Claiming for a work accident if the insurer has gone bust

Even if an employer or their insurer has gone out of business, a former worker may still be able to make a work-related accident claim.

Employers are legally required to carry Employer's Liability Insurance. This insurance ensures that protection is in place for employees affected by work-related accidents or industrial disease. The majority of successful claims are not paid out by the employer but by the employer's insurance company.

In extreme cases, where an employer and their insurer have both ceased trading, and no other responsible party can be traced, compensation may still be available through the Financial Services Compensation Scheme.

What is the Financial Services Compensation Scheme?

The Financial Services Compensation Scheme (FSCS) is a government-backed scheme that provides businesses with some statutory protection when their insurance company goes bust. It is essentially a pool of money, provided by financial institutions, designed to compensate anyone who is affected by the collapse of a financial services organisation.

The FSCS has two main objectives:

  • To maintain continuity of insurance, which it does by trying to find another insurance company to take over the policy
  • To compensate policyholders whenever an insolvent insurance company is unable to pay claims.

The level of compensation depends on whether the insurance policy was taken out voluntarily or compulsorily. Because employers are legally required to hold Employer's Liability Insurance, the FSCS must pay out 100% of any valid claim.

FSCS is a fund of last resort

The FSCS is a fund of last resort. This means that compensation negotiations must first be directed to the insurance company's insolvency practitioners. The FSCS will only pay out if the insurance company does not have enough assets that could meet the claim.

What does this mean in practice?

An accident at work claim initially will proceed in the usual manner regardless of the status of the insurance company.

The injury lawyer must gather medical and other evidence to show that the employer was legally responsible for the accident and that the injuries resulted from the accident.

At this juncture, assuming that the insurance company cannot pay the claim, the Scheme administrators will appoint an agent to review the claim. In the majority of cases, liability is admitted and the claim will not have to go to Court.

The injury lawyer will negotiate a reasonable compensation settlement with the agent and the FSCS will pay the award in full. The Claimant should not be out of pocket, and for the most part will not experience any real difference in the claims process.