Liable to question?

Bookmark and Share

The insurance market is failing schools, suggests Mark Blois – but make sure you have the right cover, and the cost savings may follow later.

Schools are getting a rough deal from insurance. The most recent government guidance on insurance for schools dates from 2003; since then both the issues surrounding insurance and the education system itself have grown substantially more complicated. This lack of information – coupled with an unresponsive commercial market – has meant that insurance arrangements for schools can be unnecessarily generic and expensive, and fail to meet their needs.

Schools are arguably unique in the number and variety of risks they face. However, although all schools encounter the same risks, the variety of types of model of schools means that they do not necessarily all face an equal level of risk in all those areas.

Take the damage or destruction of buildings. This represents a serious risk to many schools. If premises are seriously damaged, a school may have to close down completely. School buildings should be insured for the full cost of reconstruction.

Cover can also be arranged for other school property, including unlicensed vehicles not used on the public road, equipment on loan or hire, contract works and the personal effects of pupils, staff and governors. Damage by fire and other risks can be insured, but schools usually have to bear the first part of the loss for damage by storm, food and water damage, theft and subsidence. Other risks are uninsurable, such as ordinary wear and tear to property. There are also likely to be limits on the insurer’s liability for loss of money, computer systems records and personal effects.

In community schools and voluntary controlled schools, the local authority has the insurable interest in school buildings and property. The insurance should, therefore, be in the name of the LA. However, in foundation schools it is often the governing body that owns the buildings and bears the risk. Similarly, academy trusts usually own the school premises and should ensure that their interest is insured.

In the case of voluntary aided schools, both the governing body and the local authority are responsible for the school premises. The governing body must repair and maintain all school premises, except playing fields and buildings on the fields associated with their use, which are the responsibility of the LA. The governing body will, however, receive a grant from the DCSF of 90 per cent of the cost of repairing school buildings.

Where a voluntary aided school receives delegated funding, it must insure the LA’s interest as well as its own.

Schools should have adequate insurance to cover claims by pupils for personal injury and assault against the school, its staff and governors. Public liability insurance will pay out to pupils if the school was at fault. However, personal accident insurance will cover claims by pupils regardless of whether or not the school was to blame.

The risk of pupils bringing claims is borne by the local authority in community and voluntary controlled schools.
However, the insurable interest lies with the governing body in voluntary aided schools, foundation schools and academies.

Local authorities usually offer insurance to cover claims arising out of the normal activities of the school, but will not routinely cover other events, such as weekend activities. Schools will need to take out private insurance to cover these additional risks.

Personal injury

Claims may be made against the school and its staff and governors. Pupils, parents, visitors and members of the public may make personal injury claims. Schools should buy public liability and personal accident insurance to cover these claims. However, local authorities will usually only provide insurance for claims arising out of the school’s normal activities.

Pupils and their parents may also bring claims against the school, or directly against teachers and governors, alleging that they have failed to discharge their professional duty of care – as in ‘failure to educate’ claims. Schools should therefore ensure that they have professional indemnity insurance. The impact of not having this type of insurance may go beyond schools being unable to defend claims: the school may also have difficulty persuading good people to serve as governors.

The possibility of fraud means that schools should invest in fidelity insurance to cover loss of money or property due to the dishonesty of teachers, governors and school managers.

Where the governing body of a school employs the staff, such as in academies and trust schools, the school is required by law to take out employer’s liability insurance to cover claims by teachers and other school personnel. This compulsory requirement does not, however, apply to local authorities, which can self-insure against employer’s liability claims. In reality, most LAs do buy external employer’s liability insurance.

Schools should get insured for the cost of employing a replacement teacher when a member of staff is absent.

However, most supply teacher insurance policies are subject to a ‘deferred period’ and will not pay out until the absence exceeds a certain number of days. Insurers will also only pay out for a limited number of days in any one case of absence
– 195 days is usual. Schools may therefore find that they themselves have to meet some of the cost of employing replacement teachers.

Where schools hire out part of their premises to clubs and societies, they can arrange insurance to cover the risk of people who hire the school premises becoming liable for personal injury to others. Alternatively, hirers may have their own public liability insurance. However, a school’s own hirer’s insurance policy is unlikely to cover the activities of businesses and political organisations. Schools should check that these groups have their own public liability insurance before hiring out the premises.

Any vehicle that is owned by a school and used on public roads, such as a school minibus, must be insured by law for ‘third party’ risks. Schools can also opt for comprehensive cover for free, theft and any accidental damage. There are usually excesses on motor insurance policies which schools will have to pay.

If school staff or governors use vehicles that belong to parents for school activities, they or the school could be held liable for an accident, even if a parent was driving at the time. The parent’s own motor insurance policy will usually cover this risk. However, if the parent’s insurance is invalid for any reason the risk is usually insured under the ‘contingent liability’ element of the school’s public liability cover. It may be the case, however, that the school’s public liability policy requires the school to have checked the parent’s insurance.

Schools should ensure that they have taken out a policy to cover staff and pupils in relation to travel on school trips. A travel policy will insure against loss or extra expense resulting from unavoidable delay or cancellation of the journey. It will also pay out for personal accident claims and medical expenses. Additional cover can be provided for luggage, personal effects and money. Any other liabilities will also be covered by the travel policy if they are not insured under a different part of the school’s insurance policy.

Covering legal expenses

The cost to schools of making and defending claims against staff, supplier and contractors can be high. Schools should make sure that they invest in insurance to cover this type of litigation. Insurers will pay the cost of defending the school and its staff in civil or criminal actions, and of pursuing claims on behalf of the school. They will also pay certain compensation awards against the school, such as that paid for unfair dismissal of a teacher. However, the policy will not cover disputes that existed before the policy was taken out. Schools may also have to pay an excess, and the cover may not apply to claims where the amount in question is very small.

With the exception of academies, which receive funding direct from their sponsors and the DCSF, schools in the maintained sector receive most of their funding from the local authority. LAs can retain the funding within their Local Schools Budget to buy insurance. Many local authorities ‘self-insure’ a wide range of risks by maintaining an insurance fund to cover smaller losses through their revenue account.

However, those local authorities usually take out insurance policies in the commercial market for losses that exceed a certain amount, such as £100,000.

Alternatively, LAs can delegate funding for insurance to schools under the Fair Funding scheme. Schools which elect to arrange their own insurance through delegated funding must receive the appropriate portion of the local authority’s planned spending on insurance for that school.

Where schools choose to receive delegated funding, they are able to buy insurance from private companies or brokers. Alternatively, they can opt to ‘buy back’ into the insurance cover provided by the local authority.

In practice, many schools end up paying the local authority to arrange the majority of their insurance as the cost of arranging private insurance for themselves is prohibitively high. Yet with the Government encouraging increasing autonomy of governance for schools in the form of more foundation and trust schools, increasing numbers of schools see having to buy back into local authority insurance as an unsatisfactory way of meeting their insurance requirements.

Risk management

In 2004, the Government commissioned a study into improving the insurance market for schools. The study, undertaken by Cap Gemini, made a number of recommendations, including a risk management strategy and weighted premiums depending on the degree of risk.

This would help to lower the price of insurance by reducing the amount of unnecessary cover that schools pay for.

After the study the Government developed a risk management strategy which local authorities can choose to follow. This includes a risk ranking database, which allows local authorities to collate the results of risk assessments and rank schools according to their level of risk. The Government has also developed a risk management toolkit to help schools to understand and reduce their risks.

However, at this time the Government’s risk management proposals have done little to make the insurance market for schools more responsive. Schools may be able to assess and understand their risks more easily, but it remains the case that the specific insurance required is not available to many schools at a sensible cost.

Only five insurance companies underwrite about 90 per cent of the market. This lack of competition means the cost of private insurance has remained high. Nor has the market kept pace with the changes in the education sector.

A greater diversity of types of schools has led to different insurance requirements based on varying levels of risk, but the possible reduced risks in some areas for some schools are not yet reflected in lower premiums. As a result, the cost of private insurance purchased by individual schools remains prohibitive, while the option of buying back into the LEA scheme is unattractive to autonomously minded schools.

To combat the high cost of insurance, dioceses sometimes obtain reduced premiums by negotiating ‘block’ policies for a consortium of voluntary-aided schools, sometimes seen as lower-risk in some areas as compared with community schools. This option is not so easily available to non-church schools that might want to purchase private insurance, even where they enjoy federated arrangements.

The Government has set schools the target of reducing their expenditure by 1 per cent year on year, and of securing value for money in their spending. However, by 2009–10, the estimated annual cost of insurance to schools will be £437million. For that reason alone, if schools are to meet their spending goals, the insurance market needs to be encouraged to diversify and provide a wider range of school insurance packages. Arguably this cannot begin to happen until insurers develop a more up-to-date understanding of the education provider market as it now exists and the risks associated with it – and also a deeper understanding of the varying level of risk faced by different categories and groups of schools.

To this end Browne Jacobson is currently working with insurance broker Marsh UK to produce a report analysing the issues of risk and insurance cover available in the education provider market today. It is intended that the report will be distributed to all schools nationally in spring 2009. If you are a stakeholder in this issue and would like to comment or contribute to the report please feel free to email mblois@brownejacobson.com.

Mark Blois is an education law expert at Browne Jacobson. Please visit www.brownejacobson.com, email mblois@brownejacobson.com or call 0115 976 6000.
 

Taken from School Leadership Today volume 1.1

Subscribe

School Leadership Today
spacer
spacer