A Series On Improving Your Horse Business, Part Four
What does your commercial equine insurance give you?
By Christine Hamilton, Illustration by John Green
Compliments of The American Quarter Horse Journal, May 2004 Edition, Pages 53-57
How long has it been since you evaluated your commercial equine insurance coverage? Having adequate insurance for your horse business is vital, especially in today’s litigious environment. Debi DeTurk has been an agent with AQHA Corporate Partner Markel Insurance Company for 22 years, specializing in the types of insurance professional horsemen need to protect their businesses.
“You have to ask yourself, ‘I’m buying insurance, theoretically, to give myself a good night’s sleep. So, how much insurance is going to give me a good night’s sleep?’ she said.
“Are your only assets an old truck and a sweet dog?” she continued. “Or would a lawyer for an injured party perceive you as a deep pocket? Those are the kinds of things you have to think about when you’re looking at protecting your business.”
If it’s been awhile since you’ve looked at your commercial coverage, the Journal gathered some information to get you thinking. There’s no time like the present to dig out those policies and make sure they’re giving you sweet dreams, not nightmares.
THE BASIC INSURANCE TYPES
Here are the basic insurance policies that can protect your equine business. Take a look and compare them against your policies. Call your agent if you have questions.
Your worst nightmare could come from assuming your insurance is adequate; read your policies and know what they say.
- Commercial General Liability Insurance
- Commercial Umbrella Liability Insurance
- Property Insurance & Commercial Auto Insurance
- Care, Custody & Control Insurance
- Worker's Compensation Insurance
- Mortality and/or Major Medical
Commercial General Liability Insurance
What it does: Protects a named insured in the event the entity is sued for bodily injury and/or property damage.
How it is sold: In per occurrence limits, typically $500,000 or $1 million per occurrence. Policies are written to cover declared business operations within a specific policy territory.
“A professional horseman – trainer, breeder, riding instructor – should never operate without commercial general liability insurance,” DeTurk said.
One of the most important benefits of this kind of policy is payment of defense costs. “If you’re sued alleging you caused someone’s accident,” DeTurk explained, “doing the investigation and defending the case is a key part of your insurance protection.
“All good general liability policies pay defense outside the limit,” she added. “If you have a $500,000 limit, and it costs us $200,000 to investigate and defend you, you still have $500,000 to pay any judgment that might be rendered against you.”
One of the biggest mistakes horsemen make with a general liability policy is failing to adequately declare in the application the specific actions they perform in conducting their businesses.
“For example,” DeTurk explained, “a general liability policy typically covers the named insured anywhere in the United States or Canada, as long as they are operating as declared in the application.
“Say you have a horseman who trains horses and clearly identifies that he travels with boarded horses to horse shows and trains at those horse shows. “If, all of a sudden, he also decides to take one of his horses to a mall to give pony rides, the insurance company can deny coverage for any claim arising from the pony rides. Why? Because that activity was not declared in the application. “It has nothing to do with whether he’s home or away. It has to do with him doing operations that were not declared.”
Similarly, if a trainer decides to give lessons at a clinic in Germany and has not stated in the application that he or she gives lessons internationally, again the company can deny coverage because the lessons are outside the policy territory.
It’s just a matter of knowing the stated terms of your policy and making sure it covers exactly what you need.
- FYI: In DeTurk’s opinion, the biggest mistake horse businesses make in purchasing commercial equine insurance is not shopping around.
Commercial Umbrella Liability Insurance
What it does: Provides the same coverage as a commercial general liability policy but increases the limits.
How it is sold: In increments of $1 million, over the primary $1 million, from $2 million typically up to $10 million per occurrence.
Property Insurance & Commercial Auto Insurance
What it does: Protects the named insured’s property and/or vehicles, from buildings to machinery and tack.
How it is sold: Property insurance can be packaged with a commercial general liability policy. Commercial auto policies are typically purchased on a stand-alone basis.
Once you’ve protected your business against liability claims, the next important type of insurance to consider is protection against loss of your business property. “You’ll want to include insurance against fire, lightning, wind and theft,” DeTurk added.
Again, you need to specify the property covered on the application. A policy might cover the barn if it burns down, but not the tractor and/or tack inside it that burns with it, if they’re not declared on the policy.
In addition, DeTurk continued, “If you own a business auto, you’ll need business auto insurance. A personal auto insurance policy might not cover a vehicle used for business.”
Care Custody & Control Insurance
What it does: Protects the named insured in the event the owner of a horse under their care sues, alleging that the horse was harmed or died as a result of their negligence.
How it is sold: By number of horses, with per-horse limits. For example, you could purchase coverage for 10 boarded horses, and choose a $5,000, $10,000 or $25,000, etc. limit per horse. The cost changes based on the number of horses and the chosen limits.
“It’s an elective coverage,” DeTurk said. “Here’s a scenario: a boarded horse gets loose on the road and causes an automobile accident. It’s typically a serious accident. The car hits the horse and the animal comes through the windshield. The people in the car are badly injured, and the horse is killed.
“General liability insurance is what protects the boarding facility owner against lawsuits for bodily injury (to the people in the car) and property damage (to the car),” she explained. “Care custody and control adds coverage protection for the boarding facility in the event the owner of the boarded horse sues the facility alleging negligence in the care of the horse.”
She emphasized that, “The general liability coverage is the base of it. I wouldn’t recommend buying care custody and control without the general liability piece already there.”
Worker’s Compensation Insurance
What it does: Covers the medical expenses and/or lost wages for an employee injured on the job.
How it is sold: Varies, depending on the state.
“If you have employees,” DeTurk said, “you’re probably going to want worker’s compensation, although it can be expensive. Worker’s compensation is a system of law that states that the employer is obligated to pay when an employee sustains a work-related injury.
“It’s a long and varied subject because state laws really are different. Some states are what they call ‘monopolistic.’ In other words, you must purchase your coverage from your state worker’s compensation fund; conversely, some are ‘open market’ states.”
Contact your insurance agent and research your state’s worker’s compensation laws to find out what you are legally bound to do. Here are some online sources to get you started:
Mortality and/or Major Medical
What it does: Protects the named insured’s investment in a horse, reimbursing the owner for its value in the event of death or theft and covering major medical expenses it incurs.
How it is sold: Major medical is an endorsement on a mortality policy. Mortality coverage and payment depends on the agreed value of the horse, as stated in the policy. Medical coverage has an aggregate limit, along with per occurrence deductibles.
DENIAL OF COVERAGE
An insurance company can deny your business coverage either by declining an initial application or by denying an individual claim and/or canceling your policy.
Every insurance company has publicly established guidelines it follows in deciding what it will and will not insure, called underwriting guidelines. They are based on the amount of risk an insurance company is able to take financially.
An insurance company might deny coverage because the business activities that an applicant has requested coverage for fall outside those guidelines. It can also happen as a result of a miscommunication between the applicant and the insurance company; that’s important to understand if you’re looking for new insurance or have been denied coverage in the past.
“I can’t tell you how many times underwriters have turned down accounts,” DeTurk said, “because the question is asked on the application, ‘Do you offer trail rides?’ And the applicant answers ‘yes.’
“What the applicant means is ‘Yes, I take my lesson students out on the trail as a normal part of my instructional program,’ not, ‘I offer rented saddle horses to the public.’” Both operations are referred to as trail rides, but one might be within an insurance company’s underwriting guidelines and the other might not be.
DeTurk points out the advantage of using an equine insurance specialist. “You need someone who knows both the equine professional’s business and the business of the insurance company, who can say to the underwriters, ‘This is part of their normal lesson program; we should offer the coverage,’” DeTurk advised. “You need someone who can interpret your equine business for the insurance company and act on your behalf.”
In addition, an insurance company cannot arbitrarily cancel your policy. According to DeTurk, “Laws are clear in protecting the insured. An insurance company can only cancel policies or deny coverage for specific reasons, such as non-payment of premium, or if there’s been some substantial misrepresentation of fact that increases hazard.
“For example,” she continued, “say an insurance company does not cover hacking, also known as rental of saddle animals to the general public. The company asks specifically on its application, ‘Do you provide trail rides to the general public?’
“If the answer is ‘no’ on the application, but the operation is doing it anyway, and there’s a claim, the insurance company has the right to deny coverage and cancel the policy.” This is because of both the misrepresentation and the increase in hazardous operation.
SUDDEN INCREASE IN PREMIUM
There are a number of reasons a premium can suddenly increase; one reason might be related to the type of insurance company you have. There are two basic types of insurance companies, ‘admitted carriers’ and ‘excess and surplus lines carriers.’
“Admitted insurers (carriers) have to file their rates with each state and the state has approved those rates,” DeTurk explained. “So, an admitted insurer cannot arbitrarily decide to jack rates up without a change in filing.
“In addition, if an admitted carrier becomes insolvent, the state’s Guarantee Fund refunds any premiums due policy holders. It also pays any claims for policy holders that occur during the period of time from the insolvency to the individual’s purchase of new insurance.”
In contrast, excess and surplus lines insurers don’t have to file their rates with the states. (They are also called non-admitted carriers.) “Non-admitted carriers can basically do whatever they want with their rates because they are not admitted,” DeTurk said. “They don’t have to go by filed rates.
“If they go insolvent, there’s no Guarantee Fund to back them up. That’s not to say all non-admitted carriers are financially weak. For example, Lloyds of London is well respected and strong financially; the chance of Lloyds going out of business is not very likely. But they can jump their rates around.”
So, why use them? “You might go to an excess and surplus lines carrier as a carrier of last resort,” DeTurk explained, “because the admitted carriers won’t cover you or your type of operation.”
It goes back to a company’s established underwriting guidelines, based on the financial risk an insurance company is able to take. Typically, excess and surplus lines carriers are more willing to insure higher risk operations.
“There’s nothing volatile about operations like boarding, breeding, training or lessons,” DeTurk said. “On the other hand, rodeos, polo, vaulting, trail riding – those are the kinds of operations that might need to seek excess and surplus lines coverage.”
Your state’s insurance governing body can tell you whether or not your company is an admitted carrier. If it’s not, you might want to look around for another company.
Another common reason rates jump is due to a change in your business. “If, all of a sudden, you have 10 more boarders,” DeTurk said, “the premium is going to go up.”
Again, there can be advantages to having an insurance agent experienced in the equine industry to help prevent any miscommunication between the insured and a company’s underwriters that might affect your premium rates.
EQUINE ACTIVITY LIABILITY ACT PROTECTION?
Just because your state has equine activity liability legislation in place doesn’t mean your equine business is protected from liability lawsuits.
What it does do is make it easier for a judge to dismiss certain cases as defined under the law. If someone files a lawsuit against you, you still have to respond, often incurring legal expenses. A good commercial general liability policy will cover the defense costs you incur.
You also have to make sure that you’ve followed the state requirements within the legislation to have the protection. They might include posting specifically worded warning signs, and/or requiring signed waiver of liability forms from participants in equine activities on your property or under your sponsorship.
Check with your state affiliate to the American Horse Council to find out your state’s requirements.
- FYI: Six states do not have equine activity liability legislation in place:
Alaska, California, Maryland, Nevada, New York and Pennsylvania.
Businesses often make the mistake of not buying insurance specifically geared toward their equine operation. DeTurk described one situation where a client purchased a farm/ranch policy because it was cheaper.
“He had a student fall off her horse during a lesson and the farm/ranch policy denied the claim,” she said. “The policy was not endorsed specifically to cover lessons, which was one reason why it was cheaper.
“The policy became a lot more expensive when the business owner had to hire his own attorney.”
- Admitted carrier: an insurance company whose rates are approved by a state; its policy holders are protected by a state’s Guarantee Fund.
- Agent: typically someone employed full time by an insurance company, who specializes in and sells only insurance offered by that company.
- Agreed value: the determined value of a horse, as agreed upon by the insurance company and the owner, for a mortality policy. It can be determined by purchase price, as in the case of an auction.
- Broker: typically someone who represents and sells insurance policies from several different companies; not employed by any one insurance company.
- Endorsement: an addition to a basic policy that modifies the policy, such as putting additional coverage into place.
- Excess and surplus lines carrier: an insurance company whose rates are not filed with a state and that is not protected by a state’s Guarantee Fund. They typically issue policies on businesses with a higher hazard element that admitted insurance companies wouldn’t cover.
- Limit: the maximum dollar amount an insurance company will pay on a claim, as defined in the policy. A policy can specify a Per Occurrence limit (the maximum amount they’ll pay per individual claim) and/or an Aggregate limit (the maximum amount they’ll pay on the policy as a whole, all claims combined).
- Named insured: the business entity or individual a policy protects.
- Policy territory: the geographic region in which a policy will provide coverage. Typically the United States or Canada, unless specifically stated otherwise in the policy.
- Underwriter: the individual at the insurance company that makes the decision whether or not to insure or issue a policy to an applicant. Those decisions are made based on guidelines the company has publicly established. The broker or agent deals directly with the underwriter; usually a client or applicant will not deal directly with an underwriter.
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