Are You Covered When Selling Fruits & Vegetables? Be ... · Farmers Market Boot Camp Workshops...
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Are You Covered When Selling Fruits & Vegetables? Be Informed About Product Liability Risk Farmers Market Boot Camp Workshops 2014 Hal Pepper Financial Analysis Specialist Center for Profitable Agriculture
Are You Covered When Selling Fruits & Vegetables? Be ... · Farmers Market Boot Camp Workshops 2014 Hal Pepper Financial Analysis Specialist ... emergency fund. Avoid Risk—i.e.,
What is the risk that you will have a customer that eats produce you sell and get sick? Remember the outbreak of hepatitis A in TN, GA & NC in 2003 linked to sales of raw or undercooked green onions? The TN and GA outbreaks were linked to 3 or 4 firms in Mexico (not GAPs-certified). One person in TN died. 500 people contracted Hepatitis A from a PA diner. In 2011 in the Rocky Ford area of Colorado there was a listeria outbreak on contaminated cantaloupes that killed 33 people. People living in 28 states consumed contaminated cantaloupes. Eric & Ryan Jensen were arrested on federal charges of introducting adulterated food into interstate commerce. Melons were likely contaminated in the packing house. Dirty water on the floor and old, hard-to-clean equipment were to blame. Jensen Farms had just bought the used processing equipment just before the outbreak and it was corroded, dirty and hard to clean. Packing house floors were hard to clean, so pools of water potentially harboring the bacteria formed close to the packing equipment. Prosecutors laid responsibility on the Jensens for maintaining equipment that would wash cantaloupes with anti-bacterial solutions to sufficiently combat contamination. According to documents, however, the Jensens did not outfit their conveyor system with the chlorine spray that would have reduced microbial loads on the cantaloupes, instead opting to wash the melons with city drinking water on a longer wash cycle. Despite the lack of an adequate washing solution, Primus Labs gave the Jensens Farms processing facility an audit score of 96 percent. On 1-29-14 a federal judge sentenced the brothers to 5 years probation, 6 months home detention and $150,000 each in restitution fees to victims. Victim families have already received $3.8 million from the Jensens’ insurance policy. Attorneys representing the victims are looking to receive approximately $30 million more in damages from Primus Labs and retailers that carried the cantaloupes, such as Walmart and Kroger. In August 2012 there were 2 deaths and multiple cases of illness across 20 states linked to cantaloupes contaminated with salmonella. Some of those cantaloupes came from a farm in southwestern Indiana. 178 persons were infected, 62 persons were hospitalized and in Kentucky, 2 deaths were reported. Summer of 2013—as of 9/5/13 there have been 659 cases involving the Cyclospora parasite in 24 states. The Iowa-Nebraska cases were sourced to a mixed salad from Taylor Farms de Mexico, which were served by Olive Garden and Red Lobster restaurants, among other outlets.
An Incident of Food-borne Illness at Farmers Market
• 2011 Strawberries (OR) E. coli O157:H7
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Few outbreaks have been directly linked to farmers markets. Yet experts say foodborne illness is underreported—especially when it involves food that isn’t consumed in one place at one time, as at restaurants or church suppers. And although the products sold at farmers markets often are perceived as more wholesome than what’s available on grocery shelves, there is no evidence that it is less prone to cause foodborne illness, and it generally receives less federal and local oversight. Much of the time the oversight of food safety is left largely up to the markets’ managers and vendor-operated boards of directors. While few pathogen outbreaks have been linked to farmers markets, most sources of food-borne illness are never identified, and small outbreaks often go unreported. Federal authorities estimate that for every confirmed case of salmonellosis, at least 29 cases go unreported. In summer of 2011, strawberries sold at farmers markets and roadside stands in northwest Oregon were contaminated with E. coli O157:H7, killing one woman and sickening 16 other people. Investigators traced the outbreak to deer feces at Jaquity Strawberry Farm in rural Washington County, Oregon. Some of those strawberries were purchased and resold four times before they made it to the actual consumer. Nearly all the case patients recalled eating strawberries and said they had shopped at local farmer’s markets or fruit stands in the preceding weeks, according to state epidemiologist Katrina Hedberg. Further questioning revealed that all the local strawberry vendors had a single supplier in common: Jaquith Strawberry Farm in Newberg. But, as Hedberg explained to Food Safety News, pinpointing the farm was where things got more complicated, not easier. The farm sells its strawberries to a wide array of secondary vendors, who in turn sell them at local fruit stands. Once they’re there, there’s nothing to differentiate fruit from Farm A from that of Farm B. “The traceback here is very difficult,” she says. “A lot of these berries are sold at roadside stands, so they’re really not labeled.” For that reason, health department officials could not give consumers lot numbers or packaging details to look for, but instead have advised people not to eat strawberries purchased from Northwest Oregon farm stands in July. The strawberries were not sold in supermarkets. The strawberry harvest in Oregon strawberries is now over, and the local berries have a shelf life of only about 2 days, according to Hedberg, so fresh strawberries no longer present a hazard. However, residents of Northwest Oregon, specifically in Washington, Clatsop and Multnomah counties, are advised not to eat frozen strawberries or uncooked jams purchased from fresh fruits stands because those berries could still be carrying the bacteria.
2013 Survey of Tennessee Fruit and Vegetable Producers
• 495 producers• 32% response rate• 100 usable responses• Learn about sources of risk producers face
when selling produce
2013 Survey of Tennessee Fruit and Vegetable Producers
• Ave age: 58• Ave acreage in fruits & vegetables: 11.7 acres• 46% are full-time farmers• 63% have incomes over $50,000• Percentage of respondents who produced the
following “high risk” crops in 2011 & 2012:• Lettuce 30%• Cantaloupes 26%• Strawberries 25%
2013 Survey of Tennessee Fruit and Vegetable Producers
• On average, 59% of the farm’s gross annual sales were from fresh fruits and vegetables
• 5% of fruit and vegetable sales were made through retail outlets (grocery stores, restaurants and institutions)
• On average, there were 22 farms with vegetables harvesting vegetables for fresh market per county for the counties included in this analysis, according to 2007 Census of Ag
2013 Survey of Tennessee Fruit and Vegetable Producers
• 59% of full time farmers said they face product liability risk
• 75% of producers whose household income is over $50,000 said they face product liability risk
• Percentage of those producing “high risk” crops who said they face product liability risk:
Avoid Risk—i.e., I may decide not to sell cow/goat shares since not willing to take on risk of getting sued if someone gets sick from drinking raw milk. Young E. Coli Victim Receives Kidney Transplant from Mother �By News Desk | September 11, 2013 Food Safety News is following the progress of three-year-old Kylee Young, who has just received a kidney from her mother, Jill Brown. In April 2012, Kylee was one of 19 people – 15 of them children – who fell ill with E. coli after drinking raw milk from a farm near Wilsonville, OR. Kylee was two years old when she developed hemolytic uremic syndrome (HUS), a serious kidney disease associated with severe E. coli infections. She spent several months in the hospital undergoing dialysis. Her case was so severe that she had a stroke, which left her unable to speak or walk. At one point, her heart stopped and she had to be brought back to life. To help with bills that have accrued during the ordeal, Kylee’s friends and family have started a support page on Facebook and a fundraiser via GoFundMe. According to a Sept. 11 update on the Facebook site, Kylee continues to respond well to her transplant.
Transferring Risk with Insurance
• Obtain insurance– Property, liability, health, disability, life, crop, etc.
• Learn and follow insurance requirements and claim procedures
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Some farmers markets require vendors to have proof of liability insurance
Liability Insurance
• Liability insurance is a way of protecting your business in case someone gets ill from eating products you sold them. You could be financially responsible if you are sued by them.
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We understand the need for insurance on our cars, homes, property, our health & our lives. If you are in business, you may need insurance to protect yourself from liability, for when other people might be injured in connection with your business. If someone gets ill from eating products you sold them, you need insurance that will provide coverage in the event they sue you to recover their costs and damages.
Liability Insurance
• Every business, whether large or small, is at risk of being sued for negligence causing property damage or bodily injury and legal fees from claim settlements are always increasing.
Liability Insurance
• Insurance policies are complicated.• Read the policy and
understand what it covers.
• Understand the exclusions.
• Deal with an agent who understands the policy and your situation.
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Insurance policies are complicated but very important. Reading policies and exclusions – plus talking with various experts about how policies are interpreted – is pretty boring stuff. It may be difficult to read or understand the language of the policy you buy, and you may find yourself dependent on your insurance agent or company for an explanation of what it provides. If so, get any opinion in writing. Whether the agent fully understands the coverage being provided will depend on the agent and the policy. And whether the agent fully comprehends your situation and can foresee your insurance needs and find a policy that will fully meet your needs may depend on the skills of your agent and insurance products offered by his/her company. Insurance policies are contracts. The first rule of contracts is—whoever wrote the contract took care of himself. There is no reason to assume the contract being offered is fair or that your interests are protected. Insurance companies are profit driven. Don’t expect them to provide coverage for a situation not covered by their policy if you have a claim. Also, your insurance agent isn’t able to read your mind and know all about all your activities. Make every effort to try and understand the policy. One recommended rule of reading an insurance policy is to start by reading the exclusions. An exclusion is a loss or risk that a policy does not cover. So first try to understand what is NOT covered by the policy. I like my insurance agent. He’s even related to me. He sold my daddy insurance when I was a boy. I purchased liability insurance to cover the house I bought after moving to TN. Several months later a friend who lives a couple blocks away commented that he was having to sheetrock repaired and repainted due to some tremors we had recently. I had not heard anything about it but when I checked, sure enough, we had recently had some earthquake tremors. No damage to my house but I realized that the risk of earthquake is real in middle TN. When I called my insurance agent to see if my policy covered earthquakes, he checked and said it did not. Of course he was glad to sell me one! The point is, the policy I had does not cover me for a risk that exists. A separate policy was needed for that. The same may be true for your farming and direct marketing or agritourism activity.
Liability Insurance
• Insurance should be treated like any other business expense.• Know what you’re
paying for.• Don’t just hope you’re
covered.
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Insurance should be considered just like any other business expense. You should be concerned about getting your money’s worth and making sure the policy you buy applies to your situation. Would you hire an employee and leave them unsupervised for several days, just blindly hoping they were doing what you told them to do? Don’t purchase insurance and just assume it covers you for your situations.
Insurance Coverage Options
• General Farm Liability Insurance Policy• Commercial Business Liability Insurance• Product Liability Insurance Policy• Product Recall Insurance Policy• Accidental or Product Contamination Policy• Malicious Tampering Insurance• Combination Policies• Excess/Umbrella/Surplus Lines of Insurance
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Insurance coverage options available for a direct marketing enterprise include: General Farm Liability Insurance Policy Commercial Business Liability Insurance Product Liability Insurance Policy Product Recall Insurance Policy Accidental or Product Contamination Policy Malicious Tampering Insurance Combination Policies Excess/Umbrella/Surplus Lines of Insurance
General Farm Liability Insurance Policy
– Protects against claims for bodily injury and property damage that occur on the farm premises or as a result of farm operations
– Accidents that affect farmers, employees, guests and customers
– Covers activities considered “farming”• One definition of farming: “the ownership,
maintenance or use of premises for the production of crops or the raising or care of livestock, including all necessary operations”
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Presentation Notes
A General Farm Liability Insurance Policy typically protects against claims for bodily injury and property damage that occur on the farm premises or as a result of farm operations. These policies cover accidents that affect farmers, employees, guests and customers. Farm liability insurance covers lawsuits only from activities considered “farming,” and “farming” may be defined to include only agricultural production activities and possibly on-farm roadside stands. These policies also may cover the sale of produce in its raw, unprocessed state, and may include sales made on the farm and possibly at a farmers market. However, different insurance companies may define “farming” in different ways. For example, one company may define farming as “the ownership, maintenance or use of premises for the production of crops or the raising or care of livestock, including all necessary operations.” This definition of farming may not include the sales of produce or meat at farmers markets or to restaurants. And, it may not include sales at pick-your-own operations. The insurance company may view those sales as a business that is separate from farming. If your operation includes a pick-your-own operation or sales of produce or meat at a farmers market or other location away from the farm, you should first scrutinize your existing policy to determine whether it provides protection against claims for injury involving the sales of your products.
Commercial Business Liability Insurance
– Covers activities that a farmer also undertakes that are not considered “farming”
– Written specifically for the business involved
– May provide coverage for injuries excluded in a general farm liability insurance policy
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Commercial business liability insurance may provide insurance for these activities that may not be defined as “farming activities.” It works essentially the same way as general farm liability insurance in that it is designed to provide liability protection for the types of activities conducted in connection with the business. It is written specifically for these business activities. This kind of policy can be designed to provide protection for a pick-your-own operation and for the sales of farm products at farmers markets and restaurants.
Caution
• Note: Many farmers believe their general farm liability policy provides them with coverage in the situation where someone gets ill from eating food the farmer sold them. In many situations, it may not!
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Many farmers direct marketing specialty crops (fruits, vegetables, tree nuts) mistakenly believe that their general farm liability policy protects against claims of injury from contaminated products that cause foodborne illness. However, this may not be the case, because the injury usually happens off the farm premises. And as we have pointed out, many general farm liability policies’ definition of farm activities are limited to production activities and don’t include marketing activities.
Caution
The sale of produce that you purchased from another farmer is likely not covered under a general farm liability policy.
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Let’s assume you check your general farm liability insurance policy and you determine that it provides protection for the sale of your produce at the farmers market. Midway through the season you decide to buy some produce from another farmer to have a supply for your customers or to have more variety of products for them. Caution! The general farm liability policy sold by most insurance companies will NOT cover you for the sale of products you don’t raise! In the case where the farmer is selling products he did not raise, then some other insurance besides the general farm liability insurance policy is needed. This may be a commercial business liability insurance policy, a product liability insurance policy, a combination of these or excess/umbrella/surplus insurance.
• If you are selling processed fruits or vegetables you may need more than a general farm liability insurance policy.
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Processed products (like meat) may need more than a general farm liability policy. In some cases, if the processed product is made solely from your farm products, a general farm liability insurance policy may provide the coverage that is needed. Carefully review your policy and discuss with your insurance agent to determine what you need.
Exclusions
Some policies limit the scope of bodily injury. For example, an exclusion might say:“Bodily injury does not include:
– The transmission or exposure directly or indirectly by any insured or by any other person or instrumentality to any other person of any communicable disease, bacteria, virus, parasite, or other organism; or
– Emotional distress, humiliation, or other mental injury to a person unless it arises out of an actual physical injury to that person”
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Even if you only sell products that you raised and you determine that your existing general farm liability insurance policy covers you for injury to customers at the farmers market, there is something else you need to consider. Exactly what does your policy exclude (not cover) when it comes to bodily injury? In the 1990s the concerns over AIDS led many insurance companies to add an exclusion to their general farm liability insurance policies that said “bodily injury does not include transmission or exposure of any communicable disease, bacteria or virus…” So, if you are selling leafy greens or strawberries that you raised and a customer gets sick and makes a claim against you that the sickness was caused by E Coli or some other bacteria or parasite, your insurance doesn’t cover that because of the way “bodily injury” is defined!
Product Liability Insurance Policy
– Protects against claims of injury from fresh or processed food products that cause food-borne illness
– Covers “products and completed operations”
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In this case, a product liability insurance policy may be appropriate, as it protects against consumer claims of injury caused by a defective or hazardous product such as contaminated fresh produce. A product liability policy is written on an individual basis and would specifically state that “products and completed operations” are covered. Products and completed operations coverage includes all bodily injury and property damage to a third party that occurs after your product or work leaves your possession. So this would provide coverage for someone getting sick from a product you sold them, after they bought it, took it home and cooked it. It is important to understand, however, that food product liability insurance strictly covers claims of injured parties and not recall costs. If you are selling farm products or value-added products like jams or jellies to distributors or retailers that end up in a warehouse or on a shelf, you may need another insurance product that covers the cost of removing those products in the event you have to recall the product. Product Recall Insurance covers the actual or direct costs of a product recall. Direct costs of a product recall are costs associated with getting contaminated product off the shelf and destroyed; costs of replacement and transportation.
Combination Policies
– General farm liability policy and commercial business coverage may be combined with a homeowner’s policy
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Some insurance companies offer combination or package policies. For example, for smaller family operations, the general farm liability policy and commercial business coverage can be combined with a homeowner’s policy. A combination policy makes sense for farmers whose farms have both residential and commercial characteristics. Such policies are especially appropriate for family- and individually-operated farms. Combination policies generally may offer the additional advantage of a lower premium than for 2 policies purchased separately.
Excess/Umbrella/Surplus Lines of Insurance
– Provide catastrophic loss protection when the underlying insurance is inadequate
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Excess/Umbrella/Surplus lines of insurance are the terms used to describe insurance coverage that provides catastrophic loss protection when the underlying insurance is inadequate. There may be some risks that an insurance company may not cover. The excess or surplus lines market is an insurance marketplace for unique or hard-to-place risks. These excess or surplus lines provide additional protection above and beyond the losses covered under other policies. An excess or surplus insurance policy can be tailored to protect against losses from foodborne illness outbreaks even when the grower’s product is not contaminated. For example, let’s say you are selling legally prepared apple juice from
Considerations…• Coverage and exclusions
vary from company to company.
• The insurance company may place limits on retail sales for an operation to be considered “farming” or it may consider an operation to be a “business” that is not defined as “farming.”
• Does your policy include product liability coverage?
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Insurance coverage varies from company to company. It is hard to compare apples to oranges. Insurance is not a commodity that is clearly defined like number 2 yellow corn. Some companies do not offer a policy for certain businesses that are just starting up. Do you plan to cook your product and serve it to customers? Some companies do not offer insurance to restaurants. The insurance company may place limits on retail sales for an operation to be considered farming or it may consider such an operation to be a “business” that is not considered farming. Exclusions will be different for different insurance companies. Some insurance companies will provide coverage at the farmers market and others may not. Raw products like fruits and vegetables that are produced by a farmer and sold by that farmer may be covered under a general farm liability insurance policy. Farmers should check to see whether their policies include product liability coverage.
Safe Haven???
• “No need to worry… I only sell to friends and family.”
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When you obtain insurance from a company you agree to do a number of things. For example, you agree to cooperate with the insurer in defending against any claims that may arise. Another thing you agree to is known as “subrogation.” This means that if the insurer is required to provide coverage for you, then you agree to “subrogate” or give over to the company any rights you might have to recover the amount of the loss from some other source. Subrogation most often becomes an issue when there is another source of possible recovery such as someone else’s insurance. Consider a situation where some of your customers get hurt on your farm or get sick from eating your product. You cannot depend on the fact you are dealing with your friends, and assume that since they are friends that they won’t sue you if something goes wrong. In many cases they may not be making the decision to sue you. It may be their medical insurance company who brings a suit to recover the medical expenses they had to pay out. And the medical insurance company does not care whether your customers are your friends. The insured is obligated to cooperate with the subrogation and to help with the case, such as by testifying. If the insured party refuses to cooperate, because the party being sued is a friend, the company can refuse to pay their medical claims coverage or the company may seek repayment from the insured. So, while you might think you don’t need insurance because you are limiting sales to friends and family, think again.
When you buy an insurance policy…
• You are required to pay the premium at the time required or the policy will no longer be in force.
• You are required to report (in a timely fashion) any occurrences to the agent and company.
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Presentation Notes
When you buy an insurance policy, you are entering into a binding contract with the insurer. You are agreeing to do more than just pay the premiums on time. You will be able to obtain the insurance coverage provided in the policy only if you cooperate with the insurer and meet any obligations set out in the policy. The following are examples of the types of responsibilities typically found in an insurance policy. You are required to pay the premium at the time required or the policy will no longer be in force. You are also required to report (in a timely fashion) any occurrences (or events for which insurance coverage is requested) to the agent and company.
When you buy an insurance policy…
• You are required to report any material changes in the nature of your activities or the property which is subject to insurance.
• You are required to cooperate with the insurer in matters of subrogation.
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3. You are required to report any material changes in the nature of your activities or in the property which is subject to insurance. This is important because the insurance company has assessed its risk and set your premiums accordingly. If you change the activities you are involved in or if the volume of your sales increase, the insurance company must be notified. Insurance companies often ask if there have been any changes in activities when the policy is up for renewal. 4. You are required to cooperate with the insurer in matters of subrogation. As we discussed earlier, the insured is required to cooperate with the insurance company and this may include testifying as to what happened.
“How much insurance do I need?”
• Consider the value of your assets.• Consider the dollar amount of potential
claims.• Buyers of your product (grocery stores) may
require a minimum amount of product liability insurance (Whole Foods $2 million)
• Discuss your particular situation with your insurance agent to verify coverage & needs.
• Reevaluate your coverage annually.
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Presentation Notes
In trying to determine how much insurance you need, as a starting point consider coverage for the dollar value of your assets. Also consider the dollar value of potential claims. If you sell to certain customers, like Whole Foods, they may require you carry product liability insurance for products and completed operations of $2 million. Some farmers markets require product liability insurance. Discuss your situation with your insurance agent to verify coverage and needs. And reevaluate your coverage every year.
• Make sure the proper business entity is insured.
• Premiums often are based largely on product sales and hazards involved. • Provide annual sales
updates to your insurance agent.
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If an LLC is selling meat and the LLC is insured, this would negate any personal coverage that the individual members might have. How much do premiums cost? The first thing an insurer will want to know is how much your gross sales will be. It also will depend on your annual payroll, prior claims, level of coverage, type of product, type of market and recall plan. I have seen quotes for $1 million of coverage for less than $500. I have seen $2 million of coverage range from $600+ to thousands of dollars.
Take Home Messages
• Product liability insurance is a vital legal risk management tool for direct marketers of fruits and vegetables
• Carefully consider needs for coverage • Work closely with insurance agent and
communicate well and often
Sources of Product Liability Insurance
• C.L. Butcher Insurance Agency401 Hotel AvenueKnoxville, TN 37918(865) 689-5482
• Campbell Risk Management (for farmers markets and vendors)9595 Whitley Dr #204Indianapolis, IN 46240(800) 730-7475email: [email protected]://www.campbellriskmanagement.com/contact-us
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