The Agriculture Business in Canada and Insurance Claims for Losses Caused by Climate Change
THE AUTHOR:
Praveen Sandhu, Professor at the University of British Columbia & Independent Arbitrator and Mediator at Ekaas Resolve
The Canadian agriculture industry supplies food to people living in Canada and over 200 countries around the world. In 2023, the Canadian government entered into the Sustainable Canadian Agriculture Partnership (“SCAP”) agreement, a program designed to ensure the strength and resilience of the Canadian agriculture industry. SCAP is a $3.5 billion CAD agreement in place from 1 April 2023 until 31 March 2028. SCAP provides industry participants with a robust suite of risk management programs, including crop insurance. It also enables parties involved in insurance disputes to resolve them by way of arbitration. This blog post highlights new twists in quantum, coverage, and mitigation issues that have arisen in recent years as a result of climate change. These new developments in the Canadian legal landscape raise concerns and challenges that agriculture industry actors must grapple with in many other parts of the globe.
Understanding Climate Variability in Agriculture
Where crop damage occurs and insurance coverage is in place, insurance providers and insured industry actors can resolve the loss through a conventional claims process. Alternatively, the parties may initiate arbitration and raise issues that commonly arise in insurance disputes. Such issues include specific policy wording; whether an event is an insured peril; the type and extent of coverage; “other insurance” or double coverage; specific exclusions; compliance with claim requirements; steps prejudicing the insurer; and mitigation of the loss by the insured.
Weather plays a crucial role in the growth of all crops, which require optimal conditions to thrive. Traditionally, the agriculture industry has relied on familiar and predictable temperatures and weather patterns to cultivate crops effectively and efficiently. Variations in temperature, sunlight, and rainfall directly influence crop development and yield. While every region of the earth has always experienced some degree of climatic variation, new weather patterns and unusual temperatures in recent years have required governments and the agriculture industry to adapt faster than ever before. Climatic variations may include gradual temperature reductions to subnormal levels, or unexpected sudden freezing, rain, or hail. They may include warmer-than-usual temperatures, extreme heat from the sun, forest fires, or smoky conditions. They may also involve large and rapid fluctuations between extreme cold and extreme heat.
Evidential Challenges in Climate-Related Insurance Disputes
Parties in insurance disputes may need to present evidence on a variety of pertinent subject matter: historical data on typical local weather patterns; specific weather conditions and temperatures at the time the loss occurred; how quickly specific types of fruit must be harvested after ripening to avoid spoiling; best crop management practices in changing or unexpected conditions; new crop management practices to address the novel weather conditions; and local, national and international factors that impact crop prices.
Quick and large temperature changes may destroy, damage, or stunt the growth of young buds. Extreme heat causes fruit to ripen even if it has not fully grown. A change in climatic conditions typically results in a smaller harvest, either in a reduced number of fruits or reduced weight of the surviving fruit. For example, a grower may harvest 400 fruits from a given crop rather than the usual average of 600 fruits. Alternatively, a grower may harvest the full expected count of 600 fruits, but fruits that are smaller, less marketable and saleable only at a lower unit price. In more extreme cases, a grower may see both types of reduction: number and weight. Parties to disputes may submit historical data from yields in previous years as evidence of expected yield numbers and expected weight per unit.
Economic and Adaptive Strategies
Companies that export fruit typically export fruits that meet minimum size requirements, and which are higher in quality and sell for higher prices than those sold domestically. If a given crop does not meet the size requirement for export, the seller cannot export the fruit and must find new buyers within Canada before the fruit spoils. In an arbitration, parties may present evidence on historical sale prices within Canada and worldwide for various qualities and sizes.
Sometimes, climate conditions for growers of a particular fruit in countries outside of Canada are worse than domestic conditions, and foreign market demand will remain high due to low global production. In such cases, the same fruit that Canadian companies could not normally sell at all as an export because it is too small may be in high demand, and may command an even higher price than full-sized fruit commanded in previous years. Evidence in the arbitration proceeding of circumstances such as international market conditions and demand would negate or colour the interpretation of historical data on typical sale prices for such fruit. Therefore, both local and global climate conditions can impact a Canadian crop insurance arbitration. It is likely that the same could be said for crop insurance claims outside of Canada where similar climate-related issues will arise in arbitration proceedings.
As a consumer, you may be in a country on the other side of the world from Canada and wonder why you are paying such a high price for very small apples. The reason may be climate change: global crops may be yielding smaller apples and in smaller numbers, which may mean higher prices.
Policy Coverage and Arbitration Considerations
Naturally, price impacts the issue of quantum in an agricultural insurance arbitration, but issues of coverage and mitigation arise just as often. When coverage issues arise, the evidence must address the key question: does the policy cover the specific event that caused the crop loss? To answer this question, the parties and the adjudicator must read the policy carefully. Coverage may depend on whether the loss is a reduced number of fruit or a reduced size because the policy may provide coverage for one type of loss but not the other. Coverage may also depend on whether an insured peril or a non-insured peril caused the loss, and the extent to which each type of peril contributed to the loss. There are procedural differences between arbitration hearings and litigation in court. One notable difference is the type of evidence that may be accepted, the threshold in arbitration hearings is lower and, therefore, arbitration creates a greater opportunity to present new types of evidence to address new issues. With a single arbitrator both parties may have the advantage of a decision-maker with knowledge of the insurance industry. If before an arbitral tribunal, the tribunal can privately discuss ambiguities in a policy and, more importantly, how the insurance policy and cause of the loss should be assessed in the context of new climate conditions; Such debate would ensure a more robust basis for the eventual Award. An arbitrator or tribunal can also more easily accept and consider evidence of international weather and market conditions. In agriculture insurance claims, there are advantages from having access to arbitration and the procedural advantages it presents. These include the aforementioned more flexible rules of evidence, a decision-maker with industry-specific knowledge and the potential for a three-person tribunal in the first instance which will result in a more robust bases for findings in a new context.
Mitigation Strategies in Changing Climatic Conditions
To address mitigation, claimants may need to demonstrate quick and agile responses to shifting climate conditions. They may need to provide evidence of pre-emptive steps that they took to mitigate potential losses. Examples of such steps may include installing or upgrading irrigation systems to account for potential extreme heat, or culling part of a crop, which may permit the remaining crop to grow larger and command a higher market price. They may need to address questions about when they would perform culling and how much culling is ideal. They may need to adduce expert scientific evidence relating to the measures that they can take to manage a crop effectively, even in extreme weather conditions, and the limitations of such measures. Faced with new and sometimes rapidly shifting conditions, agriculture industry actors may need to tackle novel problems using creative strategies that are not guaranteed to work. The arbitration hearing often includes expert evidence from one or both parties. The expert opinions are based on education and experience, but the opinions are for novel and unprecedented climate scenarios. This makes for unique cross-examination opportunities and expert preparation.
Conclusion
Climate change has presented new twists to the traditional issues of coverage, quantum, mitigation and expert evidence, posing new challenges not only for Canada but for governments, industries, counsel and adjudicators worldwide. Canada’s agriculture industry serves as a model for how arbitration can effectively resolve climate-related disputes, offering procedural advantages that benefit all parties involved. As climate-related disputes expand beyond agriculture, the global role of arbitration will grow. There is an increasingly intricate cause-and-effect of climate events -where a small environmental shift in one region can ripple across the globe, affecting the price of exports or creating an unexpected foreign demand. This underscores the need for adaptable dispute resolution mechanisms globally. Canada’s experience shows that arbitration, with its flexibility, offers a powerful tool for resolving complex and emerging climate-related disputes and adapting to novel issues as they arise. Arbitration with its procedural flexibility can be adapted further. Now is the time to think about procedural refinements to ensure arbitration remains a powerful tool for disputes across all sectors, especially in the context of climate change.
ABOUT THE AUTHOR
Praveen Sandhu, C.Arb, FCIArb is a professor of Business Law at the Sauder School of Business at the University of British Columbia. She is also an independent arbitrator and mediator practicing under Ekaas Resolve. While her primary base is in Canada, her practice extends internationally. Professor Sandhu has been appointed as a sole arbitrator and on a panel in a variety of matters involving parties in Canada and the United States. She recently received her first appointment as tribunal president from the Stockholm Chamber of Commerce (SCC) Arbitration Institute in a multi-party dispute among European parties.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
