Resource Management

Most who run businesses that are exposed to environmental risks such as farming and heavy industry have long been aware of the importance of holding relevant and realistic public liability and statutory liability insurance coverage.

Holding insurance means there are certain responsibilities that need to be complied with, including advising your insurer when issues may arise, though the exact extent of your responsibilities will be governed by the wording of your insurance policy. It cannot be overstated how important it is to fully disclose relevant information and to be thoroughly familiar with the details of your insurance coverage, its limits and your responsibilities.

One issue that has been the subject of some recent directions and decisions at the Environment Court, and that has also been discussed at the High Court, is the relevance, and indeed the lawfulness, of holding public liability and statutory liability insurance when it comes to sentencing for environmental offences under the Resource Management Act (RMA).

The RMA includes a suite of enforcement options for local authorities who are faced with issues of non-compliance with the Act, their planning instruments and resource consent conditions. Of those, the most serious is the power to prosecute alleged offenders. Where an offence can be proved, strict liability applies (i.e. there is no need to prove any intent to commit the offence), though in the vast majority of cases the penalty will often involve a fine following conviction.

The quantum of any penalty is arrived at though the application of those standard sentencing principles that are relevant to the context of environmental offending, with particular emphasis on deterrence and the need for the offender to be answerable to the community for their offending. While imposing a fine is a common component of the penalty, the monetary extent of the fine may be impacted by prior remediation of any environmental effects, along with proposed further remediation works. There may also be recourse to enforcement orders to ensure such work is carried out.

The common element in these penalties (fines and remediation works) is that their impact is primarily financial. That is not to say that a conviction does not carry its own implications but the significance of the offending will usually be expressed by the quantum of the fine imposed, especially when an offender is a corporate entity for whom imprisonment is not an option.

And this brings us back to your insurance policy. Currently, provided the alleged activity is covered and coverage hasn't be jeopardised though prematurely admitting liability or some other policy violation, insurance will often cover the cost of defending a charge (or at least dealing with sentencing) as well as some or all of any resulting financial penalty. The availability of this support has been raised by the Environment Court as potentially meaning that the deterrent effect of any fine or programme of works is limited, as is the offender's answerability to the community.

It appears that the Court is saying, in effect, that one of the long accepted goals of imposing fines – that the penalty for the offending is not simply seen as a cost of doing business – no longer resonates as the most an offender may face is an increased excess and/or a premium hike.

There are some other criminal offences, for which a fine is considered a proportionate outcome, that will likely also able to be covered by insurance. They tend to fall into the regulatory category (e.g. building offences, quota management and other primary industry offences - including maritime, forestry and mining). Therefore a ruling that access to insurance was a relevant consideration in sentencing could have a significant impact. Already under s.29 of the Health and Safety at Work Act 2015 Parliament has prohibited the use of insurance policies to pay a fine or infringement fee for workplace health and safety violations.

As it stands with resource management offences, the High Court has ruled (in H & S Chisholm Farms v Waikato Regional Council ) that, while ascertaining levels of insurance and its conditions may not be sought under any general powers in the Sentencing Act (e.g. s.40, SA), such information may be able to be sought where the Court is uncertain about the ability of the offender to pay a fine in accordance with s.42, SA.

But, so far, the High Court has not ruled (nor been asked to rule) on the issue of the lawfulness of taking the existence of insurance into account when setting the quantum of a fine. Therefore that issue remains to be determined.

In the meantime, the importance of having public liability and statutory liability insurance as a safeguard in the event of such strict liability regulatory offences remains.

If you find yourself facing potential non-compliance issues or offences under the RMA, our Resource Management Team can assist. We have acted on behalf of clients subject to enforcement proceedings as well as Councils instigating such proceedings, so have a comprehensive understanding of the issues involved, including issues relating to insurance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.