Agribusiness and farm insurance explained: a beginner's guide

A farm or ranch is the one place where a household and a business share a driveway. The family lives in the house, the business owns the barn, the tractor is titled to one and driven by the other, and the pickup does both jobs before lunch. A homeowner policy will not cover a business and a commercial package will not cover a home, so the industry built a third form, the farmowners policy, that does both under one contract with sections for the dwelling, the farm buildings, the farm personal property and the liability.

This guide explains how that form is put together, how equipment and livestock are valued and scheduled, where crop insurance sits outside it, how the liability section treats hired hands and visitors, and what changes when the operation opens its gates to the public. It is written for the small and mid-sized operations that make up most of the agricultural land in Arizona, Nevada, Utah and Idaho: an alfalfa and cattle operation in the Magic Valley, a pecan grove near Tucson, a dairy in Cache Valley, an orchard in the Nevada high desert.

How a farmowners policy is built

The form is a package with four property sections and a liability section, and the questions at application decide which sections carry what.

• The dwelling and its contents, written much like a homeowner policy, with the same replacement cost and open-peril questions.
• Farm buildings and structures: barns, shops, silos, hay sheds, fences, corrals, irrigation pivots and wells, each scheduled with its own limit and valuation, or covered on a blanket basis.
• Farm personal property: machinery, equipment, tools, livestock, feed, seed, harvested crops in storage and supplies, either blanketed under one limit or scheduled item by item.
• Farm liability: bodily injury and property damage to others arising from the farm's operations, including farm employees on some forms, custom work done for neighbours, and the products the farm sells.
• Optional parts: business income for a dairy or a processing operation, equipment breakdown for pumps and cooling tanks, and inland marine for equipment that travels.

Blanket versus scheduled: equipment and livestock

Farm personal property can be insured two ways. A blanket limit covers everything in the category under one number, usually with a per-item maximum, and suits an operation with a great deal of small equipment that changes often. A schedule lists each item with its own value and suits the expensive pieces, the combine, the baler, the centre pivot, the bull. Most operations use both: a schedule for the large items and a blanket for the rest. The schedule has to be kept current; a tractor bought in spring and not added is uninsured in the summer fire.

Livestock is covered against named perils on most forms, typically fire, lightning, windstorm, collision with a vehicle, attack by wild animals, drowning and electrocution, either scheduled by animal or blanketed by head count and value. Death from disease, from calving, or from an unexplained cause is generally not covered without a separate livestock mortality policy, which is underwritten more like life insurance and priced accordingly. Herd owners should also ask whether animals in transit and animals at a feedlot or a show are covered, because the policy's territory clause may stop at the fence line.

Suppose a Snake River operation carries a blanket farm personal property limit of $300,000 with a $25,000 per-item cap, and schedules its combine at $180,000 and its pivot at $90,000. A wildfire from a neighbouring field takes the combine, the pivot and $40,000 of small equipment and stored hay. The scheduled items pay at their values, the blanket pays the $40,000, and the operation is whole less its deductible. Had the combine been left on the blanket, it would have been capped at $25,000. Invented figures; the schedule is the point.

Crops: where the farm policy stops and federal coverage begins

Growing crops in the field are not covered by a farmowners policy. Hail, drought, frost, flood and disease on a standing crop are insured, if at all, under the federal crop insurance programme administered through the United States Department of Agriculture and sold by approved private carriers, or under a private crop-hail policy. Multi-peril crop insurance covers yield or revenue shortfall from natural causes for the crops and counties the programme lists, with sign-up deadlines set by the programme for each crop; a crop-hail policy is bought separately and covers hail damage only, usually acre by acre. Harvested crops in storage, a barn full of hay or a bin of grain, come back inside the farm policy as farm personal property. The line is the harvest, and it is worth knowing which side of it each asset sits on before the season starts.

Farm liability: hired hands, neighbours and the public

The liability section responds when the farm's operations injure someone or damage their property: cattle through a fence onto the highway, spray drift onto a neighbour's crop, a loaded trailer that comes unhitched on a county road, a visitor kicked by a horse. It pays the judgement and the defence. Custom work, such as baling for a neighbour for a fee, is often covered up to a stated share of the farm's income and excluded above it. The products the farm sells, from eggs at a roadside stand to beef by the quarter, are covered under the products part, and any processing that goes beyond washing and packing starts to look like a food business to the carrier.

Farm employees are the exposure that varies most by state. Each of the four states sets its own rule on whether agricultural workers must be covered by workers' compensation, and some exempt farm labour below a stated number of workers or hours, with the thresholds in each state's statute; a farm that falls inside an exemption can still buy a voluntary workers' compensation policy, and it is usually the sounder choice, because the farm liability section's coverage for injured employees is limited and an injured hand can otherwise sue. Where the exemption does not apply, the policy is required regardless of what the farm policy says.

Vehicles, equipment on the road and the pickup that does both jobs

A tractor driving between fields on a public road is covered under the farm liability section on most forms, because it is farm equipment in farm use. A pickup titled to the farm, used to haul cattle and to drive to church, needs to be on a farm auto or commercial auto policy; a personal auto policy that discovers the business use at a claim may decline. The same applies to a grain truck, a stock trailer over a stated weight, and any vehicle that leaves the state with product. Equipment hauled to a distant field or a custom job is best covered on an inland marine schedule that follows it, because the farm personal property section's territory may not.

Agritourism, farm stands and the change of use

A pumpkin patch in October, a corn maze, a u-pick orchard, a wedding in the barn, a farm-stay cabin, a hunting lease: each brings the public onto the land and each is a change the carrier must be told about. The farm liability section typically excludes or limits business pursuits that are not farming, and an agritourism weekend is exactly that. The fix is an endorsement or a separate general liability policy rated on attendance or receipts, and often a liquor liability policy if there is a bar at the wedding. Arizona, Utah and Idaho have each enacted agritourism statutes that limit an operator's liability for the inherent risks of the activity when the required warning signs are posted and the required language is in the contract, and an operation that offers those activities should post the signage the statute specifies, because the protection depends on it.

Regional exposures across the four states

Wildfire is the property peril that runs across all four states and is now the first underwriting question for a rural property; a farm with defensible space around the buildings, cleared fuel along the fence lines and a water source the fire district can use is placed more easily and at a better class. Irrigation is the second: pivots and pumps are expensive, exposed to lightning and wind, and depend on power, so equipment breakdown and a utility interruption endorsement matter more on a farm than in town. Idaho's and Utah's dairies carry a spoilage and a contamination exposure in the bulk tank; Arizona's and Nevada's operations face heat losses to livestock that most forms do not treat as a covered peril. Snowmelt flooding along the Snake, the Bear and the Sevier can put a low field and a stored hay crop under water, and flood is excluded everywhere unless separately bought.

How to use this

A farm review starts with a walk, on paper or in person: every building, every piece of equipment above a modest value with its serial number, the head count by class, the acreage by crop, the vehicles, the hired labour by hours, and any activity that brings the public through the gate. From that we can say whether the schedule matches what is in the yard, whether the liability section covers the operation as it is actually run, and whether workers' compensation is required or advisable. Many farm policies were built years ago for a different operation and never revisited; if yours still fits, we say so. We write farm and ranch coverage through the carriers we represent in Arizona, Nevada, Utah and Idaho.