My client would like to set up an income protection (IP) policy for his staff, but wants to waive third-party rights. What will this mean for employees covered by the scheme?
The Contracts (Rights of Third Parties) Act 1999 was introduced with the aim of giving rights to parties who are set to benefit from a contract but are not directly party to it.
Effectively, with the Act included in a contract, the third party has the right to enforce the contract.
With regards to income protection (IP), employees in a scheme where the third- party rights are waived effectively lose rights in relation to the contract.
Being excluded from these rights means employees are losing the right to be involved in matters concerning amendments of the contract as well as not being actively involved with decisions concerning the scheme.
The employee may be granted third-party rights on some parts of the contract.
It is most common for rights to be granted at the claims stage, therefore allowing employees to deal directly with the insurance company and the Ombudsman if necessary.
It is worth bearing in mind that, even if third-party rights are waived, employees will retain all the rights that are set out in their contract of employment, and benefits are likely to be part of this. The employee can enforce this by going to an industrial tribunal.
Nicola Smith
