You may need to review your material damage insurances in light of a Supreme Court decision last week that challenges the long standing practice of structuring policies to reduce fire service levy obligations.
This judgment sets aside decisions of both the High Court and Court of Appeal which had approved these arrangements.
Importantly, the Fire Service Commission has agreed that it will not try to recover underpaid past levies or to impose penalties on property owners who used them.
The relevant structures tested by the Court are those which involve either:
- "split tier" policies - typically involving a fire only indemnity policy with a limit set below the "true" indemnity value and a related excess of indemnity fire policy, or
- composite fire policies under which multiple parties jointly insure their assets with an indemnity limit less than the total true indemnity value.
In essence, the Court has concluded that for structures of this nature, the fire service levy will need to be calculated on the true indemnity value of the insured property, rather than the lower indemnity limit. And for composite policies the arrangement should be treated as a separate policy for each of the insured parties rather than a single contract.
While each contractual arrangement needs to be considered on its facts, the principles to be applied have now been clarified and are different than those that have informed established practice for many years.