Keoghs Insight


TUPE – are you covered?

Casualty Aware 3

The TUPE Regulations were introduced in 1981 to protect the rights of transferring employees and to comply with EC law. These safeguards are now contained in The Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE).

TUPE impacts upon liability in relation to accidents at work and employer’s liability insurance with potentially significant financial consequences for both employer and insurer. A relevant transfer is a, "transfer of an economic entity which retains its identity." Most business transfers and service provision changes will be caught.

This article aims to provide a whistle stop tour of the basic position and also to highlight some of the stickier and more uncertain areas which employers and their insurers should be alive to. Getting the insurance position right at the point of transfer, could save much (potential costly) legal argument if issues arise later.

The Basic Position

Essentially, where an employee suffers an accident at work and is then TUPE transferred to a new employer, the new employer assumes liability for the accident, but is able to take advantage of the old employer’s insurance. This means that the new employer will be correctly named as the defendant in any legal proceedings but the insurance company on cover at the time of the accident is obliged to pick up the tab.

The liability position is dealt with at Regulation 4 of the 2006 Regulations. For the insurance position, we look to case law. In Martin v Lancashire County Council [2001] ICR 197 the Court of Appeal (CoA) held that, following a TUPE transfer, the transferee could take advantage of the transferor’s employer’s liability insurance. The transferor's right was a right to recover from the insurers an indemnity in respect of a liability arising in connection with the employment contract and, as such, a right which transferred under Regulation 5(2) of the 1981 Regulations.

Although this case considered the old TUPE regulations there is no indication that the position is different now and the wording of the relevant parts of the regulations is identical.


Whilst this may seem straightforward, complications can arise. The most troublesome is where the insurance policy to be called upon carries a large excess. This should be of a particular concern to an employer taking over the employees of a much larger outfit who is more likely to have in place a large deductible.

Argument can and do arise as to who should foot this excess. In the traditional sense of the term, an ‘excess’ means that the insured pays the first amount of any claim, up to the amount specified, and the insurer only pays for any amount beyond that. Such a term is prohibited by Regulation 2(2) of the Employers’ Liability (Compulsory Insurance) Regulations 1998. The correct procedure is for the insurer to first deal with the claim in its entirety, and then claim back from the insured the first amount of the claim up to the level of the excess. Even where the excess is very large the insured has the benefit of having the insurer deal with the claim in the first instance, using specialist solicitors who are often retained at preferential rates.

In these circumstances the employer at the time of the accident may argue that the ‘benefit’ of this insurance arrangement transferred to the new employer at the time of transfer - meaning that the new employer would have to foot the bill up to the level of the excess. Depending upon the relative size of the employer and the excess and the number and size of any potential claims, this could be financially crippling to the inheriting employer.

The legal position is not clear cut and who should shoulder the burden of this ‘benefit’ and settling any dispute may result in a bitter and costly legal battle. This could be damaging not only financially but also damaging to any business relationship and goodwill that may exist between the two employers.

Problems also arise in relation to transfers from Local Authorities who are exempt from the Compulsory Insurance Regulations and have chosen not to insure on a voluntary basis.

Avoid uncertainty

Prior to the transfer, the new employer should check the insurance ‘benefit’ that they are inheriting. They should also check the policy schedule, policy wording and any relevant documentation relating to the inception of the policy and excess in place as well as details of any accidents that may have already occurred which may result in a claim for personal injury.

If in doubt, take legal advice on the insurance position prior to the transfer and for certainty and peace of mind it may be desirable to purchase bespoke retrospective insurance to avoid any later disputes and financial vulnerability.