Academies Bulletin (June 2014): An Update on Risk Protection Arrangements

The DfE has now released the draft membership Rules for the RPA for academies. This article considers the position and advises a way forward.

Under the Risk Protection Arrangements (RPA) rules (available here), there are two main categories of insurance obligations:

1. insurances you are required to have by law, and
2. insurances you have contractually agreed to a third party to have.

Of course, there are many insurance products available that you might want to have, but are not obliged to have.

Insurances you are required to have by law

In relation to the first category, questions have mainly focused on employers' liability and motor vehicle insurances, but please remember there can be other compulsory insurances. The EFA has confirmed that it will be managing an exemption to the statutory obligation to hold employers' liability insurance and scheme members will receive a certificate of exemption when they join the RPA. Motor vehicle insurances are specifically excluded from the RPA for academies, so those would have to be purchased separately as normal.

Insurances you have contractually agreed to a third party to have

The second category includes leases and land arrangements. Leases, licences and other property documents usually include an express obligation from one party to the other to insure the property. As previously mentioned in most academy 125 year leases, the Academy Trust is obliged to the Local Authority to insure and breach of the obligation would permit the Local Authority to terminate the lease. In subleases from the Academy Trust to a third party (for example back to the LA or to a children's centre etc.) the Academy Trust may well have agreed to insure the whole site. Often a document will require not only that the Academy Trust insures, but also that the Local Authority or other third party will be named or have their interest noted on the insurance policy.

Where are we now?

The EFA have told Wrigleys and confirmed on the Gov.uk website that "DfE is developing a solution to support academies to reassure landlords that the RPA will provide equivalent or improved cover than existing commercial insurance arrangements". Although we have discussed some possible strategies with the EFA we do not yet have any final details on what the "solution" will be.

One potential solution is for the DfE to fund the costs of varying leases and they are looking into the potential cost implications of that proposalat the moment. Varying the lease obligations would need to be done before or at the point of entering the RPA to avoid there being a breach. If you entered the RPA first without insurance then there would be a breach until a variation was agreed. A breach of an insurance obligation is usually a fundamental breach entitling termination of the contract.

The bottom line is that if Local Authorities or other third parties are not happy with the RPA or their position under the arrangements then they could potentially terminate arrangements or require you to take out insurance for the particular obligation anyway.There are other possible consequences, but those are the most likely ones.

We have raised the issues arising from the RPA with various Local Authorities who (as we would expect) are looking into it and considering their positionsgenerally. 

Please note that other contracts and SLAs may include insurance obligations, for example where any services are carried out on your site.

It is interesting to notethat on current projects one of the final questions from the DfE is "Are you opting in to the RPA? If not, please explain why". We assume this is so the EFA can gather feedback on the RPA rather than present an obstacle to conversion or a "hard sell" on the RPA for academies.

Finally, initial indications from academies and MATs we work with on the cost/benefit suggest that the RPA for academies can offer good value for money against commercial insurance particularly for smaller academies and MATs or if you have a particularly high premium for some reason, so if you are not already considering the RPA then it is worth looking into it, as there could be potential for a considerable cost saving.

Advice         

For now our advice remains as follows:

1. Proceed cautiously.
2. Carefully consider all your insurance obligations.
3. Seek agreement from anyone to whom you have contractually agreed to insure against any risk. At the very least seek some indication of their views before signing up to the RPA to inform the level of risk you might be taking if you join the RPA without expressly varying the contractual obligations. 
4. Consider the issues raised by insurance brokers, which have been well publicised and we will not repeat here.
5. Carefully consider whether it is prudent to sign up to the RPA on the basis of the draft Rules issued by the EFA or whether it might be better to wait until the arrangements and the Rules have been finalised. Think about your Directors' and Trustees' duties in relation to this.
6. As a rule of thumb single Academy Trusts with one property and no third party occupiers on site are likely to find it much easier to sign up to the RPA than MATs with multiple properties and multiple leases with multiple LAs and/or third parties.
7. Remember that there are other insurances you might want or need which are not covered by the RPA. We would recommend taking advice on the risks and options available from your brokers or risk management consultants as usual. It might be useful to think of the RPA as one option within your suite of insurances and risk management products rather than a replacement for them.

If you would like to discuss this further, please do not hesitate to contact Tim Wrigley, Chris Billington or Elizabeth Wilson on 0113 244 6100 or speak to your usual Wrigleys' contact.

Further details of our legal services for Academies are available here.

Disclaimer: The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.