Employer liable to fill the gap between workplace income protection policy and an employee’s employment terms

A recent Court of Appeal judgment from the UK highlights the importance of ensuring that if your group insurance clients refer to workplace insurance policies in any employment agreements, or any other documents are provided to employees summarizing workplace benefits (e.g. any summary of benefit booklets that you may provide to your clients to share with their employees), they accurately reflect the underlying insurance policy terms. In this case the employer was liable to top up an employee’s income protection payments even though the top up payments were not covered by the terms of its insurance policy.

Amdocs Systems Group Ltd v Langton [2022] EWCA Civ 1027

An employee (Langton) before accepting their employment offer was provided with a ‘summary of benefits’ which set out the terms of the employer’s income protection scheme and the level of benefits payable.  This included a reference to an annual 5% increase in benefits payable to protect against inflation for long-term claimants.  This annual ‘escalation’ was subsequently dropped from the employer’s policy terms.

The Court of Appeal found that the employer was liable to top up the employee’s income protection payments to reflect the sum insured that would have applied had the 5% escalation continued to apply.

This was despite the summary of benefits stating that the operation of the income protection scheme was governed by the terms of the policy and “nothing in this summary will override the terms of that document”.  The employee was not provided with a copy of the relevant insurance policy or advised that the terms of the policy were subject to change.  Accordingly, the Court found that this clause alone was insufficient to limit the employer’s obligations to the level of the entitlement under the relevant insurance policy in force at any time. 

The Court found in that case that the employee’s contractual terms included those as set out in the employment agreement, offer letter and summary of benefits provided. It was irrelevant that the summary of benefits stated that terms of any workplace income protection benefits was subject to the terms and conditions of the relevant policy and that nothing in the summary overrode those terms. The employer had an obligation to expressly and unambiguously bring to employee’s attention any inconsistencies between the employee’s contractual terms and the terms of the insurance policy or any material changes made. In addition, to be effective, the limitation of the employer's liability must be unambiguously expressed to the employee. 

Key takeaways

The UK‘s Court of Appeal’s decision highlights the importance of ensuring, if your group insurance clients refer to workplace insurance policies in any employment agreements, that they accurately summarise or are consistent with the terms of the underlying insurance policies otherwise they may find themselves responsible for filling in the gap.  

In addition, group insurance clients should also keep in mind the following important considerations:

a)  Ensuring any insurance information given to employees provide an accurate and clear summary of the policy’s key terms and conditions; and

b)  It is clear in the terms of any employment agreement that refers to insurance benefit, that any benefit entitlements are subject to the terms and condition of the relevant insurance policy, as amended from time to time. 

Other articles in the September 2022 newsletter

• Change of insurer financial strength rating agency

• September 2022 customer communications and updates (including Life Matters)