What’s your comfort level with the financial risks of operating your barn? Unforeseen events can jeopardize your business. But you can reduce your financial risk by purchasing commercial insurance to help protect your assets.
The major perils that endanger your bank account are property loss—partial or complete loss of your structures and equipment—and lawsuits against your business. When you bring clients’ horses into your place, you increase the risks.
To be a smart buyer of insurance products, start by asking these questions.
1) I post signs and my clients sign releases—do I still need insurance?
Signs and releases don’t stop lawsuits, and they don’t prevent property losses. Your state’s Equine Activity Liability Act may reduce the number of lawsuits, but in many cases participants can still sue you for negligence. (See the June issue, “Who’s at Fault?” for details.)
2) What about insurance policies I already carry?
“Homeowners or farm and ranch policies don’t cover equine activity,” explains Texas attorney and author Jan Dawson. “That insurance has nothing to do with taking care of other people’s horses.”
Kim Fricke from Equine World Insurance agrees. Listed as part of the company’s seven deadly sins is: “If a casual visitor gets injured at your home, then your homeowners’ insurance will probably protect you. But if you have any business operations, you must discuss your business liability with your equine insurance specialist. The saddest words we ever hear are, ‘I thought I was covered.’”
Debi De Turk Peloso, a Florida agent with Markel Insurance Company, further explains, “Insurance is a cost of doing business, just like turning on the lights. Make a business plan, and make insurance part of the business plan.”
Start your insurance shopping with research, and by talking only with agents who represent companies that are “A” rated. “Sit down with an agent and tell them in excruciating detail what [type of] property you have, and what activities you do,” advises Dawson. “Otherwise it won’t all be covered.”
3) What kind of insurance do I buy?
For property insurance, you’re protecting improvements (buildings and fences) and your equipment. Look for protection against fire, lightning, wind, and theft. (Flood insurance is sold separately.) Make sure you understand “the difference between actual cash value and replacement cost, ” says Ohio agent Jim Fry of Fry’s Equine Insurance. In general, actual cash value refers to the replacement cost at the time of loss, less depreciation. Replacement cost is what it would cost to rebuild a structure. Often, “people confuse replacement cost with market value,” says Fry. “The market value is what someone is willing to pay for it.
“It’s important that people don’t underinsure their property,” he adds. A building that’s insured below its replacement cost is subject to what’s called a co-insurance penalty. Commercial policies spell out a percentage of a building’s value, usually 80 percent. If you insure the building for less than that percentage, insurance wouldn’t pay the percentage you didn’t carry.
Fry uses a less common example of a replacement cost he calls “a functional value.” For an older bank barn used for storage, “some companies allow us to do a replacement cost, say how large of a pole barn would you build to replace this bank barn, and how much would it cost to build it for the same purpose. So we could rebuild with no co-insurance penalty.”
As for liability insurance, realize that 15 million lawsuits are filed annually in state courts. That doesn’t count those disputes that are negotiated and settled out of court.
Anyone involved in your business can sue you to try to gain payment for injury by alleging you caused bodily injury or property damage. You need a commercial general liability insurance policy—a contract where the insurance company protects you in suits or threatened suits.
“If you own, breed, or board, look at an equine general liability policy,” says Peloso. “That policy will pertain to the number of horses, and the number of people who come around the horses.”
She notes, “General liability policies are written according to codes for coverage.” Different codes describe different business activities, or “exposures” as called out on the insurance application. “The vast majority are bodily injury and damage suits,” she says.
Another type of liability insurance is called care, custody, and control. Fry explains, “That coverage gives barn owners protection if the horse they do not own is injured or killed.” Fry illustrates this with the example of a boarded horse loose on the road and hit by a car. A liability policy covers injuries to the occupants of and damage to the car. “But not the horse,” he adds. “The boarder can accuse you of leaving the gate open. With care, custody, and control, defense is included. If you are proven negligent in a court of law, then the company pays to the limits of the coverage.”
4) How much coverage do I buy?
Insurance cuts your losses. Filing a claim launches the process that includes the insurance company helping you fight a lawsuit and, if necessary, issuing payment.
Understand how a policy sets limits and exclusions. “What are you trying to protect?” asks Peloso. “If your goal is survival, then you probably have lower limits than if your goal is to protect assets.”
She notes, “Insurance is transferring your risk of loss to the insurance company. How much premium you pay depends on your risk.”
Industry formulas help calculate property insurance amounts. “We use Marshall & Swift/Boeckh to evaluate buildings,” says Fry. “It uses a calculation by ZIP code, and different areas have different price structures.”
The typical limit in liability coverage is $1 million per occurrence. To extend your limits of liability, umbrella protection can push the limit to $5 million or even higher. “Having enough insurance is crucial,” cautions Dawson. “Don’t say, ‘I don’t have anything’ as an excuse. You will end up having to pay a lawyer if you get sued.”
5) How can I get help with insurance forms and policies?
Insurance agents can help—it’s their job to educate customers about risks and protection. To get the best education (and coverage) when you’re shopping, you must fully disclose all your equine activities.
“The biggest problem is to get people to tell their insurance agent what they do, in incredible detail,” says Dawson. “If they think they’ll ‘put one over’ on the insurance company, they will find out they’re not covered.” (We should also mention that trying to defraud a company is a crime.)
Start by clarifying who is the insured—which can be more difficult than you might think. “Who is the insured, and who are you going to protect? Is the insured the person doing business as a farm, or a husband and wife, or a farm name?” Peloso asks.
Application forms can appear complicated, but the insurance underwriter uses the information you list to issue a written quote for your insurance. Accuracy is essential. For example, the number and type of dogs on your property can influence the amount of your premium. Dog bites are a common injury—and end up costing you and the insurance company.
To aid clients in completing application forms, Fry says, “We have the person fill out everything they understand, and then we help.
“Different companies need different information. We need it to get the best possible coverage. People think as soon as they have insurance, they are covered for everything. They are not.”
Over time, changes in your barn and your business might affect your insurance. How often should you update information?
“In general,” says Kim Ellis-McKigney, senior underwriter at Ark Agency, “if it’s a minor change and you stay within the parameters of your business description and your policy, there’s no need to update your insurance. However, if you make a change that adds an additional exposure, such as hosting horse shows, whereas you didn’t in the past, you need to update your policy. In the end, if there’s ever a question, it’s always a good idea to contact your agent.”
And consistency is important. Let’s go back to dogs at the barn as an example. “If you told us ‘no dogs,’ but you then get a dog and have a dog bite claim—we are on solid ground to deny coverage,” Peloso says. “You want to be where you’re not denied coverage.”
In short:?don’t be a worrywart about what could happen, but avoid the appearance of being negligent. Satisfy your financial comfort level by purchasing sufficient insurance and by reducing threats to people and horses.
“Risk management is key,” says Peloso. “Think about your insurance as a risk assumption partner in your business. You’re paying the company to assume your risk for loss.”