"Many are the plans in a person's heart, but it is the Lord's purpose that prevails."
Proverbs 19:21 | NIV |
Read your insurance policy thoroughly and you are likely to see the phrase "acts of God." It is one of a myriad of ways we have of denoting unexpected consequences or actions. Over the years, we have learned that planning is important but even the best plans do not always succeed.
One way of dealing with the risk of "acts of God" and other unintended consequences is to purchase liability insurance. Most farmers purchase farm liability insurance to cover the expenses associated with farm accidents. When they purchase insurance, they have a dozen things in their mind that they think might go wrong - the cow that gets on the road and is hit by a car, a visitor trips and breaks an arm or the tractor hits and damages the railing along a bridge.
This guide is intended to help a farmer through the process of reviewing their general farm liability insurance policy to determine if it actually is covering all the actions and consequences that might occur in the course of business.
Risk can be understood as the probability of an action resulting in a negative consequence. Insurance is one of several ways to manage risk. For it to actually manage risk it needs to cover the action that may occur and the negative consequence resulting from that action. Various types of insurance cover different actions and consequences.
| Insurance | Actions covered | Consequence covered |
| Property insurance | Accidents during the course of conducting business | Pays the insured for losses |
| General liability insurance | Accidents during the course of conducting business or on business premises | Pays the injured person (not your business) for losses |
| Workers compensation | Accidents affecting your employees while on the job | Pays employees' medical and rehabilitation expenses, and lost wages |
General liability insurance covers the insured person or business when they are legally responsible for damages to others caused by the insured person's negligence. The insurance company providing the liability coverage pays the legal obligations for harm unintentionally caused to other people or property by your business. General liability insurance often provides for the legal defense of the insured person when another person brings a lawsuit alleging harm.
General liability insurance policies state the specific coverages and exclusions, and the maximum amount of liability that will be covered while the policy is in force.
Several activities may void a liability insurance claim. First, illegal activities are not covered. Damage done while committing a crime may not be covered. Second, fraud is not covered. Representing your business or product as something it is not will not be covered. Third, intentional damage is not covered. Liability insurance is specifically to cover accidents, defined as "unexpected events or circumstances without deliberate intent." Finally, material misrepresentation on the application can cause loss of liability coverage for the misrepresented facts.
Whenever a claim is made on liability insurance, three requirements must be met. First, did something happen? Second, did damage or injury result from what happened? Third, are you legally liable for the damages? For example, if you sprayed an herbicide (something happened) that drifted on your neighbor's field and damaged his crops (damage resulted from what happened) and you are liable for negligence (you did not prevent the spray from drifting onto your neighbor's field), your liability insurance is likely to cover the liabilities you incur. The law deems people liable for accidents of negligence or strict liability.
Negligence occurs when a person has a duty of care to the injured person but breached that duty in such a way that someone was harmed or something was damaged. Duty of care is a legal obligation to use reasonable care while doing anything that could possibly harm others. If you invite a person onto your property, you have duty of care for them. If you conduct business in a public space or on someone else's property, you have a duty of care while conducting your business there.
If an action is inherently dangerous, a person doing them may be held to the standard of strict liability. This means that the person doing the inherently dangerous activity is responsible for damages incurred no matter how much care was taken.
Every liability insurance policy is a contract between the insurance company and the insured person. All contracts contain details specifying who, what, when, where and why of the agreement. When an insured person is not sufficiently covered for an accident, they frequently did not understand the contract (policy) details or exceeded the policy limits.
The sections below are intended to raise questions that will help you think through risks you need to manage and that you might ask your insurance agent.
Liability insurance policies specify whose actions are covered. The policy holder is always included. Legal entities such as LLCs, partnerships and corporations operating as the business of the policy holder must be listed in the policy. Relatives of the policy holder frequently are covered but it is wise to confirm this. Employees are usually covered if the policy notes that it covers employees and the application for insurance noted accurately that employees are part of the business.
The application for liability insurance inquires about the number of employees in the business – usually in groups like 0, 1-5, 6-10, etc. If you apply for liability insurance as a small farm with only 2 employees and grow have 7 employees, reviewing the coverage of all your employees with the insurance agent is wise.
Remember that liability insurance is intended to pay others for the harm done by the insured. It is not intended to pay for the harm done to the insured. Property insurance covers the insured's property. Worker's compensation covers the insured's employees.
General liability insurance covers the damages unintentionally incurred by others from the actions of the insured. It is important to understand the specific damages liability insurance covers.
Common coverages include property damage, bodily injury and financial liability. Each of these categories is listed on the insurance policy as having a maximum dollar liability per occurrence and maximum dollar liability for all occurrences. Legal defense costs are often covered in liability insurance. A question to have your insurance agent answer is whether the legal defense costs are considered part of the maximum dollar liability or in addition to the maximum dollar liability.
The things not covered are often what surprise insured farmers. Bodily injury to a family member that occurs on the farm may not be covered while bodily injury to their friend visiting the farm is. Fieldwork such as planting or spraying is covered on your own farm while it may not be covered if you are doing it for a neighbor as part of a custom farming activity.
Exclusions
Understanding exclusions in general farm liability insurance prevents the insured from potentially disastrous surprises. Some common exclusions in general farm liability insurance include:
Certain liabilities are not covered or have limited coverage in liability insurance policies. One common exclusion is "pollution." Liability coverage may not include the release of pollutants on the farm property, on another property or during transportation. Pollutants are defined as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste". Because the definition of pollutant is so broad, farmers should discuss with their insurance agent whether or not they would be covered for activities such as the following:
Because much of the interest in farm liability coverage arises out of the damage from dicamba off-target movement, understanding the limits of spraying chemicals is critical. Anyone spraying a restricted use pesticide (such as Eugenia and Xtendimax) requires special training and/or certification. Farm liability insurance would likely not cover anyone who sprays a restricted use pesticide without training and/or certification.
Endorsements
Endorsements are riders to policies that cover special circumstances. Most exclusions mentioned above can be covered by purchasing endorsements. A farmer who sprays her own fields should add a spray endorsement if it is noted as an exclusion in the general policy. Farmers who engage in custom farming should confirm the limits of their general policy coverage and purchase a custom farming endorsement, if needed. Farmers engaging in farmers' market sales or agro tourism will almost certainly need endorsements to cover those activities.
With any endorsements, confirm that the maximum dollar liability limitations for each occurrence and for all occurrences offers sufficient protection for your business.
Umbrella policy
An umbrella policy provides additional liability protection. It is intended to cover liabilities in excess of the maximum dollar limitations of the general policy or to insure against gaps in basic coverages. Because it is used only after general farm liability limits are met, the probability of its use is reduced and premiums are usually low for the amount of coverage obtained. Umbrella policies are useful to protect persons with significant assets that might be endangered by a lawsuit arising from their negligence.
Most farm and business liability policies are sold for one year periods but policies can be purchased for shorter periods of time to cover specific events that require additional coverage.
The activity that causes damage or injury must occur within the coverage period of the insurance policy. Insurance companies are not responsible to cover actions that occur after the policy has expired. At the same time, general farm liability insurance is not intended to cover pre-existing conditions. Insurance companies may conduct an audit of a business before they insure the business to ensure that the business does not have an existing condition (e.g. environmental hazard) for which they may be expected to cover.
Coverage for damages may extend beyond the coverage period as long as the activity that caused the damage happened during the coverage period. For example, a person injured for hitting your cow on the public road while you were insured will have their medical expenses covered even if those expenses occur after the annual liability insurance coverage period ends.
Independent contractors
When a farm hires an independent contractor (custom farming, spraying, trucking), liability insurance can become complicated. The independent contractor is frequently assumed to carry their own liability insurance. The farmer hiring the contractor should ask for and retain in their records written evidence of liability insurance coverage from independent contractors.
If an independent contractor has an accident while doing business for you, both your liability insurance and their liability insurance will be involved in the investigation. If you often employ independent contractors, ask your insurance agent how your insurance company would deal with an accident involving the independent contractor.
Accidents that occur to persons on your farm are covered. Accidents occurring during the conduct of farm business but off the farm premises are also covered. Accidents that occur on roads are normally covered but you should confirm with your insurance agent whether or not the vehicle is considered part of your farm business and covered by farm liability insurance. An automobile might be require a specific designation that it is a farm vehicle or that it is covered with mandatory automobile insurance.
Liability insurance covers accidents. The National Association of Insurance Commissioners defines and accident as "an unexpected event or circumstance without deliberate intent." Negligence on the part of the farmer is the expected cause of the liability.
The definition of "unexpected" can cause coverage to be uncertain. Strict liability doctrine says that if something is inherently risky, it cannot be unexpected and therefore is not an accident. With the number of acres where dicamba off-target injury has occurred, is it really "unexpected" if dicamba injures your neighbors' plants this year?
This guide was written to encourage farmers to review their farm liability insurance policies to see whether they have the coverage they think they have. Specific problems can arise because:
This page is supported by a grant from the North Central Extension Risk Management Education Center.