Where employers provide long-term disability benefit, also known as permanent health insurance (PHI), they use a third-party provider to provide the benefit. If, however, the insurer fails to pay up for any reason, the employer may find itself directly liable for providing the benefit. This is something which can be very costly since such schemes often provide for two thirds of salary to be paid to the disabled employee. The case below highlights the importance of the employer specifying clearly in the employment contract if it wants to limit the circumstances in which the benefit will be payable. A common question that often arises is, does the employee cease to be entitled to the benefit once they can do any kind of work, or is it only when they are able to return to their old job that they cease to be entitled?
Mr Visram was employed as a security co-ordinator at Heathrow for American Airlines from 1992; his employment transferred under TUPE to ICTS (UK) Limited in April 2013. He was off sick from October 2012 until August 2014 (when he was dismissed for ill-health) and his application for long-term disability benefit was rejected. The old insurer (relevant to his employment with American Airlines) refused to provide cover on the basis that Mr Visram's claim for the benefit did not crystallize until after he had transferred under TUPE. Essentially, they said it was the problem for the new employer and the new insurer. ICTS' insurer, Canada Life, refused cover on the basis that Mr Visram's illness had occurred before the inception of its policy.
Mr Visram brought successful claims in the employment tribunal for unfair dismissal and disability discrimination. An employment tribunal found that ICTS had a primary obligation to pay long-term disability benefit to Mr Visram; his contract provided that it would be paid so long as he was "absent from and unable to work due to sickness or injury for a continuous period of 26 weeks or more". Did "unable to work" mean unable to work in any capacity at all, or did it have the narrower meaning of being unable to work in his specific occupation? The employment tribunal and EAT held it meant the latter and the Court of Appeal agreed. Had the drafters of the relevant plan wished to say that the benefit would only be payable for so long as the individual was able to perform any full time remunerative employment, it would have been easy enough to say so.
In order to avoid becoming directly liable for the benefit, employers should make clear that cover is only provided subject to the terms of the relevant insurance policy in force. Where contracts refer to the benefit being provided, this should accurately reflect the terms of cover and make clear whether cover will lapse if the employee is able to perform some work, even if not their old job.