By: Emily Adams, OSU Extension Educator and Peggy Hall, Asst. Professor, OSU Extension Agricultural & Resource Law
On one hand there are the optimists. They see the glass half empty and expect the best to happen in all situations. Then on the other hand are the pessimists, who often refer to themselves as realists. They anticipate what could go wrong and spend time thinking about alternate plans for when those unfortunate things actually happen. Pessimists, this article may not be for you, because you’ve thought these things through. So optimists- read on!
How often do you think about your farm liability insurance? When is the last time you reviewed your policy with your insurance provider to make sure that you really are covered for everything for which you think you are covered?
Farm liability insurance is one of the most common tools for agricultural risk management. Liability coverage helps you manage your liability for harm unintentionally caused to other people or property by your farming activities. It makes payments on your behalf to an injured party. It also defends you against lawsuits brought by a third party alleging liability within the scope of your policy.
We are all wired differently in our risk management personalities. For some people it seems like a waste of time to anticipate what could go wrong on your farm. You’ve got insurance; it’s probably covered, right?
Maybe, but maybe not. Depending on your policy and everything that you are doing in your farm operation, general farm liability insurance might not cover as much as you think. You should annually review your insurance policies with your insurance agent to make sure that all aspects of your farming operation are covered.
What levels of liability coverage are recommended?
According to Virginia Cooperative Extension, the consensus of insurance professionals is that any type of farm should have at least $1 million in coverage. But $1 million may not be enough for many farm operations in Ohio, based upon the farm’s assets and activities. A rule of thumb suggests an amount of coverage equal to the extent of your assets. For example, $5 million worth of real estate would mean $5 million in coverage. Another rule of thumb from Virginia Cooperative Extension is to obtain sufficient coverage to help you sleep at night. Request a quote for varying levels of coverage, and then gauge the increased cost compared to the increased comfort of higher coverage.
What should you review in your liability policy?
- What is the aggregate limit of the policy? The aggregate limit is the maximum amount your insurer will pay to settle your claims during the policy period, which is typically on an annual basis. Is this amount sufficient to address your risk?
- What types of incidents are covered by your general liability insurance? A standard policy covers liability for bodily injury or property damage arising from incidents related to the farm business and its premises and operations, and can include incidents arising from sales of raw produce from a farm roadside stand. Does this general coverage address all of your farming activities?
- What activities are not covered by your general liability insurance? A standard policy lists activities that are specifically excluded from coverage, which might include custom farming, special events on the farm, processed food products, farmer’s market sales and other off-farm activities, and non-farming businesses like excavation, snow removal or landscaping. Are you in need of additional coverage for these types of activities?
- How does your policy address harm from manure, fertilizers, chemicals or contaminants? Most often, this type of harm is deemed “pollution” that is excluded from general liability coverage. A standard policy will likely define “pollution” as a discharge or dispersal of chemicals, wastes or contaminants on the farm premises, on another property or during transport. Is there is high risk of discharge of manure, fertilizer or chemicals in your farming operation that is not covered by your policy?
- Does your coverage extend to your employees, family members and representatives and their actions? It is important to understand who a policy defines as “the insured,” which typically includes you as the policyholder and any legal entities you name for the farm business. A standard policy might also include farm employees and relatives residing with the policyholder as insured parties. Is everyone involved in your farm’s operations included in the policy?
What gaps might exist in your liability policy?
- What changes have been made in structures, land, equipment or other farm assets? If the value of your assets has grown since you first obtained your policy, you may need to revise your coverage limits.
- What additional agricultural activities or other enterprises are in need of coverage? If you are involved in new enterprises or agricultural activities, you may need to increase your coverage or obtain an additional policy endorsement that addresses the activity.
- Do you need to address pollution risk? If you use, store or transport manure, fertilizer or chemicals, you should assess the risk of a discharge that could affect crops, livestock, a waterway or another’s property. Supplemental coverage is available to address “pollution” incidents, which typically addresses sudden, accidental discharges of materials used in normal farming operations. Because pollution coverage can vary widely, it is important to understand both your risk of an incident as well as the limitations of your pollution coverage.
What would happen if…
- You cause a chemical spill when traveling from one farm location to another?
- One of your farm employees causes an accident while driving machinery on a roadway?
- You are the cause of an accident while plowing snow for a neighbor?
- A family member is involved in an accident while custom baling hay on someone else’s property?
It can be painful for the optimist to sit down and consider the “what if’s” of life. But it is much more painful to have the unexpected happen and result in costly expenditures that could even mean losing the farm. Make the time to know what’s in your policy.
Some excellent resources:
eXtension Insurance, Records and Planning
University of Wisconsin Extension – Farm Liability Insurance A3917
Virginia Cooperative Extension – Insurance Factsheet
Virginia Cooperative Extension – How Much Liability Insurance Coverage Should I Have?
Virginia Cooperative Extension – Questions to Ask When Comparing Insurance Coverage