By Stephen White
It is common in the agribusiness sector for operations to be structured across multiple entities.
For example, with one entity employing staff, another conducting farming or processing operations, and a third holding land or equipment.
This type of structure can offer clear benefits in terms of enterprise bargaining, risk allocation, and asset protection.
But while the advantages are well understood, the potential insurance consequences often are not and can have costly implications.
Employing entities are required by law to hold a workers’ compensation insurance policy that covers liability for statutory compensation and common law damages where employees are injured at work.
Typically, the wider group will also hold liability insurance covering the operating and asset-owning entities.
However, a common misconception is that, by placing all employees in a standalone employing entity, only that entity will be exposed to claims if an employee is injured. In practice, that is often not the case.
In many agribusinesses where day-to-day activities may be conducted by an entity other than the employer, the operating and asset-holding entities may also be exposed to liability.
For example, they may be considered an occupier of the land or to have had control over the systems of work that caused or contributed to an injury on the premises.
In the absence of formal intra-group agreements clearly outlining the roles and responsibilities of each entity, non-employing entities are frequently exposed to worker injury claims. These claims are then notified under the group’s separate liability insurance policy.
This can have unintended financial consequences. Liability policies often carry significant deductibles for worker claims, which must be funded by the non-employing entity.
This not only places pressure on the liability insurance program but may also result in an unintended transfer of workers’ compensation risk to the related operating entity who must then fund a further excess. Insurers are increasingly alert to these risks and may adjust premiums accordingly.
For agribusinesses operating through multiple entities including those managing diversified farming operations, vertically integrated supply chains, or large property holdings, the insurance implications of business structure should be carefully considered alongside operational and tax factors.
Stephen White is a Partner at McCullough Robertson Lawyers. He is an insurance and corporate risk expert with more than 20 years of experience practising in contentious and non-contentious insurance-related matters.
