United States: In Sickness And In Health – PHI

The long-term illness of employees is an issue that impacts employers. For many employers and employees, Permanent Health Insurance ("PHI") is the answer – an income protection scheme implemented by the employer through a thirdparty insurer. However, with such PHI schemes come sometimes unforeseen obligations on employers.

PHI provides an ongoing benefit to an employee who falls ill and is too ill to work. In this article we examine the duties and obligations of the employer where a PHI scheme is in place.

Rights of the Employee

PHI policies generally result from a contracted arrangement between an employer and an insurer. The employee who takes the benefit under the policy will not be able to enforce his/her rights directly against the insurer in most cases. The employee's remedy will be against the employer.

The value of such a claim can be very substantial indeed.

Obligation Not to Terminate

A fundamental term of most PHI schemes is that the employee is eligible to receive payment under the scheme only if he or she remains in employment. A carefully drafted contract of employment may grant the employer the express right to terminate the employee's employment even if this means the employee loses the benefit of any PHI. However, this remains a grey area and employees may challenge a termination in these circumstances through the courts. Further, case law has determined that where there is no such express term to terminate, a term will be implied to the effect that the employer cannot terminate the employment relationship so as to defeat the PHI entitlement. This means that in most cases an employer has an obligation not to terminate an employee's employment whilst in receipt of PHI except in certain limited cases, examples being cases of gross misconduct or redundancy.

All Reasonable Steps By Employer

Where an employee is contractually entitled to benefits under the terms of a PHI policy between the employer and the insurer, the employer is bound to take all reasonable steps to secure those benefits from the insurers on the employee's behalf, even if that results in the employer pursuing the insurer in the courts on behalf of the employee (Marlow v ThamesHousing Group Limited [2002] IRLR 798). This duty is derived from the implied duty of mutual trust and confidence (or good faith) between an employer and an employee.

Medical Evidence

The employer must act in the best interests of the employee and pursue the insurer on the employee's behalf  in these instances the employer acts as a "middle-man". However, there are limits on the steps an employer may reasonably be required to take. An employer cannot reasonably be expected to pursue a hopeless claim. What is or is not a hopeless claim may be determined by the weight attached to the insurer's medical report on the employee. An occupational health report by one of the insurer's own medical experts may well present a different diagnosis and prognosis to that of one or more external specialists concerning the employee's health status. If the external examiners provide a report which provides a diagnosis that the employee is fit and well to return to work, it is likely the employer will have a futile claim against the insurer if the employee wants to challenge this position. Therefore, in many cases employers would be well advised to instruct an independent medical expert to report on the employee's medical condition before deciding what steps it may reasonably be required to take in support of its employee's PHI claim.