The tricky part about insurance is that you can lie awake at night worrying that you'll lose everything if you don't have enough insurance, or you can insure your stable to the point it bankrupts you. Somewhere in between you have to find a balance that provides enough coverage to make you comfortable, while also leaving money in the bank.
"I tell my clients that their best protection is like a three-legged stool. Proper documentation and proper structure (LLC, DBA, etc.) are the first two legs, and the third leg is always insurance," said Ruth Beardsley, a Connecticut attorney specializing in equine law. "No matter how good the first two legs are, accidents happen."
Regardless of the size of the facility, Beardsley encourages boarding facilities of all sizes to purchase an insurance policy. "If you are a personal horse owner and rent out one stall in your backyard or offer free board in exchange for help at the farm, that is considered commercial activity and falls outside your homeowner's policy," she explained.
Chances are your stable is larger than the one client scenario mentioned above, making it even more critical that you have the proper insurance policies in place to protect your business.
Commercial General Liability (CGL) Policy
Commercial General Liability (CGL) policies are designed to cover a broad range of accidents. CGL policies only cover third-party, "non-farm" employee claims that may claim against the stable. "Lesson people, clients or people watching a show on your property are considered third-party," she explained.
In Connecticut where Beardsley is an attorney, there is not a state mandate outlining minimum coverage requirements. "I recommend at least a $1-$2 million policy, but that may vary on how many horses the client has on the property and the value of the horses" she said.
When purchasing a CGL policy, know that there are two types of policy limits. The first is a "per occurrence" limit and the second is an "aggregate" limit.
A per occurrence minimum is the maximum amount of money an insurance company will pay for each individual claim made. For example, if there are three students riding in a lesson, a horse spooks and all three riders are bucked off and injured, a $1-million per occurrence policy will pay out up to $1 million to cover the injuries of all three riders.
Conversely, an aggregate limit is the highest sum an insurance policy will pay out within a policy period, which is typically one year. If several claims are made throughout the year, each individual occurrence can be paid up to the per occurrence policy limit, but if the total of all the claims exceeds the policy aggregate limit, the insurance company will not cover any claims over the aggregate limit.
Care, Custody and Control
Clients who board at your facility are entrusting you with their horses' well-being. In the event a horse is injured or dies due to an accident or negligence, a care, custody and control policy covers the related expense. "If an employee forgets to fill a water trough and the horse colics, a care, custody and control policy covers the vet bills," Beardsley explained.
Policy premiums will depend on the number of horses in your care and the value of those horses. "A backyard barn will likely have a lower premium than a barn that cares for A-Circuit shows," she said.
Care, custody and control policies only cover client horses. Accident or injury to a barn-owned horse is not covered under these policies. "Mortality and major medical insurance is like life and health insurance for a horse, and those are available for barn-owned horses," she added.
Worker's Compensation
When employees are hurt on the job, worker's compensation insurance covers the claim. This insurance is mandatory for all businesses, although the minimum requirements can vary.
Think you don't have any employees? Think again. "A lot of stables like to characterize their workers as independent contractors," Beardsley noted, but, "the courts don't always agree.
Hiring independent contractors rather than employees reduces taxes and worker's compensation expenses a stable may have to pay, but in the event a working individual is hurt at the stable, the courts may side with the employee on who is responsible for medical expenses.
Two links on the IRS website can help you decide what category individuals working on your farm fall into. "The IRS has tests you can use to determine if the person really is an employee or an independent contractor," she said.
Visit www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3Fn or www.irs.gov/Businesses/Small-Businesses&-Self-Employed/Behavioral-Control for additional details.
Instructor or Independent Contractor Insurance
If instructors and employees are considered independent contractors, be aware that these individuals are not covered under the stable's liability insurance policy. "A signed release does not cover non-farm employees," Beardsley cautioned. "You may want the benefits of an independent contractor, but they are not receiving any protection from the farm insurance."
In a situation where a rider is injured during a lesson taught by a non-farm instructor, the claim could come back against the farm if the instructor does not have a policy of their own.
"There are plenty of policies in Connecticut that cover traveling instructors and cover instructors regardless of where they teach," she explained.
Other states likely have similar policies, and it may be in everyone's best interest for a stable to require independent contractors carry their own insurance policies.
Business Insurances
In addition to the policies described, commercial auto insurance, farm insurance, property insurance and flood insurance may be additional insurances to consider for your stable.
Often stable owners use a personal vehicle to haul clients to a show or clinic. "Personal auto coverage includes a disclaimer for commercial transportation," Beardsley said.
The disclaimer excludes sharing of expenses like gas or tolls. "If you're making money on a regular basis hauling client horses, you'll need commercial van or trailer insurance," she added.
Depending on the size of your stable, the business may also own several pieces of equipment critical to the day-to-day operations. Farm insurance policies can safeguard against breakdowns.
Property insurance and how that property is covered in the event of a disaster can also be complicated. Unless you have flood insurance, your insurance doesn't cover flooding. In the event of a tornado or other weather event that damages the facility, your insurance will cover repairs to the property and that's it. You won't just need a new building, it's could take months and during that time you'll have a loss of income. Check to see that your policy covers loss of income.
Managing Risk
Ultimately insurance boils down to risk management and the level of risk you are comfortable living with. If you're lying awake at night fretting about disasters that could happen, that might be a sign you need to revisit the policies you have.
Choosing appropriate policy limits is only one piece of the puzzle. It's essential you understanding each policy, the exclusions and limitations. "It's a good idea to have all your policies wrapped up with one carrier so that you have a better chance of exclusions matching up with what is covered to avoid any gaps," she suggested.
Resources are available to help you decide what type and what amount of coverage makes sense for your stable. Contact your local farm bureau, local equine extension agency or state horse council. Each of these organizations should be able to provide a list of insurance agencies that provide coverage specific to the equine industry.
"If you don't have the right type of insurance, it's like having none at all," Beardsley concluded.
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