Getting Back to Nature Requires Getting Proper Farm Insurance

Mr. and Mrs. Everyman and their family have decided to get back to nature. They are proud owners of a country home with 25 acres and a barn. Their insurance agent has covered the new home and property with a traditional homeowner’s policy.

It’s three years later and they are boarding a horse for a fee, for a friend. They are growing vegetables on two acres and selling the surplus from their farm stand. The couples’ minor daughter sells her homemade pies during the holiday season. Because of the trend toward organic food, Mr. Everyman has 25 laying hens, and the eggs are sold at the stand. They have the necessary farm tractors and equipment to maintain the farm. Mr. Everyman continues his career.

Congratulations to the Everymans — they have joined a popular trend!

But the Everymans have not advised their agent about the changes of use on their property and consequently, they may have an unpleasant surprise if a loss occurs.

Questions to Ask

The first question to answer is: “Do the Everymans have a farm?”

Mr. Everyman is growing crops for sale, boarding horses for a fee and operating a sales stand. He files Schedule F on his taxes indicating the operation of a farm with income and expenses and depreciation of farm equipment. The family may consider this a hobby but it is a farm, even though the bulk of the family income is earned off the farm.

The clearest deficiency with homeowner’s insurance is the exclusion of business/farming activities. This exclusion effectively ends liability and property coverage from all activities deemed a business or farming. The policy can be broadened by attaching the Incidental Farming Personal Liability (ISO HO 24 72). This endorsement would be used for low-exposure farm activity where the farming is geared to personal consumption. While it broadens liability coverages, the endorsement requires a detailed description of all business/farming activities — omit one and there may not be any coverage for the omitted activity.

The homeowners policy may also be modified by adding a Farmers Personal Liability Endorsement (ISO HO 24 73). This endorsement would be more appropriate for the hobby farm as it is geared to risks that are clearly operating as a small, or true, hobby farm. Detailed descriptions of all farming activities need to be declared with the same consequences as found by using ISO HO 24 72. A good example would be the failure to indicate the sales of pies at the farm stand. Coverage may be negated for a food poisoning claim because it was not described.

The ISO Farmowners Policy provides liability and property coverages and makes no distinction between hobby farms and regular farms. The policy is a blend of personal and business coverages. Farms traditionally have been considered the place where crops and animals are raised and sold with the farmer generating all his income from the farm. Because farmers live on the land, they need coverage for their dwelling and personal liability exposures as well as the commercial exposures of farming.

The ISO Farmowners Policy provides the following basic coverages:

• Dwelling coverages including appurtenant structures, personal property and loss of use;
• Farm buildings, stables;
• Farm equipment;
• Farm and personal liability; and
• Medical payments.

The policy can also provide coverage for mechanical breakdown, ordinance of law for dwellings and farm buildings, business interruption/extra expense and coverages for livestock.

When it comes to animals, the homeowners policy may not sufficiently protect the hobby farm owner. Some carriers will allow a limited number of personal use animals (horses, cows, goats, etc.), however, they will typically exclude any exposure where fees are collected and the animal is a business proposition.

Remember Mr. Everyman is boarding a horse for a friend for a fee? What if the boarded horse escapes and is hit by a car? Under the homeowners policy, the agent will likely inform the family that there is no coverage because boarding horses for a fee would be considered an excluded business pursuit. Even if the horse is boarded for free, there may not be coverage due to a non-owned animal in the care, custody and control of Mr. Everyman.

Farmowners versus Homeowners

The best approach to insuring the Everyman hobby farm is to use a farmowners policy. Even though it is a hobby farm, the farming exposures are just as real as a regular farm.

Even if the homeowners policy is endorsed with extended farm liability, it won’t cover the boarding situation if the carrier excludes farm animals.

The farmowners policy will cover liability for owned livestock. Adding coverage for stable liability with care, custody and control can cover the boarding exposure. These coverages will provide the Everyman family with protection against liability exposure as a boarding stable and for loss or injury to another person’s horse in their care.

Remember the pies sold at the farm stand, but not declared on the homeowners policy’s Farmers Personal Liability Endorsement? While the homeowners policy will likely exclude coverage, how can it be covered in the farmowners policy? First, non-farm business pursuits are excluded in the farm liability form. However, business pursuits can be endorsed for coverage, subject to carrier guidelines. To be sure of no coverage gap, it would be prudent to add the farm stand to the policy. Secondly, the business pursuit exclusion does not apply to an insured minor when it is occasional or part time.

All the “Everymen” seeking the country living experience should be educated as to the very real exposures they face when they decide to take the leap from homeowner to farmer. With the increasing popularity of hobby farms and organic food growing, the need for proper insurance protection increases. The farmowners policy can provide virtually all the protection a hobby farmer may require.

Topics Agribusiness Homeowners Property