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L I A B I L I T Y A N D I N S U R A N C E I N A FA R M L E A S ELiability andInsurance ina Farm Leasei

Liability and Insurancein a Farm LeaseA Guide for Landowners and TenantsMike Ghia, Land for GoodThanks to Carl Wyman of Wyman Insurance Agency,Weathersfield, VT for his contributions to this guide. 2018 Land for Good, Inc.P.O. Box 625 39 Central Square, Suite 306, Keene, NH 03431603.357.1600 info@landforgood.orgwww.landforgood.orgThis guide does not constitute insurance advice for individuals.Consult with your insurance professionals and legal counsel foradvice concerning your particular situation.

L I A B I L I T Y A N D I N S U R A N C E I N A FA R M L E A S ERISK, LIABILITY AND INSURANCEWhen leasing property for farming, both landownersand tenants often worry about liability andproperty damage. While they are prudent to havethis concern, both the landowner and tenantfarmer should take comfort to know that thereare established mechanisms to minimize riskand to protect both farm property owners andfarming tenants. These concerns should not be animpediment to landowners and farmers enteringinto lease agreements.Insurance is a useful tool to address other concernsin addition to liability. Typically, one or more types ofinsurance coverage is carried by both the landownerand the tenant farmer. This guide will cover varioustypes of insurance recommended for considerationby landowners and their tenants.While a certain amount of risk is inherent in owningproperty and in farming it, both parties can—andshould—take steps to mitigate risk. Parties shouldassess risks, identify strategies to mitigate them anddevelop an action plan. In the insurance industry,insured parties are obligated to take “reasonablecare”—suitable precautions to avoid risk. Forexample, farming tenants are demonstratingreasonable care by making sure that the farm isa safe place for customers such as having a welldesigned parking area and taking steps to keepwandering children from getting hurt by livestockor equipment. Landowners who have electricalwiring inspected or who fix a structural problem ina barn used by the tenant are also demonstratingreasonable care. Negligence is defined as thefailure to exercise the reasonable care that areasonably prudent person would exercise in a givencircumstance.General risk mitigation approaches includeavoidance, limitation, and transfer. Avoidance meansjust that: don’t engage in a risky endeavor. Limitationmeans reducing your exposure to the risk(s). Transfermeans shifting the burden of the risk(s) to another.In the case of a farm lease, responsible practicesand diligent maintenance will go a long waytoward avoiding and limiting adverse occurrences.Transferring risk is mainly done through the use ofinsurance.This guide discusses several types of insurancerelevant to farm lease arrangements. Therequirements for—and interests of—bothlandowners and farmers are discussed. Farmers mayneed additional types of insurance coverage notaddressed here for their own business purposes,such as product liability and crop insurance.1. L I A B I L I T YFarmer’s Liability Insurance, Covering theLandownerA typical standard homeowner’s insurance policywill NOT cover commercial farming activities onthe property of a private landowner. One way forthe landowner to obtain liability protection is torequire the tenant farmer to carry his or her ownfarm liability insurance, naming the landowner asan “additional insured.” The landowner should requireproof of such coverage, usually via a Certificate ofInsurance from the tenant’s farm insurance agentspecifying the location and description of theinsured property. If there are multiple propertiesinvolved, each of these should be named in thepolicy. This should be a requirement in any farmlease. The landowner muststill keep his or her ownhomeowner’s insuranceBoth parties cancoverage, or carry a farmliability policy as describedtake steps toin the next section below.mitigate risk.By naming the landowneron the tenant farmer’sliability insurance policy,the farmer is essentially sharing his or her insurancewith the property owner. In addition, when thelandowner is named as an additional insured on thefarmer’s insurance, the landowner will be notified1

L I A B I L I T Y A N D I N S U R A N C E I N A FA R M L E A S Edirectly by the insurance company if there is anon-payment of premiums or if the insurance isterminated and no longer in force.Both the landowner and the tenant should consulttheir respective insurance agents to determinethe appropriate levels of liability insurance. At thetime of this publication, a common level requiredis a minimum of 1,000,000 per occurrence and 2,000,000 aggregate coverage.It is acceptable for the property owners to askfor a copy of the actual farm liability policy. Bothlandowners and farmer tenants should make surethat they understand what is covered and notcovered. The definition of farming for insurancepurposes is generally limited to the raising of cropsand farm animals. When relevant, it is importantto make sure that the farmer’s insurance policyalso covers other activities on the farm that are notdirectly covered under the definition of farming.These might include production of value-addedproducts, food processing, agri-tourism and directmarketing ventures such as a farm stand. If suchactivities will take place on the leased property,and are not covered by farm liability policy, thenthe farmer should be required to obtain additionalcoverage for them. In some cases, the farmer canpurchase additional farm business coverage as apart of their farm liability policy to address this issue.In other cases, the farmer may need to purchase aseparate commercial liability policy that covers thesespecific activities. With a commercial liability policy,the tenant farmer should also name the propertyowner as an additional insured.Landowner’s Liability InsuranceIn many cases, the landowner is consideredadequately insured for liability by being named asadditional insured on the farmer’s liability policy,provided that the landowner also maintains his orher standard homeowner policy. However, someinsurance agents feel that in certain circumstancesit is important that property owners also maintaintheir own separate farm liability coverage in additionto being named on the farmer’s liability policy.Both parties maintaining this coverage provides forbroader coverage, and increases the dollar amountof the coverage available in the event of a claim sincethe parties are not sharing one limit for coverage.There are generally three ways landowners canobtain this coverage:1. In some cases, itmay be possible toadd an “incidentalUnderstand what’sfarm and animalliability endorsement”covered in ato the landowner’sliability policy.standard homeownerpolicy by request,and at a (usuallysmall) additional cost. This is usually the least-costoption. However, these endorsements are notoften available, and still may not address all of thelandowner’s liability protection needs. If this optionis available, the landowner should discuss thisendorsement with the insurance agent to clearlyunderstand what this rider will and will not cover.2. Property owners may replace their homeowner’sinsurance policy with their own farm liability policy.This option would particularly make sense if thelandowner is either partnering with the tenantfarmer in some way, or decides to engage in his orher own farming enterprise.3. The landowner keeps his or her homeowner policybut then adds a commercial liability policy whichcovers “lessor’s risk.” This is also known as landlordliability insurance.Property owners should consult with their insuranceagent, and possibly their attorney, to determineif they should have coverage in addition to beingnamed additional insured by the farmer tenant and,if so, which approach makes the most sense for hisor her circumstances. If the property owner doesincur an increase in his or her insurance as a result ofengaging in a farm lease, he or she might considerfactoring this additional cost into the lease fee paid2

L I A B I L I T Y A N D I N S U R A N C E I N A FA R M L E A S Eby the farmer. There are also special considerationsif a residence is included as a part of the farm rental.This is discussed in Section 7 below.2. A U T O M O B I L E L I A B I L I T YIt is also often recommended that the farmer’s policyincludes an endorsement for “hired and non-ownedvehicles”. This endorsement would cover liability foractions related to rented or borrowed automobiles orthe automobiles of employees or venders. This wouldalso cover the farmer’s personal vehicles which arenot owned by the farm business, for instance a pickup truck registered to the individual rather than tothe business. This coverage is relatively inexpensive,but not standard in a farm policy, and needs to berequested.If the tenant has commercial vehicles owned by thefarm business, the tenantfarmer should also carrycommercial automobileliability coverage in theirCoverage forfarm liability policy. Thisborrowedcoverage will provideequipmentliability protection inthe case that there is anmight makeaccident related to thesense.farmer’s commercialvehicle(s) while in use onthe farm property, andusually also elsewhere.3. B O R R O W E D O R H I R E D E Q U I P M E N TB E LO N G I N G T O T H E P R O P E R T YOWNERIf the farmer-tenant will be borrowing or leasingequipment from the property owner, the farmershould carry coverage for “hired or borrowedequipment” in his or her farm policy, and theproperty owner should consider requiring this inthe lease. This provides coverage for damage to theequipment itself and is not related to liability. Thelevel of coverage will be based on the value andamount of equipment to be covered. This type ofcoverage is relatively inexpensive, but not standardon a farm policy. It must be requested. In caseswhere the use of equipment will be more thanincidental and over extended periods of time, itsometimes is recommended that the tenant includethe specific leased equipment directly on his or herfarm insurance policy for property loss and casualtyinstead of, or in addition to, having the “hired orborrowed equipment” endorsement.4. P O L LU T I O N A N D E N V I R O N M E N TA LLIABILITYBasic coverage for pollution and environmentalliability is generally included in standard farm liabilitypolicies. However, it is usually limited in scope, andthe policy is likely to include specific exclusions.While additional pollution and environmentalliability is available, it can be extremely expensive.Generally, most farmers do not carry this additionalcoverage, and it usually is not necessary. However,both the landowner and tenant should discussthis issue with their respective farm insuranceagents within the context of the type of farmingby the tenant and the coverage available underthat farmer’s general farm liability policy. It is quitepossible that the coverage in the general farmliability policy will be sufficient, and no additionalinsurance will be required.5. P R O P E R T Y LO S S A N D D A M A G EAs with liability insurance, a standard homeownerpolicy will not cover for property loss from fire orother damages to buildings on the farm propertywhile commercial farming activity takes place on it.There are two options to remedy this:In the first option, the property owner changes3