In the horse industry, misunderstandings and myths abound regarding important legal topics. This three-part series of articles explores some common myths in the horse industry. Part one discussed the equine liability acts, part two discusses insurance, and part three will discuss releases of liability.
What are Some of the Common Myths Regarding Insurance?
Equine-related business activities that take place on your property are automatically insured through your homeowners insurance
If you conduct equine-related business activities, such as giving riding lessons, boarding, or training horses, you might believe that you are insured against the possible event that someone should experience an injury during the course of your business activities. Most people are surprised, however, to find that they are notinsured.
The standard homeowner’s insurance policy is not business insurance. Homeowner’s policies, by their terms, almost always exclude coverage (and therefore will not protect you) if someone is injured in connecting with a “business pursuit.” A homeowner’s insurance policy likely covers the event when a social visitor slips and falls near your barn. However, the policy might not protect you if the one who fell was a business customer.
Equine professionals, such as riding instructors, trainers, boarding stables, would be wise to confirm that they are actually insured for their business activities. Read your policy carefully. Ask your insurance agent. If no coverage exists, consider purchasing a separate policy of commercial liability insurance.
You will receive the face value of a mortality insurance polity in the unfortunate event that something should happen to your insured horse
People sometimes misunderstand the amount of the mortality insurance they buy. This misunderstanding arises when they fail to read their policies in order to determine whether they have an “actual cash value” or an “agreed value” policy.
To illustrate the difference between an “actual cash value” and “an agreed value” policy, let’s assume that someone purchased a mortality insurance policy with a $7,500 face value on the life of the horse. Now, let’s follow a claim on that policy. We will assume: the horse owner submitted a proper and timely claim, the loss of the horse was covered under the policy’s terms, and the insurance company has agreed to pay the claim.
If you purchased an “agreed value” mortality insurance policy, there is no question that the insurer would pay you the full $7,500. “Agreed value” policies provide coverage for a specifically agreed-upon amount. If you purchased an “actual cash value” or fair market value policy, the insurance company might pay you less than $7,500 if it had reason to believe that the lesser amount reflects the fair market value of your horse around the time of its death. While situations like this occur rather infrequently, they illustrate the importance of insuring your horse in an amount that does not exceed its true value.
“Umbrella” insurance policies provide types of insurance not found in the underlying policies of insurance
Many people assume that buying an “umbrella policy” will give them extra insurance coverage and cover risks and perils that were not covered by their regular insurance. For example, some people believe that having an “umbrella policy” will transform a homeowners insurance coverage (which does not cover business activities) into a policy of commercial liability insurance (which is designed to cover business-related risks). This can be a very costly mistake.
An “umbrella policy” is not designed to provide extra insurance coverage for extra types of hazards or perils. Rather, it is designed to increase your policy limits on some or all of your existing insurance to a higher amount. As a result, if your original liability insurance had limits of $500,000, an umbrella policy (depending on the amount of coverage you buy) could raise this amount to $1 million or more.
Avoid Misunderstandings in the Future
Make no assumptions about your insurance and what it covers. Read your insurance policy very carefully and direct your questions to your insurance agent or the company that insures you. If your homeowner’s insurance does not cover the risk that someone could be hurt by your horse (from actions such as biting, kicking, or when you allow friends to ride him), consider asking your agent about obtaining extra coverage through a special “endorsement.” If you have no homeowner’s insurance but simply want to be insured against these type of risks, contact a knowledgeable insurance agent.
Do not let others make assumptions, either, about your insurance coverage. When the company or agent explains your policy to you, ask him or her to support the explanation with specific policy language. In the course of this discussion, if someone tells you that your insurance covers something you find important, but he or she cannot find the exact policy language, get the explanation in writing (preferably on his or her professional stationery).
In conclusion, please keep the following ideas in mind:
- Carefully read your insurance policy. They are now written in a more understandable language than ever before. Make sure that you understand your insurance and that you are comfortable that you have sufficient insurance for your equine-related activities.
- If you bought an “umbrella policy,” you did not buy extra insurance coverage for extra types of hazards. Rather, you simply increased your policy limits on some or all of your existing insurance to a higher amount.
When shopping for insurance, the cost of the premium (a “premium” is the price of insurance for a specified risk and for a specified length of time) should not be the deciding factor. As mentioned earlier, insurance coverage can differ greatly — even if the policies you are comparing are both mortality insurance. Before you buy one company’s insurance over another, make sure that the cheaper premium reflects coverage identical to the high premium.
This article is not intended to constitute legal advice. When matters arise based on specific situations, direct your questions to a knowledgeable attorney.
Julie I. Fershtman, Esq.
About the Author
Foster Swift Collins & Smith PC
One Northwestern Plaza
28411 Northwestern Hwy., Ste. 500
Southfield, Michigan 48034