- 70 nurseries sign up for legal action over failure of insurers to pay out due to Covid closures
- Law firm Fieldfisher plans to take broker to court for professional negligence
Law firm Fieldfisher is planning to push ahead with legal action on behalf of dozens of nurseries against insurance broker Pound Gates for recommending business interruption insurance policies that failed to pay out during the pandemic.
Most nurseries forced to close as a result of the pandemic were among thousands of small businesses that found they were unable to claim on their insurance, despite having business interruption cover included in their policies.
Fieldfisher said it is looking for more nursery owners to join the potential ‘no win, no fee’ action, which it expects to eventually include around 100 nurseries.
In response, Pound Gates has stressed it is not facing litigation or has any claim pending.
Nursery World first revealed nurseries around the country were considering joining a ‘no win, no fee’ action against rejected insurance claims in May 2020. The law firm plans to launch a claim against Pound Gates for ‘professional negligence’ in October. So far, 70 nurseries have signed up. If successful, the claim could result in nurseries that purchased insurance policies with pandemic cover through Pound Gates receiving significant compensation, Fieldfisher said.
The potential claim against the broker – rather than the insurers – would aim to compensate nurseries that found themselves unable to claim on their insurance for the financial losses they suffered when they were forced to close during lockdown.
Simon Sloane, a partner at Fieldfisher, said, ‘Policyholders rely on their brokers to find them the best available insurance coverage at the most cost-effective price, and it is our contention that on this occasion the nurseries were badly advised by Pound Gates.
‘Hundreds of nurseries were left with business interruption insurance that did not cover them for their loss of earnings when the pandemic broke out and lockdowns were imposed, leaving each of them in a dire financial situation.’
Sally Fisher runs Wishing Tree nursery and pre-school and is one of the nurseries hoping to bring the lawsuit. The setting stayed open for key workers during the first lockdown. The only financial support it could access was £10,000 from the local council.
She said, ‘All our bills still had to be met and we did this from our own private pockets.
‘We are a new business so have always been working in the red; this pandemic has broken us as owners and all our savings have gone and the business is barely keeping afloat.’
Fieldfisher said it had ‘hoped that a High Court case brought by the Financial Conduct Authority (FCA) to clarify the position on who had a valid business interruption insurance claim during the pandemic might be beneficial. However, when this concluded last year, it merely reaffirmed the position that [insurer] Ecclesiastical was not required to pay out under this particular policy.’
Sloane added, ‘A key point is that other brokers recommended different insurance policies with pandemic cover to nurseries that did pay out for Covid-19 losses; with similar or in some cases cheaper premiums.
‘It is this comparator that we believe means we have a very winnable case. We already have around 70 nurseries signed up and are expecting more to join – the more we have, the stronger our claim.’
Most of the nurseries involved in the class action belong to the National Day Nurseries Association (NDNA), which had recommended Pound Gates as an insurance broker.
An NDNA spokesperson said, ‘At the height of lockdowns, we were lobbying the Government to put more support into the sector as no insurance provider now covers for business interruption as a result of Covid-19.
‘NDNA works with a variety of suppliers in the nursery and early years sector to make sure our members can secure the best value for money. Pound Gates Chartered Insurance Brokers are one of the services who offer a discount to NDNA members, and we provide our members with access to this offer.
‘There is a range of insurance providers with specialist knowledge of working in the early years sector and as every nursery business is unique, we recommend that nurseries check policies and make sure insurance products are right for them and their circumstances.’ Many nursery owners found that they were ineligible for Government financial support because they were set up as limited companies, or were paying high rents that meant they were unable to qualify for small business grants.
Del Sharman, director at Pound Gates, said, ‘We are surprised to hear that such a collective action is under consideration. We work in partnership with Ecclesiastical as they are a specialist insurer for the education sector with policies designed specifically for this marketplace.
‘We always make it clear that our product comes from just one insurer, and we also make it clear that we do not search the insurance market for alternative products. This is a regulatory requirement, but it is also the transparent way we conduct business. In our role we make an offer to our clients and then arrange and administer the policy on the basis chosen by the client.
‘This is the established way insurer scheme products are distributed in the UK and we always work in accordance with insurance regulation requirements. A very small proportion of all the different types of businesses impacted by Covid-19 had any form of business interruption insurance which provided cover for the pandemic impact.’
Covid: Which insurance policies did pay out?
A key factor in Fieldfisher’s rationale for bringing the legal case is the contention that other insurers with pandemic cover have paid out to businesses over Covid losses.
A Fieldfisher spokesperson said, ‘Lots of insurers are paying out on claims following the FCA test case.
‘Helpfully, the FCA has published a list of insurance policies that are capable of responding to Covid-19 but which are not bound by the decision of the court. This list includes nursery-specific policies including the Morton Michel policy, which reportedly has been paying out on the claims for losses arising from Covid-19 nursery closures.
‘The claim against Pound Gates is different: it is based on the broker’s failure to recommend a policy that included cover for Covid-19.
‘Many nurseries work on tiny margins and really suffered through Covid. This action addresses the broker’s failure to offer protection against these losses.’
The FCA list is of business interruption insurance policies that are capable of responding to the Covid-19 pandemic (but which were not determined by the FCA test case as being responsive).
This list details policies that have the business interruption clauses for denial of access or disease that the FCA test case did not specifically consider, but which those insurers have said that, taking the decision of the court, those policies may include cover for.
Case study: Abacus Nursery
Debbie Johnson hopes to be represented by Fieldfisher. She has run a 100-place setting for 26 years, and employs 34 staff.
‘During March 2020, we stayed open to care for key workers’ children. We actually lost money (we would have been partially funded if we had closed). We felt strongly we wanted to support our families and our community. We received some funding (free entitlement) and paying customers, and through the furlough scheme.
‘[As] a limited company, myself and my husband did not receive any funding throughout the whole of lockdown.
‘We had to make eight staff redundant and take out a Bounce Back loan and CBILS loan. We have been left with a £200,000 loan to repay.
‘I contacted my insurer immediately and they stated we were not covered as coronavirus was named within the exclusion list.
‘I was extremely surprised as this virus had not been identified before, colleagues were able to claim on their insurance, and the pandemic wasn’t anything anyone could have planned for.
‘Our profits have obviously been greatly affected. The pandemic also caused a phenomenal amount of stress. We will soon have to pay a considerable amount back for our loan (currently £1,600 every three months – interest only for one year).
‘This will particularly affect us due to the economic climate, at what is a very unpredictable and concerning time. Compensation would enable us to pay off a large sum from our CBILS loan, which would put us in a much better position to face the uncertainty of the next few years (rises in wages, cost of living, utilities, etc.).
‘This would ease the financial burden and stresses we face.’
