Insurance and farmland lease agreements: A Landowners perspective
While owning and specifically leasing farmland, there are a variety of risks that present themselves. Consulting with an insurance expert is critical in these matters. This blog covers some key things that may impact your coverage, and why a written lease is important.
Factors that impact the insurance coverage
There are 3 factors that impact the insurance coverage at the farm:
The way the farmland is used and,
Ownership structure
The farm’s location
Impact of farmland use on insurance
If you are leasing land to a tenant, they usually carry liability coverage. However, it is important to understand how the land is used to know where the risks lie. Examples of these may include:
When renting land for livestock escaped animals can cause damage to neighboring properties, so it's crucial to have clear contracts outlining responsibilities for animal containment and fence maintenance.
Identifying hazards in dwellings and buildings used in farm operations, such as grain bins, storage sheds, and rented houses
Liability exposures due to tenant's production methods that involve too much dust generation or use of chemicals may trigger environmental liabilities and crop damage. It is important to have strong indemnification language in lease agreements and check tenant policy limits.
Debilitating injuries and deaths are common on farms. Understanding safety protocols, eliminating hazards, and being proactive about maintenance are crucial for both the landlord and the tenant to protect themselves.
Hunting, recreational access, and agritourism can create additional liability issues. The circumstances surrounding these activities can impact your liability.
Ownership business structures impact liability limits
When it comes to farmland ownership, the way your business is structured impacts your personal liability. From simple sole proprietorships to multimember trusts or corporate structures, insurance coverage and liabilities may be different and it is important to consult an insurance agent to understand the risks involved.
A farm’s location can create unique liabilities
The location of a farm or unique features can affect coverage needs. Examples of these may include Combines operating near schools, Farm ponds, abandoned wells, and deserted buildings that draw in visitors with or without your permission, which can pose a liability risk if used without proper precautions, non-farm neighbors who may not appreciate the intricacies of the farming business or the sights, sounds and smells it produces. Any of of these is compelling, however in combination it can pose a complicated challenge when it comes to assess risk. It is important therefore to consult with an insurance agent to get an accurate assessment.
How a lease can provide you liability protection
If you lease your farmland, it's important to protect yourself from liabilities by having a written and signed agreement in place. You can also transfer legal liability to the tenant by including specific language in the contract and ensuring that every detail is included.
Personal injury You may be accused of negligence if you were aware of the condition of fences prior to cattle escaping and causing a roadway accident with a motorcyclist, or if you knew about the narrow width of the driveway/culvert entrance where a truck/trailer overturned while entering a field, or if you were aware that the field entrance was located just over the crest of a hill and could have been located more safely elsewhere prior to a motor vehicle accident. Landowners are increasingly included in lawsuits and arguments such as permission, awareness, lack of training, and lack of supervision and are being leveraged to pull additional people and their funds into lawsuits, even if they are not necessarily at fault.
Property permission and associated hazards If you are aware of any potential hazards, it is important to address them promptly. Otherwise, you could be held liable for any injuries or damages that may occur as a result of your negligence. This includes hazards such as driveway access, tripping hazards, railings, and other attractive nuisances that could pose a risk to tenants and their families.
Landlord involvement Do you still participate in the operation? Maybe you assist with planting, harvesting or handle managerial activities, such as purchasing or selling decisions. You might also need additional coverage for activities like borrowing a tractor to clear brush or participating in a local parade. Every situation is different, so discuss with your agent.
Environmental pollution Environmental liabilities, such as pesticide drift and Clean Water Act violations, require strong indemnification language and adequate policy limits in the lease.
Livestock nuisance Livestock can pose a risk to non-farm neighbors, leading to nuisance lawsuits. While state and local regulations may offer some protection, they are not foolproof and do not cover tenant negligence. Typically, landowners are the first target of those seeking relief.
Hunting activities The limited availability of public land for hunting poses a potential source of income, but also increases risk exposure. It is important to clearly define this exposure and ask questions to gain a better understanding of hunting activities, in order to determine the best liability insurance.
The USDA Farm Service Agency (FSA) manages various farm programs, including conservation, farm loans, disaster assistance, and crop insurance. As a non-farming owner, you don't need to understand every detail, but knowing what programs are available and how they can benefit you can help you develop a sound plan. While Nationwide doesn't provide crop insurance, many of our Farm Certified agents offer this service and counsel.
