Are You Covered? Be Informed About Product Liability Risk

Transcription

1 Are You Covered? Be Informed About Product Liability Risk Hal Pepper Financial Analysis Specialist Pumpkin Field Day West TN Research & Educa>on Center September 25, 2014

2 Overview Introduc>on to risk Using liability insurance to manage risk Sales tax and business tax update

3 Increase awareness of tools to manage liability risk Increase awareness of educa>onal resources about sales tax and business tax

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

5 Types of Risk 1. Legal Laws/regula>ons Injury to customers or employees 2. Human Resources Death, divorce, disability and disagreement Employee turnover 3. Business Interrup>on Weather, natural disasters, other 4. Produc>on Weather, disease, pests, errors 5. Marke>ng Ability to en>ce customers Increased compe>>on 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 Hepa>>s A 2011 Cantaloupes Listeria 2012 Cantaloupes Salmonella 2013 Mixed salad Cyclospora

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

8 Product liability risk for pumpkins??? Pumpkins are food products Some retailers require suppliers to carry product liability insurance Do you sell food products you didn t raise?

9 2013 Survey of Tennessee Fruit and 495 producers 32% response rate 100 usable responses Vegetable Producers Learn about sources of risk producers face when selling produce

10 2013 Survey of Tennessee Fruit and Vegetable Producers Ave age: 58 Ave acreage in fruits & vegetables: 11.7 acres 46% are full- >me farmers 63% have incomes over $50,000 Percentage of respondents who produced the following high risk crops in 2011 & 2012: Lehuce 30% Cantaloupes 26% Strawberries 25%

11 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 ins>tu>ons) On average, there were 22 farms with vegetables harves>ng vegetables for fresh market per county for the coun>es included in this analysis, according to 2007 Census of Ag

12 2013 Survey of Tennessee Fruit and Vegetable Producers 59% of full >me 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: Lehuce 39% Cantaloupes 34% Strawberries 32%

13 Risk Management Methods 1. Avoid Risk Choose not to engage in a specific ac>vity 2. Reduce Risk Implement preventa>ve 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

14 Transferring Risk with Insurance Obtain insurance Examples: property, liability, health, disability, life, crop, etc. Learn and follow insurance requirements and claim procedures

15 Liability insurance is a way of protec>ng your business in case someone gets ill from ea>ng products you sold them. You could be financially responsible if you are sued by them. Liability Insurance

16 Liability Insurance Every business, whether large or small, is at risk of being sued for negligence causing property damage or bodily injury. Legal fees from claim sehlements may be significant.

17 Liability Insurance Review your insurance policy Read the policy and understand what it covers. Understand the exclusions. Deal with an agent who understands the policy and your business.

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

19 Insurance Coverage General Farm Liability Insurance Policy Commercial Business Liability Insurance Product Liability Insurance Policy Product Recall Insurance Policy Accidental or Product Contamina>on Policy Malicious Tampering Insurance Combina>on Policies Excess/Umbrella/Surplus Lines of Insurance

20 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 opera>ons Accidents that affect farmers, employees, guests and customers Covers ac>vi>es considered farming Cau>on: How does your policy define farming? One policy s defini>on: the ownership, maintenance or use of premises for the produc>on of crops or the raising or care of livestock, including all necessary opera>ons

21 Many farmers believe their general farm liability policy provides them with coverage in the situa>on where someone gets ill from ea>ng food the farmer sold them. Injuries off the farm premises may not be covered Some policies only cover produc>on ac>vi>es Some policies only cover products the farmer raised Policy exclusions may apply

22 Exclusions Policies may contain an exclusion (such as the following) that limits the scope of bodily injury. 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

23 Commercial Business Liability Insurance Covers ac>vi>es that a farmer also undertakes that are not considered farming Wrihen specifically for the business involved May provide coverage for injuries excluded in a general farm liability insurance policy

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

25 If you are selling processed products (jam, bakery items) you may need more than a general farm liability insurance policy. In some cases, if processed products are made solely from your farm products, general farm liability insurance may cover you.

26 Product Liability Insurance Policy Protects against claims of injury from fresh or processed food products that cause food- borne illness Covers products and completed opera>ons Example: customer gets sick aner they buy product, take it home or cook it Normal limits of coverage are $100k, $300k, $500k, $1 million and up

27 General farm liability policy and commercial business coverage may be combined with a homeowner s policy Combina@on Policies

28 Excess/Umbrella/Surplus Lines of Insurance Provide catastrophic loss protec>on when the underlying insurance is inadequate Usually provided in $1,000,000 increments

29 Coverage and exclusions vary from company to company. The insurance company may place limits on retail sales for an opera>on to be considered farming or it may consider an opera>on to be a business that is not defined as farming. Does your policy include product liability coverage? Considera@ons

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

31 An insurance policy is a contract You are required to pay the premium at the >me required or the policy will no longer be in force. You are required to report (in a >mely fashion) any occurrences to the agent and company.

32 An insurance policy is a contract You are required to report any material changes in the nature of your ac>vi>es or the property which is subject to insurance. You are required to cooperate with the insurer in mahers of subroga>on.

33 How much insurance do I need? Consider the value of your assets. Consider the dollar amount of poten>al claims. Buyers of your product (grocery stores) may require a minimum amount of product liability insurance (Walmart, Whole Foods $2 million) Discuss your par>cular situa>on with your insurance agent to verify coverage & needs. Reevaluate your coverage annually.

34 Other Make sure the proper business en>ty is insured. Premiums onen are based largely on product sales and hazards involved. Provide annual sales updates to your insurance agent.

35 Take Home Messages Product liability insurance is a vital legal risk management tool Carefully consider needs for coverage Work closely with insurance agent and communicate well and onen

36 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) hhp:// us

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

38 Sources of Product Liability Insurance John W. Pickard Webb Pickard Insurance & Investment Services, Inc Murfreesboro Road LaVergne, TN Office (615) Cell (615)

39 Sales Tax Update Sales Tax in Tennessee on the Purchase and Sale of Farm Products, UT Extension PB 1806 (revised Feb 2014) is available online at hhps://utextension.tennessee.edu/ publica>ons/documents/pb1806.pdf. Sales safe harbor threshold of $4,800 does not apply unless you pay sales tax to the supplier.

40 Business Tax Update Tennessee gross sales of livestock, horses, poultry, nursery stock, and other farm products direct from the farm are exempt from the tax, provided that those sales are made directly by the producer, breeder, or trainer. From Tennessee Department of Revenue s Business Tax Guide. Also see Tennessee Code Annotated Sec>on

41 Business Tax Update Any person in business for profit or gain who has gross annual sales between $3,000 and $10,000 must have a minimal ac@vity license (new in 2014) for each county in which it conducts business. The cost is $15 each year. If located in a city, the city may require a minimal ac>vity license a well.

42 Business Tax Update Any person in business for profit or gain who has gross annual sales of $10,000 or more must have a business license for each place of business. The license fee is $15 for all new businesses. It is renewed annually at no charge when the annual business tax return is filed. If located in a city, the city may require a business license as well.

43 Special Thanks to Tennessee Department of Agriculture

44 Are You Covered? Be Informed About Product Liability Risk Hal Pepper Financial Analysis Specialist P. O. Box 1819 Spring Hill, TN ag.tennessee.edu/cpa