Insurance Post

Spraying by the rules

Insurers are concerned about the impact of the new Dangerous Substances Directive and how it will affect farmers involved in spraying crops and dipping sheep. But Hugo Cranmore wonders how the legislation will affect contractors and if it will indeed result in a rise in claims numbers

The duties of care presented by the Dangerous Substances Directive (76/464/EEC) are of concern to the insurance industry, but, in fact, how often will insurers have to pick up the whole tab?

David Murray Wells, executive chairman of the Agricultural Insurance Underwriting Agency, sees the directive as relating to the handling of hazardous products, rather than their effect on the land. He says there are several products that fall under this heading. "The directive also sets out certain rules for people actually doing the spraying, mixing of the ingredients and disposal of cans. It also imposes a higher level of competence such as through examination. The chemicals also have to be inspected while in storage."

Nicholas Bond, spokesman for NFU Mutual, says the directive covers a very complex area that is currently evolving and it is difficult to predict the outcome while the effects of the legislation are still unclear. "As far as we can ascertain, it is unlikely to have any significant impact on the potential liabilities of contract sprayers. They are already closely regulated under existing UK regulations and are required to obtain certification for all their activities via the National Proficiency Test Council."

Pollution provisions

Ben Riley, technical head at Crawford Agriculture and Rural Industries Group, sees the directive as setting out very specific pollution provisions, and dealing with several named substances and chemical groups as potential pollutants. "As such, it contributes significantly to legislation intended to protect groundwater and the environment in general. The impact of this and associated legislation certainly heightens awareness of activities such as crop spraying. This can be equated to raised levels of perceived increased risk, but whether this position is real may be questionable."

So where does that leave insurers? Mr Murray Wells says in the early 1990s, insurers were very concerned about pollution and its effect in streams and watercourses. "On reflection, the main result when this happens is that farmers are fined. It is not always necessarily an insurance issue giving rise to a third party claim. There is, of course, some argument about whether a debt to the Environment Agency is the same as a third party claim, but insurers have previously adopted a realistic attitude. To date, court cases have been concerned with organo-phosphates - such as sheep dips - rather than escape of effluent."

Meanwhile, the EA now uses more sensitive monitoring equipment to test for contaminants. Mr Bond notes that much now depends on the acceptable level of the contaminate. "For example, if the acceptable level is 1%, improving the equipment to test to 0.1% instead of to 0.5% would make no difference." Mr Murray Wells believes the EA's ability to test and identify chemical substances much more easily is likely to have only a small effect on liability insurance. "The main brunt of the EA's action would fall on the farmer in the form of a fine," he explains. The liability market appears to recognise this as there are currently no premium increases.

But that does not mean there can be complacency. Risk management is an ever-present task. During the early 1990s, the regulatory agencies conducted a purge on slurry tanks and the like. "That resulted in a marked improvement in construction, and the maintenance of these standards will help to make this less of a claims problem," states Mr Murray Wells. NFU Mutual advocates the need for regular risk management assessments of premises, equipment, operations and management systems and regular update training.

With over 25 years' experience of handling crop spraying liability, Mr Riley has seen the number of pesticides and their chemical components significantly reduce. Many with human health and environmental damage potential have been banned and withdrawn. "Application practices have developed and improved.

Aerial applications and associated, and arguably inevitable, spray drift have long since disappeared. Ground-based machinery now benefits from technological advances such as anti-mist spray nozzles and air-directed spray droplets. Economic factors in agriculture have also reduced the number of spray applications crops receive."

The fear of litigation

On the claims front, the fear of litigation may be causing more concern than what is actually happening. AIUA was involved in the recent case when a large slurry lagoon flowed on to a beach. "The clean-up cost was £30,000, so in the overall picture you can see that these are not massive claims," says Mr Murray Wells.

In summary, the directive does not appear to be causing liability insurers undue concern. But as Mr Riley points out, just as one door closes, another opens. "The food industry now has to ensure farm-to-fork product traceability.

Agricultural contractors are part of that food production chain. Individual crops are subject to far greater levels of pesticide application recording and control, placing more duty of care on contractors." He adds that increased amenity activity in the countryside, recreational fisheries and the like, alongside commercial agriculture, pose a greater risk of financial impact in the event of a pollution incident. As the recent foot and mouth outbreak demonstrated, the amenity value of the countryside is arguably more valuable than the agricultural crops produced.

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