Are You Covered When Selling Fruits & Vegetables? Be Informed About Product Liability Risk

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1 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

2 Overview Introduction to risk 2013 survey of Tennessee fruit and vegetable producers Using liability insurance to manage risk

3 Objectives Increase awareness of tools to manage liability risk

4 Risk is The uncertainty regarding likelihood or magnitude of loss, damage or injury

5 Types of Risk 1. Legal Laws/regulations Injury to customers or employees 2. Human Resources Death, divorce, disability and disagreement Employee turnover 3. Business Interruption Weather, natural disasters, other 4. Production Weather, disease, pests, errors 5. Marketing Ability to entice customers Increased competition 6. Financial Ability to meet cash flow, obtain affordable credit, grow equity Damage or loss to personal property

6 Some Incidents of Food-borne Illness 2003 Raw/undercooked onions Hepatitis A 2011 Cantaloupes Listeria 2012 Cantaloupes Salmonella 2013 Mixed salad Cyclospora

7 An Incident of Food-borne Illness at Farmers Market 2011 Strawberries (OR) E. coli O157:H7

8 2013 Survey of Tennessee Fruit and 495 producers 32% response rate Vegetable Producers 100 usable responses Learn about sources of risk producers face when selling produce

9 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%

10 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

11 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: Lettuce 39% Cantaloupes 34% Strawberries 32%

12 Risk Management Methods 1. Avoid Risk Choose not to engage in a specific activity 2. Reduce Risk Implement preventative measures/procedures, safety plans, safe handling procedures 3. Transfer Risk Transfer to another party typically with insurance 4. Accept Risk Prepare for loss or damages create emergency fund

13 Transferring Risk with Insurance Obtain insurance Property, liability, health, disability, life, crop, etc. Learn and follow insurance requirements and claim procedures

14 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. Liability Insurance

15 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.

16 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.

17 Liability Insurance Insurance should be treated like any other business expense. Know what you re paying for. Don t just hope you re covered.

18 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

19 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

20 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

21 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!

22 Caution The sale of produce that you purchased from another farmer is likely not covered under a general farm liability policy.

23 If you are selling processed fruits or vegetables you may need more than a general farm liability insurance policy.

24 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

25 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

26 General farm liability policy and commercial business coverage may be combined with a homeowner s policy Combination Policies

27 Excess/Umbrella/Surplus Lines of Insurance Provide catastrophic loss protection when the underlying insurance is inadequate

28 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? Considerations

29 Safe Haven??? No need to worry I only sell to friends and family.

30 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.

31 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.

32 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.

33 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.

34 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

35 Sources of Product Liability Insurance C.L. Butcher Insurance Agency 401 Hotel Avenue Knoxville, TN (865) Campbell Risk Management (for farmers markets and vendors) 9595 Whitley Dr #204 Indianapolis, IN (800)

36 Sources of Product Liability Insurance Food Liability Insurance Program 260 South 2500 West, Suite 303 Pleasant Grove, UT (888) Gilley McCready & Sneed Insurance 607 Holston Avenue Bristol, TN (423)

37 Sources of Product Liability Insurance John W. Pickard Webb Pickard Insurance & Investment Services, Inc Murfreesboro Road LaVergne, TN Office (615) Cell (615) Tracy Smith Johnson Farm & Ag Insurance 196 Four Mile Creek Road Deer Lodge, TN Office (931) Cell (423)

38 Special Thanks to Tennessee Department of Agriculture

39 Contact Us Center for Profitable Agriculture Hal Pepper s hal.pepper@utk.edu (931)