Insurers win case over fire levies policy

JASON KRUPP
Last updated 05:00 21/12/2012

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The Insurance Brokers' Association (Ibanz) hopes its win in the High Court against the Fire Service Commission (FSC) will settle a long dispute on how the levies that fund firefighters are collected.

The industry body and co-plaintiff Vero Insurance New Zealand took the FSC to court to establish if the fire levy should be charged on the indemnity value or the total value of a fire insurance contract.

In broad terms, insurers and business want the levy to apply to the lower fire indemnity value, or the depreciated value of the property, while the FSC sought to have it apply to the higher replacement value of the policy.

Businesses typically take out two forms of fire cover: an indemnity policy and an excess policy on top of that to make up for the shortfall on replacement costs.

The levy is now charged at 7.6c per $100 of insurance, which is used to fund 95 per cent of New Zealand's 8000 firefighters and 400 fire stations.

The plaintiffs asked the court to endorse the use of composite policies through a test case where several ports collectively signed a single insurance agreement that lowered their total indemnity cover and hence the fire levies charged on that.

Composite policies work by allowing, say, 10 firms, which need fire cover of $100 million each, to collectively take out a policy of $500m based on the assumption that not all the properties will burn down at once.

Justice Paul Heath found in favour of the plaintiffs, ruling that case history favoured a levy calculated on indemnity cover, and that, unlike tax law, the Fire Services Act, 1975, does not contain any anti-avoidance provisions.

An industry source said a lot of businesses were "sweating" before the High Court's decision, as the burden of any additional costs would fall on them as insurers merely acting as the Government's collection agents.

Bell Gully's Ralph Simpson, who represented the Ibanz and Vero, said a declaration was sought because insurers faced stiff penalties when miscalculating levies. "There's been a disparity between insurers and the Fire Service Commission for years, and I got sick of it and recommended a declaration on what the rules were," he said.

The FSC said it was disappointed by the ruling. It warned that it could have long-ranging consequences, including further minimising levy payments.

It is uncertain whether the FSC will appeal against the declaration.

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- BusinessDay.co.nz

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