UK: Permanent Health Insurance

In order to provide employees with protection from being deprived of the benefit of the PHI policy, the Courts have said that there is an implied term in the contract of employment that an employee will not be dismissed where they are incapable of work and where they are in receipt of, or likely to receive, benefits under a PHI policy (Aspden v Webbs Poultry (1996)). This means that the employee does not have to be receiving benefits under the PHI policy to be entitled to this protection. If it is likely the employee will in the future benefit under the PHI policy, they will be protected.

The Court in Aspden made it clear that the employee would not receive this protection if the employer had grounds to dismiss for gross misconduct. In subsequent cases, the permissible grounds for dismissal were extended to any reasonable or proper cause. This will extend to dismissals for misconduct and is likely to extend to dismissals in a genuine redundancy situation (subject to compliance with the Disability Discrimination Act). It will not, however, extend to a dismissal on the grounds that the employee is absent from work on long-term sickness.

It is, therefore, essential that employers take extra care when dismissing an employee who is on long-term sick leave where there is a PHI policy in existence. There must be clear grounds for dismissal, which are not related to the long-term sick leave, if the employer is to avoid the potential of a large claim by the employee for the benefits they would have received under the PHI policy.

An employer who has a PHI policy in place must take care to ensure the terms of the contract of employment do not go beyond the terms of the insurance policy. If the contract of employment does not reproduce in full the terms of the policy, it should state that the benefit is subject to the terms of the policy and all employees should be shown a copy of the relevant terms or, at the very, least given an opportunity to review the terms. If the benefit which is provided for in the contract of employment is more favourable to the employee than the terms of the insurance policy, the employee is likely to be entitled to rely on the terms of the employment contract, thus making the employer liable.

In order to ensure that the employee has the opportunity to benefit under the PHI policy, the Courts have implied a term that an employer must do all that is reasonable to ensure that the relevant information is sent to the insurers and take all other steps necessary to ensure the insurers give proper consideration to the claim. If a PHI claim is turned down by the insurers, the employer should carefully consider the wording of the policy and the reasons the claim has been declined, in order to decide whether the decision is correct. If there is a suggestion the decision is the wrong one, and the employee wishes to appeal, then the employer should take the necessary steps to ensure the insurer considers the appeal. Ultimately, it has been suggested that the duty to take all reasonable steps should extend to instituting legal proceedings against the insurer, if the PHI benefit is being unreasonably refused. In our view, this is likely to be a reasonable step, providing the employee agrees to pay the employer’s costs associated with any such litigation, which they are likely to be reluctant to do.

The existence of a PHI policy does complicate matters for an employer who wishes to be pro-active in relation to longterm sickness issues. As can be seen from the above, employees on long-term sick leave who are benefiting from, or are likely to benefit from, a PHI policy in the future are effectively protected from dismissal on the grounds of their ill health. That does not mean an employer cannot dismiss for some other genuine reason, providing there is no breach of the Disability Discrimination Act, but they cannot dismiss for absence-related reasons without the risk of incurring a significant liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.