How farmers can avoid insurance liability disputes and claims

Farmers wanting to avoid potential disputes over liability or being hit by a claim need to make sure they forensically think through the implications of all their activities.

This applies particularly where they are working with others through formal and informal agreements, according to legal advisers.

“Insurance is one of the tools for managing the risks you carry, whether because you own or have responsibility for something – such as land/livestock – or whether it is under the terms of an agreement with a third party,” says Julie Robinson, head of agriculture at Roythornes solicitors.

“A key area for farmers to look at in all their lettings, supply contracts and joint ventures is where the risk for particular events lies and who, if anyone, is responsible for insuring against that risk.”

Joint ventures

Ms Robinson advises that it is vital to be clear about what risks you are carrying under any agreement with a third party, whether that is through lettings, a joint venture, contracting agreements or contracts for the supply of goods or services.

See also: Business Clinic: readers’ legal, tax and management questions answered by FW’s expert panel

This process will involve checking what insurance cover is available to cover those risks and making sure any agreements spell out:

  • Which party must insure for what
  • Up to what levels
  • When claims should be made
  • How insurance monies should be applied
  • The duties of the parties to provide details of the policy to each other.

For example, if the contractor in a contract- farming agreement stores grain on behalf of the farmer, the farmer should establish that the contractor has insurance cover for third-party crops and not just their own.

The contractor needs to make their insurer aware that they are storing someone else’s crop and that this is covered under the policy.

“As a farmer, I would want to see evidence that the contractor has insurance for their store, and an agreement that they would pay out a proportionate amount of insurance monies to me if the crop was destroyed for some reason,” says Ms Robinson.

“I would also look to specify when that risk passes to the contractor – for example, at the point the crop enters the trailer to leave the farm.”

Most contract agreements will state that the contractor is liable to comply with cross-compliance rules and maintain environmental scheme features on the farm.

This means that in the event that a contractor destroys a field margin which then leads to a penalty for the farmer, the contractor would be liable.

Insurance products are available to cover contractors who breach cross-compliance rules on third-party land, if they want to cover this risk.

Machinery

If a joint venture involves machinery sharing – for example, where two parties co-own a combine harvester or forager – the machine should be insured in the names of both joint owners (or with the interest of the other owner noted on the policy).

If not, the person who is not named becomes exposed. The payout would go to the farmer who has insured the machine.

More generally, where a farmer is using machinery to carry out work for third parties, or lends machines to their neighbours, they should always give the full facts to their insurer, so that they know they are adequately covered for off-farm use.

Underinsurance risks

Taking on additional fieldwork without notifying your insurer can mean that you fall into the trap of being underinsured.

Standard cover may only include a machine’s use up to a particular number of hours a year.

Similarly, farmers need to consider if they have the appropriate level of environmental liability insurance if they increase livestock numbers, as upping stock numbers will increase the risk of an environmental incident.

Livestock and horses

If keeping stock for someone else – perhaps through a bed-and-breakfast-type arrangement – it is important to establish who is insuring them, for what and to specify at what point the risk transfers.

Ask to see the insurance of anyone who keeps a horse in one of your fields, to check they have cover should the horse escape and cause an accident.

Informal agreements

This is an area that can trip people up, warns Ms Robinson. An example would be if a farmer no longer needs the use of their cold store and agrees to let their neighbour use it instead to store their crops.

The farmer who is letting the cold store probably has general farm insurance that offers cover for losses arising from an interruption in electricity supply.

However, this is likely to be on a loss-of-profit basis and, in the event of the power supply failing and crops getting damaged, there may be a problem, as it will not be the store owner who has lost the profit on the crops.

In this instance, depending on the wording of the agreement, the owner of the store may still be liable for the losses, but will find themselves uninsured for them.

Alternatively, the neighbour may find that they have no recourse against the owner of the building and no insurance cover for the crop damage.

This problem is unlikely to arise with a more formal letting agreement, as this type of scenario should have been considered in drawing up the contract.

Know your cover

Be aware of any conditions attached to particular cover.

For example, breakdown cover for machinery will usually stipulate that the vehicles must be appropriately maintained, and cover for office lets will generally specify that the statutory electrical installation checks must have taken place for fire cover to be available.

If there is an incident, make sure you report it/take action as required by the timelines and other conditions of your policy.

Advisers

Any advisers to farm businesses – such as an agronomist or consultant – should have professional indemnity insurance to cover them if they make a mistake.

Farmers have the right to ask to see evidence of this. “Most farmers won’t do that. But they can and they should,” says Ms Robinson.

Manage risk

Finally, insurance cover may not always be available or may be prohibitively expensive. In those instances, be aware of and take action to manage or account for risk where you have uninsured exposure.

Examples might include consequential losses following a disease outbreak or lack of demand for a product or service due to official pandemic restrictions.

People with diversifications will inevitably be looking closely at pandemic cover in light of Covid-19, but it will be important to look at the precise triggers for cover.

For example, there is a difference between a business being forced to close because people aren’t allowed to travel to it and a business being required to close by order of the government.

Legal expenses cover

One of the first questions a legal adviser will ask in the event of a dispute is whether the farmer has legal expenses insurance as part of their cover.

Whether to take out cover will be a commercial decision for a farming business, but if legal expenses insurance is in place a number of issues can arise, according to Liz Power, head of dispute resolution at Nigel Davis Solicitors.

“These include the fact that insurers often try to insist that a client uses the insurer’s solicitors. But they do not necessarily have the specialist agricultural experience required. A client is, in fact, entitled to choose their own solicitor, but insurers often do not make this clear.”

Ms Power said farmers should be aware that some insurance policies only reimburse a client’s legal fees at the end of any dispute, which means they may need to fund payments to their solicitors in the interim.

“This can have a serious effect on a client’s cashflow during a long-running or complex dispute.”

However, her firm has successfully recovered legal costs for its clients from their insurers in relation to many different areas of law, including agricultural tenancy issues, proprietary estoppel claims, rights of way, boundaries, claims for adverse possession, title discrepancies, and regulatory, planning and criminal issues.

Farmers should also be aware of the potential limitations of legal insurance if there is a dispute connected with the dissolution of a high-value farming partnership and/or retirements.

“Although the partnership is insured and may have legal expenses insurance, because there is a dispute between the different partners, insurers may refuse cover for one or more partners against the other or others.

“However, sometimes insurers can, in that situation, be persuaded to pay for an independent mediator to enable the parties to see if they can resolve their issues without recourse to the courts.”

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