Conservation Defense Insurance Frequently Asked Questions
Please help the Alliance explore the possibility of a conservation defense insurance program. Comments from more than 150 land trusts and dozens more insurance experts, attorneys, business leaders and land trust leaders have helped shape the revisions to the original feasibility report. Almost everyone has indicated interest in participating and expressed support for continued investigation of the feasibility of such a program by the Alliance. Land trusts also asked many excellent questions. Here are some of the most frequently asked questions and answers to them.
Do land trusts have to insure their entire portfolios?
A land trust may insure its entire conservation easement portfolio or its entire fee land portfolio or both. That choice belongs to the land trust. Because the insurance program will need a balance of high risk and low risk easements and land to be sustainable, land trusts as owners of the insurance company will not want to insure only their high risk easements or fee land. If only high risk easements or fee land are insured, then the land trust owned and operated insurance program will likely not be able to generate enough income to pay claims.
What is covered?
The feasibility report suggests that the program, if created, cover only attorney’s fees and other expert fees such as mediation, for both the enforcement and defense of conservation easements and fee owned land. This would cover land trust attorney and other fees where the land trust either starts the law suit or is named in a law suit. It will also cover attorney and other expert fees prior to litigation in an effort to resolve cases without unnecessary litigation. The draft business terms that will be available in February have a list of almost two dozen exclusions from coverage that land trusts should carefully examine.
Is coverage allowed where one land trust owns the fee and a second land trust holds the conservation easement on that fee parcel?
Yes, it is not double coverage as it is two separate ownership interests.
Is coverage allowed for multiple co-holders of a single easement or fee land parcel?
Yes, but only with one aggregate collective policy limit written under one policy.
What about back up holders and third party enforcers?
Some coverage would be provided for these types of holders as well with conditions and limitations. The draft business terms that will be available in February have more details.
What is the underwriting process?
The insurance program board (if enough land trusts are interested for the Alliance to create this program) would retain the discretion to opt out of covering certain easements or fee land that are so unusual that it exceeds the program risk assumptions. The program would also have basic eligibility criteria so that only land trusts and quasi-governmental organizations that operate exclusively for a conservation purpose are covered. The organization will also have to be in good standing and be an Alliance member along with a few other essential good practices. Some discounts will be available for accredited land trusts as well as other land trusts who meet certain practices. The application form would be as simple as possible. It would not underwrite individual easements or fee land, but rather the organization based on a few essential measures of good practices.
How will land trusts know if a particular conservation easement will be defended?
Once the land trust insures its portfolio and meets the underwriting criteria, then any of its insured conservation interests will be defended for any claim occurring during that policy year. How it will be defended is what the claims committee and the national coordinating attorney works out with the land trust. In some cases a land trust may have practices or documentation which would make it difficult to win a lawsuit. There the claims committee and the national coordinating attorney works with the land trust to decide how best to defend that conservation interest using alternative methods.
What if the land trust wants to settle but the insurance program doesn’t or the reverse?
The claims committee will work diligently to arrive at a consensus approach with the land trust. Ultimately the board of the insurance program decides case management disputes. The board would be composed of experienced people from participating land trusts and the Alliance.
What does the claims committee do and who is on it?
The claims committee would be composed of land trust practitioners experienced with legal challenges. These folks know what it is to operate a land trust and protect hard-won conservation interests. They will also be responsible for ensuring that the insurance program is well managed and costs are appropriately contained.
How would the insurance program board and claims committee be selected?
We have not yet determined how to manage the selection of the board and committee members and how to address appropriate representation geographically, by size and by conservation focus as well as needed expertise. If the Alliance board votes to proceed with the insurance program, we will work closely with our counsel Tom Jones of McDermott, Will and Emery to address all these issues equitably and appropriately.
Who decides what legal counsel to use through the insurance program?
The feasibility report anticipates a high degree of collaboration and collective decision making on counsel selection and case management with the land trust and the claims committee of the insurance program. We also want to be sure that national knowledge is shared with all land trusts and that land trusts have the best possible representation needed for the particular case. So it will be a balance with lots of consideration for local issues and a preference for experienced local counsel. If land trusts don’t have a litigator they know and have used, then the program is likely to play a much larger role in attorney selection than for a land trust with a long established relationship with a highly qualified litigator. Ultimately the decision rests with the insurance program, but since the land trusts are also the owners and operators of the insurance program, it should result in fair and appropriate decisions about legal counsel.
How can land trusts own the insurance program?
The proposed insurance program would be a Reciprocal Risk Retention Group that is owned and operated by the land trust participants and the Land Trust Alliance for their collective benefit to support conservation permanence. A Risk Retention Group is a liability insurance company that is owned by its members functioning as a captive insurance company and organized for the primary purpose of assuming and spreading the liability risk exposure of its group member owners. Once licensed by its state of domicile, an RRG can insure members in all states because RRGs operate under a federal law that preempts state regulation, making it easier for RRGs to operate nationally. A Reciprocal Risk Retention Group is an RRG structured for tax purposes to pass through the tax treatment of excess revenues to its members so that RRG taxes are assessed based on the members’ tax status.
What are the eligibility requirements?
The overall philosophy that the Alliance has been using in its exploration of this possible program is to provide the broadest possible coverage consistent with prudent business principles for the greatest number of private land trusts and quasi-governmental land trusts (a government entity operated by an independent board). The purpose of the program is to defend and enforce conservation easements and to protect fee-owned land. In addition to conservation defense, we expect to also focus on increasing prevention, good practices and good precedents. We believe that land trusts are dependant on each other for optimal defense – we are all in this together – and can present a formidable collective defense. To accomplish these goals, we want virtually all land trusts to participate in the insurance and risk prevention programs. For this reason, we want to keep the application form and the process as simple as possible, mindful of the burden on land trusts and minimizing the administrative costs for the program. We also do not want to confuse land trusts with comparisons to accreditation which has a very high bar. Thus we would have eligibility requirements that identify only the highest risk organizations.
In determining the premium, do you count the number of deeds and easements or are adjacent properties to be treated as one, even if they are covered by multiple deeds or easements?
Premiums are based on the numbers of deeds and conservation easements in the land trust portfolio, not on parcels. Contiguity has no effect except in some limited circumstances for certain fee-owned reserves. We are exploring contiguity pricing for conservation easements if owned by identical owners but are uncertain if this will be available.
Can we extend the program to other areas such as condemnation, government holders and historic preservation, business disputes, litigation regarding land adjacent to conserved or owned land?
If enough land trusts participate initially to make the insurance program feasible and successful over several years, then we can examine the feasibility of expanding the program to cover some or all of these additional risks. Initially, none of these risks will be covered.
Do land trusts still need to get an endowment if we create an insurance program?
Yes! No matter what happens, land trusts will still need funds for ongoing daily stewardship costs and the annual costs of insurance deductibles and exclusions. If an insurance program is feasible and is implemented, then, depending on whether your legal defense needs are fully funded now, your land trust may need less money in the bank devoted to legal defense than you do now, but you will still need a significant amount of your own funds. You will also need a way to pay the annual premiums. Some land trusts are considering keeping their segregated legal defense funds intact and using the income from the fund to pay the premiums and having the fund principle available to pay deductibles, exclusions and claims in excess of the policy limit.
Why are the premium and deductible so low and why isn’t there coinsurance?
The Alliance insurance consultant stated that coinsurance or a high deductible and premiums would not likely have a positive effect on costs or on land trust practices or choices. In practice, unless the coinsurance percentage is quite high (causing the insured to incur a painful level of uninsured cost), they did not find that it significantly affects the insured’s attitude toward defense. If the insurance program required coinsurance or a very high deductible, it could be a financial burden on the smaller insureds, could make it more difficult to gain their cooperation in a vigorous defense and could be counterproductive. Insurance, while helpful in protecting the insured, will not cover all of their costs even with a low deductible. Staff time, mitigation steps and a deductible would still be incurred, as would potential public embarrassment.
Is coverage assignable if the land trust merged with another or assigns a conservation easement during the policy period?
Yes. Any program would also need to articulate the details of how that is assigned and how the various limits and expenses are allocated between the organizations.
How will divided or merged conservation easements be treated?
A full additional premium will be needed for each exercised division right under an insured conservation easement, trail easement or deed covenants where the divided parcel is subject to an insured conservation easement, trail easement or deed covenants. No additional premium will be needed (and no coverage) where the divided parcel is released from all easements or covenants. Separate easements that are fully and legally merged will be treated as one easement.
Are the risks to fee-owned land as great as for conservation easements?
A survey of land trusts found that fee-owned land has defense costs to conservation easements. While the issues may be different, the survey found no significantly different risk of legal challenges between the two. Typically, general liability insurance or possibly directors and officers insurance may cover a land trust that is sued regarding its fee owned land but is unlikely to cover instances, for example trespass, where the land trust must sue to protect its land.
How would the insurance program interact with the Conserve-A-Nation program?
If the Alliance starts the conservation defense insurance program it would not overlap with the general liability insurance offered through Conserve-a-Nation. The legal fees insurance would have a provision that if the general liability insurance covers certain litigation, that must be used first, then the legal fees insurance would cover anything within the policy that general liability does not. This requires that the two insurance programs coordinate with each other. That would occur through the national coordinating attorney.
What is a claim?
A legal challenge, dispute, trespass or violation is an occurrence that may or may not become a claim. A claim is a demand made by the insured for payment of the benefits as provided by the policy. Therefore a claim event is where the insured reasonably anticipates that the event is likely to result in a claim or has already resulted in a claim. This includes a claim for payment of mediation, negotiation or other less than litigation fees. The notice of a challenge or a complaint will initiate the claim without the need to have a lawsuit filed. A claim may stretch over more than one year but it is covered under the policy in the year of first occurrence. Details on these points will be explicit in the final insurance policy delivered to insured land trusts.
What will it take to make the insurance program feasible?
The Alliance hopes to distribute the business terms to land trusts for public comment by mid February. We will incorporate comments and present the terms to the board for final approval at the April 9 Alliance board meeting. Once the terms are finalized, we will ask land trusts to sign contingent commitments to participate in the insurance program, but we will not ask the Alliance board to vote on proceeding with the program if we do not receive commitments to insure at least 12,000 easements (fee-owned parcels can be included in this number) and raise the required capitalization of $4 million.
How would the insurance program mesh with accreditation?
We believe that it is very important to design any insurance program to compliment Land Trust Standards & Practices, the accreditation process and emerging state certification processes for land trusts. Coordination with these existing standards and programs to avoid confusion and multiple conflicting layers of requirements is essential. The Alliance will be energetic in doing everything possible to prevent confusion and conflicts while still exploring the means to deliver an insurance program that meets land trust needs to the greatest extent possible. Accreditation will not be required to obtain insurance. Accredited land trusts are likely to have a shorter application form, will be automatically eligible and will receive an automatic premium discount.
Is the program non-assessable?
Yes. Land trust will not have any obligation to commit future capital contributions in the event of financial difficulties for the insurance program.
Will the premiums increase significantly?
A purpose of establishing a captive insurance program, instead of using commercial insurance, is to give land trusts control over the insurance product, premiums and claims management. Our desire is to keep premiums and the insurance terms stable over many years. The insurance program will do this by building strong capitalization and retained earnings, investing in loss prevention, promoting good practices, providing pragmatic claims management, and controlling costs of service providers. To a large extent, our destiny is in our own hands. If all land trusts work diligently to have good practices and reduce unnecessary litigation, then the program is more likely to be able to keep premiums low. Of course, no one can guarantee that premiums will not change over time, but our consultants have designed the best available approach that protects land trusts from increases.
How would the program determine premiums after the first years?
Since this is a new program, all participants will be learning about risk management and costs as the program evolves and as we collect data. The pricing structure and eligibility, therefore, will both be reviewed and potentially modified annually.
How long of a commitment does a land trust have to make?
We understand that a land trust will want protection from sudden increases in premiums before it will sign a commitment to participate in the first three years of the program. A land trust can be released from its commitment if claims exceed our estimates and premiums increase by more than 2.5 percent a year over the first three years. Prior to this election, the insurance program will have a reasonable period of time to address any problems or costs increases.
How much input will land trusts have about any insurance program structure?
If the Alliance creates such an insurance program, it will be owned and operated by all the participating land trusts. Participation is voluntary. As an owner of the program, land trusts have a vote in the creation and operation of any program. In addition, the Alliance will actively solicit comments and suggestions on all phases of the insurance program feasibility investigation with land trusts across the country. Please send your comments and suggestions by March 1, 2009 to Leslie Ratley-Beach, Conservation Defense Director, at firstname.lastname@example.org.
As the Alliance develops further phases of the feasibility investigation, we will circulate them widely for land trust comment.
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Last Updated February 5, 2009