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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.
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.
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:
a. Retail activity other than that described above; or
b. Mechanized processing operations.
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:
(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; …
“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”.
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.
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.
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.
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:
- 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
- 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 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.