More than Insurance
Rob Walling

More than Insurance

Homegrown Vermont RRG Protects Land that Americans Love

Rob Walling June 21, 2016 Posted in: Blog Posts, Alternative Markets

The following article was co-authored by Rob Walling, Principal and Consulting Actuary, and Leslie Ratley-Beach, Vice President Alliance Risk Management Services LLC and Manager for Terrafirma Risk Retention Group LLC.  It was previously published in the Vermont Captive Insurance Association’s (VCIA) May 2016 e-Newsletter, The Captive Chronicle.

More than Insurance - Homegrown Vermont RRG Protects Land that Americans Love

Introduction
In the late 1990s, staff at Colorado Open Lands, a nonprofit land trust that exists to protect Colorado’s treasured land and water resources, started wondering how it would handle enforcement actions on its easements. The answer ultimately led to the creation of a unique insurance company that helps land trusts protect the public benefit of conserved lands forever and covers land trusts’ public liability for lasting conservation.

“It wasn’t any particular problem we ran into,” recalls Dan Pike, the immediate past President of Colorado Open Lands. “We just started asking what we would do if we ever had to go to court on our easements. And honestly, we didn’t have a good answer.” Contributing to the sense of urgency was a well-publicized case in which the French and Pickering Creeks Conservation Trust incurred over $500,000 in legal fees defending an easement. “It was scary,” said Pike of the French and Pickering case. “Those numbers just shocked everybody.”

Pike asked Jessica Jay, then a first-year associate at a Denver law firm, to research easement enforcement options. “I went into it looking for a silver bullet,” recalls Jay. “And I came back to Dan with 18 options, half of which involved insurance.”

Eventually, the Land Trust Alliance (the Alliance), a national land conservation, education and advocacy organization, stepped in. “Land trust leaders had been talking about some form of collective defense for over 30 years,” recalls Leslie Ratley-Beach, Conservation Defense Director with the Alliance. The Alliance, together with hundreds of volunteers, organized Terrafirma Risk Retention Group LLC (Terrafirma), owned by the land trusts insured with Terrafirma for liability for upholding conservation benefits to the public and regulators against costly legal battles.

The Land Trust Liability 
America’s 1,700 land trusts have conserved almost 5 million acres of forests, farms, parks and other places that enrich our natural and human communities—an area roughly the size of the state of Kansas. Private foundations, individual donors, government funds and tax incentives have together invested billions of dollars in lasting land conservation, expecting that these cherished places would be permanently protected. That investment is now at risk. 

Land trusts work with private landowners by purchasing a property or, increasingly, by placing a conservation easement that allows the owner to retain ownership with structure and use restrictions forever. With 70 percent of the U.S. owned by private landowners, conservation is essential to future generations’ connections to land in America. Conservation easements are designed to be permanent. However, two emerging trends— continuing population growth and transfer of conserved land from their original owners—threaten an increase in legal challenges and endanger this permanence. 

Conservation easements and lands are increasingly under attack across America. Even solid easements are vulnerable to violations and frivolous lawsuits, and substantial trespass on owned land increases every year. Eventually, every land trust, no matter how well managed, will face a legal challenge and liability to uphold conservation permanence and the land trust’s charitable mission. Threats include:

  • As property values rise and urban sprawl continues, incentives grow to disrupt or void easements and trespass on owned land.
  • Economic troubles threaten conservation as developers looking for easy money attempt to take land and rights of others.
  • Trespassers, successor owners, developers and government agencies have all attempted to disrupt conservation easements and take owned land.
  • Land trusts have a potential liability to regulators, donors, landowners, community members and funders to uphold lasting conservation.

The Alliance has identified a significant threat to land conservation in America: Economic incentives to break conservation easements or to take land owned by land trusts will overwhelm the ability of these charitable organizations to defend them. In the future, we will see an increase in development pressures, land values, and new landowners and neighbors who do not share the same commitment to conservation. These factors will create increased incentives for landowners to overturn easements and for neighbors and others to encroach.  The cost of defending the liability to the public and to regulators of those easements and land owned could bankrupt many land trusts. The financial payoff to those that can “break” an easement or take land by trespass or adverse possession might be significantly greater than the resources of individual land trusts to stop them.

Both financial and technical resources were needed to combat this threat. A nationally-based cooperative effort to coordinate legal defense and its costs was finally determined by all to be the best―and perhaps only―alternative to protect the land conservation from attacks.

Description of the Solution
It may seem puzzling that a commercial insurer would not offer this product. After all, commercial insurers are frequently looking for new products to sell in their very competitive, low-growth industry. Unfortunately, insurers have several reasons for their lack of interest in this type of product:

  • Market size - Many commercial insurers are not interested in markets that are not large enough to produce sufficient premium volume.
  • Size of premium - The typical premium for an individual land trust is smaller than many insurers find attractive.
  • Lack of control - The Alliance and its members strongly desired the ability to ensure claims would be managed to protect both the long-term viability of conservation easements as a legal tool and the conservation values of land. A commercial insurer might not always agree with this approach.

Since commercial insurance did not provide an effective, affordable or reliable solution, an alternative approach was needed. The answer lay in a national effort to create an insurance company owned by land trusts to defend their liability to the public and to regulators. A form of captive insurance, specifically a risk-retention group or RRG, presented everything the land trusts needed. An RRG would be owned and managed by land trusts under a federal statute. The coverage, premiums and claims-handling approach would address the particular needs of land trusts. Discounts in premiums would be available to encourage practices that lower risk. The claims committee would be composed of land trust peers with expertise in dispute resolution, insurance, litigation and interpretation. Alternate approaches to resolving disputes, such as mediation, settling cases with a positive conservation result and other creative solutions that uphold conservation permanence and land trust integrity, would be embraced.

Developing an RRG also supports land trusts’ missions by providing risk balancing, education and prevention programs, and by sharing resources and risk nationally. In addition, such a program fits well into the array of programs already offered by the Alliance, such as Land Trust Standards and Practices, The Learning Center, the Standards and Practices curriculum, seminars, trainings and Rally, the Assessing Your Organization prevention tool and the Land Trust Accreditation Commission, an independent program of the Alliance.

Terrafirma
The Alliance created Terrafirma as a charitable risk pool owned by participating land trusts to insure its members against the legal costs of defending the public and regulatory liability of lasting conservation. Terrafirma is organized in the State of Vermont as a federally-regulated, tax-exempt risk-retention group. It is also a non-member-managed limited liability company and a federally-recognized charitable risk pool. Being an RRG allows Terrafirma to cost-effectively offer insurance in 49 states (North Dakota does not recognize perpetual conservation easements) and the District of Columbia. It was capitalized with over $4 million raised by the Alliance from national foundations. All member land trusts also made a small capital contribution upon joining.

Terrafirma provides coverage for legal expenses, including experts, meditation, settlement advice, court and legal preparation costs. It is available for all Alliance member land trusts with conservation easements or lands owned for conservation. Terrafirma also provides risk-balancing information and training to its members. Terrafirma is part of the Alliance’s national strategy to build a formidable defense in ensuring conservation permanence and was designed in consultation with insurance specialists, attorneys and land trusts across America. Each land trust must also maintain adequate funds to pay for its share of the program, for both expenses not covered by the program and for day-to-day stewardship.

Terrafirma brings many benefits to its members, including:

  • Insulation from draining endowments to pay legal and expert fees
  • Financial certainty about exposure to litigation costs
  • Building confidence with donors, lenders, regulators and legislators regarding members’ ability to permanently uphold conservation
  • Demonstrating to the IRS and state regulators that land trusts are serious about perpetuity
  • Making available professional help and prevention programs
  • Coordination of sound practices and effective legal strategies
  • Controlling litigation, costs and service providers

Land Trust Leaders’ Response
The response from land trusts has been overwhelmingly positive. As of March 1, 2016, the fourth anniversary of the original inception date:

  • Terrafirma owner-members consist of 493 land trusts in 48 states and D.C.
  • Terrafirma land trust-insured portfolios include over 7.65 million acres of conservation land.
  • Terrafirma provides a safety net to land trust members to protect the public benefit in 26,274 parcels of conserved land, including 23,273 conservation easements and 2,846 owned parcels.

Consider the following comments:

“This is a no-brainer. Having experienced the expensive, unpredictable costs of litigation, I feel that Terrafirma’s liability defense insurance is an essential safety net for prudent land trusts committed to defending their easements.” Dan Pike, President, Colorado Open Lands, retired

“We finalized our first significant enforcement action without having to litigate, and I can’t emphasize enough the importance of having the financial strength and backing of Terrafirma during the process. It gave us the confidence to bring in counsel early, serving as a clear signal to the opposing parties that BRLT was ready to defend the easement knowing that our enforcement funds were not at risk of being depleted.” Gavin Ricklefs, Executive Director, Bitter Root Land Trust (MT)

“It gives us and landowners confidence that we have a safety net. Even if you don’t think you’ll ever have to defend land or that you have sufficient resources to effectively self-insure, you still have an interest in seeing Terrafirma flourish. It is a cost-effective way to bring solid legal defense and enforcement to as many legal challenges as possible. And that benefits all of us.” Bill Prakken, Board Member, Mesa Land Trust (CO)

“I am the sole staff person of a small land trust in Georgia. The Terrafirma conservation defense insurance program is a very reasonable, balanced, targeted effort that I benefits us.” Steffney Thompson, Executive Director, Oconee River Land Trust (GA)

“Thanks for all your help through this. Terrafirma has been a great resource to us throughout this violation resolution.” Linda M. Garrett, Executive Director, Tug Hill Tomorrow Land Trust (NY)

“I commend Terrafirma for not making the process overcomplicated and time-consuming. I also appreciate the ‘TerraBite’ emails. It’s easy to lose focus on the risk mitigation aspects that can be achieved during and after the easement acquisition process. These ‘bites’ of information are good reminders to keep risk mitigation at the forefront. I also appreciate the update to the program that was offered at Rally (the National Land Conservation Conference offered annually by the Alliance). Communicating that the insurance program is working to protect conservation will be its strongest ally in sustaining the support of the land trust community.” Jeffery E. Swinehart, Deputy Director, Lancaster Farmland Trust (PA)

Conclusion
There is often a negative perception that captive insurance companies focus on generating underwriting profits for their owners. Terrafirma is a reminder of the nobler purposes that many captive insurance companies and risk-retention groups seek, such as reducing the number of permanently-injured workers, negative patient outcomes, automobile accidents or product defects. In the case of Terrafirma, its noble cause is one we all can embrace: protecting conserved lands in perpetuity for the health and enjoyment of us all.

Rob Walling is a Principal and Consulting Actuary with Pinnacle Actuarial Resources, Inc. and has been in the insurance industry since 1989, consulting since 1997. He is focused on commercial lines ratemaking and product development, actuarial studies for captives and self-insureds, commercial lines loss reserving, legislative costing, litigation support, regulatory consulting and expert testimony. Mr. Walling is a Fellow of the Casualty Actuarial Society (CAS), a Member of the American Academy of Actuaries and a Chartered Enterprise Risk Analyst. He currently serves as a member of the CAS Board of Directors. He has previously served as the Chairman of the CAS Ratemaking Seminar Committee, Risk and Capital Management Seminar Committee, and the New Fellows Committee. Mr. Walling is a frequent speaker at industry meetings on professionalism, predictive analytics, captives and alternative markets, medical professional liability and government insurance program topics.

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