Forest owners’ liability insurance
Jo McIntosh, New Zealand Tree Grower February 2014.
As we look forward to some sunny days, owners of standing timber might also want to give some thought to the increased risk which a hot dry summer brings. If a fire starts on your land the chances are you will carry the costs of extinguishing that fire and this is where the Forest and Rural Fires Act will be applied.
Fire-fighting costs in New Zealand are very high and often require the use of helicopters. It does not take long to reach a cost of a few hundred thousand dollars. Many of you will have standing timber policies to cover for the loss of the trees and may have also taken the fire-fighting extension under the standing timber policy, but it is vital to understand where each part of the policy starts and stops. The key to most standing timber insurance policies is that fire-fighting is to cover the costs associated with defending your trees.
If a fire escapes from your forest to a third party, such as your neighbour’s property, that is where public liability cover becomes involved. Generally there are three parts to public liability important to forest owners. The main one is damage to neighbouring properties. The second important aspect is the Forest & Rural Fires Act extension for costs which you become liable to pay under the Act. The third part is the defence cost in fighting these fires.
I am often asked what level of cover is adequate for a client’s circumstances. The short answer is that everyone is different. I like to encourage forest owners to consider a number of factors when setting limits, such as topography, access for fire fighting crews, access to water, and importantly what infrastructure borders your forest. If houses, a saw mill or even other forestry blocks border your forest, you should extend your limit to take these into consideration.
You can never completely avoid the risk of fire, but you can reduce your risk by taking practical steps to reduce the likelihood of a fire starting in the first place. It is also crucial to ensure that any contractors on your land have their own liability cover in place.
Many of you will have farm liability policies along with your rural farm cover. I recommend that you take some time to review your policy documents and ensure that the business description is broad enough to incorporate all the activities your farm undertakes, including forestry. If forestry is not listed as an insured business, check with your broker or insurer that the cover extends to include your forestry activity.
I would also advise you to check the policy limit with respect to the Forest & Rural Fires Act. This is generally a sub-limit under the policy and many policies have only a $250,000 limit which is much too low.
It is also worth checking policy warranties or conditions. I have recently seen some warranties which are unworkable. It makes lodging a claim a difficult process and erodes the benefit of the cover.
Last year was very hot and dry across most of the country and liability insurers all reported a sharp rise in claims and activity under Forest & Rural Fires Act limits. As a result many insurers have raised their prices or added conditions. Some liability insurers have stopped offering any new business altogether.
The good news is that for those of you who do not have existing public liability cover in place or are not satisfied with their current cover Aon can help. Working in conjunction with Dual New Zealand Limited, we have put together a forest owners’ liability policy. This cover is designed for those whose main activity is forestry with a clear concise policy wording with no adverse warranties.
The premium depends on the size of your plantation and answers to four simple questions to confirm the premium payable −
- What is the neighbouring land use?
- Is work in your forest carried out by third party contractors or by yourself?
- If third party contractors carry out the work, are they required to hold their own liability cover for any damage they may cause?
- Can you describe any planned activity in the forest for the coming year?
Statutory liability covers costs incurred defending claims brought under statute. Most laws are covered except criminal ones or traffic laws. From my experience the most common Acts that forest owners seem to come up against are the Resource Management Act and the Health and Safety Act. There seems to be a growth in claims, with the Health and Safety Act currently under the spotlight as forest owners can be held accountable for injuries which occur in their forests, even if that work is being carried out by a contractor.
The Health and Safety Act is a little different from the others. In 1992 the government made it illegal to insure for any fires under this Act. However the policy can still help with defence costs and any reparations that the courts might award.
We are also seeing an increase in activity under the Resource Management Act. Some regional bodies appear to have a forestry focus and forest owners need to be very careful not to fall foul of local laws. A forest owner can manage and reduce their risk by taking practical steps, such as by making sure that they abide by all laws and ensure that every contractor coming on site has adequate and vigorous health and safety practices. We predict that this area of cover is going to progressively increase in significance as councils and government bodies continue to regulate and bring claims under statute. There seems to be a political will for change.
Everyone will have a different situation depending on activities, ownership, company structure and your appetite for risk. It is a good idea to discuss your risk with an insurer to allow you to make an educated decision on how you manage your risks. Only you can make this decision. Remember, Aon pays a contribution to the NZFFA for every policy we place for members.
Jo McIntosh is the Executive Director for Aon New Zealand.