Agribusiness: Liability Exposures on Leased Farms and Ranches

Farm insurance is critical for farmers and ranchers who lease the land they work on. Leasing agricultural land is common, but it doesn’t relieve you of liability exposures like personal injury or property damage.

Liability gaps can occur when you rent land for things like:

Hunting
Vegetable crops
Fruit crops
Grain crops
Livestock
Livestock grazing
Energy (like wind and solar farms)
Mining and extraction (like oil and gas)
Events

You’ll need to insure the land, people and machines required for your farm or ranch. Insurance protects landowners and tenants from catastrophes that could bankrupt an operation.

Learn more about overlooked risks and ways to close the liability gaps.

Understand your lease agreement

Make sure your lease establishes who is responsible for what. Things to look for include structure maintenance, extreme weather and injuries occurring on the property.

Some common lease agreements are listed below.

Share rent leases are where the landowner and the farmer leasing the land share the expenses and income generated from the property. It’s a very hands-on relationship between the farmer and landowner. These agreements focus on how to split crop responsibilities and crop yields or profits. The landowner and tenant farmer invest equally in the land’s productivity, including the risks that come with it. Remember to identify who will provide insurance for these risks.

Cash rent leases are where farmer tenants pay a fixed rent regardless of crop yield or price. It ensures a fixed income for the landowner, but it can be risky for the tenant. This is especially true in times of low harvests or commodity prices. Variants on cash rent leases include:

Flat rate leases: These can be beneficial when land fertility and crop price variance are low.
Flexible rates: These can be beneficial when land fertility or market conditions are unfamiliar. They provide a safety net for a bad harvest.

Custom farming leases are where a landowner pays a custom operator to perform all or some farming operations. The landowner keeps all the crop yield and bears the selling risks. Farmer-operators are guaranteed a fixed payment for their work, but don’t benefit from high yields or market prices. Variations on custom farming leases include:

Complete custom leases: This is where the farmer-operator does all the work, such as planting, pest management and harvesting.
Partial custom leases: This is where the farmer-operator does specific tasks indicated in the lease agreement. The landowner handles the rest.

Always specify the insurance expectations in your lease, mainly who is responsible for what insurance and how much.

Oral agricultural leases can be valid under certain conditions, although written leases are preferable since they provide a clear record of your terms. Some states require contracts to be in writing, including leases lasting longer than a year. Others allow oral agricultural leases of less than a year. Termination of a lease can occur naturally at the end of the term, upon the parties’ agreement, or upon breach as specified in the lease terms.

Without proof of a written lease agreement, you may be unable to secure adequate insurance.

Risk exposures and insurance solutions for leased farming operations

You could be liable for injuries or damage during your land lease term, whether to employees, customers, visitors or trespassers. Each state has different liability laws. Familiarize yourself with your state’s legislation. Your lawyer can help you. Visit the U.S. Department of Agriculture’s (USDA’s) How to Start a Farm: Beginning Farmers and Ranchers to begin your research. You’ll need insurance that satisfies your state laws.

Here are some common types of insurance to consider:

Farm insurance

Farm insurance protects you against potential liabilities during your daily agricultural operations. You could be responsible for damage to existing outbuildings, structures or equipment. This type of insurance covers legal fees and damage payouts when you are found liable for personal injuries or property damage to others. It includes coverage for:

Injury to others: This helps if a visitor trips over a piece of equipment and injures themself.
Property damage you cause: If you accidentally damage the landowner’s barn while housing your machinery, this can help you recoup the costs to repair it.
Legal defense and judgments: This covers costs associated with your legal defense, including court fees and settlement charges.

You can also add protection across other risk areas, like equipment breakdowns, spoilage, product liability, farm operation interruptions and lost revenue.

Farm vehicle insurance

Farm vehicle insurance covers different vehicles used on the farm. Examples include tractors, combines, ATVs, sprayers, seeders, trailers and other farm implements you use to work on the land.

Crop insurance

Crop insurance covers crop damage caused by hail, droughts, floods and other natural disasters. You can use a combination of federal and private crop insurance to protect your operations from inherent risks.

Workers’ compensation insurance

Workers’ compensation helps pay for medical expenses and lost wages if an employee gets injured or sick at work. Workers’ compensation is required in most states.

Environmental pollution

If your farm and ranch operations lead to an accidental chemical release, you could be responsible for cleanup and illnesses associated with the release. Chemical fertilizers, fuel and manure are a few of the materials that could result in a pollution claim.

Recently, contamination from a group of synthetic chemicals known as PFAS has come to light. According to the Environmental Protection Agency, exposure to some PFAS in the environment can have adverse health effects on humans and animals.

PFAS are also known as “forever chemicals” because they take a long time to break down. They are found in farm and ranch water, soil, and air. Farmers often don’t realize they have a PFAS issue until they’re tested or sued. The USDA has PFAS information and support for farmers.

For example, let’s say you operate an organic dairy farm on rented land. A nearby farm uses biosolids as fertilizer. Biosolids are solid organic matter recaptured from sewage treatment plants and repurposed as fertilizer. It’s the solid sludge left behind after the water’s been cleaned, treated and discharged. The biosolids contain PFAS. They infect the surrounding soil, entering your land, including the grazing pastures. Your livestock ingest the grass and the chemicals in it. Eventually, your milk tests positive for PFAS.

Your cash lease doesn’t indicate who’s responsible for the insurance to cover tainted soil. In fact, the standard lease excludes issues related to pollution. You don’t have any pollution insurance, and your general liability covers very little of the costs. You sue the farmer next door, but you’re left to foot the bill for soil cleanup and restoration while you await the court’s decision. It could be years.

Agritourism

You’ll need specific insurance if you allow the public to view or participate in your farming and ranching operations for recreational, entertainment, or educational purposes. Agritourism insurance covers specialized risks, including:

Animal exhibitions and petting
Pick-your-own produce
Farmers markets and roadside stands
Hayrides or sleigh rides
Pony rides
Crop mazes
Educational tours

Depending on your activities, you might also need commercial farm liability coverage.

Gleaning or food recovery

Field gleaning is the collection of crops from fields that have already been harvested or where it is not economically profitable to harvest, according to the USDA’s Risk Management Agency (RMA). Gleaning must be offered free of charge. The RMA encourages policyholders and insurance carriers to allow gleaning where food would otherwise go to waste.

For example, let’s say you harvest your potato crop. Oddly-sized potatoes are left in the field because the traditional harvesting tools couldn’t capture them. Reharvesting the misshapen potatoes by hand wouldn’t make financial sense, so you’d typically till them under. Instead, you offer up these potatoes for free. A local food charity brings in their people to harvest the remaining potatoes.

Some insurance carriers cover gleaning liability coverage for free. Talk to us about gleaning opportunities and requirements to qualify.

Livestock insurance

Livestock insurance is designed to protect farmers and ranchers from significant financial losses if their livestock are injured or killed due to natural disasters, diseases, or theft. Policies are highly customized. They can cover financial losses related to fertility and breeding, transportation incidents, mortality, disease, and exhibitions.

A livestock insurance policy does not typically cover every possible event that could harm the animals. Policies usually have a list of covered perils like fires, windstorms, lightning, earthquakes, flash floods and accidental shootings.

Livestock insurance policies include choices like:

Individual coverage for high-value animals
Herd coverage for large numbers of animals
Mortality insurance for death due to accidents, sickness or disease
Feedlot and pasture coverage against livestock death caused by extreme weather

Keep all your animals healthy, since insurance will not cover deaths due to improper care or negligence. You must accurately report the number and value of all animals, including where they’re being raised and housed. Otherwise, you risk a claim denial.

This is not a comprehensive list of insurance policies for farmers and ranchers. It’s a starting point for evaluating your risk and enlisting professionals to help you protect your business and investments.

Get a legal review of your lease agreement

Have your attorney review all lease agreements before you sign. Land leasing options can be complex. Each state has its own laws on top of federal regulations. If you don’t address this information, you’ll have risk exposure and liability gaps you’re unaware of until it’s too late.

Call us before you sign

Once you fully understand the terms of your contract and the liabilities it brings, contact us. We can help you make a plan to handle your risk exposures. We’ll ask questions about your operation to determine your liability and match you with insurance solutions.

Don’t risk your revenue. Understand your lease and insurance before you begin operations so you can protect everything you’ve worked for.