Liability Insurance: Are You Set’

Years ago a family in New Jersey had a gelding who loved to scrape his teeth — on anything. One morning the horse and his pal escaped their field and ran up the road toward a development. The family tracked the horses following “teeth marks” on their tractor, the hood of their car — and the hood of a neighbor’s car.

While this is cute, the possibility for a lawsuit ran as rampant as those horses up the road. Not only did the gelding damage a car, but one of them could have been hit by a car. That car owner may have then sued. Horses are inherently dangerous, and when you add in their unpredictable nature, a lawsuit is a real possibility. If you think your homeowner’s will cover you, think again and read on.

Types Of Insurance
Most people put themselves into the hands of an insurance agent and assume they are adequately covered. But it’s easy to be underinsured, and that’s not what you want to discover when you’re ready to file a claim.

There are three types of insurance horseowners should understand:

1. Liability insurance (commercial and/or personal)
2. Care, Custody and Control insurance
3. Farm/country estate insurance.

• Commercial liability comes into play if you board, teach, train, breed or do any other horse activities for profit. You’re covered if you are sued by a third party who is injured or whose property is damaged.

• Personal liability coverage protects an individual in case their horse causes bodily injury or property damage (e.g.: biting, kicking or if your horse runs their teeth over the hood of your neighbor’s car). This coverage is available if you have your horses on your own property and is also available if you board your horse elsewhere.

• Care, Custody and Control coverage is what you need if you board, train or breed horses for others. If one of those horses is injured or dies while in your “care, custody or control” — and you are found negligent — this policy will provide for the medical care or replacement cost of the horse up to the policy limits. This is the coverage you need if, for example, you are bringing someone’s horse to a show and you get into an accident and the horse needs medical attention. Standard general liability insurance excludes coverage for personal property (such as a horse) in your care, custody or control. This coverage fills that void. Take note that this coverage does not apply to horses you own or lease.

• Farm and Estate Coverages are essentially homeowner’s policies, except that they provide coverage for your residential dwelling and personal property, as well as farm structures, farm property and tack. Some companies will offer a policy with broad coverage that includes the farm or estate insurance as well as commercial liability and care, custody and control. In addition to “typical” equine policies, there is also coverage for things like:

• Pony rides
• Clinics
• Riding clubs
• Training on and off premises
• Horse shows
• Tack and clothing sales/food concessions at shows
• Horseshoeing
• Hay or sleighrides
• Carriage rides
• Polo clubs
• Individual polo players.

Keep in mind that not all companies will insure all risks, but you can find the right insurance company for your situation.

Choosing Insurance
It may sound silly, but one of the most important things is to be comfortable with your agent. That person is an important part of the process and should understand what you’re involved in. If your agent is involved in horse sports himself, explaining what you do will be much easier and he will be more likely to spot oversights.

Equine insurance agents usually advertise in equine publications. If you find someone over state lines, don’t let that stop you. If you’re comfortable handling everything over the phone, and they are licensed in your state, it’s OK.

Ask the agent what companies he or she represents. You want a company with a strong financial background as well as the strong equine experience and expertise necessary to meet your needs in the horse industry. As we pointed out in our June 1999 equine mortality article, all insurance companies are rated by A.M. Best, which helps you determine the strength of the company.

The A.M. Best Company scale of financial strength and ability to meet obligations to policyholders is: A++ and A+ (Superior); A and A-(Excellent); B++ and B+ (Very Good);B and B- (Adequate); C++ and C+ (Fair); C and C- (Marginal); D (Very Vulnerable); E (Under State Supervision); and F (In Liquidation). We recommend sticking with a company rated A or higher.

Great American, Markel, American Bankers and United National are respected, proven major equine insurance companies, and we would look for agents that represent at least one of these companies. They have claims departments that are devoted to people who understand horses and horse operations, which is what you want.

Finally, keep in mind that a lower price is not necessarily better. It may simply reflect inferior coverage. If you decide to compare policies, be sure they have identical coverage and that both companies are financially sound and reputable before comparing price. (For this reason, we are not comparing rates for premiums. There are too many variables in situations, state laws, land tax assessments and coverages for a simple rate guide to be of real value.)

Policy Ins and Outs
Julie Fershtman, an esteemed equine law practitioner and author of Equine Law & Horse Sense and More Equine Law & Horse Sense, advises, “If the agent says that your horse activity is covered, ask him to point out the language in the policy that provides that coverage. If he can’t, go elsewhere for insurance coverage.”

When discussing your coverage options be honest and comprehensive in telling your agent what you are involved in and what you may be doing in the near future. Know and READ YOUR POLICY. If you don’t understand it, ask your agent. Find out exactly what types of claims will and will not be covered.

The most basic question is how much insurance you need. Keep in mind that if someone brings a lawsuit against you, it is likely to be four to five times your net worth. These days, a $1 million liability insurance policy should be considered a minimum. Keep in mind as your assets grow, so should your coverage.

Insurance Is Too Expensive
A typical, troublesome attitude about liability insurance involves horsemen like “Patty Brown,” who makes $50 a week giving a lesson or two in her backyard. She likes the extra cash and assumes her homeowner’s policy covers her. She figures it’s not her “real” income and the venture is not worth any additional premiums. After all, she’s only giving one or two lessons a week. But what if Patty’s dog gets loose and spooks a horse, causing her student to fall off and break an arm, putting the student out of work for a month and resulting in some loss of use in his arm’

“Numerous activities in the horse industry, when done in exchange for money or something of value, can qualify as ‘business pursuits,’ such as riding lessons, horse boarding, training, or breeding,” explains Fershtman. “A homeowner’s insurance policy might very well protect you if a social visitor slipped and fell on your property or near your barn. However, the standard homeowner’s insurance policy, by its terms, almost always excludes coverage if an injury or loss occurs in connection with a ‘business pursuit.’ For these activities, it is important to buy commercial general equine liability insurance or insurance that directly covers your business activities.”

If you’re still not convinced, we looked at the “accidents” that happened to one person over the course of several years. Although none res ulted in a lawsuit, a few could have, especially in today’s litigation-frenzied world. In this person’s own words:

1. A childhood friend was out in the barn cleaning my horse’s stall when she got kicked in the head. She went to the hospital and couldn’t ride for months.

2. A friend was doing me a favor by grooming at a show. He was painting my mare’s back hoof when a fly caused her to lift her leg, giving him a nasty black-and-blue eye.

3. My friend and I went swimming with the horses in the pond. Coming back, wet, I accidentally placed both hands on top of the electric fence.

4. A mare found the only strand of rogue barbed wire in a big field, necessitating surgery.

5. A truck pulling a two-horse trailer suddenly caught fire coming home from a horse show one January night. On a busy two-lane road, we had to unload and walk the gelding up the side of the highway as the truck burned to the ground.

Talk with your friends. You’ll be surprised — or maybe you won’t! — at the number of incidents that could have ended up in a lawsuit.

Protecting Yourself
Aside from posting “danger” notices and creating waivers, one of the best ways to protect yourself from a lawsuit is to minimize risk around your stable and grounds.

Establish a safety regimen by inspecting tack regularly and making sure employees and boarders follow safety rules. Have an attorney familiar with horse sports review your horse business to point out potential problem areas. Also consult an attorney when drafting waivers and contracts so there are no surprises if a problem should arise.

One way to limit your commercial liability is to consider incorporating. There are several forms of ownership, but a corporation has limited liability, which protects your personal assets. Establishing and maintaining a corporation, just like having insurance, will not prevent liability, but the corporation could save your home, savings and property if a lawsuit is brought against you.

Unfortunately, a corporation also requires more in-depth bookkeeping and is subject to higher corporate income taxes. Decide which is better for you, higher premiums paid to the insurance company to protect your personal assets or higher income taxes and the added burden of intense bookkeeping.

Bottom Line
A horse owner is liable for his horse, despite the fact that he has only limited control over most situations. You may have accepted the inherent risks associated with horse sports, but you can’t assume everyone who comes near your horse has.

If you do anything for money that directly involves people and your horses, you need commercial liability coverage.

If you simply own horses for personal use — even if you board the horse — you need to be absolutely certain that your homeowner’s liability insurance will cover a friend if he is injured by your horse while walking through your field. It very well may not.

If you board horses, you should make certain your boarders have their own coverage through homeowners or renters policies or a separate policy, if necessary.

If you care for friend’s horses, bring them to shows or do other activities where someone else’s horses fall under your “care, custody or control,” you need additional coverage.

For the best protection, we recommend buying your insurance through an agent — and an A.M. Best A-rated company — experienced in horses and horse sports.

Also With This Article
Click here to view “Read Your Equine Liability Law Carefully.”
Click here to view “Case History.”
Click here to view “Recording Your Assets.”
Click here to view “Law Cases.”

Contacts: Markel Insurance Company 800/842-5017; Great American 513/369-5000; American Bankers Insurance Company 800/582-0248; United National (Equine Insurance Specialists) 800/723-9414; A.M. Best Company 800/424-BEST; Julie Fershtman 248/644-8645; Horse & The Law Publishing (for the books Equine Law & Horse Sense and More Equine Law & Horse Sense ) 800/662-2210.