Common diversification insurance claims and how to avoid them

Farm insurance covers the policyholder only for farming activities.

Cover for alternative enterprises needs careful thought, in terms of both the liability and the potential cost of property damage and its consequences.

Too commonly, insurance for farm diversifications, or the detail of it, is an afterthought, says Philip Richmond, farm business underwriter at NFU Mutual.

“Talk to your insurer at the planning stage, it could save money, reduce risk and ensure that your new venture can be adequately protected,” he advises.

See also: Vending option secures added value farmgate sales

Slips, trips and falls

With many businesses involving the public, claims for slips, trips and falls are among the most common, often resulting from uneven or wet surfaces in car parks and buildings.

“Whatever the reason for people being on the farm, as holiday cottage guests, attending a wedding or other event or attraction, these people are in your care,” says Philip.

That care covers a whole raft of health and safety measures, including water quality, electrical safety and cleaning of accommodation and food preparation, to name but a few.

“For instance, a trip over a pothole could cause an injury, especially to an elderly or infirm person, which in turn could lead to medical and/or care costs.”

Even where insurers have been informed of a new activity and cover has been put in place, it’s important to review and update this.

Underinsurance can be a significant issue, says Philip.

“This occurs when the sum insured, whether for property (buildings, equipment, stock) or business interruption (covering loss of income) does not reflect the actual value.

“In the event of a claim, the customer may not receive a full payout if underinsured, leaving them to cover the shortfall themselves.

“For example, a farm shop that has recently started trading might grow rapidly, leaving stock and business interruption cover sums insured inadequately covered.

“While insurers often apply indexation and uplift provisions, this may not be enough, and it remains the customer’s responsibility to ensure sums insured are adequate.

“If in doubt, a quick call to their insurers is the best course of action.”

Commercial lets

Lease terms for commercial lets such as storage, workshops and offices might include maintenance and upkeep obligations on the landlord and/or the tenant.

“You need to be clear on the terms and who is responsible for what,” advises Philip.

Let buildings should be regularly inspected for signs of damage and to ensure that tenants are fulfilling their obligations.

This includes maintenance, testing of their equipment to keep it in good working order or clearing away waste so that it does not cause a fire or other risk.

It is generally the responsibility of the landlord to insure the building and any of their equipment included in a lease, with the tenant insuring their own equipment and stocks.

The lease should state that the tenant must comply with the terms of the landlord’s insurance, advises Rory Gibson, regional director for Scotland at broker Howden.  

He adds that these terms should be made clear

Very occasionally a landlord may opt out of their ‘normal’ insurance obligations and pass these to the tenant.

In such cases, the landlord still needs evidence that the tenant has suitable cover and is keeping up with any testing of equipment or maintenance required, he says.

Change of use by a tenant is fairly common and can alter the risk, although landlords are not always informed of such changes.

Activities such as welding, paint spraying, cooking, and especially deep fat frying, all potentially increase the risk compared with the activities permitted by the original lease.

“So often we see informal arrangements which might refer only briefly to insurance.

“It’s all very well contracting out, but you still need to check that the tenant is doing what they have undertaken to do regarding insurance,” says Rory.

Food safety

Strict health and safety protocols when preparing or serving food is paramount, says Philip.

“It’s so much more than gaining certification and passing inspections, it’s important that staff see this as a culture, and that goes for holiday accommodation too, in terms of the cleaning and presentation.”

Good staff training in allergies and intolerances is also key.

Food related illness lead not only to medical costs but also claims for loss of earnings.

Damage to third party property

Claims by visitors for damage to cars arise because of potholes, stones or debris in farm drives, yards or car parks.

Claims have also been attempted for damage by traffic control measures such as ‘crocodile’ teeth designed to restrict access.

Holiday ventures

When offering activities or services associated with holidays, farm visits or attractions, think carefully about how these are provided and the protocols for their safety, say brokers and insurers.

For example, hot tub use has led to claims, including for skin infections.

As with all enterprises involving the public, careful thought should be given to how access should be restricted.

This is especially the case regarding children and working areas, advises Rory.

Escape of water is one of the most common causes of claims in holiday accommodation, which is often unoccupied in winter.

This calls for good maintenance, insulation, and protocols for switching off water and/or draining systems in winter.

Fitness and sports

Padel courts are becoming popular and here a good surface is all-important.

People are not always as fit as they might be, points out Rory, and this warning applies to other physical activities offered on farm.

Events

Weddings can be a minefield of risk, so clear communication is needed about who is responsible and liable for what.

“For example, if you (or a wedding planner) are employing a third-party caterer to provide the food and drink, you still have a duty of care as the owner (or occupier) of the property to reduce the risk of slips, trips and falls,” says Rory.

“If they are using your kitchen, all the equipment needs to be properly maintained, serviced and in good working order, just as it should be if you or your staff are operating the kitchen.”

At broker Lycetts, senior claims handler Lisa Suggett points out that, in many cases, third parties will be erecting marquees and providing other services.

These can still lead to liabilities for the landowner or occupier.

Closed circuit TV recordings can help establish the facts in some claims, along with witness accounts, says Lisa.

Renewable energy

Green energy generation generally needs a separate policy, says Lisa.

The advice across the board from insurers and brokers is that siting of renewable energy equipment, especially biomass boilers, batteries and inverters, is important.

These should be away from other buildings.

“From our experience onshore wind has seen challenges with mechanical breakdown in the past,” says Philip.

“Sometimes those losses are picked up in the property class [of insurance] but there are consequential losses too, such as the loss of income from the power generation, so this aspect needs to be considered when arranging cover.”

Anaerobic digestion plants should not be sited close to working farmyards or other buildings, as this can lead to higher excesses or premiums, or even refusal of cover.

Security at renewable energy sites can also be a challenge, with copper thefts relatively common, says Rory.

This makes the sites redundant until costly repairs are undertaken and there is also loss of income to consider.

Damage to cables by sheep, and occasionally cattle, rubbing on installations also brings claims.

For roof mounted solar arrays, a professional structural survey is essential.

“If an array has not been installed by an accredited operator, then it simply won’t be insurable,” warns Rory.

Shooting and fishing

While injury liability claims from the actual shooting are fairly rare, those operating shoots need to be careful that transport and other infrastructure is safe and suitable.

Injury claims have resulted from accidents getting on and off trailers and other transport, and poor maintenance of bridges and paths.

Poor pontoon maintenance at carp ponds can also lead to claims, says Rory.

Farm dogs

Claims as a result of injury caused by farm dogs jumping up at customers can be very expensive, sometimes involving rest of life care.

Farm contracting

Some insurers include some elements of cover as standard for farmers who help neighbours out without charging a fee, and some may cover a small amount of contracting activities.

However, it is always best to review commercial and motor policies to make sure the appropriate cover is in place for contracting or other diversification activities.