Court decision underlines legislative flaws

Court decision underlines legislative flaws | Insurance Business

Court decision underlines legislative flaws
The Insurance Brokers Association of New Zealand (IBANZ) says while this week’s Supreme Court decision has found in favour of the New Zealand Fire Service Commission (NZFSC) over fire levy calculations it welcomed the clarity the decision provides.

IBANZ CEO Gary Young told Insurance Business: “At least now it provides certainty for the insurance industry regarding the use of ‘split tier’ and ‘collective’ insurance programmes and the calculation of levies in relation to these.

“The outcome is likely to result in some insureds paying higher levies which should flow through to a reduction in the levy rate,” he said.

The Supreme Court unanimously overturned decisions previously made in both the High Court and the Court of Appeal.

On the matter of split tier policies it took “an interpretative approach favouring greater universality of the levy, which is in the nature of a tax for a public service.”

And regarding the second issue of collective insurance programmes relating to a NZ Ports Collective the Supreme Court noted there were two points which went against this: first, that there was no insured property owned jointly by the ports collective, nor a joint interest in any insured property; and second, the policy contained a provision to the effect that it was to be interpreted as if it had been separately to each port company.

This second issue was one that Vero had also sought clarification on.

A spokesperson for Vero said: “We are pleased to now have some solid rules moving forward in our collection of fire services levies, to comply with the law.”
The Court did however acknowledge the ‘free rider’ element of the legislation when examining the legislative history.

“Failure to insure against fire did not change the availability of the fire service in the event that the property caught fire,” the Court said.

“This meant that an uninsured or under-insured property owner did not make a fair contribution to the costs of the fire service. There was, and still is, a ‘free-rider’ problem.”

Young said this demonstrated how outdated the legislation is and reiterated IBANZ’s continued opposition to any tax on insurance.

“The Court has clearly stated that they see this charge as a tax for a public service.  It is of course a tax that discriminates against those who take reasonable precautions to protect and insure their assets.  Those who choose not to protect themselves will continue to be a burden on society when a disaster occurs,” he said.

“The Fire Service Act remains an outdated, discriminatory piece of legislation imposing an unfair and inefficient tax on the responsible members of our community.”

There had been industry speculation that the decision would mean retrospective fees would be sought by NZFSC, but Young said NZFSC had made an assertion at the Appeal Court hearing that there would be no backdating.

“This will only apply going forward,” he said.

“Given even the courts struggle to agree on what the Act means I doubt anyone could say they got it wrong. Rather we have outdated legislation that simply doesn't fit today’s world.”

The Insurance Council of New Zealand agreed. CEO Tim Grafton told Insurance Business: “Our view is it is a totally unfair, outdated, clunky taxation system.

“We collect this on behalf of the Fire Service, we get heavy penalties for anything we get wrong, but we get no compensation for collection.

“The whole thing is just riddled with inconsistency and just needs a thorough shakeout. Cost of compliance needs to be addressed and fundamentally the funding needs to be sourced from whoever gets the benefits of the Fire Service, not just those who insure their property.”

He added: “We look forward to the upcoming discussion paper that the Government will be releasing on the structure and funding of the service which we would expect to see in the course of the next month.”

NZFSC had not returned Insurance Business' request for comment at the time of publication.