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PHI: Unambiguous contractual wording needed to limit entitlement to that being provided by insurer

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By Ceri Fuller, Zoe Wigan & Hilary Larter


Published 04 August 2022


The Court of Appeal has upheld an employment tribunal’s decision that an employer was required to make payments directly to the employee in respect of annual increases to his long term sickness income protection payments, although the insurer had ceased to cover such increases years earlier.


Mr Langton’s employment began in 2003.  He was given an offer letter, a summary of benefits and a contract.  These documents set out the terms of a long-term sickness scheme, and the level of income protection payments (IPP) under it.  This included reference to an “escalator” to income protection payments of 5% every year after the first 52 weeks of sickness absence. At that time, his employer had insurance cover for IPP, including the escalator.  The summary of benefits mentioned group insurance and the name of the insurer and stated that the group policies would override the summary. 

Mr Langton was diagnosed with a long-term sickness and started receiving IPP.  Some years later, he realised this his payments had not been escalated by 5%.  When he questioned this, he was told that the escalator had ceased in 2008, when it was removed from his employer’s insurance cover. 

Mr Langton brought a claim in the employment tribunal for unauthorised deductions from wages.  His claim was upheld, with the tribunal holding that he was contractually entitled to the escalator.  His employer was liable for the escalated payment, in spite of the fact that the insurers had stopped paying the escalator in 2008. 

As we reported here, the employer’s appeal to the EAT was also unsuccessful.  The employer appealed to the Court of Appeal, which upheld the tribunal’s decision. 

Important factors in the courts’ decisions were:

  • The terms of Mr Langton’s contract were set out in the three documents that Mr Langton had been sent – the contract of employment, the offer letter and the summary of benefits.
  • The summary of benefits was incorporated into the contract, and it clearly included the escalator.
  • Although the contractual documents referred to the insurer, this fell far short of showing that Mr Langton’s contractual entitlement was limited to the employer obtaining cover under an insurance policy and passing him the benefits payable under it.
  • The fact that an employer has arranged insurance is not enough, on its own, to limit the employer’s commitment according to the terms of the insurer’s policy. Limitation of an employer’s liability must be expressly and unambiguously communicated to the employee.
  • In the absence of contractual wording stating that the terms of a policy could be replaced by a subsequent less favourable policy, the employment incorporates the terms of the policy in force when the employee entered into the contract. In Mr Langton’s case, this included the escalator. 
  • If reliance were to be placed on the terms of an insurance policy as qualifying or cutting back on entitlements in contractual documents, steps should have been taken to bring the particular terms to Mr Langton’s attention: this was not done.
  • If there is any ambiguity about an employer’s contractual obligations to provide benefits, such ambiguity will be resolved in favour of the employee.
  • There was nothing in the contract that contradicted the summary of benefits: had this been the case, this would have been a factor for the tribunal to consider.


This is a reminder to employers who provide insured benefits of the importance of unambiguous contractual wording.  In particular, where applicable, contractual documents should state that:

  • The benefit is not a contractual entitlement.
  • The benefit is subject to the terms, rules and eligibility requirements of the scheme, as amended from time to time.
  • The employer can change the level of cover, provider or benefits provided under the scheme.
  • The scheme can be withdrawn.
  • The employer is not required to make equivalent payments if the insurer does not pay out.
  • Eligibility to participate in the scheme is subject to rules and a cost acceptable to the employer.
  • The employee can be dismissed even if this would mean that they can no longer benefit under the relevant scheme.

Employers should also ensure that any documents which could be incorporated into the contract (for example, staff handbooks) do not inadvertently create freestanding rights to insured benefits.  Employers should provide employees with the terms of the relevant schemes. 

Amdocs Systems Group Ltd v Joel Langton