MANAGING LEGAL LIABILITY SERIES: Insurance Factsheet

Everything you do in life has liability exposures from driving to the store to inviting friends to your home for a cookout. The level of exposure represents your vulnerability to legal action. For automobile liability protection you purchase auto insurance and homeowners insurance is obtained for homeowner liability protection. Agricultural entrepreneurs may purchase commercial liability or farmowners insurance to protect them from the exposure to the legal risks they face in operating their agricultural business. Therefore, it is critical to think about, talk about, and purchase the correct liability insurance protection.

Homeowners Insurance

Standard homeowners insurance policies typically do not provide coverage for any farming activities including the sale of produce, cottage food operations or agritourism activities.

Sample Exclusion: Liability coverage does not apply “to bodily injury or property damage because of or arising out of a business owned or financially controlled by an insured or by a partnership or joint venture of which an insured is a partner or member.”

Persons operating businesses from their homes may also lose coverage on the structure and contents resulting from a business related loss.

Farmowner Policy Definition

A farmowner policy includes several key definitions. You should review your farmowner policy for the definitions that apply to your specific contract. They may read as follows:

• "Farming" means the ownership, maintenance, or use of premises for the production of crops or the raising or care of livestock, including all necessary operations.
  • Crops and livestock are the key words. When you engage in activities that are outside of these parameters, your farm will need another type of insurance.
• "Farming" also includes the operations of roadside stands and farm markets maintained principally for the sale of the "insured's" own farm products but it typically does not include other retail activities.
  • On your farm policy, you may have a statement that allows your farm stand to be included on your farmowner policy. Again, it is important to review your policy to determine how “farming” is defined.
• "Business" means a trade, a profession, or an occupation, all whether full or part time. (Basically anything you’re doing other than farming)
• "Business" includes services regularly provided by an "insured" … for which an "insured" is compensated. (A mutual exchange of like services is not considered compensation)

Liability Insuring Agreement

All liability insurance policies have an Insuring Agreement. You should read your own liability policy for its specific Insuring Agreement wording. It may read, in part, as follows:"We" (your insurance company) will defend a suit seeking damages if the suit resulted from "bodily injury" or "property damage" not excluded under this coverage.

It is the insurance company’s duty to defend you against liability claims or complaints resulting from activities or events that are covered by your policy.

Farmowner Policy Coverage

A typical farmowner policy provides certain base property and liability coverages. You should review your policy declarations page and meet with your agent on a regular basis to review and understand your coverage. The policy declarations page will usually contain the following liability information:

• Premises & Operations Liability Coverage – provides coverage for bodily injury or property damage caused by you as it relates to the ownership, maintenance and use of your farming operation (i.e. a neighbor injured while visiting the farm)
• Products Liability Coverage - provides coverage for bodily injury or property damage caused by defective products. The base farmowner policy covers “raw” products only.
  • If the raw product is altered by you (a value-added product), there is no products coverage under the base farmowner policy. For example,
    • The base farmowner policy will cover the production of apples. But the policy will not cover the production of apple cider/juice or any other product made from the apples.
    • When a farmer combines multiple types of lettuce into a salad mix, it is considered a value added product and would not be covered under the base farmowner policy.
  • Coverage can be obtained by adding an endorsement to the farmowner policy or by obtaining a separate liability policy.

Farmowner Liability Exclusions

All liability insurance policies have exclusions. You should review your policy for specific wording. Typical exclusions are as follows:

• "Bodily injury" or "property damage" which results from activities related to the "business" of an "insured.”
  • On a standard farmowner policy, business is considered anything other than farming (i.e. agritourism activities).
  • Sometimes “incidental” business pursuits, within a certain receipts limit, are covered (or can be endorsed) to the policy - such as roadside stands or custom farming activities.
    • Availability will depend on the wording of the policy and your insurance carrier’s endorsements

Activities/Exposures and Insurance Solution Possibilities

Farm activities should be discussed with your insurance agent and include a tour of the property allowing the agent to actually see what and how the activity is being done.

Sample Checkpoint Review

As you plan a review of your insurance coverage, the following table may help you in preparing to discuss your insurance needs with your insurance company or agent. For each activity, a separate policy or an endorsement to your current policy may be needed.

The candid discussion you have with your insurance agent along with the available endorsements or programs of the insurance company will guide your decision.

Insurance Resources

• liabilityinsurancefacts.com provides liability information.

• www.vwc.state.va.us offers guidelines on Workers’ Compensation insurance.

• http://www.naic.org/consumer_glossary.htm lists insurance terminology