The Court of Appeal heard this case with Martin v Lancashire County Council. Two questions were raised:
(1) Where there has been the transfer of an undertaking to which TUPE applies, is a liability of the transferor in tort to an employee, which has accrued before the transfer, transferred by to the transferee?
(2) is the insured employer’s right to an indemnity under an employer’s liability insurance policy transferred to the transferee?
Ms Bernadone injured her hand during her employment by Pall Mall as a catering assistant in a hospital. Pall Mall (the first defendant) had employer’s liability insurance. A NHS trust (the second defendant) took over the first defendant’s activities at the hospital. Ms Bernadone brought a claim against Pall Mall for personal injury and later joined the trust claiming that the first defendant’s duty to compensate her for injury had transferred.
At trial the Judge held that both the first defendant’s liability to the claimant and its right under the insurance policy to an indemnity in respect of the claimant’s claim had transferred to the second defendant under what is now Reg 4.
The Court of Appeal
Dismissing the appeal on both grounds, the Court of Appeal held: when an undertaking was transferred a transferor’s liability in tort to an employee in respect of a personal injury which had accrued before the transfer would be transferred to the transferee by virtue of what is now Reg 4(2); and where the transferor had effected an employer’s liability insurance policy, the right of indemnity under the policy would also be transferred by virtue of Reg 5(2).
Peter Gibson LJ stated (at para 48):
“The transferor employer’s right is to recover from the insurers an indemnity in respect of the transferor’s liability arising from or in connection with the contract of employment. That is the very liability which the transferor was required to insure under the [Employers’ Liability (Compulsory Insurance) Act1969]. True it is that that right is under the contract of insurance with third parties, the insurers. But the important point is that the right arises from and is in connection with the contract of employment, because the liability insured under the contract is such a liability.”