Does your operation carry enough liability coverage?
Insurance is tricky. It has more loopholes than one can count. Each policy is different, and each farm makes it so.
“It all depends on the individual’s tolerance of risk,” says Ken Bolton, Extension dairy agent with the University of Wisconsin Center for Dairy Profitability.
• There is no one-size-fits-all policy when it comes to farm liability.
• Farmers’ side businesses may not be covered.
• UW Extension recently published a new bulletin about farm liability insurance.
He goes on to explain that some farmers may possess little or no assets and transfer some risk to an insurance company, while others have a significant value and perhaps are self-insured. That continuum is one everyone finds themselves on, regardless of where their situations falls, but the “judgment calls can only be made by the individual farmer” of what portion of risk they want to transfer, Bolton notes.
Liability at a glance
Liability insurance is only a portion of the insurance profile a farmer must possess, but it’s an important one. It’s unique and stands alone, “primarily because it’s driven by contract law more so than even insurance law,” Bolton says.
Bolton worked with Phillip Harris, an Extension agricultural law specialist, and Shannon Mirus, a staff attorney with the National Agriculture Law Center, to compile a bulletin titled “Farm Liability Insurance,” which was published just this year. It gives farmers great insight into this detailed and sometimes murky part of necessary insurance coverage.
He says he decided to pursue this type of publication back while he was an Extension dairy and livestock agent in Jefferson County. Bolton explains he first saw the misconceptions about liability insurance come to life with his parents when they signed up for an umbrella policy in the 1970s and believed “there was nothing we’re not covered for, which was not true,” he says.
“There’s a general misconception held by many farmers that if you have property insurance, auto insurance, liability insurance and some umbrella liability, that they’re covered for all contingencies,” he adds. “That is very rarely the case.”
Liability insurance, he explains, provides high excess coverage and replaces coverage by the underlying policies when they become reduced or exhausted by whatever loss there may be.
The purpose of it is to defend the person in court and also, if found liable, pay some or all of the fees. This is where it gets tricky, and a farmer needs to ask: What is my risk, and how much do I want to assume myself?
How much is enough?
The statement on the first page of the “Farm Liability Insurance” bulletin explains a concept Bolton says is critical to understand: “Every insurance policy is a legal contract, and every insurance policy is subject to its stated exclusions and limitations.”
That, he says, is determined by the insured and the insurer. The level of coverage depends on the premium a farmer wants to pay.
The bulletin lists many examples that farmers can benefit from reviewing. Since each situation is unique, there is no set number on how much liability a farmer should have. One issue many producers may not think about is the pollutant factor. Many liability policies contain exclusions on pollution and will not cover complaints of manure, smoke, fumes and many other effects to people and property.
“If manure is considered a pollutant, most pollutants are excluded in farm liability insurance coverage, unless you pay a specific extra premium,” Bolton notes.
Many farmers are also running ventures in addition to the main farm business. Some examples include custom cropping, agritourism, culture labs and roadside stands. These are likely not covered under the farm liability policies.
One situation Bolton saw years ago was with a farmer who had an employee of his side business working on the farm one day during a slow period. When that person was injured, the policy did not cover the damages.
“He wasn’t covered because he wasn’t designated under the farming business, even though the farmer had liability for both businesses,” Bolton explains.
A more recent issue, he notes, has been in the utilization of milk culture labs on dairy farms. “It may not be covered if you have someone come in and [they are] injured or contaminated somehow,” Bolton says.
These are all topics worth discussing with an insurance agent. It’s hard to foresee any and all risks involved, but looking into possible scenarios and whether or not coverage is there is important either way.
The “Farm Liability Insurance” bulletin is available at your local Extension office or online at.
“We wanted to offer some clarification that there are many exclusions and coverage options,” says Bolton. “Folks probably need to review and maybe even need some professional assistance in order to have some level of assurance that they have the coverage they need.”
Bradley writes from East Troy.
This article published in the November, 2011 edition of WISCONSIN AGRICULTURIST.