What You’ll Learn About Here

  • Determining Insurance Needs
  • Types of Insurance to Consider
  • Basics of Insurance Law
  • Responsibilities of Insured Parties
  • Farm Employees and the Relation Between Insurance and Labor Law
  • Liability Concerns for Pick-Your-Own Operations

This chapter addresses the important issues of liability and the operation of insurance policies.  It examines closely the typical liability policy purchased by most farmers and explains the benefits and limitations of insurance coverage.  The chapter identifies a number of insurance and liability questions for direct farm marketers.  Many of which, unfortunately, may not have clear answers.  It also reviews the court cases involving liability claims against direct farm marketers, such as suits involving PYO operations, and identifies basic rules to follow to reduce the risk of being sued.

Insurance Needs Will Vary by Operation

Insurance law is a complicated but very important topic to understand for anyone involved in direct farm marketing.  In today’s world insurance is a fact of life.  We have insurance on our cars, our homes, our property, our health, and our lives.  If you are in business you have insurance to protect yourself from liability – both for what might happen to the business and for when other people might be injured in connection with your business.  Even though insurance is very common many people do not have a good understanding of how it operates. Nor do people consider the type of questions to ask when buying insurance or when trying to determine if the  insurance is adequate.  The purpose of this chapter is to do several things.  First, it will provide some general understanding about how insurance operates and some of the key terms to understand.  Second, it will consider some of the basic rules of how insurance operates, including a list of questions to ask your insurance agent about the policies you acquire.  Third, it will consider some of the unique insurance issues which might arise in connection with direct farm marketing.

To begin, you should assume that regardless of the type of farm you operate there are risks for which insurance may limit your possible exposure.  As a general rule, the need for insurance is directly related to the type of business activities you conduct.  Therefore, the need for insurance increases in relation to the likelihood of risks from your business.  The following are some of the activities which can increase your risks: selling processed food, hiring employees, having large numbers of customers on your property, or conducting inherently risky activities, such as horseback riding.  The fact these activities may increase your possible risks does not mean you should not engage in them, instead it just means you should recognize what you do contributes to your need for insurance.  If you have identified risks with your business the next steps are to either – eliminate the risks, transfer them to someone else, or if this is not possible, buy insurance to cover them.  When you contact an insurance company to buy insurance, you must explain to them the nature of the business or activity you are conducting so you can acquire the insurance you need.  You shouldn’t necessarily assume that the insurance you now have is what you need, especially if you haven’t explained to the agent the exact nature of your business.

When buying insurance you may feel inclined to understate what it is you are doing, in the hope this will reduce the cost of the policy.  But this is exactly the wrong thing to do, because if you don’t disclose the full nature of your business there is a greater likelihood that the insurance you buy will be inadequate.  Then if something happens and you ask the insurer to cover you (which is why you bought insurance in the first place) you may find out your policy does not cover the situation.  Then you are in the worst possible situation – you have paid good money for an insurance policy which was not what you needed and now  you have a problem for which you are uninsured.  To avoid situations like this you need to understand more about how your insurance coverage works.  [One excellent resource to help you is discussed in the sidebar.]

Types of Insurance to Consider

For direct farm marketing operations the primary forms of insurance  to consider are the comprehensive farm liability policy and the commercial business policy.  The language and operation of the typical farm liability policy is discussed in greater detail later in the chapter.  But for now it is important to consider the basic differences between these two types of policies.

The farm liability policy is designed to provide liability coverage for accidents which might happen on the farm premises.  This would cover accidents to you or your family, to your employees (but only in limited circumstances if state law requires you to obtain separate workers compensation insurance), and to third parties, such as your guests or customers who visit the farm, as long as the injuries occur in connection of what is defined as farming.  A commercial business policy is written specially for the business involved and is designed to provide liability protection for the types of activities conducted in connection with the business.

If something happens on your farm and insurance coverage becomes an issue – for example a customer is injured – then the most critical question for you, as the insured, is whether or not the insurance you purchased  covers what happened.  This will be decided by examining the policy language to see what is covered and, more importantly, to see what is excluded.  For purposes of direct farm marketing, there are two basic issues which arise concerning whether the typical farm liability policy covers incidents which happen.  First does the policy treat the activity as being within the definition of farming?  Second, is the activity excluded from coverage as a separate business distinct from the farming operation?  If either of these two questions is answered against the farming operation, then the effect is the insurance does not cover the incident and the farm is uninsured, unless you had previously obtained a separate business commercial policy which covered this activity.

Here is a general piece of advice for you to consider.  In many situations it might be valuable for you to obtain a separate commercial business policy for your direct farm marketing venture rather than rely on the hope that your farm liability policy covers what you are doing.  This is especially true given the fact many direct farm marketing ventures expand and evolve over time – adding new activities such as a cornfield maize, or increasing the amount of products carried and sold at the roadside stand.  Of course the insurance policy best suited for you will depend on the nature of your business – its size, what you sell, and how it is operated.  But as a general rule, the larger your business and the greater the sales, the more it looks like some type of commercial venture rather than a traditional farm.  In this situation it is more important to have commercial insurance.  This advice is not based on the idea of trying to sell more insurance policies, instead it is based on the idea that the most important thing you can do is to buy the right policy for what you are doing.  It is important to have the right insurance policy because, regardless of how friendly the advertisements might make them appear to be, insurance companies are not charities.  They are not in the business of providing coverage in situations where policy holders did not pay for it – in advance!

A Skeptic’s View of How Insurance Operates
Researching how insurance applies to direct farm marketing requires thinking about how insurance works as a business.  Reading policies and the exclusions – plus talking with various experts about how policies are interpreted – leaves one with a healthy skepticism for the business.  Insurance is a fact of life but it should be appreciated as a business, meaning you get what you pay for and not a cent more.  The following are what might be called a skeptic’s rules to insurance.  They are not listed to offend anyone but instead to provide another perspective on insurance.

First, you need insurance and probably can’t live without it.  That is why you buy coverage, but you also buy it hoping you never have to use it.  Second, you won’t be able to read or understand the language of the policy you buy (this is true even if you are a lawyer) so you have to trust the agent or company to explain what it provides.  Whether the agent fully understands the coverage being provided will depend on the agent and the policy.  Third, if something happens for which you believe you are insured the answer of the insurer will most likely be that the policy you have, isn’t the right one. Remember, insurance companies don’t make profits by providing coverage for situations they didn’t insure.  That is why company adjusters probably start with the view that whatever happened isn’t covered and the burden is on you to show it is.  Fourth, if the policy you bought was the right one, there is probably an exclusion somewhere in it which means you weren’t covered for what happened.  One rule of reading an insurance policy to understand what it covers is to start by reading the exclusions rather than the coverage.

If you start with those four rules in mind you won’t be disappointed by the results.  This does not mean that all of the legal rulings will be in the favor of the insurance company.  For example, courts often use the rule that ambiguous language is held against the company and for coverage.  Also, in many situations, statements of the agent concerning what the policy covers, can be held against the company, even if the agent was wrong.  If you are involved in a dispute over insurance coverage the best advice is to obtain the services of a lawyer well versed in this area of law.

Answers to Commonly Asked Questions about Direct Farm Marketing and Insurance

Perhaps the best way to try to understand how insurance applies to direct farm marketing is to answer some of the questions most commonly asked by farmers about their policies.  The following discussion looks at some of these questions and uses language taken from the actual farm liability policies purchased by direct farm marketers. The discussion illustrates a number of basic issues about insurance, which are highlighted in the headings.  You must recognize however, that the answers to all these questions, depend on the language of the particular insurance policy being considered.  Your policy for your business may employ different language which could lead to a different result.

Q. I have a “comprehensive farm liability policy” for my farm, does it cover my direct marketing operation?
The answer to this question depends on several factors including: what type of “comprehensive” farm liability policy you have, how it defines farming, and the nature and extent of your direct marketing operation.  The starting point for answering this question is the definition of farming used in the policy.

Defining “farming”

To understand how liability insurance applies to farms and direct marketing it is critical to examine how “farming” is defined for purposes of liability insurance.  This is important because the definition of “farming”  used in insurance policies has begun to change in recent years, in part as a result of an increase in direct farm marketing.  The definition set out here is based on a “typical” farm liability policy.

For purposes of the policy, “farming” is defined as:

The ownership, maintenance or use of premises for the production of crops or the raising or care of livestock, including all necessary operations.  “Farming” also includes operation of roadside stands kept mainly for the sale of the insured person’s farm products.

Under this definition, you can see that some types of direct marketing – namely roadside stands, are included in the liability coverage.  But this coverage exists only when the stand is “kept mainly for the sale” of products you raise.  In situations where you sell a considerable amount of goods produced by others, this policy will probably not protect you.  The same thing might be true if the roadside stand becomes a large-scale business rather than a typical small farm market.  In these situations the insurer will probably argue the market is a separate business distinct from the farm and that you need to purchase commercial business insurance.

The definition of “farming” may vary depending on the policy used.  However, the variations in the definition may be significant.  Consider this definition of “farming” from a policy used by a direct farm marketer in Pennsylvania:

6. “Farming” means the operation of an agricultural or aquacultural enterprise, and includes the operation of roadside stands on your farm premises, maintained solely for the sale of farm products produced principally by you.  Unless specifically indicated in the Declarations, “farming” does not include:

a. Retail activity other than that described above; or

b. Mechanized processing operations.

This definition is important, it clearly limits the location of the roadside stands to the actual farm premises and it limits their operation to the sale of goods produced on the farm.  The policy is also clear about not providing coverage for other “retail activity” which would include for example, off-farm sales such as those at a farmers market.

Q. Does this mean there is no limit to the amount of sales I can make at a roadside stand and still be covered under my farm liability policy?
The answer to this question has to be no.  The exact answer will depend on the language of your policy and how the court might interpret it.  If the policy doesn’t place a dollar limit on the amount of these sales or instead covers them only if they are “incidental” to the farming business then you could argue the coverage is unlimited.  But the larger the sales the more it may look to the insurer, and the court, like it is a commercial business rather than a farm.   In recent years some insurers have begun to address this uncertainty by removing from the definition of farming any provision for direct farm sales, such as at a roadside stand, and only add the coverage if you purchase a special endorsement to coverage these “incidental” sales.  When this is done the endorsement may include a specific dollar limit on the amount of sales which are covered.  If you face this situation then the only option left is to buy a commercial business policy to cover the direct marketing sales.

Q. Are other types of direct marketing operations which take place off the farm, such as participating in the local farmers market, covered by a farm liability policy?
This is an excellent question and the answer may surprise you.  First, it is clear that selling at an organized farmers market located off of the insured property is not a “roadside” stand which would be included in the definition of farming.  If the activity isn’t within the definition of farming, then the question is whether it is otherwise covered by the policy.  As the second definition of “farming” set out above makes clear, some farm policies clearly exclude off-farm retail activities, unless they are separately insured.  But the real answer to this question will come when determining how the farm liability policy treats other business activities of the farmer.

Business pursuits exclusion

A typical farm liability policy will include what is known as the “business pursuits exclusion.”  For example, the following common policy includes this exclusion:

4.  We do not cover bodily injury or property damage arising out of business pursuits of an insured person.  But, we will cover activities of that person not ordinarily incident to business pursuits.

To understand the effect of this exclusion you have to look at how the policy defines what is a “business.”  The policy uses this definition:

“Business” means:

(a) any full or part time trade, profession or occupation;

(b) the rental or holding for rental of any premises by any insured person.

But “business” does not mean:

(a) farming; …

The farm liability policy used by the grower in Pennsylvania uses somewhat different language for the “business pursuits” exclusion.  It provides:

h.  Business Pursuits

“Bodily injury” or “property damage” arising out of or in connection with a “business” engaged in or by an “insured”.  This exclusion applies, but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the “business”.

In that policy the term “business” is defined as “a trade, profession, occupation, enterprise or activity, other than “farming” or “custom farming”, which is engaged in for the purpose of monetary or other compensation.”  The purpose of the “business pursuits” exclusion is clear – it limits the farm liability coverage to only those activities which are naturally part of a farm and it requires the insured to obtain separate coverage for other business activities.  The difficulty in interpreting how the business exclusion works is deciding how broadly the term farming should be read.

Q. So what does all of this mean, is participating at the farmers market covered or not?
The answer depends on whether raising and then marketing crops is considered to be within the definition of farming or whether it is a separate business.  While this would seem to be the type of question on which there would be agreement under insurance law, or at least be an issue for which courts have clearly established the law, this is not the case.  The best answer is to consider the two opposing arguments.  An insurer will probably argue that your participation at the farmers market is not covered by your liability policy.  First it does not take place on the insured premises.  Second it is not within the definition of farming.   Third it would appear to be a business separate from the traditional farming activities.  Your argument would be that, as a farmer, you have to sell what you produce and choosing to sell at a farmers market is part of your farming operation.  Also, farmers markets differ from roadside stands only in the fact that you have gone to where people are; rather than inviting them on to your property.
While it is risky to predict how courts will answer an issue like this, it is likely a court will side with the insurer and rule you have not purchased the correct insurance, primarily because the sales take place off the insured premises and because they appear to be a separate business.  The issue for the court will be where to draw the line between what is a farm and what is another form of business.  As a general rule, the more you look like something other than a traditional farm, the more likely it is the farm policy won’t cover you.

But this answer could vary depending on several other factors.  For example, if you told your agent you were making sales at a farmers market and the agent told you the “farm liability” policy covered these sales, then the issue might be whether the agent worked for the company as a “general agent” or was an “independent” agent,  meaning they sell policies for a number of different companies.  In situations where the agent is employed directly by the company, what the agent knows and what the agent tells you can be held directly accountable to the company.  But in situations where agents are independent, the information you share with them such as what activities you are conducting, and what the agent tells you about coverage, may not bind the company.  However, some states such as Arkansas, have passed laws making companies liable for the promises of independent agents under certain circumstances.  The best advice on this issue is to talk with your agent about your coverage.

Q. If my farm liability policy does not cover my sales at the farmers market then why does the market manager demand I provide proof of insurance?
This is another good question and the best answer may be that the market manager does not realize that your farm liability insurance may not apply to the market site.  The market manager is naturally worried that someone might get hurt at the market or purchase a product which makes them ill.  As a result the manager is worried about potential liability.  This is why most farmers markets purchase their own liability policies.  But it is unlikely that many smaller markets obtain separate insurance, instead relying on insurance held by the vendors.  Whether this is a good way to do business is another issue.  But as to the vendor, the market manager is interested in having other forms of possible liability protection.  That is why you are probably requested to show proof of insurance.

Whether the manager ever looks at the proof of insurance or asks if it actually applies at the market is another question.  In reality, the proof of insurance which you obtain from your insurer is only evidence that you have a policy on your farm but it does not mean the policy also covers any possible liability for what might happen at the market.  By providing the proof of coverage to the market, you may make the manager feel better but it may not mean anything in terms of insurance coverage for either you, or the market, if a person is injured at the market.  Of course, the exception to this is when you have obtained some type of separate rider to the policy which provides protection for your sales made off the farm or when you have obtained a commercial liability policy which specifically provides this form of coverage.

In Chapter Four, the regulations for the Des Moines farmers market sponsored by the Downtown Partnership Inc., were discussed. Because the farmers market is held on one of the main streets in the downtown of the city, it can only take place with the cooperation of city officials. In fact, the Des moines City Council has adopted a Municipal Ordinance 13,023 to specifically authorize the use of city streets for any farmers markets. As part of that ordinace, one provision requires that any “person or organization applying for a permit ” must meet a number of requirements which includes obtaining:

A certificate of insurance issued by an insurance company licensed to do business in this state, providing comprehensive or commercial liability insurance with a minimum of $500,000 combined single limit coverage for the injury or death of any person, for damage to property of others and for acts of neglgence by the permittee, or his or her agensts, vendors, or employees, in the operation of the market.

The Downtown Partnership, Inc. has been able to purchase such a policy through a local insurer and meet this requirement. The effect is that even if the individual vendor’s insurance might not apply, a person injured at the market could look to the sponsor’s insurance for recovery.

Q. What if I don’t have a separate farm liability policy but instead have a homeowner’s policy with excess liability coverage, can I obtain protection for my small-scale farming activities?
This is an important question for people who are involved in direct farm marketing but as a secondary or incidental activity to their other business or occupation.  Depending on which company provides your homeowner’s insurance, it might be possible to obtain coverage for what is known as “incidental farming liability”.   The following is the language for such “optional coverage” which applies to situations where the sales are less than $5,000 per year and the business is a secondary source of income:

For an additional premium, we will pay up to the limit shown in the Coverage Summary for “Personal Liability Coverage” and for “Medical Expense Coverage” for bodily injury or property damage arising out of:

1.  Incidental farming operations that are conducted on the residence premises described in the Schedule or shown in the Coverage Summary as having this coverage; or

2.  Farming operations conducted away from the residence premises, at the location described in the Schedule.  Exclusions 1.f(2) of Liability -Losses We Do Not Cover does not apply to the location listed above.

All other provisions of the policy apply.

Some farm liability policies use a similar approach to “incidental business activities” as relates to the issue of business pursuits.  For example, one farm liability policy in use was recently amended to remove the old business exclusion and replace it with the following exception: “We do not cover bodily injury or property damage arising out of the business pursuits of an insured person when the total gross receipts exceed $2,000 in the prior calendar year.”  This could mean that off-farm business-like activities such as sales at a farmers market could be covered under the farm policy but only if limited to this very small amount.  Otherwise the farm would need to obtain commercial business insurance.

Ten Questions to Ask Your Agent About Your Insurance Coverage
In order to obtain the insurance coverage you need for your operation, you must communicate your needs to the agent.  The whole idea of obtaining insurance is based on several premises.  First, you are paying money for insurance so you expect to be covered.  The worst surprise is buying insurance and then finding out is doesn’t apply when you need it most.  Second, you won’t be able to obtain the insurance coverage you need unless your agent knows what you are doing.  Third, this is why it is important to be thorough and explain to the agent what you are doing so the agent can write the policy you need.  The following are questions you should consider asking your insurance agent about your coverage needs, so you can be sure what you buy is what you need for your operation.

1. Does my farm liability policy cover my direct farm marketing sales, such as at my roadside stand, or are they excluded as a “separate business” for which I need to buy a commercial policy?

2. Is there a limit to the amount or type of direct farm sales I can make and still have them considered as incidental to my farming operation?

3. Even if my farm liability policy covers my direct marketing operation are there reasons why it would be better to obtain a commercial business policy?

4. Does my farm liability policy cover any sales made off the farm such as at a farmers market or direct deliveries to stores or restaurants?

5. If my farm policy does not cover sales at the farmers market then what type of policy should I buy for this purpose?  Is product liability insurance available or necessary for what I sell?

6. As part of my direct marketing operation some customers pay to visit the farm to engage in recreation and other customers pick their own produce, does my farm liability policy apply or do these activities present special insurance needs?

7. As part of my direct marketing business sometimes I, other family members, or employees make deliveries of produce to customers using farm vehicles.  Does my automobile insurance cover such trips and if not what type of policy do I need?

8. When buying insurance for buildings and equipment, should I set the value at “replacement cost value” or “depreciated value”?  Is there a “co-insurance” provision in my policy which requires me to pay part of any loss?

9. Is my policy a “claims and occurrences” policy and if so when does coverage end and what happens if I change insurers?

10. Are you a general agent working for one company or an independent agent?

Considering Some of the Basic Issues of Insurance Law

In order to understand how insurance coverage works it is helpful to consider some of the basic premises upon which insurance is based.  The following discussion looks at a selection of these important issues and some of the changes taking place in the insurance sector.

Claims and Occurrences – Many newer insurance policies for businesses are more limited in terms of the amount or nature of the coverage offered.  One example is the use of what is known as a “claims and occurrence” requirement.  Under this provision, it means that the claim and the event or occurrence for which insurance coverage is requested must both happen during a period of coverage.  The effect of this could be that if the occurrence happened one year but the actual claim against the insurance isn’t made until the next year, there would only be coverage if the same policy was still in force with the same insurer.  This provision requires people to stay with the same insurance company or there may be a gap between the occurrence and the claim causing the former insurer to say there is no coverage.

Declining Value – One issue which can arise with insurance coverage is the amount of insurance being provided.  This is often covered by what is referred to as the policy limits or the amount of coverage.  The idea is that the insurer will defend the insured and provide liability protection for the insured amount.  But a new approach to coverage limits is known as “declining value.” In this situation, the “loss” is interpreted to include the amount the insurance company spends on the defense of the claim.   Depending on the amount of coverage involved and the difficulty of the defense, one effect  could be that all of the coverage is used up in the cost of the defense and you are left without insurance to cover the actual claim or liability.

Subrogation – When you obtain insurance from a company you agree to do a number of things.  For example, you agree to cooperate with the insurer in defending against any claims that may arise.  Another thing you agree to is known as subrogation.  This means that if the insurer is required to provide coverage for you then you agree to “subrogate” or give over to the company any rights you might have to recover the amount of the loss from some other source.  Subrogation most often becomes an issue when there is another source of possible recovery such as someone else’s insurance.

Consider a situation like the one discussed in Chapter Nine, where a CSA member was injured on the farm.  If Jimmy breaks his leg on the CSA his family will go to their insurer who will pay the medical expenses based on the insurance contract for first person coverage.  But the insurer will also ask, “how did Jimmy break his leg and where did it happen.”  Under the “subrogation” clause in the policy, the company has a right to seek recovery from someone else if they are responsible for what happened to Jimmy.  If the company believes such recovery is possible, they could sue the owner of the CSA to recover from the owner’s insurance (or sue the owner personally if there is no insurance).  Under the subrogation clause the company can ask their insured to be a “use plaintiff” so the suit will be in their name.  Insurance companies usually don’t bring suits in their own names because it might prejudice the jury.  The insured is obligated to cooperate with the subrogation and to help with the case, such as by testifying.  If the insured party refuses to sign or cooperate, because the third party being sued is a friend, the company can refuse to pay the coverage or seek repayment from the insured.  It is important to understand for this reason you can not depend on the fact you deal with your friends, to assume they won’t sue you if something goes wrong.  In most cases they will not be making this decision, the insurance company will and the company is not interested in friendships.  [For a discussion of other responsibilities you might have under your insurance policy see the box.]

Responsibilities of the Insured Party
When you buy an insurance policy you are entering into a binding contract with the insurer.  You will be able to obtain the insurance coverage provided in the policy only if you cooperate with the insurer and meet any obligations set out in the policy.   The following are examples of the types of responsibilities typically found in an insurance policy.

1.  You are required to pay the premium at the time required or the policy will no longer be in force.

2.  You are required to report (in a timely fashion) any occurrences to the agent and the company.

3.  You are required to report any material changes in the nature of your activities or the property which is subject to insurance.

4.  You are required to cooperate with the insurer in matters of subrogation, as discussed above.

Releases and Waivers – In addition to obtaining insurance, there are a number of ways people can try to limit or shift liability to someone else.  For example, forming a corporation as discussed in Chapter Five is a common way to limit liability.  Following government regulations, having necessary permits, and training employees are also good steps to take to limit potential liability and to reduce accidents.  Another example of an express effort to limit liability is the use of releases or waivers.  We have all read such clauses – which may also take the form of “hold harmless” clauses or indemnification agreements.  Under these provisions you may agree to pay another person for any losses they might experience in a situation or you might agree not to sue them in case you are injured while on their property.

No doubt you have seen signs which say “not responsible in case of accidents” or “Management not liable for stolen property”.  You have probably also wondered if they mean anything – can it be that easy to free yourself of liability?  The answer to the question whether such releases are valid and worth doing will depend on many factors, including how reasonable were the efforts to reduce the likelihood of accidents, were the risks known, and was the waiver made on an informed basis.  So the answer is not simple.  The following are some general rules to keep in mind about releases.

First, how successful the release will be may depend on what is involved, for example what is the nature of the transaction and what is the nature of the injury for which responsibility is sought.  Liability will be determined by what happened and whether reasonable precautions were taken.  Second, you can not protect yourself from your own negligence or responsibility.  In otherwords, if you create a dangerous situation or a hazard and then say “I warned you or you waived your rights” you are likely to fail.  This is especially true if money is involved.  If you are making commercial gains by creating risks, then you may bear responsibility for putting people at risk, even if they do so voluntarily and sign a waiver.  How a court will respond to such a situation depends on the facts.  In some situations the court may hold that the fact people were warned is enough to show they accepted the risks.  Third, as a general rule even if the value of using a release is uncertain, you are probably better off to have a waiver or release than not.  For example, the signed waiver is evidence you have warned the party of risks and it prevents the party from later arguing a lack of knowledge.  Fourth, you shouldn’t rely on releases or waivers to reduce the precautions you take.  The best advice is to do everything you can to make your premises safe and to reduce the possible risks present.

Products liability coverage – The issue of whether products liability insurance is commonly available in the context of direct farm marketing is somewhat confusing.  Many farmers believe that their typical farm liability insurance policy will provide them with “products liability coverage”.  In most situations this is probably not true.  Farm liability coverage applies in situations when people are injured while on the farm premises.  This is a different issue than someone being injured by a product which was purchased on the farm.  The classic form of products liability insurance is the type of coverage a manufacturer acquires to apply when a person was injured using a product purchased from the manufacturer.  The insurance policy is written on an individual basis and the cost of the insurance is a function of the type of product being sold, the process under which it is manufactured and the type of risks associated with using it.

As it relates to the sale of food such as fresh produce and meat the main concern about product liability is what happens if someone becomes ill from eating the food?  Would a farm liability policy apply in this situation?  The best answer is that it probably would not because it was not the type of activity or injury which the insurer was covering.  This injury is not connected to the use of the farm premises.  If the farm operation has an additional “excess liability policy” sometimes referred to as an umbrella policy, the answer could be different.  It will all depend on the language of the policy and whether the injury involved can be shown to have been within the parties’ expectations about the coverage.  If you have concerns about this issue the best advice is to ask your insurance agent how your current liability policy would apply in such a situation.  If the answer is no then you should ask whether such “products liability” insurance is even available for the products you sell.

Farm Employees and the Relation Between Insurance and Labor Law

One of the main issues which can arise when you employ people to work on your farm is the possible liability if a farm employee is injured.  In the previous chapter on labor law, the issue of workers’ compensation insurance and its application to farm employees was addressed.  In this chapter it is important to consider how the typical farm liability insurance policy addresses the issue of injuries to farm employees.  As to farm employee coverage, there is an interesting interplay with the state labor laws on workers’ compensation.

First, the typical farm liability policy provides coverage for injury to employees, under a section titled “Liability to Farm Employees.”  The typical policy will also provide coverage for the public, under a section titled, “Liability to the Public”.  This provision is important because it protects friends and relatives who visit the farm.  It is just as important to recognize that farm employees are specifically not the public.  The difference between the public and the employees is an issue which can arise when someone who is visiting your farm might get injured helping out with the chores.  If they are an “employee” you are probably not protected but if they are a “member of the public” you would be.

The key issue concerning liability insurance and farm employees is found under the coverage for “Liability to Farm Employees”.  Here the typical exclusion provides the following:

We do not cover bodily injury to any person if any insured has or is required to have a policy providing workers’ compensation, non-occupational disease or occupational disease benefits covering bodily injury of that person. 

This means that even though you list your employees as covered under the policy, if under state law you have or are supposed to have workers’ compensation insurance for them the liability policy will not apply.  This is another example of how your insurance policy may not cover what you think it appears to cover, another reason why you should have workers’ compensation insurance, or at least ask yourself the question:  “Are my workers ‘employees’ for purposes of state workers’ compensation laws?”   If they are then you need that insurance because your own farm liability insurance isn’t going to apply and you will be left without coverage if an employee is injured.   The preceding chapter discussed the reasons why it is important to obtain workers’ compensation insurance coverage for your employees.  This is also true even if they are not employees under the law or if your participation in a workers’ compensation plan is not mandatory.

Liability insurance coverage for employees also presents another example of why it is important to know whether your farm direct marketing venture will be treated as part of your farm or as a separate business.  The typical farm liability policy includes an exclusion relating to employees injured while engaged in a business.  See for example this exclusion from a common policy:

Exclusion to Coverage D – Medical Payments to Farm Employees

 3. We do not cover any person while on the insured premises because of any insured person’s business, or who is injured by an accident carrying out any insured person’s business.

You have to know whether what you are doing (when you are doing it) is treated as a business.  This issue will be especially important in direct farm marketing operations which have activities that are non-farm in nature, such as food processing, retail sales, or on-farm recreation.  Then the issue will be whether the employee is engaged in farm labor or something else.  This is another example for when having both a commercial business policy and workers’ compensation insurance will be important.  The same Coverage D provision, excludes any bodily injury to a person who is “entitled to benefits which are provided or required to be provided under any workers’ compensation, non-occupational disability or occupational disease law.”

But this does not mean you should not obtain farm liability insurance coverage for your workers.  One of the important values of having such insurance is for situations when your employees do something which injures a third party.  In these situations the farm liability policy should provide coverage.  This means you need workers’ compensation insurance to cover injuries to the workers and farm liability coverage to cover injuries caused by the workers.

Liability Concerns for Pick-Your-Own and Cut-Your-Own Operations

One area of direct farm marketing which has had the most experience with issues of liability concerns pick-your-own operations.  Having customers come onto the farm to engage in harvesting activities creates the opportunity for the customers to injure themselves.  Many farmers with experience in pick-your-own ventures agree that no matter how careful a farmer is, customers can find creative ways to injure themselves.  As a result, a number of court cases have addressed issues of liability involving pick-your-own operations.  The following examples demonstrate what the courts have held and illustrate several basic points to keep in mind.

Q. Under what circumstances can a pick-your-own operation be held liable if a customer gets injured falling from a ladder?
For typical cases, see Klump v. Bowman, [117 A.D.2d 857 (New York S. Ct. App. 3rd, 1986)] and Gabbard v. Stephenson’s Orchard, [565 S.W.2d 753 (Missouri App. 1978)].  In the Missouri case the orchard was held liable because it provided the customer with a three legged ladder which the court found to be defective and which had caused other accidents in the past.  In the New York case the orchard was liable even though the customer fell from a step ladder brought on to the farm by another customer.  The cases illustrate these two points:  First, don’t use defective equipment and if you are having problems with any equipment remove it immediately.  Second, don’t let customers bring their own ladders or other equipment onto the farm.  The best rule may be to plant dwarf trees!  But consider the next case.

Q. Are there situations where the pick-your-own operation was held not to be liable?
A recent New York case, Christman v. Murphy,[226 A.D. 2d 1069 (New York S. Ct. App. 4th, 1996)] addressed the circumstances when a pick-your-own operator might not be liable. In that case the court held the operator was not responsible for injuries to a customer who fell from the orchard’s step ladder while picking cherries.  The court found the customer was aware of the risks of standing on the top steps of a ladder and the landowner had no duty to warn.  The court found the landowner had satisfied the duty of keeping the property in a reasonably safe condition.  The point of the case may be to do all you can to make the premises safe but if an accident happens don’t just give up and assume you are responsible.

States enact laws to protect pick-your-own farms

As a result of the threat of liability facing farmers who operate pick-your-own farms, several states have enacted laws to limit the potential liability of these operations.  Under these laws the operator is protected as long as the operator did not create an “unreasonable risk” or did not engage in “willful, wanton, or reckless conduct.”  The  states with these laws include: Arkansas, Massachusetts, Michigan, New Hampshire, New Jersey, Ohio, and Pennsylvania.

While the individual state laws deal with the same subject each takes a somewhat different approach. It is worthwhile examining the language of several of the laws to illustrate the different types of protections which might be available.  For example the New Hampshire law [New Hampshire Stat. §508:14 II] provides:

II. An owner of land who permits another person to gather the produce of the land under pick-your-own or cut-your-own arrangements, provided said person is not an employee of the landowner and notwithstanding that the person picking or cutting the produce may make remuneration for the produce to the landowner, shall not be liable for personal injury or property damage to any person in the absence of willful, wanton, or reckless conduct by such owner.

The New Hampshire law, enacted in 1981, is interesting because it specifically mentions “cut-your-own” operations.  Compare this language with the somewhat different approach used in the Ohio law [Ohio Stat. §901.52] which became effective on January 27, 1997.  It  provides that:

(B) In a tort action, in the absence of willful or wanton misconduct or intentionally tortuous conduct, no owner, lessee, renter, or operator of premises which are open to the public for direct access to growing agricultural produce shall be imputed to do either of the following:

 (1) Extend any assurance to a person that the premises are safe from naturally occurring hazards merely by the act of giving permission to the person to enter the premises or by receiving consideration for the produce picked by the person;

 (2) Assume responsibility or liability for injury, death, or loss to person or property allegedly resulting from the natural condition of the terrain of the premises or of the condition of the terrain resulting from the cultivation of the soil.

The Michigan law [Mich. Comp. Laws Ann. §324.73301], which became effective in 1995, takes yet another approach to offering liability protection for PYO operators.  It provides that:

(5) a cause of action shall not arise against the owner, tenant, or lessee of land or premises for injuries to a person, other than an employee or contractor of the owner, tenant, or lessee, who is on the land or premises for the purposes of picking and purchasing agricultural or farm products at the farm or “u-pick” operation, unless the person’s injuries were caused by a condition that involved an unreasonable risk of harm and all of the following apply:

(a) The owner, tenant, or lessee knew or had reason to know of the condition or risk.

(b) The owner, tenant, or lessee failed to exercise reasonable care to make the condition safe, or warn the person of the condition or risk,

(c) the person injured did not know or did not have reason to know of the condition or risk.

(6) As used in this section, “agricultural or farm products” means the natural products of the farm, nursery, grove, orchard, vineyard, garden, and apiary, including, but not limited to, trees and firewood.

The final example of a PYO liability limitation to consider is the newest law, enacted by New Jersey in 1998.  This law [NJ 207th Legislature 2nd Sess., Chap. 378 (West Leg. Sup.) Senate No. 1332, effective Jan. 19, 1998] provides:

1.  As used in this act, “agricultural or horticultural land” means orchards, nurseries or other land devoted to the production for sale of plants, crops, trees, forest products or other related commodities.

2.  Notwithstanding the provisions of law to the contrary, an owner, lessee or occupant of agricultural or horticultural land shall not have a legal duty to protect a person who is invited onto the land for the purpose of picking or taking agricultural or horticultural products from the natural risk or hazards that are inherent characteristics of agricultural or horticultural land, and shall not be liable if such a person invited onto the land is injured because of any natural risks or hazards that are inherent characteristics of agricultural or horticultural land.

Q. Will these laws be effective in protecting pick-your-own operators from potential liability?
The answer will depend on the facts of what happened and the law involved.  For example, while the New Jersey law does not explicitly provide that it applies when the person has paid money to be on the land, a legislative note attached to the law makes it clear that is the purpose.  This is an example of the type of legal question which can arise even when such a law is on the books.  From reading these different laws, you can see that a number of questions may still need to be litigated, including: what are the “inherent characteristics of the land”, what is a “condition that involved an unreasonable risk of harm”, what is “willful, wanton, or reckless conduct” of the owner?  While these laws will apply to some situations, such as a person falling into a hole (if the owner did not know it was there) it is unlikely the laws will provide protection in a case where a person was injured by falling off a defective ladder provided by the owner.  One problem with the PYO laws is they may give owners a false sense of security that they are protected from liability and the owners may then fail to take reasonable precautions to prevent accidents from happening.  Perhaps the best way for you to think of such laws is that while it is better to have one than not to, do not rely on the laws to protect you from liability, especially if you can prevent the situation from arising.

Q. Do these laws protect me if I donate excess food to the local food bank or let a local church group pick fruit left in the orchard?
The laws relating to PYO’s should not be confused with laws which protect farmers who allow gleaning, which does not involve money, or farmers who make donations of food.  Laws protecting people who make good faith donations of excess food have been enacted in all fifty states and at the federal level.  These laws were discussed in Chapter Six.  An example of a law which protects a person donating food is the New Hampshire law [New Hampshire Stat. §508.15] which provides:

II.  The good faith donor of any food to a needy individual or individuals or to a bona fide charitable or non-profit organization for distribution or serving by such organization without charge or at a charge sufficient only to cover the cost of handling and administering such food and the distribution thereof, shall not be subject to criminal penalty or civil damages arising from the condition of the food, unless an injury is caused by the gross negligence, recklessness, or intentional misconduct of the donor; provided, however, that at the time of donation such food is not knowingly misbranded and is not adulterated and has not been manufactured, processed, prepared, handled or stored in violation of applicable rules of the department of health and human services, or unless an injury is caused by the gross negligence, recklessness or intentional conduct of the donor.

An example of such a protection for allowing gleaning is the Michigan law [Mich. Comp. Laws Ann. §324.73301 (3)], which provides:

A cause of action shall not arise against an owner, tenant, or lessee of land or premises for injuries to a person who is on that land or premises for the purposes of gleaning agricultural or farm products, unless that person’s injuries were caused by the gross negligence or willful and wanton misconduct of the owner, tenant, or lessee.


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