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Tough RM fines a warning to insurers

Hans van der Wal, an environmental law specialist at Duncan Cotterill, looks at how to reduce this big ticket statutory liability exposure.

From 1 October 2009 penalties under the Resource Management Act were increased in the following way:

• Companies’ maximum fines were trebled from $200,000 to $600,000
• An additional 50% was added to the maximum fines for natural persons, taking them from $200,000 to $300,000.

The Courts are now giving effect to the increased penalties, seemingly without any honeymoon period. Recent examples of dairy effluent discharge offences include cases where penalties for moderately serious offending totalled in excess of $100,000.

The effect of this is to increase substantially the exposure of insurers. In addition to defence costs, fines under the Resource Management Act 1991 are covered by Statutory Liability Policies.  As a result, there are two aspects that insurers may like to consider:

• First, and obviously, whether the setting of premiums for dairy farms needs to be reviewed
• Secondly, whether the wording of the exclusion clauses needs to be revisited.

In terms of the exclusion clauses, consideration could be given to placing a much greater onus on an insured party to make sure it has all the equipment and systems needed to avoid offending, and requiring it to act quickly once it becomes aware of a problem. 

The Courts have consistently found increased culpability where a defendant does not have in place all the systems, training or supervision that could reasonably be expected as part of a modern farming operation.  For dairy farms, there is an expectation that there should be sufficient effluent storage capacity to avoid runoff or ponding caused by effluent application on to saturated ground, as well as satisfactory effluent irrigators which are not prone to stalling, over-application and runoff.  There is also a much greater emphasis by the Courts on proper training, supervision and management. 

These shortcomings are easily identified and corrected well before they result in spills or discharges that lead to fines.  Council monitoring officers often find them and require corrective action, either as part of routine inspections, or following an incident.  The failure to undertake such action, resulting in a discharge, or the exacerbation of a discharge that has already happened, is another significant factor driving up culpability and thereby the level of fines.

Insurers may, therefore, wish to exclude from their statutory liability policies RMA offences that are either the result of a failure to follow industry standards required to avoid discharges, or result from a shortcoming identified in council compliance/monitoring correspondence, which was not corrected as soon as practicable. 

This would greatly diminish exposure by reducing both the number of prosecutions and the seriousness of those that do occur.

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

• Hans van der Wal is an associate at national and trans-Tasman lawyers Duncan Cotterill. H.vanderwal@DuncanCotterill.com, www.DuncanCotterill.com