Farm Liability Policies – Are All Activities on the Farm Covered?

Overview

Liability issues abound for farmers and ranchers.  Many farmers have a comprehensive farm liability policy to cover potential liability events associated with the farming operation.  But, a comprehensive farm liability policy is a hybrid policy that contains both homeowners and commercial insurance elements.  That’s because the home is on a part of the same premises where the farm and ranch business is conducted. and live on the same property.

One of the unique aspects of farming and ranching is that it’s not uncommon for a farmer or rancher to conduct some other type of business activity on the farm or ranch premises.  That other activity may or may not be related to the business of farming.  It is these other activities (such as a road-side stand, corn maize or U-Pick operation) that can raise questions about whether there is insurance coverage for them under the farm’s comprehensive insurance policy.  That’s because those policies often exclude “non-farm business pursuits” of the insured.

The scope and application of non-business pursuits of the insured as applied in the context of farming/ranching operations – that’s the focus of today’s post.

Homeowner Policies

The issue is often straightforward for farming operations that don’t conduct a separate business on the premises.  The comprehensive liability policy should cover the risks associated with the farming business because of it being tailored to the activities that the insured conducts as part of the farming operation.  But, for those that have a smaller farming operation or a hobby farm, the insurance coverage issue can be a big one.  Often the insurance coverage for these activities is provided by means of a traditional homeowner’s policy.  But, that can mean situations of non-coverage can arise as additional activities occur. 

Excluded activities.  Homeowner policies exclude business or farming activities.  Thus, any activity that is deemed to be “business” or “farming” is excluded from liability or property coverage.  That means that liability coverage would need to be broadened by adding an endorsement (subject to the carrier’s guidelines) to the policy that details all of the business or farming activities that are occurring on the premises.  Alternatively, a traditional homeowner policy might be able to be modified by adding a “farm liability” endorsement.  This additional endorsement would be appropriate when there are farm “hobby” activities on the premises.  This endorsement will essentially blend the personal and business coverages by making no distinction between the two general types of activities. 

What should be covered?  All dwellings on the premises should be covered including all buildings and appurtenant structures, equipment and coverage for livestock.  Many homeowner policies will cover a limited amount of animals for personal use such as horses and cows and goats, but if the animal is part of a business activity, a homeowner policy won’t provide coverage.   That would mean, for example, that the typical homeowner policy won’t cover liability situations arising from boarding horses whether a fee is charged or not.  If a fee is charged, the activity is an excluded business pursuit.  If a fee is not charged, coverage may not be available because the horses owned by someone other than the insured.     

Recent Cases

Hanover American Insurance Company v. White, No. CIV-14-0726-HE, (W.D. Okla. Aug. 3, 2015), is a good illustration of the application of the “business pursuits of the insured.”   The insured’s primary business was an aviation-related rental and repair business.  He also co-owned an oilfield service company.  The premises where the oilfield service company business was conducted was comprised of 150 acres. It was not adjacent to either of the insured’s other properties.  The property was fenced, and the insured kept a bull and about 50 head of cattle on the property.  The bull was purchased for the purpose of breeding the cows and produce calves.  Some of the resulting calf crop was sold and the balance used for team roping.  An employee of the oilfield service company cared for the cattle and bought supplies for them by charging the cost to the company’s account. 

The bull escaped its enclosure and attacked another person who died as a result of the injuries.  The decedent’s estate sued the insured.  The insured was covered by a homeowner policy on his residence and a dwelling policy for a dwelling on another property the insured owned.  Both policies contained identical language that excluded bodily injury “[a]rising out of or in connection with a ‘business’ engaged in by an ‘insured.’”  Both policies also defined “business” to “include…trade, profession or occupation.” 

The insurance companies claimed that they had no duty to defend or indemnify the insured.   Both companies claimed that the liability event fell within the “business exclusion” of the companies’ respective policies.  The insured claimed he wasn’t engaged in a cattle business, but merely a hobby activity and had coverage under the policies.  The court disagreed with the insured on the basis that the evidence showed that he engaged in the cattle activity with the intent (at least in part) to make a profit.  The court also pointed out that the insured treated the cattle activity as a Schedule F business on his tax returns.  That meant that the resulting losses from the cattle activity offset the income of the insured’s wife.  Thus, the court was persuaded that the cattle activity was not purely a hobby.  It was a business activity not covered by his insurance policies.

In Western National Assurance Company v. Robel, No. 35394-0-III, 2018 Wash. App. LEXIS 2387 (Wash. Ct. App. Oct. 23, 2018), the defendants owned a farm and orchard. The orchard was listed in the area brochure as one of the “U-Pick” orchards. The orchard also sold pre-picked cherries. The plaintiff called the defendants to ensure that they were open before visiting. The plaintiff and her friend arrived at the orchard, and each of them were given a basket to strap on and were directed to the orchard where the 10-foot tall, three-legged ladders were located. While picking cherries on a ladder, the plaintiff ‘s basket filled and caused her to become top-heavy. She lost her balance and fell off the ladder. As a result of the fall, the plaintiff broke her hand and foot, and injured her neck, back and shoulder. The defendants were not at the orchard that day. The plaintiff sued alleging that the defendants, doing business as an orchard, failed to maintain the orchard in a safe manner and failed to properly instruct her on use of the ladder.

The defendants’ insurance company with whom they held a homeowners’ policy defended the suit which was dismissed by the trial court for improper service. The appellate court reversed as to the dismissal and the insurance company brought a declaratory judgment action claiming that the homeowners’ policy did not provide liability coverage for the defendant’s orchard business due to an exclusion for business pursuits of the insured. The trial court agreed and denied coverage under the policy for the plaintiff’s injuries. The appellate court affirmed, finding that the accident arose from a separate business pursuit of the insured that was within the policy exclusion. The appellate court determined that it was immaterial that the defendants did not make much profit from the U-Pick business as a part of their overall farming operation. What mattered, the appellate court determined, was that the defendants sold produce to the public that were invited as business guests to the premises. In addition, the appellate court determined that the use of a ladder was within the scope of the U-Pick business. 

Conclusion

The non-farm “business pursuits” exclusion is an important exclusion that rural landowners need to be aware of.  It’s a particular issue for smaller, hobby-type operations and those growing or organic or specialty or niche crops.  Clearly, each rural/farming enterprise is different.  That means that a good comprehensive farm liability policy should be customized to fit each particular situation. Start with the basic coverage and then add on coverage based on your own unique set of facts.  Also, give careful thought to the amount of coverage needed.  The insurance agent is a key person in making sure that coverage is provided for the needs of the insured.  In farm settings, it’s almost always recommended that the insurance agent visit the premises to ensure that the agent has a full understanding of your needs.