Farm Business Insurance

Check Your Coverage

Bill, Brett and Jared Gutknecht use umbrella policies to enhance liability coverage. (Des Keller)

The Gutknecht family has plenty to think about in terms of the risks to their grain-livestock-trucking operation on the edge of the Waterloo-Cedar Falls metro area, in northeast Iowa.

Bill Gutknecht and sons Jared and Brett notify neighbors 24 hours before they spray any chemicals or incorporate manure from their farrow-to-finish hog operation. They try to time the movement of farm equipment when there is less road traffic. They may transport hogs to market in the middle of the night, in part to avoid other vehicles.

"As I see it, our biggest risk is when our trucks leave the farm," Brett Gutknecht says. "We can train ourselves and our employees on safe practices, but the real danger is what some other driver may do on the road."

Vehicles off the farm is just one type of liability risk an operation faces when considering the types and coverage amounts of insurance to carry. Other risks include your premises, farm operations, the products produced, potential pollution, workers compensation and the catch-all umbrella insurance for liability above and beyond what other policies may cover.

"A farm really needs to analyze everything they are doing and what kind of exposure they have," says Brooks Bachtel, an agricultural underwriter for Heltebridle Bounds Insurance Co., in Littlestown, Pennsylvania. "How often are you on the road? Are you spraying your own crops and applying fertilizer yourself? Do you do these things for other farmers?"

ADDITIONAL COVERAGE

An umbrella policy is insurance that covers any liabilities above and beyond what might be covered under vehicle, machinery, operations and other parts of a policy. The umbrella policies Bachtel can offer generally cover $1 million to $5 million. They are generally purchased as part of a package of coverage for the family and farm.

To determine that package, Bachtel says he really needs to visit the farm to assess the operation. "You can call me and ask for a quote," he says, "but unless I see your farm myself, I might miss questions."

In general, farm insurance covers assets that could be damaged, destroyed, lost or stolen. In addition to that general coverage, liability insurance protects the insured if something happens to someone else.

"Umbrella and excess insurance policies are designed to be additional layers of coverage above primary insurance policies," says Michelle Smith, vice president of human resources with Family Farms Group, a farm consulting group to which the Gutknechts are members. Those primary policies generally include commercial general liability insurance and business auto policies.

"Our recommendations are incremental," she says. "We think a million dollars of coverage for general liability and insurance is a minimum. Certainly consider $1 million of coverage for every $1 million in assets," Smith adds. The assets are things you can "touch" -- land, machinery, buildings, homes, inventory and livestock.

The desirable level of insurance depends on the operation's assets but also on the owners' desire to mitigate risk, Smith explains. "One of our operations told us they would never insure below the $3- to $5-million range no matter what their acreage," she says.

As for the Gutknechts, their overall umbrella insurance covers up to $7.5 million. That's in addition to specific coverages for their several business entities.

To reach the decisions that are right for any individual farm, you have to ask questions about what is worth insuring -- and at what level, Bachtel says.

"When I'm on the farm property, I'll start pointing to buildings and ask, 'Is this something you will replace, and so should we pay insurance on it now?" he says. Sometimes he learns that certain things on the farm aren't worth insuring to the owners.

WORKERS' COMPENSATION

Beyond insurance that covers your assets and potential liabilities, another version can cover injury or illness suffered by employees on the job. Known as workers' compensation, it's required for employees in several states but not in others in regard to farm work. Be sure to check the laws in your state. Some states also offer their own version of workers' compensation.

One of the best benefits you can provide an employee in the event of illness or injury, Bachtel and Smith agree, is workers' compensation. It will pay the worker for lost salary, medical expenses, disability benefits, if needed, and any ongoing care such as physical therapy. Benefits can continue to be paid for weeks, months or even years, if necessary.

That kind of coverage doesn't necessarily come cheap. A typical workers' compensation policy premium might cost from $12 to $15 per hundred dollars of an employee's wages. "That's why farmers tend to not want to have it if they have a choice," Bachtel explains.

On Gutknecht Family Farms, there is only one full-time and two part-time employees who aren't family. They are provided workers' compensation by Iowa law. Even so, the Gutknechts would likely purchase that insurance anyway.

"You have to provide workers' compensation to stay competitive in the job market," Jared Gutknecht says. Desirable employees with farm experience can also easily find work in nearby cities and towns, and those jobs will all come with workers' compensation.

Even so, only the three Gutknechts are allowed to work inside their hog barns. There are two reasons for this. First, the work is inherently more dangerous, and livestock, especially in a confined space, can be unpredictable. Few employees they can find, even those who are otherwise excellent, have the experience needed for the work.

The second reason is that workers' compensation premiums are determined, in part, by the what type of job the employee performs.

"If an employee spends 20% of their time in the hog barns, then 20% of the premium will be at a higher rate than the other 80% they spend working on the grain farm," Bill Gutknecht says. The insurance requires employers to keep records of the jobs their workers perform, and those records are audited annually.

As part of a workers' compensation policy, a worker injured on the job is prevented from bringing a negligence lawsuit against his or her employer.

CORONAVIRUS LOSSES:

Whether you'll be covered by insurance for lost or interrupted business related to COVID-19, or the coronavirus, is an unsettled question. In many cases, exclusions included in insurance policies now prohibit coverage for damage from bacterial or viral infections. Many of these exclusions came about as a result of the SARS (severe acute respiratory syndrome) epidemic nearly 20 years ago.

Otherwise, most business property insurance includes coverage for property damage as well as lost profits resulting from the damage. The coverage for lost income can involve losses from:

-- damage to the policyholder's own property -- business interruption

-- damage to the property or supplier, or a supplier's supplier -- contingent business interruption

-- government action such as evacuation orders -- an order of civil authority

-- damage to properties that attract customers to the policyholder's business, such as a farmers' market.

Court cases have determined that harmful substances at or on a property can constitute property damage, explains Finley Harckham, an insurance coverage legal attorney with Anderson Kill, in New York City.

"A strong argument can be made from this case law that property damage has occurred in places where the virus is present," Harckham wrote recently in a column on industry website riskandinsurance.com.

The reality for farmers is that there are limited options for "loss of income" as a result of COVID-19, says Brooks Bachtel, an agricultural underwriter for Heltebridle Bounds Inc. Insurance Co., in Littlestown, Pennsylvania, who sells policies on behalf of a number of insurance companies.

"Our standard business policy offers coverage for business interruption, but exclusions exist for viruses like COVID-19," he says.

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