Liability Insurance – Better Safe Than Sorry
What are the odds that a horse under your control will bite or kick a visitor? How likely is it that someone will fall from a horse when you are giving them a lesson? What about the chances of a horse under your control getting loose and causing a traffic accident? Usually the responses to these questions range from unlikely to slim. The real question, however, is whether you are willing to bet all of your assets and savings on it. Probably not.
Anyone involved with horses realizes the inherent dangers of dealing with a 1000 pound (or more) horse. The risk associated with the management of horses increases dramatically when someone chooses to operate on a commercial level. Now the responsibility includes the safety of your client and horse, as well as anyone your client brings along with them to the barn, show or event. And if the unthinkable injury occurs, you may be faced with a lawsuit that could end your business, take your personal assets and ruin your reputation.
This article will discuss the basics of liability insurance, who needs to procure equine liability insurance, specific types of policies, and dealing with your insurance agent and company in procuring and administering your liability policy.
The Liability Insurance Policy
Most horse people would agree that it is impossible to make a horse operation 100% safe and free from injuries. Certainly taking the right precautions and implementing a risk management program takes a significant step in the right direction. Even with the best planned programs and facilities, there is the risk of injury. The best way to protect yourself from liability from potential injury is to obtain proper liability insurance. In general, liability insurance pays for damages related to certain unintentional situations where a person is injured on your property, from your horse (or a horse under your control) or while under your supervision. By purchasing a liability insurance policy, you pay a premium which transfers your risk to the insurance company.
Liability insurance policies are available for all facets of horse operations. For example, whether you train horses, give lessons, board horses or give trail rides, you will find insurance companies that will insure you against potential claims and losses.
Will Personal or Homeowners Insurance Cover?
Many horse people feel their homeowners insurance policy will cover claims made related to their horses. As a general rule, this assumption is incorrect. Your homeowner’s insurance policy covers all liability related to non-business activities. This means that your homeowner’s insurance policy may cover all unintentional injuries caused by you or your horses – so long as your horse activities were personal and not for any business purpose.
If you derive any business from your horse activity, then your homeowner’s policy will likely not cover your losses. Various things can turn your horse operation into a business, such as renting horses for trail rides, giving riding lessons, boarding horses on your property, standing a breeding stallion, or even claiming your horse operation as a business for tax purposes. Even if your business is very small, most homeowner’s insurance carriers will deny coverage where the horse operation is deemed a business.
A common myth in the horse industry relates to an amateur’s insurance requirements. Most amateur riders think that, because of their amateur classification, helping a friend or giving advice to another rider will not constituted professional training. Therefore, they believe their homeowner’s insurance will suffice. As a general rule, that statement is correct. However, in order to properly determine the type of insurance the amateur needs, you should look at the entirety of your activities to determine if you operate your horse operation as a business.
Many insurance carriers understand the dangers associated with horses, and specifically exclude from coverage horse activities, especially when business related. When in doubt regarding your coverage, you should contact your insurance agent and inform them of your activities. The agent will alert you as to whether you have proper liability insurance coverage.
What the Liability Insurance Policy Provides
The liability insurance policy provides several things to equestrians. First and foremost, if someone suffers an injury as a result of being on your property, being around your horse (or a horse under your control) or when taking instructions from you, the insurance company will pay for the damages. The amount the insurance company will pay, however, is limited to the dollar limits of your insurance policy. Second, the insurance company will provide your legal defense to claims made. For example, if a rider falls and sustains a head injury when taking a lesson from an instructor, a lawsuit could follow. If properly insured, the instructor will hand the lawsuit over to the insurance company, who will appear on behalf of and defend the instructor in court. Needless to say, this can provide a valuable benefit, as defending such a case proves costly. Again, the defense will only be paid up to the policy limits. Finally, the liability insurance policy will provide the equestrian peace of mind that a single accident or injury will not put them out of business or deplete their personal assets.
Policy Limits and Deductibles
When procuring a liability insurance policy, the equestrian should consider the impact of policy limits and deductibles. These two issues can have tremendous impact down the road, and should receive serious thought.
The policy limit is the total amount that the insurance company will have to pay on your behalf in the event of an accident. For example, if you have a liability insurance policy with a policy limit of $500,000, then $500,000 represents the total amount that the insurance company will have to pay on your behalf from any single event. This includes the total amount that the insurance company expends on your behalf to defend your case. Any costs, expenses or damages in excess of $500,000 will remain the equestrian’s responsibility. Take for example a situation where your horse kicks a visitor, and a judge or jury decides that the visitor suffered damages due to your fault in the amount of $700,000. The insurance company will pay the first $500,000 of the damages, but the equestrian will remain responsible for the excess $200,000. This shows the importance of having proper levels (dollar amounts) of liability insurance coverage.
Deductibles are also important issues which require attention when procuring liability insurance. The deductible is the amount that the equestrian must pay before the liability insurer must start paying. For example, if the deductible on a liability insurance policy is $10,000, then the equestrian must pay the first $10,000 of liability before the insurance company begins to pay.
Equine Activity Liability Statutes
Most states now have statutes which help minimize the liability of equestrians, called equine activity liability statutes. While each state’s statute varies, they statutes general provide that equestrians should not suffer any liability for injuries related to the inherent risks of interacting with horses. These statutes provide tremendous assistance to the horse industry, as they help to reduce potential liability to equestrians.
Many people are of the understanding, however, that the equine activity liability statutes negate the need for liability insurance. This assumption is incorrect and could have serious consequences. While these statutes do indeed help reduce liability of equestrians, they clearly do no eliminate liability. Several reasons make it necessary to keep your liability insurance in place. First, the statutes are not zero-liability laws. They merely protect from the inherent risks of interacting with horses. They do not protect from a negligent act of the equestrian. Take for example a situation where an instructor over-mounts a rider, or uses a horse which requires a higher level of skill than the rider possesses. If the rider suffers injury from the instructor’s error, then there may be a valid claim against the instructor, where the statute does not protect the instructor. There are several holes in these statutes, which can still result in liability on the part of the equestrian.
Second, the equine activity liability statutes are relatively new, and do not have an established history. In addition, many of the statutes have vague language and are susceptible to various interpretations by the court. Third, the statutes do not necessarily prevent lawsuits. In theory, the laws should help prevent lawsuits because an injured parties possibility of recovery is reduced. This does not mean that an injured party cannot bring a lawsuit. If you are sued, your liability insurance will provide your defense (after you pay your deductible), which can prove costly.
While the equine activity liability statutes do not eliminate your need for liability insurance, it has helped. Many insurers have reduced their premiums for liability insurance for horse activities, as the statutes do indeed help the insurance companies defend claims.
Waivers of Liability
The issue of liability waivers fall in the same category as equine activity liability statutes. They help reduce liability, but certainly do not eliminate the need for liability insurance. State laws vary greatly when it comes to liability waivers. Some states will not allow a service provider to disclaim responsibility for negligence or other actions that caused injury. Other states take a more expansive view and allow people to create and enter into their own contracts – and generally recognize valid liability waivers.
The waivers help. First, they tend to deter some lawsuits. People sometimes see the waiver they signed and think that it would be useless to even bring a lawsuit. Second, and most important, the waiver proves that the participant was put on notice of the risks of interacting with horses. This helps with a defense called “assumption of the risk.” This defense basically states that the participant was made aware of the risks of participating in the activity, and with the knowledge of the risk, elected to continue with the activity. While this defense does not always prevent liability, it certainly may help.
If you do use waivers, which you should definitely consider doing, you should contact an attorney well versed in equine law to assist in drafting a release or waiver that comports with your state’s laws. There is no such thing as a good form waiver. As mentioned above, each state’s laws are different, and require specific language. Further, a good waiver will specifically address the dangers for your specific activities.
Types of Policies
Now that you have decided you need liability insurance, you need to ensure you have proper coverage. Your coverage will depend on the type of business you operate. The following are several types of policies available to the equestrian:
- Commercial Equine Liability. The commercial equine liability policy is a comprehensive insurance specifically designed for equestrians. The equine industry consists of many unique liability exposures that many standard business policies exclude or limit. This policy will cover claims made when someone is injured on your property, by a horse under your control or when under your instruction. The commercial policy will vary in its coverage and cost, depending on the types of activities conducted in your business.
- Care Custody & Control. This policy proves essential for the equestrian who trains or boards horses. Anyone who takes on responsibility for another’s horse should have this type of coverage. This policy pays for all amounts you are legally obligated to pay (up to your policy limits) for injury, theft or death to horses under your care, custody or control. This type of policy generally does not provide coverage for any horses owned by the person taking out the policy. Like other policies, the insurance company will also provide your defense if you are sued.
The cost of this policy will be directly related to the number of horses covered and the desired coverage amount. Many care, custody and control policies also include coverage for hauling other people’s horses. This is a very important aspect of this type of insurance, as it will negate the need of obtaining insurance for hauling horses. Because the care, custody and control policies vary greatly, you should carefully examine your policy to ensure you have proper coverage.
- Umbrella Policies. Umbrella policies are often misunderstood. An umbrella policy increases the policy limits on some or all of your existing insurance policies. The umbrella policy does not cover any additional types of hazards. For example, an umbrella policy cannot and will not convert a homeowner’s policy into a commercial policy. Instead, for example, an umbrella policy can increase your liability insurance from $250,000 to $500,000. This policy will give excess protection, on top of the existing protection. The umbrella policy will help to protect you from the catastrophic loss, which should be a concern in today’s litigious society.
- Horse Trainer/Instructor Liability. Horse trainer liability insurance provides personal liability protection for trainers when bodily injury or property damages occurs as a result of a horse in training. Instructor liability insurance provides protection for riding instructors who operate as independent contractors. This would include those who travel to different barns give riding instruction. Instructor liability insurance would most likely not be necessary if you have the horse trainer liability insurance.
- Other Types of Policies. There may be additional or alternative policies which may better suit your particular needs. As will be discussed in more detail below, you should consult a qualified equine insurance agent to discuss the best policies for your operation.
Your Insurance Company
Your insurance policy is only as good as the company that insures you. Thus, you should know the company that writes your insurance policy. This is not always the insurance agency from which you purchase your policies. Before using a company, you should research the quality of the company. This can be done by researching the company on the internet, contacting certain insurance agencies or consulting with industry specialists to determine which company will best meet your needs.
Your Insurance Agent
Your insurance agent provides an important service to your horse operation or business. It is important that you trust your agent, and that you understand the role that your agent will be taking in this transaction. You must keep in mind that the standard insurance transaction creates a three-party relationship between the insurance company, the agent and yourself. The agent’s role is that of an intermediary, but carries with it several agency duties. The agent has many obligations, including:
! Determining the client’s needs and requirements
! Providing appropriate options of insurance and advise
! Understanding and explaining the client’s risks
! Update the client on coverage and lapses
! Servicing the client on an on-going basis
It is important to understand, however, that the insurance agent can only work with the information that you provide them. Thus, it is essential that you provide a full picture of the types of activities in which you participate. Failure to fully inform the agent of your activities will result in inadequate or insufficient coverage. Further, if an insurance company discovers that you have misrepresented to them the level of risk involved in your operations, you may lose all coverage and have claims denied.
Read Your Policy
Once you and your agent have met, and you have obtained your liability insurance policy, you need to read and understand your policy. Legally, you have an obligation to read and understand the coverage of your insurance policies. The hard part is that the policies are long and complicated. Fortunately, most companies now write their policies in “Plain English”, or at least plainer English. While it may be a difficult, you need to take the time to review your policies to ensure they cover what you intended to have covered.
Many in the horse industry will not read their policy – they will file it away, hoping never need to see it again. The problem arises when the policy is needed, and it does not cover what was intended. In order to protect against having a policy which does not cover what you intend, you need to understand your policy. At the very least, if you cannot force yourself to read the policy, you should discuss your concerns, needs and expectations with your insurance agent. Discussing this after an accident can often prove costly.
When There Is A Problem – Notice Requirements
All insurance companies require the insured party to give timely notice of all significant issues regarding the insurance policy. Anytime you are aware of a potential injury or claim against the insurance policy, you need to immediately notify your insurance company. Failure to give timely notice of injury or a potential claim presents the largest area of controversy with insurance companies. Some studies show that improper notice as the largest single reason that insurance companies refuse to pay on insurance policies.
- Why The Insurance Company Requires Notice. Insurance companies require prompt notice because it has an interest in the investigation and handling of the injury. Insurance companies will often monitor investigations of accidents, and sometimes conduct their own investigation. For example, if a rider suffers injury when falling from a horse during a riding lesson, there may be a need to investigate this accident to determine the fault of the accident. This investigation may need immediately attention, and could have significant impact on a future claim by the injured party. If the insured fails to give the insurance company proper notice, then the insurance company has not been given the opportunity to investigate and properly prepare to defend claims made by the injured rider.
- What Notice Is Required. Each policy will have different requirements, but it is safe to say that you should notify the insurance company immediately for all matters which may bring your insurance policy into play. You should also ensure that you contact the proper person with the insurance company. Most insurance companies now have lines which are open 24 hours a day to take calls of injuries, which means there is no reason to delay notification of the insurance company.
- Judgment Calls. The insurance policy will clearly identify when the insured must contact the insurance company regarding a potential claim. Sometimes a minor occurrence takes place, and the insured must determine if they should notify the insurance company. This decision should be based on a variety of factors. When in doubt, however, contact your insurance company.
Undoubtedly, interacting with horses involves certain inherent dangers. No matter how hard you try, there is always a chance that someone will suffer injury. In order to protect yourself from liability, you should procure proper liability insurance, which will protect you from the large liability, assist you in defending any claims, and give you peace of mind that you will not have to forfeit your assets for the rare injury. All horse owners should evaluate their situation and obtain proper liability insurance for proper protection. Complete understanding of your policy can only be obtained by reviewing your policy. In order to benefit from your insurance policy, you must follow all of the requirements of the policy. Most importantly, you must give proper notification of any potential claim under the policy.
This article provides general coverage of its subject area. It is provided free, with the understanding that the author, publisher and/or publication does not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.
© August, 2001. All rights reserved. This article may not be reprinted nor reproduced in any manner without prior written permission by the author.