United Kingdom: A reminder to check PHI contractual wording

In brief

The Court of Appeal has confirmed that an employer was directly liable to its employee for increases to income protection payments set out in the employee's terms and conditions of employment. The contractual documentation did not adequately limit the employer's liability to the amounts covered by its permanent health insurance (PHI) policy. This decision does not change the legal position, but serves as a reminder to ensure PHI clauses and documentation are correctly drafted.


In more detail

The employee in this case, L, had been absent due to ill health for a number of years and in receipt of income protection payments (also known as PHI), for which the employer had insurance cover. L's offer letter and a summary of benefits described the level of cover, and referred to an "escalator" of 5% a year that would apply after the first 52 weeks of payment. The employer originally had an insurance policy that included the escalator provisions. However, by the time L commenced absence, the policy had changed and no longer included the provision. The employer failed to pay the increased payments and L claimed the difference.

Case law has already established that an employer can be directly liable for PHI payments unless the employee's contractual documentation adequately limits liability to the extent that the payments are covered by insurance. In this case, the courts held that it wasn't so limited.

Firstly, the escalator provisions were sufficiently clear to have contractual force. It did not matter that they were not contained in the document labelled "contract of employment" (which, in relation to PHI, just referred to the offer letter and another document which had been lost by the time of the proceedings).

Secondly, the court considered a statement in the summary of benefits to the effect that the benefit was governed by the terms of the insurance policy and the summary would not override those terms. However, the court thought this was insufficient to displace liability, given the express promise to make escalator payments. The limitation should have been brought expressly and unambiguously to L's attention.

The court's decision applies existing principles, including that any ambiguity will usually be resolved against the employer. PHI clauses need to be drafted with precision to expressly and unambiguously limit liability to the extent and amounts covered by the insurance policy applicable at the time benefits are claimed.

Case: Amdocs Systems Group Ltd v Langton, Court of Appeal

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