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Uninsured income protection benefits

Gateley Legal

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Issue

A number of employers provide sickness benefits including Permanent Health Insurance for their employees. Subject to the employee satisfying certain medical criteria, they will be entitled to receive a fixed proportion of their usual salary. The employer will usually fund it by taking out an insurance policy with a third-party insurer. In the case of Amdocs Systems Group Ltd v Mr J Langton the issue was whether the employer could rely on changes to the insurance contract between it and the insurer to limit the rights of the employee to benefits.

Facts

When Mr Langton commenced work in 2003 he received a summary of benefits which included a “Group Income Protection Scheme”. This would be triggered after 13 weeks of incapacity at which point he would get 75% of his wages. There was also reference to this being subject to 5% increments each year backed by an insurance scheme. Mr Langton was signed off sick from 2009. After the business transferred in 2015 he realised that he had not been receiving any increments and brought a claim. The employer disputed liability on the grounds the insurance policy changed in 2008.

Decision 

It was held that Mr Langton was contractually entitled to the annual increases in payments and that there had been a continuing unlawful deduction from wages. The wording in the summary of benefits was clear regarding the entitlement. The argument that the correct construction of the documentation was that its obligation was limited to the amount in respect of which was covered by the insurance was rejected. Even if there were references to the existence of this being insurance backed this did not have the effect that the employer’s obligation was limited to the extent of that cover 

Key takeaway points

The decision is an important reminder that if the payment of sickness benefits is to be linked to an insurance backed scheme it is essential that it is expressly referred to as being subject to any changes to the insurance policy and conditional on the payments being received from the insurer.  As this case shows in the absence of any express provision the courts are unlikely to imply a limitation and the cost will need to be met by the employer even if this was clearly not their intention.

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