Small Farm Product Liability: Coverage for Your Farm Products
by Reuben Dourte
If farming was to be broken down to its most simple definition, one could describe it as the supply side of a complex ‘manufacturing’ assembly line. Agricultural products raised or produced by farmers find their way into an expansive array of goods. As with any type of manufacturing, a products liability exposure inherently exists. Additionally, the alteration of farm produce can create different liability exposures, and in a time where farmers are looking for additional revenue streams, the insurance conversation quickly lends itself to new, and more nuanced, questions.
If you have begun to engage in farming operations, hopefully you have already realized the need and benefit to insuring your operations via a Farmowners policy. A typical, unendorsed Farmowners policy will provide you with liability coverage for your premises and your operations, including the farm products that you produce. The definition of exactly what qualifies as “farm products” may vary greatly between insurance companies. It is important to verify that your operations fall within the definition of farming and the items you are selling are not outside of the scope of farm products.
For example, Insurance Company A may consider the apples you sell at a roadside stand on your premises as farm products and thus covered for product liability on an unendorsed Farmowners policy, while Company B may consider the roadside stand and the gross receipts you make from this enterprise as a commercial exposure. This may mean you will be compelled to purchase an agribusiness policy to receive the Products Liability coverage you need, or endorse your Farmowners policy to provide coverage for “Incidental Business Pursuits”.
In other situations, Farmowners policies may not provide product liability when a product is sold directly to the public vs. being sold to a contractor or wholesaler. For example, if you raise organic chickens and sell directly to a large integrator, a typical Farmowners policy will be able to provide you with coverage. However, if you sell those same eggs directly to the consumer, many agricultural insurers will require that you declare this as a Business Pursuit on your Farmowners policy, and pay additional premium as consideration for the company providing coverage for the heightened liability exposure inherent with sales to the public. Likewise, products you buy for resale, even if they are the same products you raise on your farm, are not considered farm products. This means if you have a bad tomato crop and need to supplement your supply with some of your neighbor’s tomatoes, the sale of the products bought for resale will (likely) be considered, by your insurance company, as a commercial business pursuit, and as such the products exposure would need to be covered through a Farmowners policy endorsement or a commercial Agribusiness policy.
Differentiating between farm and commercial products becomes easier as soon as the farmer alters their product in some way. This is because insurance companies will rarely consider altered products as ‘farm product’, since it has been changed and is, in the case of food, one step further from the field, and one step closer to the fork. If your roadside stand not only sells whole apples, but also pre-slices them, this simple act has likely made the apple no longer a farm product in the eyes of your insurance company. The altering of the apple has now, presumably, opened it up to a higher risk of contamination and foodborne bacteria. If you are turning your apples into pies, your recipe may call for one of your organic eggs in order to make the crust. Should that pie be undercooked by accident, your customers could be potentially inflicted with food poisoning. The heightened risk that is associated with altered farm products requires the company to assign a rate and a liability classification, based on actuarials and prior loss history, to your Farmowners or Agribusiness policy for your to receive the appropriate coverage for the Products Liability exposure present with your operations.
Coverage forms vary greatly by insurance company and by state. The information provided below is for discussion purposes only and should not be construed as a formal comprehensive review of individual policies or coverages, nor is it situation specific advise. Readers should personally consult with a licensed insurance agent before making any decisions about their policies or insurance coverages.
Aside from the potential coverage pitfalls that arise from the nuanced definition of farm products, it is important for both large farmers and hobbyists, alike, to know and understand the coverage forms and exclusions on their insurance policy. While Products Liability coverage provides protection for claims arising from the production, manufacturing, distribution, growing or sale of your products, certain companies may exclude coverage for certain types of causes of loss. Policies may have a foodborne pathogen exclusion written into them, or a foodborne contamination sublimit of insurance which reduces the amount of insurance the company will make available to pay a claim brought against you. Other policies may contain wording that appears ambiguous, such as a bacteria exclusion that could possibly be used as justification for a claim denial.
In addition to a comprehensive insurance plan, sanitation best practices, voluntary USDA checks and consulting with quality control organizations are other ways to affordably mitigate your probability of risk. Having a recall plan in place is an effective way to greatly reduce the cost of a Product Liability loss, should one occur. Insurance can often seem confusing, and the litigious nature that exists within our cultural climate makes it imperative to work with a knowledgeable, licensed insurance agent to ensure that your policy is adequately covering all of your liability exposures.
Reuben is a Account Executive in the Farm and Agribusiness department at Ruhl Insurance in Manheim, PA.