An introduction to aquaculture insurance
Katherine Hawes gives a brief overview of the aquaculture insurance business.
The term aquaculture insurance describes fast running insurable interest that would be normally used to protect and aquaculture business operation. For a large aquaculture company this would include insurance protection for buildings and equipment, employees, stock, livestock, vessels and other insurable interests.
As I am sure you are aware, aquaculture is a relatively new industry that is undergoing rapid growth. Not only does it produce aquatic animals and plants as food for human consumption but there are an additional diverse range of businesses and products which also fall under the heading of aquaculture, including jewellery and crafts, cosmetics, tropical aquarium, baitfish and medical research. However despite this diversity, the insurance industry fails to treat the aquaculture industry differently to any other sector.
One of the key concepts in insurance law is the idea of an insurable interest. In recent cases, insurable interest has been particularly important in relation to livestock and more specifically aquatic animals and plants under culture. Although within the aquaculture industry this is the most important insurance interest, it does present a few problems when it comes to insurance.
The insurance market offers two types of aquaculture livestock policies: All Risks and Named Perils policies. The difference between the two policies is as follows:
- All Risks policies cover every risk and then exclude certain perils that underwriters do not wish to cover
- Named Perils policies only cover specific risks, adding and defining where necessary any extra risks for which cover is offered.
Whatever the insurance policy, they usually address the following issues:
- What is insured
- Where it is insured
- What risks it is insured against
- How it is valued
- What the policy-holder should do if a claim occurs
- What general conditions apply
Although All Risks and Named Perils policies are different in their approach, both policies deal with all the above issues. However, individual insurers continue to structure their policies to suit their own requirements and many use subtle clauses and wording differences which are open to interpretation. These wording differences have been at the heart of recent disputes including Green Island Organics Limited v QBE Insurance (Europe).
In this case, the Scottish Court was in dispute of whether the terms of an insurance contract would cover an infestation of sea lice in a school of Atlantic salmon which fell under the insurable interest of disease. The Court accepted that in its ordinary usage, the sea lice was a parasitic disease, which was the primary course of the death of the insured fish and therefore, would indeed fall under the insurable interest of disease. In addition, the court further determined that the language of the contract supported Green Island Organics and the Judge was satisfied that it was likely that aquaculture insurance underwriter would understand that mortality of fish was caused by infestation of sea lice and regarded as disease. Therefore, it would be covered by the insurance policy.
The key perils that the owners of aquaculture production operations generally want to insure against are as follows:
- Infestations of parasites, predation
- Temperature fluctuations
- Plankton blooms
- Hazards such as drought, storm, flood, earthquake
- Equipment and system failure
- Manmade pollution
- Global warming is an issue of increasing relevance to marine aquaculture because of its potential to create problems in the future. For example, changes in plankton profiles and more extreme weather conditions are likely to arise as global warming takes effect
One of the types of insurance that is offered to the aquaculture industry is Business Interruption insurance (BI) which covers businesses for any loss in gross profits plus additional costs when normal business is interrupted. However, again the issue is what is included in the definitions within the contract. In a recent case of Mainstream Aquaculture Pty Ltd v Calliden Insurance, the court was asked to determine whether a fuse that was tripped by a power outage was covered by the wording of “damage” within a Business Interruption policy.
Mainstream Aquaculture Pty, operated a commercial fish breeding business. The electricity supply to the business was interrupted due to a power outage that caused a fuse to trip switching the supply from mains power to a generator. As a result, the generator failed to provide alternative power to the premises which resulted in the death of the fish. In this case, the court upheld that this was indeed “damage” and was covered by the BI policy.
Aquaculture is a new and unconventional industry that fits awkwardly into national legislative frameworks; too often its operating framework is designed for agriculture or fisheries. For example, the law in some countries does not actually uphold rights of ownership of fish in fish farms. In these cases, if the ownership of the stock cannot be legally upheld, then it is extremely difficult to insure them! As a result, the lack of legislation in place for aquaculture can also present considerable difficulties for insurers.
Known as “The Fish Lawyer” for her specialisation in aquaculture, marine and fisheries law, Katherine Hawes is the principal of Aquarius Lawyers and on the board of the World Aquaculture Society. With over 20 years’ legal and business experience, Katherine’s expertise lies in advising and representing organisations and businesses on issues pertaining to the marine environment. To find out more about Katherine, please see http://www.aquariuslawyers.com.au/