Tree Insurance

With the value of timber rising, having fire insurance on standing timber may become a way for forest companies to better manage risks in the future.

The move by Alberta’s Millar Western Forest Products to protect itself in the event that Lloyd’s of London denies its nearly $1-million claim for timber lost to forest fires is attracting a lot of interest within the forest industry. The company’s recent decision to file legal documents raises some intriguing questions for the industry about the insurability of standing and harvested timber.

According to Millar Western spokesperson Louise Riopel, the company had one year from the date of loss to file the necessary paperwork to entitle Millar Western to take the matter to court in the event of a refusal by Lloyd’s to pay the claim.

"We are insured for our cut and decked wood only," says Riopel. "The coverage was for cut timber that we had stacked in the forest." She says that Lloyd’s has since accepted Millar Western’s claim and it is currently in adjudication.

A survey of companies who suffered timber loss during Alberta’s massive spring fires in 1998 shows that others also carried insurance for harvested timber awaiting transport. Darrel Mackay, woodlands manager for Vanderwell Contractors Ltd. in Slave Lake, says they are insured for the value of the cost associated with harvesting the trees while the logs are still decked in the bush. However, they did not make a claim because they did not suffer a fire loss involving decked timber.

While Vanderwell lost some plantation wood, it was not insured against plantation fire loss. Mackay says his feeling is that the deductible and premiums would be too costly to insure plantations, although they have not investigated that option.

With the sometimes tenuous hold that forest companies have on rights to harvest wood on Crown land, the fact that they carry no insurance on plantation timber really comes as no surprise. However, what about plantation timber on private land? About 80 percent of the available timber in Nova Scotia, for example, is held on private land. Nova Scotia’s Ledwidge Lumber owns a number of plantations, but general manager Douglas Ledwidge says they do not carry insurance.

Given that in most areas of Canada companies are required to replant harvested timber on Crown land—and that the value of that wood is increasing due to the declining availability of new wood sources—insurance may play a more prominent role in the future as protection against losses from fire and infestation.

The insurance industry seems open to providing forest companies with insurance on standing timber, not just harvested and decked trees.

Consider the position of the Alberta government, for example, in the aftermath of losing 19 million cubic metres of commercial timber valued at $1.5 billion in 1998. The government spent millions of dollars to fight fires, and also compensated companies for replanting areas deemed in a state of regrowth. At the same time, most forest companies are now looking for extended forest management agreements, in the range of 60 to 100 years versus the 20 to 25 years now common, so that they have a reasonable expectation of harvesting the trees they plant. What is the likelihood that governments will be willing to allocate lengthy forest management agreements and also come to the assistance of forestry companies each time there is a fire?