The Courier & Advertiser (Fife Edition)
Taking out insurance can pay off
Irecently concluded a court action relating to glyphosate contamination of potatoes where, amongst other things, the issue of insurance was brought into focus. One party to the court action was funded by their legal expenses insurer and the other was not, and the imbalance between the two prompted me to discuss with my colleagues whether there was a general lack of awareness in the rural sector about the importance of insurance.
An insurable risk is a definable loss arising from an event which an insurance provider will generally be prepared to insure against. The premium is commensurate with the risk involved. Insurable risks fall into one of three categories: Personal risks – risks to life or health; property risks – loss or damage to property; and liability risks – liability of the insured for damage or loss caused to person or property.
Insurable risks in the agricultural sector may include latent defects in crops; medical conditions in livestock; damage to sheds and buildings; and damage to plant/equipment. The losses are generally predictable and accidental in nature.
Should your business suffer a financial loss covered by your insurance policy, you should notify your insurer as quickly as possible. Certain policies may even require reporting within 24-48 hours of the harmful event occurring.
If the loss adjuster determines that the incident falls within the parameters of the policy, a payment will follow subject to a cap on the level of cover provided. If the financial loss is greater than the level of cover, the insurer will pay out the maximum cover but the shortfall will have to be met by the insured.
Aside from insuring against specific events, many insurers offer legal expenses cover (LEC). LEC is exactly as described – it is a “fighting fund” to pursue or defend against legal claims.
If one party in a dispute benefits from LEC, they are often said to be litigating without risk. Not only will the insurer tend to pay for legal costs, but depending on the policy terms, they may also be prepared to meet any award of adverse costs. In a court action, the successful party has the right to have their legal expenses reimbursed by the unsuccessful party – these are known as adverse costs and these can be significant.
If your policy does not entitle you to protection against adverse costs, there are insurers within the market place who offer “after the event” insurance (ATE).
ATE is an insurance policy which can be put in place after a harmful event has occurred and to protect against an unsuccessful court outcome. Many ATE insurers are prepared to act speculatively, meaning that in the event of an unsuccessful outcome, the premium is not payable.
If successful, the insurance premium becomes payable and is usually calculated depending on the value of the claim. ATE is usually available to a pursuing party provided the prospects of success are greater than 51%. ATE is less likely to be available to a defending party although there are some insurers who would consider offering insurance.
In summary, anyone who is involved in a dispute or a potential dispute should give consideration to the terms of their insurance policy, both in terms of insuring against harmful events and availability of LEC. If legal expenses cover is not available, consideration should be given to whether ATE might be an option.
Whether LEC or ATE insurance, the benefit is you are litigating without risk (subject to the prospects of success being greater than 51%). That is a strong position to be in and something well worth considering.