February 20, 2012
What to Know About Hobby Farm Insurance
The Green family owns a small farm. It’s not their primary source of income, but it is a lifestyle choice, and their hobby farm is just that – a hobby. The Green family grows fruits and vegetables as their mainstay, but is also responsible for a smaller number of cows, horses, chickens and goats. They also have a few buildings, vehicles and equipment on their 40 acres of property.
Years pass, and the Green’s hobby farm is thriving. They’re selling surplus organic produce at the local farmer’s market and through a Community Supported Agriculture (CSA) cooperative.
The Greens’ insurance agent has covered their home and property with a traditional homeowners policy, which may cover limited hobby activities. Yet some insurers maintain that once production and product sales occur, a farm policy is necessary. Significant loss of equipment, structures, products or livestock could devastate their investment if the Greens are not adequately covered.
Insurance for Hobby Farmers
Hobby farms account for a 12 percent rise in rural county populations since 1990, and they account for half of all farms as of 2007, says the U.S. Department of Agriculture.
As hobby farming grows, it is important to understand that typical homeowners insurance is not adequate because of the standard exclusion for “business/farming activities.”
For instance, larger animals such as horses and cows usually are excluded from a standard homeowners policy, and the farming can potentially be excluded as a “business pursuit.” The exclusion for business and farming activities effectively removes liability and property coverage from all activities deemed a business or farming.
It is possible that the policy can be broadened by attaching an incidental farming personal liability endorsement (e.g. ISO HO 24 72). Such an endorsement may be useful for low-exposure farm activity, where the farming is geared toward personal consumption. While it broadens liability coverage, the endorsement requires details about all farming activities. Omit one, and there may not be any coverage for the omitted activity.
The homeowners policy also may be modified by adding a farmers personal liability endorsement (e.g. ISO HO 24 73). This endorsement would be appropriate for a hobby farm because it is geared toward families or individuals who are clearly operating a small, or true, hobby farm. Yet descriptions of all farming activities need to be declared on the form with the same consequences as found by using ISO HO 24 72.
A good example of how a gap in coverage could occur
would be the failure to indicate the sales of eggs at the local farmers market. If this activity was not specified, coverage may be negated for a food poisoning claim arising out of this activity.
When it comes to animals, a traditional homeowners policy may not protect the hobby farm owner. Some carriers will allow a limited number of personal use animals such as horses, cows and goats. However, they will typically exclude any exposure where fees are collected and the animal is a business proposition.
Assume the Greens are boarding a small number of horses. If one of the boarded horses escapes and is hit by a car there may be no coverage. Boarding horses can potentially be considered an excluded business pursuit.
The Greens Cultivate Peace of Mind
Upon learning this, the Greens develop a clear statement of what they produce, how much and what is sold, so their insurance agent can determine whether their homeowners policy provides adequate coverage.
They learn that the ISO farmowners policy provides liability and property coverages, and makes no distinction between hobby and regular farms. The farmowners policy is a blend of personal and business coverages.
Farms traditionally have been considered the place where crops and animals are raised and sold, with the farmer generating income from the farm. Because the Green family lives on the land, they need coverage for their dwelling and personal liability exposures, as well as for commercial farming.
The policy also can provide coverage for mechanical breakdown, ordinance of law for dwellings and farm buildings, business interruption and coverages for livestock.
The best approach is to treat the Greens’ farm as a typical farm by securing a farm package that covers liability, property and other miscellaneous coverages as needed.
Families who want to keep up with the Greens should get educated on the real exposures they face when they leap from homeowner to farmer – even if it is a hobby.
Hobby farm owners should keep their agents informed as to what they are doing. It’s also a good idea for agents to evaluate what hobby farm owners are doing and intend to do in the future, because it may have a big bearing on their insurance needs and financial security.
With the increasing popularity of hobby farms and locally grown organic food, the need for proper insurance protection is growing. The farmowners policy can be a great insurance solution.
Hrabovsky is agribusiness manager for Acadia Insurance. Phone: 866-497-4697 ext. 2964. Website: www.acadiainsurance.com.