Insurance as a Risk Management Tool
While a farmers market may experience many years of incident-free operations, unfortunate events and accidents can and do occur. Here are just a few possibilities:
- a customer slips, falls, and is injured;
- the wind catches a vendor’s tent or sign and it hits a person or vehicle, causing damage;
- vehicles collide in the parking lot;
- contaminated food sold by a vendor causes illness;
- a vendor challenges a decision by a market owner, board member, or market manager.
Most often, accidents and events like these are resolved without legal conflict. However, when the issue does escalate into a lawsuit, attorney fees and judgment or settlement costs can threaten a market’s financial stability. Even when those lawsuits are dropped, the time and money needed to handle the issue can seriously challenge the market’s reputation, owners, and managers alike.What kind of risks does Insurance help manage?
Case Study Spotlight: Capital City
Learn how insurance helped shield a farmers market against a trip and fall lawsuit in Montpelier, Vermont.Read Case Study
Insurance is an incredibly valuable tool to manage these risks. Good insurance provides farmers markets with:
- an attorney in the event the market is sued, so that the farmers market has access to the expertise necessary to defend against the lawsuit;
- a source of funds to pay covered legal liabilities, if they materialize; and
- a partner in identifying and managing sources of risk at the farmers market.
Markets should consider whether and what kinds of insurance are right for them (and possibly their vendors too). To that end, we encourage you to explore the topics below.
Using Insurance as a Risk Management Tool
At heart, an insurance policy is an agreement between the insured person or business and the insurance company. Like any contract, the words in that document are of the utmost importance. A full insurance policy is often between 30 and 50 pages long. Customers almost always receive a copy of this full policy, but they often don’t read it or even know that they’ve received this important document in the first place. (It might be delivered by email or stored in the customer’s online profile.)
What does an insurance policy contain?
An insurance policy lays out all the terms of coverage—what it covers and what it doesn’t. It often begins with covered risks—these are the events for which the farmers market would be eligible for compensation. Coverage for these risks is attached to specific covered items, activities, or persons. For example, lightning may be a covered risk, but coverage for lightning may attach only to a specific building or piece of equipment. Covered structures and items may be described in broad categories or listed individually, such as a “declarations” page listing specific vehicles or equipment. Any insurance policy has monetary limits; rare is the policy that will cover the full extent of damage from an incident. These limits come in different forms. Specific covered items may have limits on their replacement value. For example, a lightning strike is covered when it hits a specific building, up to a specific dollar value. Liability coverage will also have total liability limits.
How does insurance work?
If a covered risk materializes, a farmers market generally has to make a claim to draw on its coverage. Claims need to be made according to a specific procedure that often requires reporting certain information within a certain timeframe. Failing to adhere to the procedures (or failing to pay the premium on time) can make it harder to successfully file a claim.
To make insurance work for the farmers market, the leadership needs to understand the specifics of the coverage. An insurance company won’t pay on a claim if it wasn’t part of the contract, or insurance policy. Businesses pay good money for insurance. Farmers markets should know exactly what they are buying and what they are getting in return. This section lays out many of the broad issues, but an individual market needs to ask detailed questions to be sure they get the right package for their needs.
When people think about insurance, the benefits are usually the second thing on their mind. Cost is usually the first. The right insurance policy can be expensive. The cost of an insurance policy is based on the risks, which insurance companies take great effort to accurately analyze using the tools of actuarial science. A sound insurance company will make sure they charge enough so that they can pay out on good claims. A strong farmers market business plan will make sure the budget allows for adequate insurance.
Farmers markets have several types of insurance to choose from, depending on their risks and needs. This section addresses common options for market insurance, vendor insurance, as well as a few additional options.
Market Insurance Options
CGL insurance covers claims of personal injury or property damage that might occur to guests, vendors, and others at the market. CGL policies generally provide an attorney to defend the market and funds to pay any resulting liability. For example, these policies are designed to mitigate risks like:
- a customer trips and falls over an obstruction while walking through the market, injures himself, and sues the market for damages;
- a gust of wind knocks over the market’s sign, the sign breaks a car window, and the car owner sues the market for damages; or
- a tent is dislodged by an unexpected wind, damages others’ property, injures people, and the parties sue the market for damages.
CGL policies cover a wide range of the most common and dangerous incidents at a market. Generally speaking, a CGL policy is the go-to source for coverage of all things relating to injuries and property damage. Of course, there are limits to what it provides.
CGL policies generally do not cover:
- damage or injury caused by intentional acts rather than negligence;
- injuries to employees (which is addressed by workers’ compensation);
- damage from riots, pollution, terrorism, and a variety of other unlikely risks; or
- damage and injury extending from a violation of the law.
A CGL policy is required to list specifically what the policy will not cover, so markets should carefully review their CGL policy for more information on exemptions from coverage.
A CGL policy covers the farmers market itself when the farmers market is the subject of the lawsuit. Let’s return to our example of the sign with nails in it. (Say that a vendor’s sign has protruding nails and that a child trips and falls into the sign, getting a large cut in the process. The injured party might claim that the vendor is responsible because the vendor left protruding nails in the sign. The injured party can also claim that the farmers market is responsible because it didn’t stop the vendor from using a sign with nails sticking out). Of course, the farmers market isn’t a real person—there was a real person who failed to notice or address the nails in the sign. That person might have been the farmers market’s manager, staff person, volunteer, or owner. But that person was acting in on behalf of the market—thus, the action was an act of the farmers market itself. Nearly everything done for the farmers market or authorized by the farmers market will be considered an act of the farmers market. As a result, the CGL would cover that event, according to the terms of the policy.
Exception: Consultants and independent contractors
There is an important exception to the general rule that things done for the market are acts of the market. If the market hires consultants and independent contractors, the acts of those persons may be their personal acts. This is because consultants and independent contractors are seen as separate and distinct businesses from the farmers market. If the consultant were involved in an injury, then the consultant could be sued (along with the farmers market and any vendors involved). Consultants generally carry their own business insurance for this reason.
Exception: Market staff off the job
There can be circumstances where a person is sued in their personal capacity, outside their position with the market. For example, if a market manager gets into her car to drive home after work, and crashes into another car in the parking lot, the market manager was acting in her personal capacity. That’s where her personal auto insurance comes into play.
D&O insurance covers legal claims relating to decisions made by the market’s board (collectively or individually). Boards are unique in that they do bear some personal responsibility for their decisions—the exact nature of that responsibility depends on the exact business structure, as covered in the Governance section. D&O policies are designed to mitigate risks that might come up when:
- the board ejects a vendor and the vendor sues the market for the board’s decision;
- a customer becomes sick after eating food purchased at the market and then sues the market for deciding to admit the vendor who sold the food; or
- elected membership sues the board over bylaw changes.
Please note that this discussion isn’t meant to make directors nervous about liability for every decision they make. These claims must be based on the violation of one of the legal duties that a director has toward the business or organization. (Learn more about these duties in the context of nonprofit and for-profit corporations.) Lawsuits on these grounds are not common at all, and they are difficult for claimants to succeed on. But, it does happen and so insurance is worth considering.
D&O insurance will protect all individuals who are named as a director or officer by the market. Directors and officers are individuals who make decisions about the market, specifically those who determine market policies and appropriate funds. Notably, D&O insurance does not limit the number of individuals who can be named a director or officer. Coverage may be extended to staff or volunteers who have responsibilities similar to directors and officers. While insurance companies do not require the market to provide a list of the names of individuals elected to be directors or officers, the market would benefit from doing so. Markets can avoid ambiguity and confusion about an individual’s status as a board member before an incident occurs by communicating the names of board members to the insurer. This is an area where a detailed conversation with the insurance agent or underwriter is necessary to make sure adequate coverage is provided to relevant persons.
Under state law, most businesses and nonprofits must carry workers’ compensation insurance. This is why CGL policies generally do not cover employees—workers’ compensation is intended for employees. Workers’ compensation policies cover all employees for all injuries that occur in the line of duty, regardless of how they happened or who is responsible. As compared to CGL policies, workers’ compensation policies are much broader in terms of the type of coverage and the depth of coverage offered. Workers’ compensation insurance:
- covers the costs of medical care that the injured worker accrues;
- compensates for the income lost because the injured worker is unable to return to work; and
- protects the market from lawsuits by employees injured while working, as employees covered by workers’ compensation are prohibited from suing the market over their injuries.
Generally, workers’ compensation insurance does not cover independent contractors or true volunteers for nonprofit markets. (Volunteers for for-profit markets are likely employees and coverage under workers’ compensation is likely required. For more information on volunteers for for-profit businesses, see the Labor/Employment Law Risk page.) In a few states, coverage for volunteers through workers’ compensation is available. For the most part, farmers markets will use their CGL policies to protect against liability for injuries to (permitted) volunteers and independent contractors, although that issue needs to be addressed specifically with the insurance agent and/or underwriter. (For more on the difference between employees and independent contractors, visit our Labor Law section here.
Farmers markets will need to research the workers’ compensation laws in their state to determine if and when they need to purchase workers’ compensation insurance. As a start, markets might consider asking their insurance agent for information or calling the state agency that handles workers’ compensation for details (often, a state department of labor). Some states have different rules for nonprofits as compared to for-profit businesses, although most treat all employers the same.
If the market owns any vehicles, they are very likely required to carry auto insurance. Generally, automobile insurance provides coverage for:
- damage to the market’s vehicle from an accident;
- the market’s liability for damage to others for bodily injury or property damage; and
- medical costs for the driver and passengers of the market’s vehicle.
Most people are very familiar with the purpose and process of acquiring auto insurance, so little background is necessary. Farmers market owners in particular should know that auto insurance can protect the market from damage involving a storage trailer attached to the market’s vehicle. However, if the trailer is detached from the vehicle at the time of the incident, the auto insurance does not cover the storage trailer. In that case, the market will likely rely on the CGL policy for coverage, as long as the trailer is a covered item. Alternatively, if the market uses a storage trailer to transport equipment, it’s best to keep the storage trailer attached to the vehicle. If a market keeps a storage trailer on the market site, the owners should consider obtaining property insurance, which is discussed below.
If a market owns property, such as a storage trailer or a piece of technology, they may want to protect these items with property insurance. The primary purpose of property insurance is to assist the market financially if the property is damaged. These policies often address issues such as when:
- a tornado damages a building owned by the farmers market;
- a pavilion owned by the farmers market is damaged by vandalism; or
- a break-in and theft results in the loss of the farmers market’s computer system.
Farmers market businesses and organizations generally work closely with their insurance agents to settle on covered property and the covered value of each property item. Property insurance coverage is often combined into a business insurance package alongside a CGL policy.
EPL insurance protects the market against sexual harassment, discrimination, and wrongful termination claims by employees. These claims are not covered by workers’ compensation, which addresses physical injuries. This policy is often bundled into a business insurance package.
Vendor Insurance Options
To minimize exposure to financial risk, markets might require vendors to carry insurance, including commercial general liability and/or product liability insurance. By requiring vendors to carry insurance, the farmers market itself is better protected because the farmer will then have both an expert attorney litigating the case and a source of funds if the vendor is found liable. This way, when both the farmers market and the market vendor are sued, both have an expert defense in court and have the best chance of prevailing on the claim. For markets that require vendors to carry insurance, one best practice is to have the vendors list the market as a certificate holder on their policies. This ensures that any changes to a vendor’s policy will be communicated to the market.
Commercial general liability (CGL) insurance is described above in the CGL section. For a vendor, it might cover claims for when:
- a customer trips over an obstruction created by the vendor, injures himself, and sues the vendor; or
- a vendor’s sign blows away in the wind and shatters someone’s car window.
While the market covers the same risks through its general commercial liability, the vendors are individual entities that must hold their own insurance policy because they are not covered by the market’s policy.
Product liability insurance protects against liability from injuries related to the products a vendor sells. This coverage can address issues such as when:
- a customer consumes food from a vendor, becomes ill, and sues the vendor for medical costs; or
- a foreign object, such as a piece of glass, falls into a food item during preparation or packaging, injuring the person who eats the object and leading to an injury lawsuit.
Farmers markets may require vendors to carry product liability insurance for the same reason that they might require a CGL policy: when both the farmers market and the market vendor are sued, both will have an expert attorney to defend them in court. Other markets use the obligation as a marketing strategy. Some customers, especially restaurant and food service buyers, are attracted to markets where every vendor has coverage if a food safety incident occurs. For more information on food-related illnesses click here.
On the other hand, these policies can be incredibly expensive for vendors, and good policies are unavailable in much of the country. A market can take proactive steps to promote food safety where product liability policies are not a viable option. For more on promoting food safety, click here. A farmers market that handles food products extensively itself (that is, the market itself sells a considerable amount of food, rather than or in addition to vendors) might consider product liability insurance to cover its own products as well.
Generally speaking, the holder of an insurance policy—here, a vendor—may pay to add an entity—such as a farmers market—as an “additional insured” on the policy, extending the policy’s coverage to that entity. This provides even more protection for the farmers market. If both the policyholder and the additional insured are sued, the same insurance policy covers both entities equally.
The costs to a vendor of adding a market as an additional insured are typically relatively nominal. Some insurance companies require the policyholder to pay $30 to $50 per additional insured.
There are two ways for a vendor to make a market an additional insured:
- A vendor can indicate to its insurance company that a specific market should be listed as an additional insured for the policy term.
- A vendor’s insurance policy can include a blanket additional-insured endorsement. Subsequently, each time the vendor signs an indemnity agreement with a different market (i.e., promising protection against loss arising from the vendor’s participation), the vendor simply supplies the agreement to the insurance company to make the market an additional insured.
The additional-insured option is not necessarily a substitute for the farmers market carrying its own CGL policy. The market still needs coverage for liabilities it incurs from its own actions unrelated to any vendor, and it needs its own policy for that.
When a vendor designates the market to be a certificate of insurance holder, the insurance company must notify the market of any changes to the vendor’s insurance policy, including cancellation of the policy. A market may require vendors to name the market as a certificate holder, which lessens the burden of the market to track changes to vendors’ policies. A certificate holder is not necessarily an additional insured, and vice versa. (When a market is named as an additional insured, they do not receive notice of changes.) The market should consider asking vendors to designate the market as a certificate holder and to add the market as an additional insured for the most robust risk management.
Often, the amount of coverage a market needs to protect itself from risks and liabilities depends on a variety of characteristics.
Common variables for Commercial general liability (CGL) insurance include:
- market revenue
- vendor booth rental fee
- vendor sales reports
- number of vendors at the market
- number of visitors throughout a market season
Common variables for Directors and officers (D&O) include:
- market revenue
- operating budget
- donations (nonprofit markets)
Common variables for product liability include:
- gross annual sales
- type of product (fresh produce versus baked goods, for example)
While these considerations are reliable indicators to calculate coverage, each insurance company has its own method of calculation.
A knowledgeable insurance agent is key to finding the insurance coverage a farmers market needs. Below is an explanation of the types of insurance companies available. Knowledge of the difference is essential for the market to select an insurance product that meets its needs and to prepare for an initial meeting with an insurance agent.
Selecting an insurance company
What factors should be considered when selecting an insurance company or insurance agent? (Many insurance agents sell policies on behalf of multiple insurance companies.)
First, consider whether the insurer is admitted or non-admitted in your state. Admitted carriers have applied to, and been approved by, the state; must comply with all state insurance regulations; and are financially guaranteed by the state. If the company becomes insolvent – claims bankruptcy – the state will pay policyholders’ valid claims.
By contrast, non-admitted carriers are not approved by the state, do not necessarily comply with all state insurance regulations, and are not guaranteed by the state. Accordingly, if the company becomes insolvent, the state will not step in to pay policyholder claims.
Caution: Admitted carriers can provide non-admitted policies
A non-admitted insurance policy is called excess and surplus lines insurance. An admitted carrier can have a division that provides excess and surplus lines insurance policies. Even if a market works with an admitted carrier, they should seek to know whether its insurance policies will be protected by the government if the insurance company becomes insolvent. If the policies are categorized as excess and surplus lines insurance, then the state will not pay valid claims when the insurance company becomes insolvent.
A.M. Best is a rating agency that reviews and rates insurance companies. The rating system is largely based on an insurance company’s ability to withstand financial difficulties. In other words, A.M. Best evaluates the insurance company’s resilience. Will the insurance company be able to financially withstand a catastrophic claim? Part of shopping around for an insurance company includes finding out the company’s grade. A.M. Best evaluates an insurance company’s resilience, but it does not identify whether it is an admitted or non-admitted carrier. While A.M. Best is a useful tool, it’s important to confirm that the market’s insurance policies and vendors’ insurance policies ensure that if the insurer becomes insolvent, the government will pay for any valid claims.
Selecting an insurance agent
Here is a list of questions for markets and vendors to review before meeting with an insurance agent. While the list is not exhaustive, it prepares you for a meaningful discussion to better understand the insurance policies.
|Questions for Market Insurance||Questions for Vendor Insurance|
Note: No guarantee
Insurance can be critical to a market’s resilience. That said, it’s difficult to say with certainty, in advance, whether a certain kind of insurance policy will cover a specific kind of claim. Coverage depends on several factors, including:
- the unique facts surrounding a specific incident that gives rise to the claim;
- whether the insurance company deems that the policy covers the claim; and/or
- whether a court finds that the policy covers the incident, if the insurance company declines coverage and the insured sues for a determination otherwise.
These factors shouldn’t dissuade a market from purchasing insurance. Rather, they are a necessary caution that insurance doesn’t address all concerns.
- Can I save money on insurance by simply hosting a safe, low-risk farmers market?
- I require all my vendors to carry insurance. Why does the farmers market itself need insurance if all the vendors have coverage?
- I ask all my vendors to sign a “hold harmless and indemnification” agreement. Won’t that protect me?
- What about insurance for special events?
- What if a Market Cannot Afford Insurance?
Can I save money on insurance by simply hosting a safe, low-risk farmers market?
This is a very relevant question. With the high cost of insurance, isn’t it easier to rely on good safety practices to protect the market? Good safety practices are essential, but they aren’t a substitute for insurance. One of the primary benefits an insurance policy provides is an attorney to assist in defending against claims.
The reality is that when bad things happen, all potentially responsible persons and businesses are subject to a lawsuit. This is because the lawsuit is in part how we determine who is responsible for the occurrence. The courtroom is where each side presents their facts and their view of the story. Every business and nonprofit needs to be prepared to defend itself in court, even when it’s done everything right by hosting a perfectly safe farmers market. Safe farmers markets will make it much easier for the attorney to show that the market isn’t responsible. But the lawsuit process will have to follow its prescribed course. Insurance helps make sure a farmers market can navigate that process.
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I require all my vendors to carry insurance. Why does the farmers market itself need insurance if all the vendors have coverage?
Both vendors and the farmers market itself need insurance. This is because both the farmers market itself and the vendors might be separately responsible for an event or injury. They both need insurance to defend themselves individually. Let’s take an example. Say that a vendor’s sign has protruding nails and that a child trips and falls into the sign, getting a large cut in the process.
The child (or more likely, the child’s health insurance company) may decide to file a lawsuit to recover for those injuries. The injured party might claim that the vendor is responsible because the vendor left protruding nails in the sign. The injured party can also claim that the farmers market is responsible because it didn’t stop the vendor from using a sign with nails sticking out. Both parties need insurance because both can be responsible. (It is possible for vendors, markets, and site hosts to make each other “additional insureds,” which can also address this need.) For more information on additional insurance options see the second tab on this page.
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I ask all my vendors to sign a “hold harmless and indemnification” agreement. Won’t that protect me?
Under some very specific circumstances, a hold harmless and indemnification agreement can limit a farmers market’s exposure to liability, when it extends from a vendor’s actions. However, to be effective in court, the agreement should be drafted for the individual market by a qualified attorney. Also, these agreements don’t relieve the farmers market of responsibility for the farmers market’s actions. In most injury cases, the aggrieved party will have an argument that the farmers market’s actions contributed to the damage. Only the market’s own insurance will cover that likelihood. Markets considering using a liability waiver should work directly with a qualified attorney to craft an effective agreement, while understanding the limitations of these agreements.
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What about insurance for special events?
Sometimes farmers markets have special activities on market day, such as a bouncy house or a petting zoo, which might be supplied by companies that specialize in setting up bouncy houses or petting zoos. The best practice is to require the company to name the market as an additional insured on its own insurance. The outside company that specializes in the particular event has insurance that caters to possible claims related to the activity. As such, the market is better off when it is protected by that policy, if a claim or lawsuit ensues.
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What if a Market Cannot Afford Insurance?
Farmers markets that forgo insurance are taking a risk. There are alternative ways to manage risk, but none directly provide the expert attorney defense and source of funds to pay on a liability connected to the farmers market. Regardless, these markets might consider the following measures:
- Ask vendors to include the market as an additional insured.
- Ask vendors to designate the market as a certificate holder.
- Work with an attorney to develop an indemnity agreement for the market, and ask all vendors to sign an agreement indemnifying the farmers market for any harms that come to the vendor because of the market’s actions (read more about vendor agreements here [link to section on Vendor Agreements in the Vendor Management section]).
Read about the other tools to proactively engage in best practices that make an incident less likely.
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