Farmers Market Managers Professional Certification Program Module 1: Unit 1.4 Nuts & Bolts of Market Management Understanding Liability Insurance UNIT OVERVIEW This unit will emphasize the risk management concepts associated with managing a farmers market. These range from tent set up to food safety to disaster preparedness. After completion of this section, a farmers market manager will be able to identify the risks in the market, complete a risk management checklist and understand how to mitigate existing and possible risks to minimize issues which may arise during the normal course of operations. LEARNING OBJECTIVES CONCEPTS Why a farmers market and its vendors should carry insurance What is a risk management assessment of my farmers market SKILLS How to identify the risks within your farmers market How to structure a risk management policy for your farmers market How to conduct a risk management assessment for your farmers market - 1 -
Unit 1.4: Understanding Liability Insurance Liability insurance is a matter worthy of serious consideration by all farmers markets. Whether you have it, or you are thinking of getting it, it is important to understand liability insurance and the ways that it protects you and your market. This article will attempt to answer common questions concerning liability insurance as well as provide examples of common situations where liability insurance provides farmers market protection. Liability insurance extends coverage to a person, business, or other entity to cover bodily injury or property damage. The term bodily injury includes the cost of care following an accident, the loss of service one might endure as a result of that accident, and the cost of restitution should the accident take a life or permanently injure someone. The term property damage includes both the loss of property and the loss of use of a property. For example, Joe Smith, a customer at the farmers market, slips and falls in front of an apple vendor s booth. He breaks his leg as well as his iphone, which is in his pocket. He then sues for the cost of the hospital bills as well as the lost wages incurred from being unable to walk, let alone do his job as an independent roofing contractor. In this part of his claim, Joe is suing for the cost of care associated with his fall and the loss of service, which is covered under bodily injury. Furthermore, Joe also sues for the cost of replacing his broken iphone and the lost business incurred due to losing all of his customer data that was stored on his iphone. In this part of his claim, Joe is suing for property damage and the loss of property use. If Joe were to win this suit, the farmers market liability insurance would cover these damages. The next step in Joe s claim will be to decide who to sue. Is it the market itself, the apple vendor whose booth he was standing in front of, or the municipality who owns the lot that the farmers market operates in? In all likelihood, Joe will sue everyone that he can to test where the liability falls and have a greater chance of winning restitution from that party (or multiple parties). We see this pattern often with farmers market lawsuits. The lawyer representing Joe will want the greatest likelihood of winning which means suing all parties involved. For this reason, many farmers markets are insured as a market and also require that their vendors be insured to protect themselves and the market from a lawsuit in the event of an accident where both parties are sued. Liability insurance not only covers the damages outlined above, it covers the cost of investigating claims that may turn into a lawsuit and the attorney fees associated with protecting the person, business, or entity being sued. These expenses encompass the bulk of the money that actually - 2 -
gets paid out on claims as most of these kinds of cases are settled out of court. Another level of protection for the market is an insurance concept called additional insured. Additional insured simply means other parties that are covered under your policy in the event of a covered incident. What that means for markets is that markets can require their vendors to have policies listing the market and/or the market location and/or the market manager as an additional insured on their policy. This additional level of protection does not mean that the market doesn t need its own liability insurance for cases where vendors are not also named, but rather, it provides an additional level of protection for the market in the case that someone were to list both the vendor and the market in a single suit. Most markets do require their vendors have insurance which lists the market as additional insured. Trip Hazard In Joe s suit in our example, the next step will involve a claims investigator who will try to determine what happened during the incident at the market. They might interview witnesses, talk to the market manager, and/or visit the site of the fall to try to reconstruct the scene. They would be trying to determine fault in Joe s fall. Perhaps there was a pothole in front of that vendor s booth. Perhaps a witness noticed that there were many boxes of apples sticking out into the walkway at the time of Joe s fall. The circumstances surrounding the fall may help to determine who is really liable i.e. if there was a pothole, the fault may belong with the municipality but if there were boxes of product sticking out into the walkway, the fault may very well lie with that specific vendor. The cost of this investigation would be covered by the liability insurance. Once the investigation is completed, the defendant will need an attorney to either work out a settlement or defend them in court. Liability insurance also covers these attorney fees, which can be quite pricey. Now that we understand the need for farmers market liability insurance, let s talk about the costs involved for both market and vendor policies. A typical market policy can run anywhere from $250 to $1000 or more for one year/season. Some markets are lucky in that the insurance their sponsor or agency or location has already covers the operations of the market be sure to check whether this is the case before purchasing your policy. Make sure the insurance covers the activities of the market and not just the location itself. When it comes to vendor liability insurance, the premium will cost between $400 and $500 each year and will cover the vendor for the entire 12 months at any markets they attend. Some policies have additional costs for extra paperwork to add additional insureds or a per market fee and some don t, so we recommend shopping around for the best pricing for your unique situation. Some vendors are able to add a rider to their home insurance or farm insurance policy to cover their farmers market vending liability. Check with your providers and see if that is something they offer because bundling may help reduce the cost. In some cases - 3 -
though, it may in fact be more expensive than a standalone policy. Despite the fact that many vendors only sell a few months out of the year, they are still covered for 12 months due to the way that the insurance system is set up and there is generally no way to get a discount for operating a small portion of the year, even when cancelling the policy early. In our example, Tom Jones is the apple vendor at the market Joe attends and he is a small local grower. While $400 each year often seems like a strain on his budget, after Joe s fall, Tom was glad that the market required he take the precaution. Had he been uninsured, he might have lost his entire orchard and his very livelihood as a result of Joe s lawsuit. Often when you call to purchase insurance, the company will ask how much insurance you want to buy. What level of coverage do you need? Everyone needs a different level of insurance coverage based on their exposure and their net worth, but it is common in the insurance industry to default to $1 million in coverage. The Commercial General Liability (CGL) Policy is the most common policy used for insuring farmers markets and it normally covers up to $1 million for each claim, with a maximum payment of $2 million per policy period. Many markets also require their vendors to have a $1 million insurance policy although some require more or less depending on the needs of the market. Let s look at another example. Tom has three employees, 100 apple trees, and one tractor. He has a farm stand and apple picking on his property in addition to selling at the farmers market. While Tom s net worth is not very high, he considers his exposure high since his customers often come onto his property to pick apples. Tom has a CGL policy. Tom is considering offering pony rides for children on his property in addition to his existing offerings. He knows that this is risky and is afraid that children might get hurt. He is not sure that his current policy will be enough to cover this additional risk. If Tom gets the ponies, he thinks he will need a $2 million umbrella. An umbrella is an extension of coverage. While Tom s CGL still applies, if he were to get the $2 million umbrella, he could go over his policy up to $2 million. For example, if Joe s lawsuit ended up costing him $1.5 million to settle, Tom would be able to take the additional half a million from his umbrella coverage. Then, if he had to deal with a second claim in that policy period, he would still have $1 million from his CGL for a second claim as well as another $1.5 million remaining in umbrella coverage. Since many farmers markets require that their vendors be insured, it is important for managers to stay updated on the insurance status of the vendors in their market. For this reason, 60 days before a policy expires, a notice is sent to all parties listed as additional insured. If the policy is being canceled due to non-payment, notice is sent 30 days prior to cancellation. If liability insurance is a requirement at the market, it is the manager s responsibility to be sure that only insured vendors participate in the market and vendors who are at risk of being removed from the market due to nonpayment are promptly notified. If a vendor s insurance has lapsed and the market manager did not take action, the market or the manager could be held liable in the event of a loss. Risk Management It is important for market managers to perform risk management assessment and risk management techniques at their market in - 4 -
order to reduce negligence and loss. Every precaution must be taken to ensure the safety of everyone involved in the farmers market. Addressing risk management not only prevents accidents, it protects the market from being sued in the event of an accident. It removes the burden of fault from the market s shoulders. A market manager can use signage to their advantage. Cones and rope help to keep patrons going in the right direction and out of restricted areas where they might get hurt. If there is a problem or safety hazard in the facility, it should be addressed immediately, and a written copy of the report should be kept, showing that every preventive measure was taken. Is this safe for your customer walk-way into the market? Who will be responsible for repairs? Who will be responsible should some be hurt? Going back to our first example, let s consider a different scenario. A few weeks before Joe fell at the farmers market, the market manager, Mike, decided to perform risk management at his market. He took a checklist and he walked through the market with an eye out for potential hazards. He noticed that the aisles were congested, causing patrons to push their way through crowds. Mike also noticed that truck beds were left open and unattended. He realized that there was no emergency plan posted; if there were a fire, people would not know the fastest way to get out. Mike decided to ease the flow of traffic by making aisles one directional. He posted large orange arrows showing the way. He used cones and rope to keep patrons in safe areas and aisles. Mike made sure that all truck beds were away from the flow of traffic. He also advised the vendors to close the doors to their trailers when they leave the truck to deter pedestrians from trying to climb in. Finally, Mike made a comprehensive evacuation plan in case of an emergency. He posted it at every entrance and gave a copy to every vendor and employee. When incidents do occur, it is wise to report them as soon as possible in order to report all of the details as accurately as possible. Even if it seems like a small incident that will not turn into a lawsuit, at the very least an incident report should be written and kept on file. The sooner details are recorded, the less likely they are to be forgotten. In the accident mentioned earlier, Joe fell in front of Tom s booth because he was trying to push against the flow of human traffic while boxes were sticking out into the aisle. After risk management was performed though, there were cones and rope keeping people in the aisles as well as orange arrows pointing patrons in the same direction through the market. When Joe fell, the market manager was called over; he filled out an incident report and took pictures of the area surrounding the fall. Joe was hurt, angry, and was threatening to sue. The manager spoke with him calmly and told him about the market s emergency management plan. After the ambulance took Joe away, the market manager called his insurance company to report the incident and advised Tom to do the same. The market s - 5 -
liability may have been reduced and they may be more likely to win their case because of the mitigating factors of the arrows and the cones as well as the manager s prompt response to the situation. We hope these examples have been helpful in illustrating some common situations involving liability and insurance at farmers markets. Please keep in mind, though, that there are a great number of things that go into liability insurance. This was only an overview. If you have further questions, you should call your insurance agent for a more detailed explanation or contact an agent in your area. Common Insurance Definitions: Additional Insured: An individual or entity that is not automatically included as insured under another s policy, but may be named providing that entity a certain degree of protection. Certificate of Insurance: A document that indicates your coverage amounts, carriers, and policy effective dates. Insured: The party to whom the insurance company agrees to cover losses, provides benefits, or renders services. Liability Insurance: Insurance that pays on behalf of an insured for loss due to negligence that is deemed the responsibility of the insured. Market Insurance: Coverage for the market premises, market organization, and its employees. Policy offers basic slip and fall coverage as well as product liability. Coverage extends to multiple locations under one market umbrella, but each location shares the limits of coverage. Negligence: Failure to use that degree of care that an ordinary person of reasonable prudence would exercise in like circumstances. Umbrella Liability Policy: A liability policy designed to provide liability protection above and beyond that provided by standard liability contracts. Vendor Insurance: Provides general liability or slip and fall coverage to the individual vendor within the market. Policy coverage is extended to all named markets vendor participates in. References: Based on presentation given by Dick Miller, Farm Family Insurance, at the Farmers Market Federation of NY s Annual Farmers Market Managers Training Conference, Nov 2015. Appendix: Risk Management Checklist Incident Report Template - 6 -