EXCLUSIVE: Nurseries consider legal action over rejected insurance claims

• Group moots class action for being ‘mis-sold’ policies
• They are not covered for virus-related business loss

Nurseries around the country are considering joining a class action against their insurer and broker over failure to pay out as a result of closure during the coronavirus crisis, Nursery World can reveal.

European law firm Fieldfisher is leading the possible claim after a nursery owner from Greenwich, who is one of the potential claimants, approached it for advice.

A group of more than 90 day nurseries are mooting a legal challenge against their insurer, Ecclesiastical, and broker, Pound Gates, after their claims for business interruption as a result of the coronavirus lockdown were rejected.

The potential case would be represented by law firm Fieldfisher, which is in the preliminary stages of considering whether a class action should be brought against the broker and/or insurer.

Ecclesiastical has said that Covid-19 is not among a list of pre-specified diseases included in its business interruption policies (see box for statements).

The nurseries involved belong to the National Day Nurseries Association and purchased business interruption policies underwritten by Ecclesiastical through Pound Gates, which is a recommended insurance provider of the NDNA.

The nurseries, many of which offer provision for working parents, say they face going out of business if they cannot recover their costs from insurance.

Eve Daniels, who runs More2Nurseries, two settings in south east London, told Nursery World that she had taken out a business interruption premium and was told the nursery would be covered if business were interrupted and it had to close. On this basis, she believed she would be eligible to make a claim during the coronavirus outbreak.

‘We were told our insurance policy would cover costs such as rent, utilities bills and insurance premiums, as well as staff salaries. If we can’t pay our bills we are at real risk of not being able to reopen when the lockdown is lifted.’

Ms Daniels added, ‘I appreciate the Government are doing a lot and we are all very grateful for what they have done. If they can’t offer anything to help nurseries like ours, the Government need to put more pressure on insurance companies paying out to nurseries.’

The legal basis

Fieldfisher said around 90-100 nurseries are interested in taking legal action against the broker Pound Gates and the insurer Ecclesiastical. The nurseries believe they were misadvised, and a number of these nurseries are at risk of permanent closure.

Joshua Fellenbaum, director in the dispute resolution team at Fieldfisher (right), said he believed the number of nurseries interested in legal action will grow signifi cantly. ‘We’re looking into a potential class claim – it would be a funded claim on no win, no fee.’

There could be a case to bring for negligence against the insurance broker, he added.

‘Brokers have particular duties. There may be broker negligence for a failure to advise when they sold the policy. It’s about protecting the nurseries. We’re looking into it, and we want to fight for them.’

Mr Fellenbaum’s two-year-old son attends More2Riverside. ‘When the nursery closed, I offered to help in any way I could,’ he said. ‘Like most families, both my wife and I work and if the nursery closed we would have a very difficult time finding a place for our son. The knock-on effects for many families across the UK would likely be significant.’

NDNA response

Ms Daniels said the NDNA had been helpful and was lobbying the Department for Education.

Purnima Tanuku, chief executive of NDNA, said, ‘We’re doing everything we can to help our members, including speaking to them about their insurance situation.

‘As soon as it looked as though insurers would not be paying out for Covid-19 we have been asking the Government for additional support for nurseries in lieu of compensation.

‘We met with underwriters Ecclesiastical to get them to change their position, which was to no avail. We have written to all insurers and brokers, urging them to support the sector and met with the Treasury.

‘We totally sympathise with nursery businesses and will fully support any action taken by our members to improve this situation, as it is their right to explore their legal position.

‘We are aware that many insurers who were offering cover have now changed their policies for new customers or renewals, so we are working with the Government and the Financial Conduct Authority to look at future risks for the sector.’

Response from broker Pound Gates and insurer Ecclesiastical

An Ecclesiastical spokesperson said, ‘We understand this is an uncertain and worrying time for nurseries forced to close because of the Government’s measures to limit the spread of Covid-19.

‘Our business interruption insurance typically provides cover for loss of income through damage to buildings through events such as fire and flood, though in some instances it does also provide some cover following the occurrence of a pre-specified list of diseases. Covid-19 is not included on the list of diseases covered by this insurance. This is because, in common with the majority of the market, our insurance policies are not designed and priced to cover pandemics. It would have made them unaffordable as it is simply not economically viable for an insurer to cover such widespread and unknown risks.

‘We are working hard to support our customers through this difficult time where we can. We have made enhancements freely available to our cover to support customers, ensuring there are no changes to premium and policy cover for premises forced to temporarily close as a result of Covid-19. We’ve also introduced an automatic extension in cover for 30 days beyond renewal to help protect businesses from becoming unintentionally uninsured.

‘Alongside this, we are showing flexibility and support where logistical issues prevent payment and have produced guidance to help our customers manage their risks during this crisis. Going forward, we are ready and keen to work with both the ABI and Government to find a viable solution so that pandemic insurance is available for all who wish to purchase it in the future.’

Pound Gates added, ‘As a broker that has specialised in the early years sector for over 25 years, we took pro-active steps to communicate to our clients in late February as we wanted to be very clear on the cover position from the outset. Our position was also reported in Nursery World in early March. Since then we have been working with Ecclesiastical and our other partners to support our clients where we can during this hugely troubling time for the early years sector.’

CASE STUDY: More2Nurseries

Eve Daniels runs two settings in Greenwich under the brand More2Nurseries.

More2Childcare is a Community Interest company (CIC) set up four years ago and is Ofsted-rated Outstanding. It has 78 places with 120 children on roll from five months to four years old.

More2Riverside opened in 2019. It has 67 places with 80 children registered from five months to three years old.

More2Childcare offers the 15 hours and has ‘quite a few 30 hours children’ and one funded two-year-old. The nursery works closely with nearby Robert Owen Nursery School and Children’s Centre.

Ms Daniels said, ‘They look after the more vulnerable and we look after the younger children from dual working families. This nursery has remained open for key working families – we have 14 children currently, six from our two settings and eight from two other nurseries.

‘Only 33 of our children take the Government grant so we haven’t been affected with double payment (furloughing and government grants).

‘More2Riverside does not have any funded children, we simply don’t have the room to have three- to four-year-olds unfortunately, and find many children leave for pre-schools within our local primary schools.

‘Our main concern is that our overheads are very high. We are a city nursery, 70 per cent of our costs are salaries, but 30 per cent of our costs are made up of rent, insurance, utilities and consumables. While we have managed to cut down on many things, we still face a large deficit every month – and without our generous parents paying 15 per cent of the fees, we are unable to pay [bills].

‘The furloughing looks after our staff, but the Government grant doesn’t even pay the rent. Our local authority has confirmed they will give us 100 per cent of this term’s funding upfront (they usually give 50 per cent at the beginning and end of the term). This does help with our cashflow, it enables us to spread income out over the next four to five months (we stretch our grant) to reduce bills, but we are still in debt. The local authority has also offered to loan us next term’s grant each month, but this just takes what we need next term, it still doesn’t cover the deficit and solve the debt problems we face.

‘Unfortunately, even though we are a small business, we aren’t eligible for the small business grant because our rent is over £52k a year (we pay £84k a year for each property).

‘When people need to return to work we will hit a secondary crisis. Our nursery will need to be open to enable dual working parents to go back to work to kickstart the economy, and if we don’t get the support now, we won’t be around to again support the country.

‘We are not wanting to make profit, we want to survive and have a nursery when this is all over. We employ 54 people and support 200 families, we are a very well-run business and we don’t live hand to mouth – we have invested all our profits into our business, but we have a limited amount of time; our time is running out.’

More information

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