No matter what angle you approach them from, businesses involving horses face a lot of risks. Conscientious business owners spend a lot of time and effort to minimize those risks. And then they insure against risks that good management practices alone cannot control.
The risks that insurance can help an equine business manage include:
- Loss of or damage to business assets (property and casualty; commercial auto; equine mortality)
- Property damage or injuries caused to another party (liability; care, custody and control; liability umbrella)
- Employee injuries and lost wages (worker’s compensation)
- Owner injuries (medical)
- Loss of income (owner or key person disability)
- Business continuation (life insurance)
Every equine business may not need to cover all of these risks. For example, a riding instructor working as an independent contractor with no employees of her own does not face any risk from injured employees. Not every business owner will need life insurance to fund an estate plan that allows a son or daughter to stay on the farm and continue the business after they die. Depending on his or her day-to-day involvement with the business and on how the business is legally organized, a business owner may need homeowners, automobile, medical, or other insurance policies that are separate from those that insure the business.
Equine entrepreneurs should analyze the business’s ability to absorb the cost of property damages or losses. That means discussing the business’s liability risks and its ability to absorb losses with their insurance agent, lawyer, and accountant.
Once the business has insurance coverage in place, it is important to review that coverage periodically to make sure it still covers all of the business’s activities. Otherwise, the business’s liability coverage may be in jeopardy.
As a business changes and grows, it is critical that owners contact the insurance agent, says Susan Strawser of Fry Equine Insurance in Grove City, Ohio. For example, before a boarding stable decides to hold a play day for boarders, or an instructor decides to begin taking students to shows off site, the owners should call to make sure that their carrier offers coverage for the new activity, that their policy covers the activity or that an insurance rider is available, and how the change will affect their premium. They also need to know whether there are any particular requirements they must meet in order to receive coverage. “If you’re not sure you’re covered, call,” says Holly Lopes of Cheval Insurance Services, Inc., in Fullerton, Calif.
Lopes notes that coverage changes do not necessarily mean higher premiums. She cites the example of a trainer who leased a facility where she also boarded horses. When the trainer moved to a new facility, focused on training and was no longer responsible for boarders, she saved money because her liability exposure dropped.
However, unless the insurance company is notified in writing of any activity changes since the initial policy was written, it may deny coverage if a claim is made. “You can’t just pick and choose what activities you put on the policy,” says Lopes. When it comes to liability coverage, “You have to put it all on.”
Even if there have been no changes in the way business is conducted since the insurance was first put in place, industry professionals advise reviewing insurance coverage annually. A policy’s anniversary date offers the business owner an opportunity to check to make sure that coverage for both property and activities is still accurate. Companies typically send renewal forms annually and ask for new applications every three years, says Strawser.
Both Strawser and Lopes advise business owners not to simply sign off on renewal notices. Some agencies pre-fill forms based on the last application they have on file, says Strawser, but this data transfer lends itself to human errors. Instead, Lopes says, ask for a copy of the last application which provides a list of exactly what was insured the last time around. The business owner can then make sure everything is correct and complete.
To help its clients with their annual review, Cheval Insurance Services has also designed its own forms that summarize the coverage on a client’s policies. Business owners can then just cross off activities they no longer offer and make sure that any improvements they have made to their property have been added to the policy. This many include property such as fencing or wells that have been put in, or machinery that has been purchased since the application was originally filled out.
It is unlikely that all of a business’s policies will come up for renewal at the same time. It is also unlikely that the business owner will find a single insurance agent who can handle all of his or her personal and business insurance needs, including things such as worker’s compensation and health insurance. That means it is up to the owner to analyze the coverage he or she has and to spot gaps or overlap (see sidebar).
For example, if the business has no group health policy that covers basic medical expenses both owner and employees, the owner needs to find individual health coverage. While the farm’s policy may cover farm vehicles and machinery, it probably excludes the personal vehicle the owner’s husband uses to commute. “You can’t mix homeowners and business coverages,” says Lopes.
Ross Luginbuhl, an agent with Farm Family Casualty Insurance Company in Glenmont, N.Y., advises business owners to make sure their policies consistently name the proper entity. For example, he notes that many equine entrepreneurs form limited liability companies to protect their assets in the event of a lawsuit. Then they make the common mistake of leaving farm vehicles in their own name rather than putting them in the name of the LLC. That leaves them open to be sued personally in the event of an accident involving one of those business vehicles.
Luginbuhl estimates that 70 to 80 percent of the time, the ownership of a horse business is separate from the ownership of the property where the business is located. For example, mom and dad may own the property where daughter’s LLC training business is located. “If there are two separate ‘entities’ involved,” he says, “then you need to have separate policies for both.”
Luginbuhl also points out that there is a huge gray area many stable owners overlook. When they barter lessons or board in exchange for work around the farm, they believe that they are not really in the lesson business or have not actually hired an employee. Because there is no money changing hands, they do not bother to tell their insurance agent about the arrangement. “You are opening the door for the company to deny any claims because there wasn’t full disclosure,” he says. Not only that, but should the worker sue for injuries sustained after she was bucked off or run away with, your state’s worker’s compensation regulators will probably come knocking.
When cash flow gets tight, many horse business owners are tempted to cut corners on insurance. That can be penny wise and pound foolish, say insurance professionals, especially when it comes to liability coverage.
Lopes says horse business owners should look at their liability insurance costs as a percent of gross revenue rather than focusing on the actual premium dollars. Depending on the type of business, she estimates that liability coverage ranges from roughly 3 percent (for breeding and sales) up to 8 percent (riding instruction on the farm’s own horses). Understand the business’s costs and build them into the farm’s fees.
Check with the agent to see if the insurance company offers any discounts for actions taken to help prevent lawsuits, says Luginbuhl. Taking steps to bulletproof your policies may not prevent lawsuits or claims. However, it shows that you have done “due diligence,” adds another layer that lawyers must get through, and makes it more likely that the insurance company will continue renewing the policy. Actions that stable owners can take include:
- Posting farm rules about smoking and hard hats.
- Posting signs about keeping dogs or children away from horses and corrals.
- Posting applicable state equine activity liability laws.
- Asking riders to sign hold harmless agreements.
- Asking boarders to sign a contract listing barn rules.
- Keeping a log of regular inspections of tack for wear and tear.
- Asking all boarders to carry personal horse owner’s liability coverage.
Listing all of the business’s activities is a must for liability coverage. However, there may be a little wiggle room when it comes to listing property the business wants to cover against loss or damage. Farm owners may opt not to include certain outbuildings, fencing, or other property in order to reduce premiums on the property side of their overall insurance bill. Check individual company’s rules about this with the agent. Raising deductibles on property and vehicle insurance is a time-honored way of lowering premiums. While one farm may decide to carry mortality and major medical insurance on valuable breeding stock or show animals, another barn may decide to self-insure its lesson horses. If a business decides to self-insure some of its risks, business owners need to regularly set aside money to fund a kitty to cover the costs that are not going to be covered by insurance.
Risk tolerance varies from person to person. The only one who can answer the question of whether a business is carrying enough insurance is the person buying the insurance, says Strawser. Business owners need to ask themselves what they cannot afford to lose, then buy insurance that protects them against that potential catastrophe that could sink their business.