Coronavirus: Seventy nurseries signed up to bring potential lawsuit against insurance broker

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 actively 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 that it is not currently facing any litigation or has any claim pending.

Nursery World first revealed that nurseries around the country were considering joining a class action against rejected insurance claims as a result of closure during the coronavirus crisis, more than two years ago in May 2020.

The law firm now says it plans to launch a claim against Pound Gates for professional negligence, which it hopes to bring in October, and so far has 70 nurseries signed up for the potential lawsuit.

If it goes ahead and is successful, the claim could result in nurseries that purchased insurance policies with pandemic cover through Pound Gates receiving significant compensation, according to Fieldfisher.

The potential claim against the broker - rather than the insurer - 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 who has been looking into the legal grounds for the claim against Pound Gates, 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 70 nurseries hoping to bring the lawsuit. The setting stayed open for key workers during the first lockdown. The only financial support they could access was £10,000 form the 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. The financial impact is major.'

Fieldfisher said it had 'hoped that a High Court Case brought by the Financial Conduct Authority to clarify the position on who had a valid business interruption insurance claim during the pandemic might be beneficial, but when this finally concluded last year, it merely reaffirmed the position that Ecclesiastical was not required to pay out under this particular policy.'

Sloane added, 'A key point is that other insurance brokers recommended different insurance policies with pandemic cover to childcare 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 and why we are able to pursue this claim on a “no win, no fee” basis.  

'We already have around 70 nurseries signed up and are expecting more to join – the more we have, the stronger our claim.'

NDNA – 'working with a variety of suppliers'
Most of the nurseries involved in the class action belong to the National Day Nurseries Association, which had recommended Pound Gates as a broker.

A National Day Nurseries Association (NDNA) spokesperson said, ‘Covid-19 had a huge impact on children and settings in the early years sector and nurseries will want to review their legal rights on this issue. 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.'

CASE STUDY: 

Debbie Johnson is one nursery owner who hopes to be represented by Fieldfisher. She has run Abacus Nursery, a 100-place setting, for 26 years. The nursery employs 34 staff, including a manager.

During the first wave (March 2020) we stayed open to care for key worker’s children. Very few nurseries in our area chose to stay open.

We actually lost money by staying open (we would have been partially funded if we had closed), however, we felt strongly that we wanted to support our families and our community.

We received some funding via our local authority (two-year offer, three- and four-year olds free entitlement) and paying customers, and of course through the furlough scheme.

Due to us being a Ltd 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 both a ‘Bounce Back’ loan and CBILS loan.

When taking out the CBILS loan (£250,000), the Bounce Back loan had to be paid immediately, we have been left with a 200,000 loan that we have to repay over the next few years. 

I contacted my insurer immediately and they stated that we were not covered under our insurance as ‘coronavirus’, was named within the exclusion list. 

I was extremely surprised by this response as this virus had not been identified before, all my colleagues were able to claim on their insurance, and the pandemic wasn’t anything that anyone could have planned for or had ever been seen before in our lifetime. 

Our profits have obviously been greatly affected. The pandemic also caused myself and my staff a phenomenal amount of stress, the effects of which may not be truly known for some time, if ever. We will soon have to pay a considerable amount of money per month back for our loan (currently paying approximately £1,600 every three months – interest only for one year), which will affect our business for some years to come.

This will particularly affect us due to the economic climate, when nurseries will be experiencing a huge demand in outgoings, at what is a very unpredictable and concerning time for small businesses and our parents.

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 that we have been left with and ease the stresses that we face.