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
Overview
• Introduc>on to risk
• Using liability insurance to manage risk • Sales tax and business tax update
Objec@ves
• Increase awareness of tools to manage liability risk
• Increase awareness of educa>onal resources about sales tax and business tax
Risk is…
The uncertainty
regarding
likelihood or
magnitude of loss,
damage or injury
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
Some Incidents of Food-‐borne Illness
• 2003 Raw/undercooked onions Hepa>>s A • 2011 Cantaloupes Listeria • 2012 Cantaloupes Salmonella • 2013 Mixed salad Cyclospora
An Incident of Food-‐borne Illness at
Farmers Markets
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?
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-‐>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%
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
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%
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
Transferring Risk with Insurance
• Obtain insurance
– Examples: property, liability, health, disability, life, crop, etc.
• Learn and follow insurance requirements and claim procedures
Liability Insurance
• 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
• 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.
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.
Liability Insurance
• Insurance should be treated like any other business expense.
• Know what you’re paying for.
• Don’t just hope you’re covered.
Insurance Coverage Op@ons
• 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
General Farm Liability Insurance
Policy
– Protects against claims for bodily injury andproperty 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”
Cau@on
• 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
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…”
Commercial Business Liability
Insurance
– Covers ac>vi>es that a farmer also undertakesthat are not considered “farming”
– Wrihen specifically for the business involved – May provide coverage for injuries excluded in a
Cau@on
The sale of
produce that you purchased from another farmer is likely not covered under a general farm liability
• 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.
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
Combina@on Policies
– General farm liability policy and commercial business coverage may be combined with a homeowner’s policy
Excess/Umbrella/Surplus Lines of
Insurance
– Provide catastrophic loss protec>on when theunderlying insurance is inadequate
Considera@ons…
• 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
Safe Haven???
• “No need to worry… I only sell to friends and
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.
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.
“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.
Other Considera@ons
• 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
Take Home Messages
• Product liability insurance is a vital legal risk management tool
• Carefully consider needs for coverage • Work closely with insurance agent and
Sources of Product Liability Insurance
• C.L. Butcher Insurance Agency 401 Hotel Avenue
Knoxville, TN 37918 (865) 689-‐5482
• Campbell Risk Management (for farmers markets and vendors) 9595 Whitley Dr #204
Indianapolis, IN 46240 (800) 730-‐7475
email: [email protected]
Sources of Product Liability Insurance
• Food Liability Insurance Program 260 South 2500 West, Suite 303 Pleasant Grove, UT 84062
(888) 568-‐0548
email: info@fliprogram.com hhp://www.fliprogram.com/
• Gilley McCready & Sneed Insurance 607 Holston Avenue
Bristol, TN 37620 (423) 968-‐7181
Sources of Product Liability Insurance
• John W. Pickard
Webb Pickard Insurance & Investment Services, Inc. 5258 Murfreesboro Road
LaVergne, TN 37086 Office (615) 793-‐9000 Cell (615) 585-‐8801
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.
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 67-‐4-‐712.
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
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.
Special “Thanks” to Tennessee
Department of Agriculture
Are You Covered?
Be Informed About
Product Liability Risk
Hal Pepper
Financial Analysis Specialist
P. O. Box 1819
Spring Hill, TN 37174 931-‐486-‐2777
