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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 the 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. Is there a limit to the amount of sales I can make at a roadside stand and still be covered under my farm liability policy?
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.

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.

Q. Which of these two answers is the most correct?
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.

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 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.