Former employee loses claim against insurer after employer ignored legal advice
A tribunal dismissed a former employee's claim against her employer's insurer, finding the insurer was entitled to avoid the policy because the employer had dismissed her against legal advice. No damages were awarded.
2 min read · Last updated 18 May 2026
Case details
- #insurance-indemnity
- #conditions-precedent
- #failure-to-follow-advice
- #protected-disclosure
- #unfair-dismissal
Key facts
- The claimant brought claims of unfair dismissal, automatic unfair dismissal (protected disclosure), protected disclosure detriments, and breach of contract against her employer.
- The employer went into administration in September 2021.
- The claimant joined the insurer as second respondent under the Third Parties (Rights against Insurers) Act 2010.
- The insurer rejected the employer's claim for indemnity due to breaches of policy conditions, including failure to promptly seek and follow advice.
- The tribunal found that the employer breached condition precedent Exclusion 1 by dismissing the claimant against advice.
- The insurer was entitled to avoid the policy, so the claim against the insurer was dismissed.
Timeline
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Alleged protected disclosure
The claimant allegedly made a protected disclosure on this date.
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Alleged protected disclosure
The claimant allegedly made another protected disclosure.
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Grievance raised
The claimant raised a grievance alleging whistleblowing. The employer sought advice from Peninsula Business Services (PBS) on the same day.
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Advice against suspension
PBS advised the employer not to suspend the claimant.
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Suspension against advice
The employer suspended the claimant as a commercial decision against PBS advice. PBS sent a warning letter about insurance cover.
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Advice to revoke suspension
PBS advised the employer to revoke the claimant's suspension.
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Disciplinary hearing planned against advice
The employer told PBS it wished to proceed with a disciplinary hearing before dealing with the grievance appeal, against PBS advice.
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SOSR dismissal advised against
The employer asked about dismissing for some other substantial reason (SOSR); PBS advised against it.
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Second warning letter
PBS sent a second letter warning that dismissal against advice would risk insurance cover.
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Dismissal on notice
The employer dismissed the claimant on notice with six months' garden leave.
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Claimant resigned
The claimant resigned with immediate effect.
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Claim presented
The claimant presented her claim to the employment tribunal.
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ET3 submitted and insurer notified
The employer submitted its ET3 response via PBS, and the insurer was notified.
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Claim referred to insurer's handler
The claim was referred to Mr Brady at Irwell.
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Insurer rejected indemnity
Irwell wrote to the employer rejecting the claim for indemnity due to breaches of policy conditions.
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Employer went into administration
The employer entered administration.
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Application to join insurer
The claimant applied to join Irwell as second respondent.
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Case management hearing
Employment Judge Spencer joined Irwell as second respondent.
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Preliminary hearing
The tribunal heard evidence and submissions on the preliminary issue of Irwell's indemnity.
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Judgment issued
Employment Judge Nicklin issued a reserved judgment dismissing the claim against Irwell.
The legal issue
The tribunal had to decide whether the insurer, Irwell Insurance Company Limited, was liable to indemnify the employer under the insurance policy, and therefore whether the former employee could recover from Irwell as a third party under the Third Parties (Rights against Insurers) Act 2010.
The outcome
The tribunal dismissed the claim against the insurer, Irwell Insurance Company Limited, because the employer had breached a condition precedent in the policy by dismissing the claimant against the advice of Peninsula Business Services (PBS).
The employer had sought advice from PBS on multiple occasions but repeatedly ignored it – suspending the claimant, proceeding with a disciplinary hearing, and ultimately dismissing her, all against PBS's express warnings that doing so would risk insurance cover.
No compensation was awarded because the insurer was not liable.
Lessons & takeaways
- If you are bringing a claim against an employer that has gone into administration, you may be able to pursue the insurer directly, but the insurer can avoid liability if the employer breached policy conditions.
- Employers who ignore professional legal advice risk losing their insurance cover, leaving them exposed to tribunal awards and costs.
- Insurers often include conditions precedent requiring prompt notification and adherence to advice – failing to comply can void the policy entirely.
- Third-party claims against insurers depend entirely on the employer's own rights under the policy; if the employer cannot claim, you cannot either.
When ignoring legal advice costs you your insurance cover
This case is a stark reminder that employment tribunal claims can become far more complicated when the employer has gone into administration. The former employee here had brought claims for unfair dismissal, whistleblowing detriment, and breach of contract against The Collective (Living) Limited. But when the company entered administration in September 2021, she had to look to the employer's insurer, Irwell Insurance, for any potential payout.
The problem was that the employer had repeatedly ignored the advice of Peninsula Business Services (PBS), the firm providing its HR and legal support. PBS had warned the employer not to suspend the claimant, not to proceed with a disciplinary hearing before dealing with her grievance appeal, and not to dismiss her for 'some other substantial reason'. The employer did all three anyway, and PBS sent two warning letters stating that dismissal against advice would risk insurance cover.
What the tribunal decided
The tribunal found that the insurance policy contained a condition precedent – a term that must be complied with before cover applies. Exclusion 1 in Section 2 of the policy required the employer to 'promptly seek and follow' PBS advice. By dismissing the claimant against that advice, the employer breached this condition. The insurer was therefore entitled to avoid the policy entirely.
Because the Third Parties (Rights against Insurers) Act 2010 only gives a claimant the same rights as the employer had under the policy, the former employee could be in no better position. With the policy avoided, there was nothing for her to recover, and the claim against Irwell was dismissed.
What this means for similar claims
For employees pursuing claims against insolvent employers, this decision highlights the importance of checking whether the employer complied with any policy conditions. Insurers will scrutinise whether the employer followed advice and notified claims promptly. If the employer failed to do so, the insurance safety net may not be there.
For employers, the lesson is clear: ignoring professional legal advice does not just risk a tribunal award – it can also void your insurance cover, leaving you to pay any compensation out of your own pocket.
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