Composite insurance and savings clauses: latest Court of Appeal guidance

The Court of Appeal's decision in Liberty Mutual Insurance Europe SE v Bath Racecourse Company Ltd [2025] EWCA Civ 153 provides important guidance to the insurance market on two issues: the nature of composite insurance, and the approach to construing savings clauses in business interruption policies. 

This is another decision arising from the business interruption claims made after the Covid-19 pandemic, and was an appeal of the judgment of Mr Justice Jacobs in Gatwick Investment Ltd & Ors v Liberty Mutual Insurance (and related cases) [2024] EWHC 124 (Comm). Both insurers and policyholders appealed aspects of this first instance decision. 

The Court of Appeal dismissed all the appeals (of both policyholders and insurers), and made the following findings:

• Composite policies: A composite policy is a single document comprising "a series of contracts of insurance with each policyholder insured separately". Each insured is entitled to individually access the policy sub-limits unless there is clear wording to the effect that limits are intended to apply in the aggregate across all insureds. 
• Furlough payments: The policyholder's entitlement to cover is reduced to the extent they received payments under the UK Government's Coronavirus Job Retention Scheme. The savings clause in the relevant policies stated that insureds must account for any cessation or reduction in the charges incurred by their business, "in consequence of" the insured peril. The restrictions were a sufficient cause of the furlough scheme, and the prevention or hindrance of access to the insured's premises flowed from the restrictions imposed by the Government.
• Amendments to aggregation wording: In one of the policies, the denial of access clause had been amended to increase the limit from £1 million "any one loss" to £2.5 million, with a 3-month maximum indemnity period. The amended version of the clause omitted the words "any one loss". The Court held that the increased limit could be accessed per loss and the amendment did not have the effect of imposing an aggregate cap of £2.5 million across all losses in the policy period. Changing the basis of cover for an insured peril from "any one loss", applicable separately to each loss suffered by each insured, to an aggregate limit (for that particular insured peril) applicable to all insureds, was a fundamental change. If the parties intended to change the basis of cover so significantly, that would have been made clear in the policy wording. This meant that each policyholder was therefore entitled to access the £2.5 million limit per "any one loss".

The Supreme Court has now granted permission to appeal on the issue of whether furlough payments made under the Government Coronavirus Job Retention Scheme fall to be deducted from the amount payable in insurance claims for business interruption losses suffered by companies as a result of the Covid-19 pandemic. 

BACKGROUND AND FIRST INSTANCE DECISION

The first instance proceedings involved seven different claimant groups, each of whom sought cover for Covid-19 losses, under prevention of access (non-damage) or denial of access clauses in their respective business interruption policies. The claimant groups encompassed a range of businesses, including owners and operators of hotels (Gatwick and Starboard claimants), bowling and golf centres (Hollywood Bowl), retailers (Liberty Retail), pubs (Fuller Smith & Turner), and racecourses (Bath Racecourse claimants). Each had experienced trading losses due to the Covid-19 pandemic and ensuing government restrictions. 

At first instance, Mr Justice Jacobs made a number of findings in relation to causation, available limits, and furlough payments, including:

• Covid-19 restrictions imposed by the UK Government in 2020 comprised an action of a "statutory authority", within the meaning of the prevention of access clause. 
• It was common ground between the parties that the policies were composite policies. Ordinarily, a composite policy will provide each insured with independent access to each sub-limit (approving the reasoning of Cockerill J in Corbin & King v AXA Insurance Plc [2022] EWHC 409 (Comm)). Whilst a policy could, theoretically, contain wording which provided for a "shared" limit across all the insureds, no such wording was present in the relevant policies. This meant that the prevention of access and denial of access limits could be accessed by each individual insured, to the stated limit, during the policy period.
• The savings clauses in the policies required the claimants to account for payments received under the Government's Coronavirus Job Retention Scheme (CJRS). These furlough payments (as they were referred to) reduced the claimants' loss (approving the reasoning of Butcher J in Stonegate Pub Company v MS Amlin [2022] EWHC 2548 (Comm)). 
• One of the policies contained a denial of access clause which had been amended from a limit of "GBP 1,000,000 in respect of…any one loss" to "GBP 2,500,000 and a maximum indemnity period of 3 months". The question was whether the amendment had the effect of removing the "any one loss" element to the limit. If the amendment did effectively remove that element, then (as insurers argued) the clause only provided cover of £2.5 million in total, across the life of the policy, irrespective of how many "losses" had occurred. On the other hand, the policyholders argued that the words "any one loss" had not been substantively deleted and replaced, and that the clause provided cover of £2.5 million for any one loss (and subject to a maximum indemnity period), which could theoretically be accessed multiple times (if there were multiple losses). Jacobs J agreed with policyholders, finding that the clause provided cover of £2.5 million per any one loss, and did not impose an aggregate limit in respect of that insured peril. The relevant amendment did not provide a full replacement text or delete the original wording. It simply increased the limit and imposed a maximum indemnity period, but did not change the basis on which losses were to be aggregated under the clause.
• Notwithstanding that the prevention of access clause contained the words “Provided that the Company shall not be liable under this extension for more than the amount shown against this extension in the Schedule” the policy did not impose an annual aggregate on the amount that insurers would be liable to pay. Those words were ultimately subject to the Schedule, which provided for a limit of £1 million "any one occurrence". Issues as to the number of relevant occurrences were reserved for further determination. 
• A trading premises could not be equated with a "department" for the purpose of the Departmental Clause in the relevant policies. The purpose of the Departmental Clause was simply to allow for a more granular calculation of gross profit (and therefore an insured's loss), than simply looking at the business as a whole. The Departmental Clause did not have any impact on the limits available under the policies, and did not have any bearing on how losses were to be aggregated. 

GROUNDS OF APPEAL

Both the insurers and (some of) the policyholders appealed aspects of the first instance decision.

Insurer appeals

The insurers appealed Jacobs J's decision on the following grounds:

• Composite insurance limits: Insurers argued that, even though the policies were composite in nature (as was common ground between the parties), they were (according to insurers) subject to a single, aggregate limit in respect of all the individual contracts of insurance included with the composite policy, to which a single limit applied. They contended that each policyholder did not have access to separate sub-limits (and separate claims preparation cover), and the decisions of Jacobs J and Cockerill J in Corbin & King were incorrect. 
• Amendments to aggregation wording: Insurers argued that changing the denial of access clause from "GBP 1,000,000 in respect of…any one loss" to "GBP 2,500,000 and a maximum indemnity period of 3 months" had the effect of imposing an aggregate limit and deleting the words "any one loss". The clause no longer provided cover on an "any one loss" basis. 

Policyholder appeals

• Furlough: A subset of the policyholders (the Gatwick, Starboard and Bath Racecourse claimants) appealed Jacobs J's findings regarding the furlough payments, arguing that the CJRS payments did not reduce their entitlement under the policies, and did not have to be accounted for under the savings clause. 

COURT OF APPEAL DECISION

The leading judgment was given by Sir Julian Flaux (Chancellor of the High Court), with whom Lord Justices Popplewell and Phillips agreed. The Court dismissed both the insurers' and policyholders' appeals, and upheld the first instance decision of Jacobs J.

Composite insurance

Sir Julian Flaux C held that a composite policy "comprises a series of contracts of insurance with each policyholder insured separately". He agreed that this position was supported by a long line of authorities including New Hampshire Insurance Co Ltd v MGN Ltd [1996] CLC 1692, General Accident Fire & Life Assurance Corp Ltd v Midland Bank Ltd [1940] 2 KB 388 and P Samuel & Co Ltd v Dumas [1924] AC 431, and more recently Corbin & King. 

There were separate limits applicable to each insured, in respect of each of the composite policies under consideration. He considered that, if the limits in these composite policies were truly intended to be shared, one would expect to see 1) clear wording to that effect; and 2) provisions to deal with the priority of competing claims. 

Amendments to aggregation wording

The Court of Appeal agreed with Jacobs J, that amending the denial of access clause from "GBP 1,000,000 in respect of…any one loss" to "GBP 2,500,000 and a maximum indemnity period of 3 months" did not have the effect of imposing an aggregate limit of £2.5 million for all losses for denial of access, incurred by all insureds over the life of the policy. 

Sir Julian Flaux C noted that changing the basis of cover from "any one loss", applicable separately to each loss suffered by each insured, to an aggregate limit applicable to all insureds, was a fundamental change. If the parties intended to change the basis of cover so significantly, that would have been made clear in the policy wording. 

There were other amendments which noted that they had the effect of deleting and replacing certain text in the policy. Similarly, there were other limits which were clearly expressed to be in the aggregate. None of those textual features were present in the denial of access clause. 

The Court rejected insurers' submission that the limit of £2.5 million must be an aggregate limit because it was a much larger limit that other sub-limits in the policy. The Court also observed that arguments based on surplusage are generally weak, particularly in a commercial context, and where the wording is not very well drafted. 

Furlough payments

The policies in question contained a savings clause which provided if the charges or expenses of the business "cease" or "reduce" in "consequence of" the insured peril, then those amounts will be deducted from amount payable by insurers. 

Sir Julian Flaux C upheld the reasoning of Jacobs J at first instance, and of Butcher J in Stonegate. Specifically, he held that the effect of the CJRS payments was to reduce the insureds' wages bill by 80%. It is necessary to look at substance over form, and consider the commercial and economic reality when construing the policies. He held that:

"[T]he bottom line at the end of the day is that the insureds did not have to bear the expense of the wages bill and to that extent, the charges or expenses of the business were reduced…this is how the reasonable policyholder would view the position". 

He also noted that whether the CJRS reduced the insured's costs and expenses cannot depend on the timing of when they received those payments (ie. before or after they incurred the wages costs). Butcher J had suggested that the fact that accounting standards allowed CJRS payments to be offset against employment expenses supported the analysis that the CJRS payments reduced the insured's costs and expenses. Sir Julian Flaux C held that this factor was irrelevant to the construction of the savings clause. 

The Court held that savings clauses should be construed with the basic principle that insurance policies are contracts of indemnity. The policies were seeking to identify the "actual loss suffered by the insured" – an insured should not receive more than an indemnity for their actual loss, unless the policy wording suggests otherwise. 

Finally, Sir Julian Flaux C held that the furlough payments were not collateral payments or benevolent gifts. While there is case law which establishes that payments of that nature should not be taken into account when applying a savings clause, the CJRS payments do not fall into that category because it could not be established that the Government intended to benefit policyholders to the exclusion of insurers. 

COMMENT 

The Court of Appeal's decision gives guidance to the insurance market and policyholders on how policies that are composite ought to operate, and the approach to savings clauses in the context of furlough payments. Whilst the Court considered these issues in the context of business interruption insurance, the principles developed by the Court may apply in a broad range of circumstances. 

However, the Supreme Court has granted permission to appeal on the issue of whether insurers are entitled to deduct the value of furlough payments from Covid-19 business interruption payments to insurance policyholders. The appeal may have significant implications for the insurance market and policyholders with open Covid-19 business interruption claims.