce loss if intended solely for insured's benefit.	The court rejected the insureds' submission that CJRS payments were collateral and excluded from deduction.
Samuel & Co Ltd v Dumas [1924] AC 431	Principle that innocent parties can recover under separate contracts within composite policies.	Supported the view that composite policies create separate contracts with individual limits.
Castellain v Preston (1883) 11 QBD 380	Test for whether third party payments reduce insurer's liability based on whether they diminish insured's loss.	The court applied this principle in analysing whether CJRS payments reduce loss recoverable under policy.

Court's Reasoning and Analysis

The court began by affirming that composite policies legally constitute a series of separate contracts of insurance, each insuring a distinct insured's interest. This was supported by binding authorities and was common ground. The court rejected the insurers' argument that limits under the composite policies were aggregate across all insureds, concluding instead that the DOA and POAND clause limits apply separately to each insured, consistent with the nature of the composite policy and commercial common sense.

Regarding the Bath Racecourse policy amendment (Condition 22), the court found that the "any one loss" wording was not deleted or replaced but remained in effect, with the amendment increasing the limit to £2.5 million and adding a maximum indemnity period. The absence of explicit language deleting "any one loss" and the context of other conditions supported this conclusion.

The Claims Preparation Clause limit was held to be per insured, consistent with the composite policy structure and the court's findings on limits.

On the furlough payments issue, the court followed the reasoning of Butcher J in Stonegate, holding that CJRS payments reduce employment costs "pro tanto" and thus fall within the savings clauses. The court rejected the insureds' argument that costs did not cease or reduce because the insured still paid wages, emphasizing commercial and economic reality that the Government's reimbursement effectively reduced the insured's wage expenses.

In considering causation, the court applied the Supreme Court's concurrent causation analysis from the FCA test case, concluding that CJRS payments were brought into being in consequence of the insured peril—a composite peril involving Covid cases within a radius, government restrictions, and resulting prevention or hindrance of use or interference with business. The court rejected the insurers' narrow focus on eligibility criteria for CJRS payments, emphasizing that causation is to be assessed with respect to the insured peril as a whole.

The court further rejected the insureds' argument that CJRS payments were collateral or benevolent gifts, distinguishing the statutory and public law nature of the furlough scheme from voluntary or ex gratia payments. It held that, absent evidence that the Government intended to benefit only the insureds to the exclusion of insurers, the payments reduce the insurers' liability under the policies.

Holding and Implications

The court DISMISSED both the insurers' appeals and the insureds' furlough appeals.

The holding confirms that under composite insurance policies, policy limits apply separately to each insured unless explicitly stated otherwise. Amendments to policy limits must be clearly articulated to alter the basis of coverage, such as changing from "any one loss" to aggregate limits. The court affirmed that furlough payments under the Government Coronavirus Job Retention Scheme reduce the indemnity payable under savings clauses, applying a proximate cause/concurrent causation analysis consistent with established Supreme Court authority. Payments of this nature are not collateral or benevolent gifts exempt from deduction.

The decision reinforces principles of insurance contract construction focusing on commercial reality, the nature of composite policies, and consistent application of causation tests. It does not establish new precedent but applies and confirms existing legal principles to the particular facts of Covid-19 related business interruption claims.