Several times I have been asked how much liability coverage a farm should carry. I have never had a good answer. Recently Peggy Hall, OSU Extension Ag Law Resource Program and Emily Adams, Extension Educator Coshocton County, wrote an article that addresses that question. Here is what they have to say:
Farm liability insurance is one of the most common tools for agricultural risk management. 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?
- 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.
- 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?
- 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?
Make the time to know what’s in your policy.