Contract disputes and permanent health insurance

A private health insurance policy can be taken out by an employer to provide benefits in a situation where an employee is unable to work. This is a three-way relationship, where the insurer and the employer have a legal relationship via the insurance policy, and the employer and employee via an employment contract.

Applications under a private health insurance policy can sometimes take several weeks to deal with so it is essential for employees to notify an employer where there are indications that sickness may run to an extended period, so that the employer can make an early application under the policy.

What will the policy cover?

Where there has been a certain period of absence due to sickness the policy will usually cover between 50% and 70% of the employee’s salary; it may also include a pension. The payment will continue until the employment is terminated, retirement occurs or the employee no longer falls within the definition of ‘incapacity.’

What is incapacity?

What is required for ‘incapacity’ will depend on the definition in the private health insurance policy itself. An example might be wording that requires an employee to be ‘unable to follow their normal occupation.’ The definition of a normal occupation is also open to considerable variation. Factors to take into account will include whether an employee’s role altered before he or she went on sick leave (because of the illness).

Where the wording of the incapacity definition is more open – for example ‘unable to follow any occupation’ – this can reduce the chances of the employee being defined as incapacitated and able to qualify for benefits. In, practice a claim that involves a policy with this wording has seen the Courts state such a phrase actually means ‘no full time work that the employee can realistically do,’ which avoids a situation where even if an employee can only do a small amount of work they will not meet the incapacity definition and so not be entitled to the benefits.

In the case of a mental health issue, it can be difficult to mount a successful claim. Where something like depression or chronic fatigue is linked to the job that the employee was doing – implying that the employee will probably not recover by returning back to the same job – an insurer is unlikely to want to pay out. Insurance companies are always keen for an employee to return to work as soon as possible so they can stop paying out under the policy.

Equality Act 2010 – ‘disabled’

Where an illness falls within with Equality Act 2010 definition of ‘disabled,’ an employer is legally obliged to consider making reasonable adjustments to an employee’s position to accommodate that disability. Where an employer does not do this, in the event that the employee is dismissed, there may be a claim for unfair dismissal and/or disability discrimination. This means that employees who fall within this definition, but are well enough to return to work, could consider a rehabilitative job, or a gradual return to help them get back to work. An insurer may be willing to negotiate to continue making some or all of the payment during the return to work so that an employee is not losing out by beginning to work towards returning to his or her normal hours.

Taking action as an employee

If an insurer refuses to pay out under a private health insurance policy an affected employee should check his or her contract, as there may be an obligation on an employer to separately pay private health insurance. There are also certain other actions that an employee can take.

1. Obtain as much evidence as possible from medical professionals as to the condition in question, including additional specialist opinions that may cause an insurer to reconsider a refused claim.

2. Try to persuade an employer to sue the insurer on the employee’s behalf.

3. Sue the employer for breach of the contractual terms if the employer does not take steps against the insurer to obtain the policy pay out.

4. Complain to the Financial Ombudsman Service about the insurer, after exercising a right to appeal against the insurer’s refusal to pay benefits. The approach to the Ombudsman can be made after a final decision is communicated by an insurer or four months an appeal has been made. There is no cost to complaining to the Ombudsman but this must be done within six months of the insurer’s decision not to pay out being communicated. Compensation awarded may be up to £100,000 but legal costs are generally up to the parties to pay. Insurers tend to comply with an Ombudsman decision, even though there is no legal duty to do so.

Employers beware

Employers should be aware that there is a duty to take all reasonable steps to make sure the insurance is paid to the employee. This is an implied term of the employment contract. This would include making a claim against the insurer if necessary, as an employee cannot make such a claim directly. The wording of the policy should be properly vetted to see whether it requires arbitration before court proceedings.

The private health insurance policy will usually cease when an employee’s contract comes to an end. However, where there is a policy in place, even if the employee hasn’t yet qualified for it an employer cannot dismiss an employee because of the sickness absence in order to prevent the employee from obtaining the policy benefits. This may require the negotiation of a lump sum in respect of those benefits under such circumstances – which an employer may need to negotiate with an insurer to obtain. This situation may also prevent an employee from being dismissed, so where it arises, an employer should take advice as soon as possible.