Farmers who lease parcels from other landowners to raise crops or livestock, or lease out some of their own land to other growers, are open to additional liability issues.
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Farming has always been a risky business. Combine that high level of risk with the growing number of lawsuits, and farmers find themselves facing situations that threaten their financial security on a regular basis. While insurance can't ensure that nothing ever goes wrong, a wide range of insurance products have been developed that can protect a farmer's assets in many circumstances.
The need for liability insurance for farmers has never been greater, particularly with farms selling products directly to consumers and having their facilities open to the public. "More and more of my clients are realizing that if one of their buildings catches fire they lose a building, but if someone gets hurt they could lose everything they've worked for," says Martin West, a Farm Family insurance agent in Marlborough, Mass.
Like most insurers, Farm Family Casualty Insurance Co., headquartered in Glenmont, N.Y., divides different types of risk into "peril groups." From the most basic category, which protects against loss from fire or lightning, to the most comprehensive, which covers livestock, damage from and to machinery, and more, farmers have a menu from which to choose their coverage.
When it comes to protecting property, farmers need to think beyond the usual types of insurance that cover things like fire and theft and take into consideration other circumstances that could lead to significant financial losses. Those who store food products - crops after harvest, meat, or even hay or silage for livestock - can purchase insurance that covers the loss of this inventory in the event of equipment breakdown that leads to spoilage. Since the quantity of the items being stored fluctuates on a regular basis, farmers can report inventory each month and have their premiums adjusted accordingly, notes West.
While insurance can't ensure that nothing ever goes wrong, a wide range of insurance products have been developed that can protect a farmer's assets in many circumstances.
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Product liability insurance helps protect farmers against losses from customers getting sick from consuming a product produced by their farm, but as farms become more open to the public, additional liability concerns arise. Farms that have farmstands, pick-your-own operations, or tours for individuals or school groups need to ensure that their liability coverage will protect them should anyone get hurt.
While warning signs aren't usually mandated, West says that if an accident does occur and a lawsuit is filed, farmers being able to show that they have taken safety precautions can go a long way toward reducing damages awarded. Posting signs that explain the potential dangers of working with machinery, being around animals, or even just picking vegetables can be a part of those safety precautions. In some cases, where state laws have been passed regarding liability, signs are required. In Massachusetts, for example, signs must be posted at horse farms and boarding facilities explaining that state law says equine professionals cannot be held liable for "injuries resulting from the inherent risks of equine activities."
Farmers who lease parcels from other landowners to raise crops or livestock, or lease out some of their own land to other growers, are also open to additional liability issues. Working on another person's property, or having someone not in your employ working on yours, raises concerns about who is liable for injuries sustained on the job. In these cases, it is the responsibility of the farmer doing the work to have their policy cover the individual landowner, so the landowner is insured should an accident occur and a claim be made. Landowners should always ask to see proof of insurance, says West, to be sure they are properly covered.
Another concern for farmers is workers' compensation insurance, which West says should be purchased by any farmer who has anyone helping them with farm work, whether for pay or barter. If someone gets hurt while working at a farm and has medical bills or is incapacitated in any way, state regulations make the farmer liable for any costs or losses for that individual. While having this coverage may be common practice for a large farm with paid employees, West points out that the same liability would be incurred for a horse boarding operation that allows local teenagers to ride horses in exchange for mucking stalls.
While workers' compensation rules and rates are set and enforced by the state, the policies are sold by insurance companies. The cost depends on how much a farm's payroll is and the value of any services or products bartered in exchange for labor. An annual audit by the insurance company helps determine the premium.
Coverage for volunteers who come to the farm to work without pay doesn't require workers' compensation insurance, says West, and is often covered under general liability insurance.
It's standard to review policies every year, but farmers should also be in touch with their insurance agents to talk about the need to update coverage if anything significant changes in their operation.
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Another liability that West says farmers often don't think about is disability insurance for themselves. For example, a farrier with a broken wrist might not be able to shoe horses for months, losing not only the ability to work and earn money, but also potentially losing clients over the long term. Disability insurance can be partial or full, depending on how much of an individual's income is derived from farming. Many farmers also don't recognize the value of health insurance, which can often make a difference between being able to cover the costs of medical care and incurring long-term debt.
Two additional types of insurance are handled through federal programs. Flood insurance is available through the Federal Emergency Management Agency based upon a property's location in proximity to a flood zone. The Risk Management Agency handles crop insurance, protecting farmers from financial losses because of crop failure due to natural disasters.
While it's natural for anyone to try to save money and figure out ways to carry as little insurance as possible, West says that when he meets with a client he tries to impress upon them just how much they could lose - potentially their entire business and home - if an accident occurs and they have insufficient coverage. For farmers, making sure their coverage is adequate is "all about communication," he says. In order to be sure they're being offered all the coverage they need to protect themselves, farmers must explain to an insurance agent exactly what their farm does and how. Agents know the questions to ask and can discover activities that raise insurance questions that a farmer may not have considered, such as loaning or borrowing equipment, or cleanup of hazardous material spills.
"My biggest fear is if something happens and a client doesn't have the right coverage in place, they could lose everything they've worked for," says West. "I want farmers to be aggressive in asking me to make sure they've got the coverage they need." While it's standard to review policies every year, West says farmers should also be in touch with their insurance agents to talk about the need to update coverage if anything significant changes in their operation, such as the purchase of expensive equipment or a change in staffing.
Insurance is just one part of the financial maze for farmers to navigate. From a tax perspective, the best business structure for a farm might differ from the best structure for insurance purposes, for example. A certified public accountant or attorney would be the best advisor for figuring that out, says West. Farmers should also take estate planning seriously, looking beyond life insurance to issues about how to transfer nonliquid assets, such as land and equipment, to heirs, and how to best keep a farm operating in the future.
Winton Pitcoff is a freelance writer based in western Massachusetts.