I recently 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. The other was not and it created an imbalance between the two. That prompted me to discuss with my Land and Rural Business colleagues whether there was a general lack of awareness across the agricultural, farming and fishing sectors about the importance of insurance.
Insurable risks
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;
- 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; 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. In usual circumstances, the insurer will appoint a loss adjuster to investigate the incident and determine whether the insurer should pay out.
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 with have to be met by the insured.
Legal expenses cover
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.
When making a claim under LEC, your insurer will likely have their own preferred solicitors known as “panel solicitors”. Panel solicitors are appointed by the insurer and carry out the work at reduced hourly rates. However, the panel solicitor may have no connection to you and they may be unfamiliar with the complexities and intricacies of your business.
It is not widely known but you have the right to choose your own solicitor to act on your behalf. You can choose to appoint a firm with whom you have a relationship and who understands your business or you can use the panel solicitor. The European courts have ruled that an insured is entitled to be represented by their choice of legal representative – so long as your preferred solicitor agrees to be bound by your insurer’s terms and conditions.
After the Event insurance
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.
