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Three of England’s most senior judges are set to hear a legal challenge brought by businesses that were forced to close during the pandemic over whether insurance companies can deduct furlough funds from payouts under business interruption policies.
Lawyers said hundreds of millions of pounds were at stake in the precedent-setting case, which is the latest front in a broader legal battle over insurance coverage for businesses during the pandemic.
The Court of Appeal is due this week to hear the dispute about whether insurers are right to deduct government furlough funds — subsidies paid to businesses during lockdowns to cover wages and prevent mass redundancies — when they calculate the insurance payouts.
Insurers Liberty Mutual, Allianz and Aviva have argued that they are entitled to subtract the furlough payments. But businesses bringing the legal challenge, which include Starboard Hotels and Arena Racing, owner of racecourses such as Chepstow and Bath, said the furlough funds were not designed to subsidise the insurance industry.
“It shouldn’t be the insurers that end up being the ultimate beneficiaries” of furlough, said Aaron Le Marquer, partner at law firm Stewarts, which represents Arena Racing.
The UK government launched its furlough scheme at the height of the pandemic in 2020. It allowed for staff to be paid 80 per cent of their salary or wage up to a cap of £2,500 a month.
Payments were made to 1.3mn employers, costing the government about £70bn.
In a judgment last year, the High Court found that insurers were permitted to take furlough payments into account when calculating insurance payouts.
However, the judge, Mr Justice Jacobs, granted policyholders permission to appeal on the grounds that it was an “important marketwide issue”.
The case before the Court of Appeal is due to be heard on Tuesday and Wednesday by Lord Justice Popplewell, Lord Justice Phillips and Sir Julian Flaux, chancellor of the High Court.
Lawyers for the claimants said the furlough dispute arose in “many thousands” of other business interruption claims beyond those of the claimants.
In a letter to the Association of British Insurers in 2020, the Treasury wrote that it expected “that grant funds intended to provide emergency support to businesses at this time of crisis are not to be deducted from business interruption insurance claims”.
Liberty Mutual, Allianz, Aviva and the UK government declined to comment.
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