In the recent case of Watson v Hemingway Design, the Employment Appeal Tribunal found that an employee formerly employed by an insolvent business could bring a claim in an employment tribunal directly against his employer’s insurer, where his employer had a policy of insurance covering potential liability for employment tribunal claims.
The Third Parties (Rights against Insurers) Act 2010
The Third Parties (Rights against Insurers) Act 2010 (“the Act”) enables a third party with a claim against an insured party to pursue their claim directly against the insurer, provided the insured party is a “relevant person” under section 1 of the Act. Companies in liquidation count as a “relevant person”.
Employers often elect to take out insurance to cover their liability in the event that a claim is brought by an employee or former employee.
In this case, the Claimant, Mr Watson, resigned from his job at Hemingway Design Limited (“Hemingway”) and brought claims of disability discrimination and constructive unfair dismissal. Hemingway had taken out insurance with Irwell Insurance Company Ltd (“Irwell”) covering its liability in respect of employment claims.
Hemingway then went into a creditors’ voluntary liquidation and so Mr Watson applied to join Irwell as a respondent.
Irwell denied any liability as they claimed Hemingway had failed to comply with the insurance policy terms. Irwell also contested the tribunal’s jurisdiction to hear the claim against it. The tribunal concluded that it had no jurisdiction to determine an insurance dispute which “had nothing to do with an employment contract but rather a contract of insurance”. Mr Watson appealed to the Employment Appeal Tribunal (“EAT”).
The EAT allowed the appeal and found that the tribunal did have jurisdiction to determine the insurance dispute. Hemingway was a “relevant person” under section 1 of the Act and Hemingway's rights under the insurance contract with Irwell transferred to Mr Watson as a third party. It was also agreed that Irwell could rely, as against the Mr Watson, on any defences it might have relied on against Hemingway. Mr Watson was within his rights to pursue his claim against Irwell, Hemingway’s insurer, now that Hemingway had gone into liquidation.
All is not lost for employees bringing employment tribunal claims if their employer goes insolvent. If there is a valid insurance policy covering the type of claim they are bringing, there is the potential for them to bring a claim against the relevant insurance company.
Prior to the Act, a claimant had to bring two sets of proceedings in order firstly to determine their claim against the insured party and secondly to establish the liability of the insurer under the insurance contract. This approach caused significant cost and complexity. The Act was intended to create a “single forum” solution to that problem. This decision upholds that purpose, allowing a claimant to bring their claim in just one forum, the employment tribunal.