You’ve been sued. You’re upset and angry. You feel betrayed and side-swiped. You don’t feel like you’ve done anything wrong. You wonder why people can’t settle their differences without resorting to lawyers and lawsuits. After you’ve run the gamut of emotions that accompany being sued, you resolve to defend yourself and your reputation. You vow to fight the case. But can you?
The truth of the matter is that a legal defense is often expensive. Plaintiff’s attorneys will often front the cost of litigation in exchange for a share of damages in a lawsuit. Defense attorneys, however, charge by the hour. Most farms are not in a situation where they can absorb a sustained lawsuit with tens or hundreds of thousands in attorney’s fees. Moreover, your business might not be able to pay out damages in a lawsuit without suffering a substantial financial hit or selling off assets.
Managing liability coverage is another way to manage business risk
Liability insurance is a tool that many farmers use to limit their exposure to the cost of both defending a lawsuit and paying damages. Known as Commercial General Liability (CGL) policies, these plans generally provide coverage for injuries and damages resulting from your operation. Many companies offer CGL policies that are geared to farmers and ranchers.
Coverage details. CGL insurance coverage varies from state to state and is dictated by the specific terms of the policy contract. However, a liability insurance policy typically requires the insurer to undertake two duties: defense and indemnification.
The duty to defend is an obligation undertaken by insurers to provide the insured with a defense to legal claims made under a liability insurance policy. Under this duty, the insurer pays the expenses of the attorneys necessary to fight lawsuits. The duty to defend, which is relatively broad, is triggered if the insured can establish that there is potential for coverage under a policy. The duty to defend might exist even if it is ultimately determined that the policy’s coverage does not apply to the claim or that the lawsuit was unmerited.
The duty to indemnify obligates the insurer to pay costs of the insured party’s liability up to the established policy limits. In other words, if you or your business are found liable for injuries or loss suffered by another, and that injury or loss is covered by the policy, the insurer must pay for your liability according to the terms of the policy. Unlike the duty to defend, an insurer’s duty to indemnify is usually
narrowly interpreted. Deciding whether an insurer has a duty to indemnify depends on whether the claim fits within the four corners of the policy contract.
In addition to the duties to defend and indemnify, some states impose a duty on insurers to settle claims where it is clear that the policyholder is liable.
Pollution exclusion. Farm CGL policies typically contain an exclusion of coverage for loss or injury resulting from pollution. The breadth and validity of the "pollution exclusion" varies by jurisdiction.
Insurers of farmers facing lawsuits for nuisance odors and dust will oftentimes assert the pollution exclusion as a reason to deny defense and indemnification in these cases. Depending on your state, insurers might or might not be able to deny coverage in nuisance lawsuits based on the pollution exclusion. Most insurance companies offer pollution insurance as an add-on to CGL policies.
Other considerations. CGL policies typically include protection for premises liability and operations liability. Premises liability includes injuries suffered by employees and third-parties while they are on your farm’s property, such as slips or falls. Operations liability covers loss or injury caused by some aspect of your farm operation, such as machinery accidents.
Insurance law varies from state to state. Frequent legislative changes and court interpretations make this a particularly fluid area. If you have questions about the extent of your liability insurance coverage, contact your attorney and your insurance provider.
Staying on top of liability coverage is another way to manage business risk. Proper insurance allows you to defend yourself against lawsuits and can prevent headaches down the road.
No stranger to dirty boots, John Dillard, an attorney with OFW Law, focuses his practice on agricultural and environmental litigation. Contact him at:
- October 2013