Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Companies suing insurers over payments for losses during the pandemic have failed in their attempt to stop UK government furlough funds being deducted from payouts after a ruling from London’s Court of Appeal.
Three senior judges said insurers were permitted to make the deductions since the furlough scheme meant businesses “did not have to bear the expense” of workers’ wages.
Lawyers acting for policyholders said they were disappointed with the decision, which in effect meant insurance companies had received a “windfall” from the government subsidy.
The decision is the latest in a broader dispute between business policyholders and insurers over coverage for the Covid-19 pandemic.
But it is only a partial victory for insurers Liberty Mutual, Allianz and Aviva as limits on payouts must be applied individually to separate businesses covered under the same policy, which could lead to higher claims.
The insurers had argued that subsidiary businesses shared a single aggregate limit on payouts.
The businesses bringing the legal challenge, including Starboard Hotels and racecourse owner Arena Racing, said subsidiaries were entitled to their own limit of indemnity.
For example, Arena said its £2.5mn limit should cover each of the 22 businesses on its policy and not be an aggregate shared by all of the companies.
This meant the limit could rise up to £55mn, according to James Breese, partner at law firm Stewarts, representing Arena.
The decision on business interruption insurance could have broader implications, such as in property or cyber insurance, where subsidiaries often fall under one policy.
The government’s furlough scheme is estimated to have cost the Treasury £70bn.
Breese was disappointed with the furlough decision, he said, because “insurers shouldn’t get the windfall” of the government subsidy.
The goal of taxpayer-funded furlough payments was to preserve the workforce, “not to benefit insurance companies”, added Roger Franklin, partner at law firm Edwin Coe, which represented Starboard.
But he added: “It would have been a windfall for either side, whoever won. The question is whether it should be a windfall for insurers or for business that suffered losses under Covid-19.”
As of 2021, members of the Association of British Insurers expected to pay £2.5bn for claims incurred due to Covid-19, with £2bn of those stemming from business interruption.
Allianz said in a statement: “Whilst litigation is never ideal, the application of cover in response to a pandemic can be very complex, so we welcome the judgment which should enable the resolution of the matter with our customer, subject to any appeals.”
Aviva and Liberty Mutual declined to comment.
