Liability, Insurance, and Risk Management

for Food Enterprises and Urban Farms

 

Anyone who runs a business or organization, no matter how small, is at risk of being sued. Even if you didn’t do anything wrong, you’ll spend a lot of money proving that. A good insurance policy will cover those legal expenses. Accidents can and do happen, even if you are careful. Remember:  Anyone can sue you for anything. Even if the claim is frivolous and gets dismissed, you’ll still spend money on lawyers to defend you.

 

What kind of insurance do I need?

Before you decide what kind(s) of insurance to buy, you should identify the risks associated with what you’re doing and how you operate:

 

  • Do you sell food at a farmers market?  You probably need general liability (“slip and fall”) insurance to cover you for any accidents that occur in your booth or space.
  • Do you use a delivery vehicle?  You’ll need an automobile insurance policy.
    • Do you have employees?  If so, you’ll need workers’ compensation insurance. 
    • Do you sell food that could be contaminated or spoil easily?  You should consider product liability insurance.
    • Are you a nonprofit organization? You may have lower-rate insurance options available to you.

 

Your choice of insurance may depend on whether you lease or own your land.  If you lease your land, your insurance may depend on who owns the land.  For example, the City of Philadelphia leases city land for use in urban farming. The City has three categories of farms and gardens—individual gardens, community gardens, and market- or community-supported farms.[1]  

Each type of garden requires a lease agreement with the City, and before the City will lease the land, the gardener or farmer must secure insurance that the City approves.

 

If you do not lease your land from the City but rather own the land or rent from a private landlord, you may have more flexibility in your choice of insurance coverage.

 

Types of insurance you will want to consider for your urban garden:

 

General liability insurance: covers bodily injuries, property damage, and a handful of losses that could occur as a result of the operation of your business. General liability is also sometimes known as “slip and fall” insurance, and it is particularly important if you have “premises,” like a farmers market booth or shop, where the public will visit your business.

Even if you are leasing your space, it is likely the owner will require you to have general liability insurance, and may ask you to add him/her to your policy as an “additional insured.” You’ll need to check with your insurance provider to see how and if you can add another person or organization to your policy. Although you might expect that your landlord would be partly liable for any injuries on the property, most likely your landlord will put a “hold harmless” waiver in your lease. This will make sure that you are fully responsible and that the landlord will not have any liability unless the injury has something to do with his or her negligence.  

Note for BACKYARD FARMS: These days, many people are using backyards to grow food for the community or for a business. Generally, homeowners insurance policies cover injuries that take place on the property if the injured party is the guest of a homeowner and if the activity is not for a commercial purpose. Injuries related to casual and non-commercial backyard garden projects are probably covered by homeowners insurance, but it is a good idea to check with your homeowners insurance carrier.

Most homeowners policies have endorsements that can be added to cover farming-related injuries if farming is not your primary occupation. Endorsements are modifications to the general policy that add or remove provisions to serve particular needs. For your garden, you can add “incidental farming; personal liability” and “farmer’s personal liability” endorsements to your homeowners insurance policy. 

 

Product liability insurance protects you if a customer gets sick from your food product. Whether you purchase this type of insurance probably depends on what type of food product you’re providing and the level of risk associated with that product. For example, if you’re selling bread or granola, your risk may be low enough that you can do without this type of insurance. If you’re selling vegetables or animal products like cheese, products liability insurance is recommended by most commercial urban farmers. Although you may take care to make your garden organic, there are pollutants in the air and in the ground in the city, and these could potentially contaminate your food. 

To give an idea of cost, we spoke to two medium-sized commercial urban farms and learned that they pay between $700 and $1000 per year for product liability insurance coverage with limits of $1 to $2 million.

 

In addition to purchasing insurance, you’ll want to make sure to comply with the Pennsylvania laws that regulate food sales, including: 

  • The Pennsylvania Food Code (Title 7, Chapter 46 of the Pennsylvania Code)
    • The Food Code regulates many aspects of selling food to ensure public safety. In particular, the Food Code has specific requirements for displaying and preparing food like fruits and vegetables.
    • The Food Safety Act of 2010 (3 Pa. Cons. Stat. §§ 5721-5737)
      • The Food Safety Act of 2010 regulates licensing for vendors at farmers markets, and it provides exemptions to farmers who sell only certain types of food products.
      • Milk Sanitation Law (7 Pa. Code § 59a)
        • The Milk Sanitation Law regulates the production, transportation, processing, handling, sampling, examination, labeling, and sale of milk and milk products.
        • Egg Refrigeration Law (31 Pa. Cons. Stat. §§ 300.1-300.9)
          • The Egg Refrigeration Law regulates the temperature at which eggs must be kept, the number of days in which eggs must be sold after they were laid, and the labeling requirements for eggs.

           

Commercial automobile insurance

Commercial automobile coverage protects you from losses incurred while employees and volunteers are using your vehicles for purposes of your business, and for damage done to the vehicles. Most policies address each individual vehicle separately, and coverage and costs vary depending on factors such as vehicle size and intended use.

The Act 6 Amendments to the Pennsylvania Motor Vehicle Financial Responsibility Law guide the minimum levels of coverage you must have on your vehicle. Liability and first party (PIP) coverage are required for regular vehicles.  Liability insurance covers any injury you might cause other people with your car, and first party (PIP) insurance covers injuries sustained by you or other people in your car.

If you use special farming vehicles in your garden, you may not need insurance for them. Pennsylvania does not require registration for “implements of husbandry” that are used only on a farm or that are used on the road from sunrise to sunset to drive between parts of your farm or to buy or sell agricultural goods within twenty-five miles of the farm.[2]  If you use a vehicle that would normally be used on the road and adapt it for use on your farm, it may not qualify as an implement of husbandry, in which case you will need to register and insure it.[3]

 

Workers’ compensation insurance

If you have even one part-time employee, you need workers’ compensation insurance in Pennsylvania. Not having workers’ compensation insurance is a criminal offense.  You aren’t required to cover volunteers, but you can choose to include them in your coverage.

You can get workers’ compensation insurance from an agent or broker, the State Workers’ Insurance Fund, or you can “self-insure” if you qualify.[4]  Policy rates are based on the size of your payroll and the types of tasks your employees perform. Your premium will be determined by the classification code that the Pennsylvania Compensation Rating Bureau gives you, which is based in part on your policy rate.

Note for URBAN FARMSSome urban farmers have found that their workers’ compensation policies are unusually expensive, in spite of the fact that there is a low risk of injury in urban farming. This is because insurers often liken an urban farm to a large commercial farm that involves trucks, tractors, chemicals, repetitive motion activities, or other activities with a higher risk of injury. It’s a good idea to call around until you find an insurer or broker who understands urban farms. One suggestion is to describe to the insurer or broker that you are an urban “garden,” rather than a “farm.” Of course you need to be honest about the activities you are engaged in, but reframing the activity as a garden might help insurers understand your activity and choose an insurance policy that better fits your needs.

Pennsylvania insurance companies may also offer group discounts to groups of five or more businesses that are similar. If you know of other urban farmers in your area who are also looking for insurance, it may be a good idea to try to purchase a workers’ compensation policy together as a group. For more information on workers’ compensation requirements for employers in Pennsylvania, see http://www.dli.pa.gov/Businesses/Compensation/WC/insurance/Pages/default.aspx.

 

Environmental liability insurance

Environmental liability insurance can protect you against accidental spills of chemicals, waste, or other pollutants that might harm the environment. Although your urban farm may be organic and not use many chemicals, there might still be some pollutants involved in your farming, such as manure and gasoline. If these spill and seep into the groundwater, you could face costs to help with the cleanup. Environmental liability insurance will help cover these costs.

 

How much insurance should I buy?

This is a business decision only you can make. There are minimum coverage amounts set for certain types of insurance, like automobile and workers’ compensation insurance, but for others, the amount is up to you. There are a lot of types of insurance available, and your business could go broke if you buy them all. Think about the risk level associated with your particular product, and talk to a good broker who is familiar with urban farming.

 

What can I do to reduce the cost of insurance?

Find out if you can associate with or become a member of a larger entity, which may be able to provide discounted insurance rates. For example, the Land Trust Alliance (LTA) has discounted insurance packages for its members:

  • You’ll need to have 501(c)(3) status, or be in the process of obtaining 501(c)(3) status. 
    • 501(c)(3) status is an IRS designation for tax-exempt charitable organizations. If you want this status, your farm cannot be run for private profit. Instead, if you gave the produce that you grew to a homeless shelter or if you used your garden to teach others how to run their own urban farms, you might be able to qualify for 501(c)(3) status.
    • You will also have to adopt the LTA’s “Standards and Practices,” which is a nonbinding legal resolution of guidelines for the responsible operation of a land trust.
      • LTA’s annual membership fees are based on your organization’s annual budget.

If you’re a 501(c)(3) nonprofit, consider contacting insurance companies that work exclusively with nonprofits, such as First Nonprofit Insurance Company. 

In Pennsylvania, the Neighborhood Gardens Trust is a land trust that owns and provides insurance to a number of urban gardens. They are a good resource for learning how to start an urban land trust. You can find more information about them at http://www.ngtrust.org/

Additionally, the American Community Gardening Association provides liability insurance for community gardens visit: https://communitygarden.org/programs/garden-insurance/

Advocates in Philadelphia are currently looking at ways to start umbrella policies, similar to what LTA offers, but specifically for community gardens in need of discounted insurance.  If you are interested in being a part of this developing policy, please contact the Garden Justice Legal Initiative.

 

What else can I do to protect myself?

  • Indemnification agreements

Indemnification, or “hold harmless” agreements, can provide additional protection by requiring someone else to pay your legal fees and expenses if you are sued by a third party. Whether you can get this type of agreement may depend on the power of your position in the relationship. For example, a farmers market may require a vendor to indemnify the market if the market is sued because of an injury sustained in that vendor’s stall. The party who is being “held harmless” should also ask to be named as an “additional insured” on the other  party’s insurance policy to make sure that the party agreeing to pay the expenses has the financial resources to make good on that promise.

 

  • Liability waivers

Depending on your activities and who is involved, you may also want to ask some participants to sign a liability waiver. For example, if your organization operates a community garden, you could ask volunteers and gardeners to sign a liability waiver, which states that they will not hold you responsible or sue you in the event that they are injured in the garden. The waiver should be very clear in informing gardeners of the risks they are taking and about the fact that they are voluntarily waiving their right to sue you. In practice, courts often refuse to uphold liability waivers, on the grounds that it would be poor public policy for businesses and organizations to waive their duty to be careful. Nevertheless, if you carefully craft your waiver, it may protect you, either in court or in setting clear expectations that volunteers should be careful to avoid injury and not sue you. 

 

  • Limited liability business structures

Incorporating or forming an LLC for your business can limit your liability and provide an extra layer of protection. If you are sued, the recovery will be limited to the assets owned by the company, and your personal assets—like your home, car, and bank accounts—will be protected. In Pennsylvania, you can create an LLC by filing a certificate of organization with the Department of State. 15 Pa. Code § 8914. Some of the information you will need to list in the certificate of organization includes the name of your company (which must contain either the word “company,” “limited,” or “limited liability company”) and the in-state address of a registered office for your company (or the address of a commercial registered address provider). Id. §§ 8905, 8906, 8913.

 

Remember:  this “shield” over your personal assets is not absolute. For example, you wouldn’t be protected if you commit intentional fraud. In addition, you can destroy the limited liability protection if you fail to treat the LLC as a business. For instance, you would not be protected if you were to treat the LLC bank account as your own personal account. So act fairly and legally, fund your LLC adequately, and keep your farm and personal business separate.

 

Anything else I should know?

  • Shop around for coverage. Find an insurance broker or agent who understands your business and the particular risks associated with what you’re doing. Rates can vary widely from one insurance company to another.
  • Have detailed conversations with your insurance provider. Make sure your insurance provider understands what you’re doing so that you get the coverage you need and not more than is necessary for your activity.
  • Ask lots of questions. For example, a product liability policy might cover your sales of produce, but not meat and dairy.  Your policy might not cover “temporary structures” like tents or tables used in your farmers market stall. You don’t want to find this out after you submit a claim.
  • Be safe. One of the best ways to manage risk is to adopt safety practices and policies. Train people on safety, remove hazards, post warnings – a little care goes a long way in preventing injury and avoiding liability.

 

Acknowledgments:

This FAQ was a collaborative project of mod4 LLP and the Sustainable Economies Law Center. Thank you to the following people for research and contributions to this FAQ:

  • Karen Stambaugh, Partner, mod4 LLP
  • Elizabeth Spellman, Legal Intern, Sustainable Economies Law Center
  • Janelle Orsi, Co-Director, Sustainable Economies Law Center


[1] To lease land for an individual or community garden, your garden must be nonprofit, but you can garden your land for profit if it is a market- or community-supported farm.

[3] See Senft v. Keystone Insurance Co., 479 A.2d 1066 (Pa. Super. 1984)

[4] See http://www.dli.pa.gov/Businesses/Compensation/Pages/default.aspx for more information about each of these options and to search for insurers, and see Pennsylvania Workers’ Compensation Act section 125 for the requirements to self-insure.