Should You Let Your Neighbor Borrow That?
by Reuben Dourte
In the farming community, machinery and implements are regularly borrowed or rented. For the most part, farmers are a close-knit community who look to help each other out when possible. Sometimes situations arise where a tractor may be broken down, and to continue time-sensitive harvest of planting operations, the neighbor’s tractor is borrowed. The lender farm may carry insurance coverage on the tractor and as such may not give much thought to lending their equipment to their neighbor, but doing so without adequate consideration or conversation is probably not advisable.
If you are the one borrowing equipment from your neighbor, you will want to consider including an adequate limit on your own insurance policy for borrowed or rented farm equipment. How much coverage do you need? A good starting point is to determine your maximum possible loss to borrowed equipment. If your neighbor lends you a $50,000 liquid manure tanker, it is probably advisable that you have insurance for $50,000 of borrowed equipment. If you store the tanker and the neighbor’s grain drill in the same implement shed, this limit may need to be increased, since a fire or building collapse could damage more than $50,000 of machinery.
Hopefully, your neighbor’s insurance agent is having this same conversation with him or her. Since you do not know what coverage they have elected to buy, or how their policy coverage forms read, it is important for you to have a conversation with them before you lend them your equipment. You may want to verify that their policy does not stipulate that a written agreement needs to be in place for coverage to be extended to hired or borrowed machinery. You will also want to verify the coverage limit on their policy. Damage to your equipment will be covered on an actual cash value basis, so the neighbor with $5,000 of coverage for rented or borrowed equipment may be grossly underinsured, even if they are borrowing an older model tractor. You need to evaluate the actual cash value of your equipment and verify your neighbor’s policy limit to determine whether or not coverage is adequate.
If your machinery is damaged while in the care and control of your neighbor, you may have a couple options. Your first option is to ask your neighbor to turn in a claim against his or her own policy. If you have failed to verify their coverage limits, and they are underinsured, their policy may only pay part of the loss amount. You may be left with no other option than to turn the claim into your insurance company, at which point you may receive actual cash value of the item lost minus your deductible amount. If you have your equipment insured to adequate limits, you will not need to worry about an unpaid claim. However, this scenario is less than ideal.
First, as mentioned, your deductible will be subtracted from your claim settlement, potentially leaving you to pay for the difference out of pocket when you go to replace the piece of equipment you lost. Hopefully you could recoup this expense from your neighbor, but they may be in a situation where they are unable to pay. Furthermore, there is a good chance that your insurance company will attempt to subrogate against the at-fault party, i.e. your neighbor. Again, if your neighbor does not have adequate insurance limits, and they do not have the means to reimburse your insurance company, the company may not be able to recoup their claim payment. This whole legal process could certainly also put a strain on your neighborly relationship. Perhaps most detrimental is that in the event that your insurance company is unable to successfully subrogate against your neighbor or their insurance policy, the claim will remain on your loss history. Your account’s quality of risk has now been reduced and your loss runs will show this activity if you want to shop your insurance coverage in the near future. Some farm companies will not write an account that has had losses within the last three years. Other companies may write it, but surcharge the policy, and still others may not offer the same aggressive price credits that would have otherwise been available. If you are insured with a company that provides credit for policies that have no claims, you may lose this credit and incur a higher annual insurance cost for the next few years than you would have otherwise realized. If you’re lucky, you might be able to get your deductible back from your neighbor, but trying to explain to them the loss of policy credits you incurred is probably a more difficult conversation.
If your policy lacks appropriate and adequate limits of insurance coverage for items of machinery that you are renting or borrowing, you need to have a conversation with a licensed insurance agent about how you can fill that coverage gap. Before you lend your machinery to your neighbor, you should be having a short conversation with them to verify that they have coverage in place to protect you in the event of a loss. A simple, this discussion can save a lot of headaches in the future and go far to avoid the potential fall-out between friends.
Reuben Dourte is an Account Executive at Ruhl Insurance specializing in Farm and Agribusiness Insurance. He can be reached through https://www.iruhl.com/.