Product Liability. Pumpkins for Profit: Growing Agriculture Tour August 1, 2016 Hal Pepper Financial Analysis Specialist

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1 Product Liability Pumpkins for Profit: Growing Agriculture Tour August 1, 2016 Hal Pepper Financial Analysis Specialist

2 Overview Introduction to risk Using liability insurance to manage risk Some types of liability insurance: Farmowners comprehensive liability Homeowners Commercial liability or general liability coverage Product liability Requirements when purchasing insurance

3 Objective Increase understanding of: Using liability insurance as a tool to manage risk

4 Introduction to Risk

5 Risk is the uncertainty regarding likelihood or magnitude of loss, damage or injury

6 Assessing Risk

7 Managing Risk Avoid Risk Reduce Risk Transfer Risk Accept Risk

8 Even with local foods, food safety is an issue! While complying with preventative food safety measures helps minimize the risk of foodborne illnesses, a producer still faces risks in the form of legal actions from consumers who seek financial compensation after contracting a foodborne illness.

9 Using Liability Insurance to Manage Risk

10 Overview of an Insurance Policy What is an insurance policy? Purpose? Types? Contract for indemnity, or an obligation by a party to provide compensation for a particular loss suffered by another party. Protect against contingent loss Numerous (auto, life, health, property, crop, etc.)

11 Practical Pointers Know what you want to accomplish. Really know your policy. Update and modify the policy as needed.

12 Exclusions Exclusions are what the policy does not cover. Some policies limit the scope of bodily injury. For example, a policy might say: Bodily injury does not include: The transmission or exposure directly or indirectly by any insured or by any other person or instrumentality to any other person of any communicable disease, bacteria, virus, parasite, or other organism.

13 Farmowners Comprehensive Liability Insurance Basic liability coverage carried by most commercial farms. Read the policy for exclusions, such as retail operations or agritourism. Check your policy carefully and don t just take the insurance agent s word for what s covered. May offer very limited products liability coverage for raw agricultural products produced on the covered farm.

14 Farmowners Comprehensive Liability Insurance Are you operating multiple entities? Generally policies cover policy owner and policy owner s family. Generally cover only activities considered farming.

15 Homeowners Insurance In some situations the home may be owned by the farm enterprise (LLC or corporation). The home may be individually owned by the farmer while the farm is owned by another legal entity.

16 Homeowners Insurance Business activities are excluded. Any non-homeowner activity is generally excluded. Homeowners insurance does not protect you from zoning and other ordinance violations.

17 Commercial Liability or General Liability Coverage Most businesses have this coverage. Farmowners comprehensive liability insurance is a type of general liability coverage. This insurance provides for defense and for paying third party claims covered by the policy.

18 Commercial Liability or General Liability Coverage General liability only covers bodily injury and property damage arising from an accident. This type of insurance may provide coverage for bodily injury claims from third parties arising from food contamination. Wording for protection from food contamination claims: covers products and completed operations. Watch for exclusions for claims arising from pollution, waste or contaminants.

19 Product Liability Insurance Policy Protects against claims of injury from fresh or processed food products that cause food-borne illness Covers products and completed operations

20 Transferring Risk with Insurance Obtain insurance Learn and follow insurance requirements and claim procedures

21 Transferring Risk with Insurance Start with a visit to a qualified insurance agent preferably one who is familiar with how direct farm marketing businesses operate.

22 Transferring Risk with Insurance Explain your operation in detail. Request an insurance proposal that addresses all your operation s risks and the potential amount of loss. Consider comparing policies from multiple agents. Are products and completed operations covered by your policy? Can you add a rider to your existing policy? Might you need a separate product liability insurance policy?

23 Transferring Risk with Insurance Proof of product liability insurance may be required in certain markets. Make sure policy covers sales at: Roadside stands Farmers markets Restaurants Other points of sale

24 Excess/Umbrella/Surplus Lines of Insurance Provide catastrophic loss protection when the underlying insurance is inadequate

25 Safe Haven??? No need to worry I only sell to friends and family.

26 When you buy an insurance policy You are required to pay the premium at the time required or the policy will no longer be in force. You are required to report (in a timely fashion) any occurrences to the agent and company.

27 When you buy an insurance policy You are required to report any material changes in the nature of your activities or the property which is subject to insurance. You are required to cooperate with the insurer in matters of subrogation.

28 How Much Insurance? Consider the value of your assets. Consider the probability of a loss occurring and the dollar value of potential claims. What problems have others in direct marketing or agritourism experienced? What are you doing to reduce the chances of loss to your business? Buyers may require a minimum amount of product liability insurance.

29 Take Home Messages Know what risks you wish to manage. Really know your policy. Work closely with insurance agent and communicate well and often.

30 Significant portions of this powerpoint are from the American Bar Association s presentation Counseling Farmers, Ranchers, Agribusinesses and Food Entrepreneurs on Insurance.

31 Contact Us Hal Pepper Financial Analysis Specialist Center for Profitable Agriculture (931)

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