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Section 6 - Insurance Needs


Risk Management --As the owner and operator of a business, you have more exposure to liability and property loss than when living in a home used strictly as a residence. Homeowner's insurance will not cover claims related to business in your home. If a customer comes to your home and falls on the steps, your homeowner's insurance may not cover any legal action because the customer was in your home on business. It may also not apply if a customer's property or even your own equipment used in your business is lost or damaged by fire or theft. Some insurance companies can add a rider or endorsement to a homeowner's policy to cover home businesses. A separate policy, which is more costly, may be needed for some types of business. Consult your insurance agent to determine the most appropriate coverage for your home business.

Consider the following insurance coverage's when exploring your business insurance needs with your agent: Liability insurance to cover the property of others, bodily injury, damages such libel and slander, and operations of hired independent contractors for which you are held liable. A blanket liability insurance policy can also cover legal fees and court costs; Extended coverage for rider for windstorm, hail, smoke, explosion or vandalism protection; Special protection to cover loss by fire or theft of business record, cash, other business documents and property, including tools and inventory; Product liability insurance for many businesses, especially food and clothing processing and manufacturing;  An endorsement or rider to your personal automobile policy for business use if it's used to make deliveries or for other business. An umbrella policy that covers all forms of liability can be purchased. The cost of the coverage varies depending on the business to be insured, location and the insurance company.

Worker's compensation insurance is required as soon as you hire an employee. Employers must contact the Workforce Safety and Insurance @ 701 328-3820 website: http://www.workforcesafety.com.  As a sole proprietor or partnership, you are not required to pay Worker's Compensation on yourself or partner. It is optional but may be to your advantage to do so. If incorporated, you become an employee of the corporation and must pay for the coverage.

Remember the main purpose of insurance is to enable you to continue your business and lifestyle if a misfortune occurs. Identify and prioritize your risks to avoid being underinsured or over insured. It may be necessary to consult with more than one insurance agent, compare the coverage's, and determine what is adequate for you and your business. Always be certain to have something in writing stating what your business coverage is.This is especially important if your business liability is being insured under a personal homeowners or automobile policy.

Insurance risks will change over time. For example, an increase in your supply inventory may exceed your insurance coverage and signal a need to increase the coverage. Annually review your insurance coverage and the risks you face with your agent.  ______________________________________________________  
Printed with permission from Donn Frahm, Insurance Agent, Carrington, North Dakota http://www.farmersunioninsurance.com/dfrahm (November 30, 1999)

I. Insurance Considerations for Sideline Businesses: A. Personal liability policies have business exclusions; B. Personal and business assets to protect; C. Owe public higher degree of care once on your property; D. Charging a fee changes liability exposure immediately;  E. State of North Dakota may require insurance.

II. Your Exposure: A. General Liability (includes premises/operations and products liability exposure)' B. Auto Liability (adequate limits of liability, UM/UIM, and non-owned auto liability); C. Workmen's Compensation coverage for employees; D. Requiring certificates of insurance from independent contractors.

Examples of Sideline Businesses: Electric motor repair, saddle work, custom quilting, seed sales, custom snow removal, casino transportation, custom feed grinding and hunting allowed on premises.
Other Considerations: Have attorney draft hold harmless agreement. Be careful when allowing customers usage of your own vehicles, especially recreational vehicles. Remember that animals and people represent high exposure. Liquor - BE VERY CAREFUL

GENERAL INFORMATION - The basic purpose of the Farm-Guard policy is protection of the farmers' assets. Usually a farmer has invested heavily in real estate, livestock, equipment and machinery, and operates as an individual or partner. Consequently, unlike a corporation, the farmer's entire assets, both business and personal, are subject to attachment for the satisfaction of a judgment.

WHAT IS INSURED? The Farm-Guard policy is a package policy in the sense that it provides liability protection for: Personal Acts of Insured's; Physical Condition of the Premises; and Business Operations (Farming) on and off the premises of the named insured and members of his immediate family. Business pursuits (that generate in excess of $2,000 in receipts in the prior calendar year) and business property, other than farming, are excluded. Farming is defined as "the ownership", maintenance or use of the "insured premises" for the production of crops or the raising or care of "livestock". "Farming" also includes operations of roadside stands kept mainly for the sale of the insured person's farm products. "Farming" does not include altering the characteristics of farm products through processing operations. This definition becomes important to the agent because today farmers are often conducting businesses other than actual farming on and off the premises. To supplement their income farmers are engaged in part-time selling jobs - seed corn, fertilizer, insurance, etc. Some farmers have established businesses which call for processing the produce which he and other farmers raise - seed corn drying plants, butchering plants, saw mills, etc. These businesses may be allied to farming, but are not farming as defined. These operations are business pursuits and are excluded if they generate more than $2,000 in gross receipts in the prior calendar year. Agents should be alert to warn prospects that such operations are not covered in the Farm-Guard policy, and suggest ways to provide the protection. If the operation is incidental and generates less than $20,000 in gross receipts in the prior calendar year, it may be covered by an endorsement which waives the exclusion with respect to that operation. If it is more extensive, the operation may be covered by a General Liability Policy. The farmer owes an obligation to his employee under Common Law; he must provide a safe place to work and safe tools to work with. Legislation in most states has placed farm employees under the Workers' Compensation Act. (Minimum requirements apply as to the time of employment and amount of payroll. Agents should be aware of the minimum requirements for their state.)

WHO IS INSURED? The broad definition of insured includes the spouse living in the same household as the insured; a person living with the insured and related by blood, marriage, or adoption; a ward, foster child or foreign exchange student living with the insured; and any unmarried and financially dependent child under the age of 25 who is away at school. Because the liability coverage extends to the personal acts of any of the above persons, the underwriting rule provides that only one individual can be identified as the "named insured" and covered under the basic rate. If any others with an insurable interest in the farm premises and operations wish to be named in the policy, they must be identified as "additional insured’s," and an extra premium paid. The definition of insured also includes a partnership, corporation, estate, trust, or any other entity as stated in the declarations. **Caution: Adding additional named insured’s decreases the amount of liability coverage available per insured in a catastrophic loss where all insured’s are named.

HOW IS IT INSURED? - Types of Coverage: The Basic Unit - Mandatory Coverage’sLiability to Public - Coverage A. This coverage protects the insured against claims, whether legitimate or not, for all types of covered damages to persons or property allegedly arising out of some act of negligence in connection with the farming operations, use of the premises, or personal acts of an insured. "Fire legal liability" coverage which protects tenants for damage caused to rented property by their negligence is also included.

Some exclusions pertaining to this coverage are: 1) Injuries of employees. 2) Liability assumed under contract unless the contract pertains to the farming operations and is dated prior to the date of the bodily injury or property damage. 3) Damage to property in the care, custody or control of the insured, with a few exceptions. 4) Damage from crop dusting or spraying from an aircraft.

FARM-GUARD- BUSINESS ACTIVITIES ENDORSEMENT GMRC 1031: The Farm-Guard policy excludes "business activities" when the total gross receipts exceed $2,000 in the prior calendar year. "A Business activity is defined in the policy as "trade, profession, or occupation other than farming."

To a varying degree, many farmers engage in activities which cannot be defined as farming such as snow removal, machinery repair, seed corn sales, etc. The farmer needs liability protection for such activities to round out a full and complete program of protection. The farmer could purchase a General Liability policy for such "business activities" but frequently the activity requires only a small portion of the farmer's time and contributes only marginally to the annual income. Consequently, the farmer finds the "minimum premium" of the General Liability policy too costly. If the "business activity" is incidental in nature and makes no use of employees, we will permit endorsement of the Farm-Guard policy to waive the exclusion on business pursuits in return for an additional premium.

Caution must be stressed in using this endorsement. Premium rates are based on the premise that the activity is minor in comparison to the insured's farming activities. If the "business activity" generates more than $20,000 in gross annual receipts in the past calendar year, the operation should be insured separately under a General Liability Policy. (Please note that if the insured is operating on a commission basis such as a seed corn salesman we will use gross commissions instead of gross receipts). If the insured employs hired help in the activity (irrespective of income) a General Liability Policy must be used and Workers' Compensation insurance provided. The Farm-Guard policy does not cover employers' liability for these activities nor will the endorsement waive the exclusion with respect to Coverage C and D of the Farm-Guard Policy.

When an insured/applicant is engaged in an incidental business that is not listed on the Business Activities Rate Schedule, but meets the rules outlined on this page, submit to the Home Office for consideration. Incidental Retail/Service N.O.C. has been provided for those activities. Some examples are baking pastries, bee keeping, breeding animals, storage of property of others, open air markets, and fish hatcheries.

Should an insured engage in several different activities during the year, the additional charge should be made for each activity? All classifications will be shown on the endorsement in order to waive the exclusion for each of them. The following is a listing of activities that would not be subject to coverage: bulldozing, custom butchering, fishing for charge, miniature golf courses, golf driving ranges, tennis/handball/shuffleboard courts, horse boarding, racing stables, breeding/livery, hayrides, rental or riding horses, archery ranges, sawmills, swimming for a charge, hunting on premises for a charge, custom spraying, hoof trimming/horse shoeing, seed corn processing, dance studios, exercise classes, daycare services exceeding 4 children, dog kennels, machinery rentals, machinery repair-including welding, tree trimming, livestock dealers, skeet/trap shooting, manufacturing, auctioneers, snow removal for government subdivisions, picnic grounds, rock quarries and fruit orchards open to the public.   This sample information was provided by -Farmers Union Insurance Agent, Donn Frahm http://www.farmersunioninsurance.com/dfrahm

For further information on applications that relate to your business on Outfitters & Guide Services, Game birds, Commercial Equine Boarding, Pony Rides, Recreational Equipment, Water Rafting, etc. please contact your insurance agents for proper procedures to assure you are covered.

Click here to view sample forms and for more information on insurance.



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