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What is "levy avoidance"

20 Jul 2017

Joint and several liability for "levy avoidance" will come into effect from 1 January 2019 however there is very little detail in the FENZ Act about what "levy avoidance" means in the insurance context and how to identify it.

Insurers and intermediaries doing business in New Zealand will be exposed to joint and several liability to pay shortfall penalties for “levy avoidance”, under the Fire and Emergency New Zealand Act 2017, if they take an incorrect position on the amount of levy payable on an insurance policy. 

However, there is very little detail in the Act about what "levy avoidance" means in the insurance context and how to identify it.

Veronica Cress has posted an article which outlines what we do know about the legal test for levy avoidance and the factors the courts may look at in levy avoidance cases.

The penalties are set out in the Act as percentages of the levy shortfall and they vary according to the relative culpability of those involved in taking the incorrect levy position.  At one end of the scale is "not taking reasonable care" which attracts a penalty of 20%.  At the other end of the scale is “taking an abusive levy position”, which includes levy avoidance and levy avoidance arrangements, for which the penalty is 100%. 

The definitions of “levy avoidance” and “levy avoidance arrangement” in the FENZ Act 2017 raise more questions than they provide answers.  Together, these definitions are arguably broad enough to capture almost any insurance purchasing decision or policy arrangement that reduces the amount of levy paid.  This will make it incredibly difficult to identify levy avoidance with any real certainty in many cases.

The very broad definitions make it inevitable that the courts will at some stage be asked to assist with interpreting the Act and applying it in the insurance context.

The full post by Veronica Cress is available HERE 


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