Group Life and the 'At Work' Condition
An employer operates a group life scheme providing a lump sum of four times salary on death in service. The policy contains an 'actively at work' condition: cover does not commence for a new member until they are actively at work on the first day of membership. An employee, Daniel, was recruited in March but was on long-term sick leave from his previous job when his membership was due to start on 1 April. He did not return to work before he died in May from an unrelated illness. His salary was £45,000. The employer had deducted premiums from April and remitted them to the insurer. The insurer is now declining the death claim, arguing Daniel was never actively at work. The employer says it believed he was covered and the premiums were accepted.
1. Analyse whether the insurer can rely on the 'actively at work' condition to decline the claim.
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The outcome turns on the construction and effect of the actively-at-work condition and the insurer's conduct.
The condition's purpose. An 'actively at work' clause is a risk selection device: it prevents someone who is already ill or absent from being automatically admitted to a group scheme without underwriting. It is normally a condition precedent to cover for that member.
Application to Daniel. He was on long-term sick leave when membership was due to start and never satisfied the condition. On a strict reading, cover never commenced for him, so the insurer is not liable for the death benefit.
Counter-arguments for the employer/beneficiary:
- Acceptance of premiums may give rise to an argument of waiver or estoppel - the insurer took premiums for a member it now says was never covered. However, mere receipt of premiums does not usually override an express condition, especially where the employer completed the member data.
- Employer's knowledge: the employer knew (or should have known) Daniel was absent. The employer is the policyholder and owes the insurer accurate member information; its failure weakens its position.
- Ambiguity: if the clause is ambiguous, contra proferentem may assist the insured, but standard group life wordings are usually clear.
Conclusion: The insurer has a strong contractual defence. The practical resolution is likely a complaint/negotiated settlement - the insurer may refund premiums and consider a goodwill payment, but is not obliged to pay the £180,000 sum assured.
2. Advise the employer on how it should have administered the scheme to avoid this outcome.
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Key administration failures and remedies:
- Member data accuracy: the employer should have flagged Daniel's absence on the member enrolment file and sought the insurer's underwriting decision (e.g. postponed cover, exclusion, or evidence of health).
- Actively-at-work declaration: most schemes require the employer to certify each new member is actively at work. The employer should have a checklist and not enrol absent employees without referral.
- Premium treatment: premiums should not have been deducted for a member not yet eligible; where deducted in error, the employer should seek a refund or credit and correct the record.
- Communication: the employer should have told Daniel (and HR) that cover was conditional on returning to work, and documented it.
- Governance: introduce a monthly reconciliation between payroll, HR absence records and the insurer's member list.
Risk: the employer may face an employment/benefits dispute from Daniel's family if it represented he was covered. It should take advice and consider whether any death-in-service discretionary payment is available under the trust deed.