As a farmer, you have a lot of concerns: weather; financing; crop yield; commodity prices; regulation; and the list goes on. Have you ever spent time thinking about your legal liabilities because you hire employees? Simply stated, a farmer can sometimes be held liable for damages to third parties as a result of negligent actions by his or her employees.
A farmer has three basic types of employed persons:
- Servant – the employer directs and controls the manner by which the employee does their job.
- Agent – this is a person hired and given authority to either transact business or manage various affairs on behalf of the employer.
- Independent Contractor – a person contracted to perform specific jobs according to the contractor’s own methods.
How do these three types of employees impact the farmer’s potential liability? Let’s take a look.
If the farmer supervises and directs the actions of hired individuals who work on the farm, there is legally a “master-servant” relationship. As a result, the farmer may be responsible for the actions of their employees which may cause personal injury or property damage to third parties. The key point is that the employee who causes injury or damage must be acting within the scope of his or her employment. Unfortunately, legal liability is not always clear cut, and may ultimately have to be decided by a judge or jury.
While the role of an “agent” may seem clear, his or her actions can result in legal liability for the farmer even for things that the farmer may not have intended. If you are contemplating hiring an agent to transact business on your behalf, seek legal advice before outsourcing such tasks.
Of the three employee types, the farmer has the least power over an independent contractor. Usually independent contractors are hired to do specific jobs by their own means and methods, giving the farmer little control over how the job is done. As a result, farm employers usually are not responsible for actions by independent contractors. So what can cause a farm employer to be potentially liable for an independent contractor’s actions?
- Knowingly selecting an incompetent independent contractor. An acknowledged lack of competency increases the chance of injury during a job.
- Providing the independent contractor with flawed plans, designs or specifications. Injuries to third parties as a result of faulty plans could result in the farm employer being held liable.
- Hiring an independent contractor to perform an inherently dangerous job. A farm employer cannot avoid liability by delegating a dangerous job to a contractor. Think aerial crop spraying. 1
As a farm employer, your best protection for potential liability associated with employee negligence is a sound Farm Liability insurance program.
What about your responsibility for injuries to your employees? What if you are not required to provide Worker’s Compensation insurance? Does your liability as a farm employer end there? No!
Worker’s Compensation insurance, developed to provide coverage for employees injured on the job, is usually well understood by farm employers. All states have Worker’s Compensation programs, and have developed their own specific sets of governing laws and available benefits. The state also determines when Worker’s Compensation insurance is mandatory for farm employers. Check with your state Labor Department to determine if you, as a farm employer, are required to carry Worker’s Compensation insurance.
This employee-protection type of insurance has two parts. Part I provides statutory benefits to an employee due to a job related injury (including death) resulting from an accident or occupational disease. Part II, or Employer’s Liability, pays, on behalf of the employer, all sums that the employer may become legally obligated to pay as damages because of bodily injury or disease sustained by any employee arising out of and in the course of his/her employment by the employer. 2
What if your state does not require you to provide Worker’s Compensation insurance? Does your liability for injury to your “servant” employee end there? No! Even if you carry the appropriate Worker’s Compensation insurance, an employee may still be able to sue the employer for his injury. It may be done because if there is a reasonable likelihood that the injured employee will be able to collect compensation in excess of the benefits available in from a Worker’s Compensation policy. However, in that case, the suing employee waives his or her right to seek or collect any benefits under the insurance policy. An employee choosing to receive Worker’s Compensation benefits under an issued policy usually cannot sue his or her employer.
If the farm employer does not have Worker’s Compensation insurance, an injured employee can still sue for damages. Stand-alone Employer’s Liability coverage can be purchased to protect the farm employer. In fact, Employer’s Liability coverage is usually attached as an extension to a Farm Liability insurance policy in exchange for a relatively small premium. Note that Employer’s Liability coverage is compulsory in some jurisdictions but elective in other jurisdictions. In compulsory jurisdictions, the employer who fails to have the coverage can be subject to fines or even face the forced closure of the business.3 Again, check with your state’s Labor Department to be sure.
A Worker’s Compensation policy will pay an employee’s outlined medical or wage-based damages regardless how high they may reach. Employer’s Liability insurance is normally written with a maximum limit that the insurance carrier will pay per accident, disease or bodily injury by disease. Like other forms of liability coverage, the limit is chosen by the employer at the time of negotiating a purchase3.
Employer’s Liability associated with Farm Liability policies is intended to protect a farm employer from legal liability arising out of employee injury, when not covered by a Worker’s Compensation policy. Although coverage applies to all Employers’ Liability claims “not specifically excluded”, the policy lists the most common types of claims3:
- Third Party Actions – A lawsuit filed by a third party, seeking indemnity because it was held liable for an employee’s injury. Take for example, an employee who was injured using a piece of machinery that the employer had not properly maintained. The employee sues the manufacturer of the equipment. In turn the manufacturer sues the employer for contributory negligence due to poor maintenance4.
- Loss of Consortium – A lawsuit typically filed by an injured employee’s spouse for loss of services of his or her spouse who was injured in the course of employment4.
- “Dual Capacity” Suits – lawsuits brought by an injured employee, against the employer when the injury arises from a product the employer manufacturers. In such a case, the employer is liable not only as an employer but also as a manufacturer4.
- Diseases or Injuries excluded by the state Worker’s Compensation statutes3.
Purchasing Employer’s Liability coverage is a wise step to cover gaps in coverage between Worker’s Compensation insurance and the Farm, Commercial or General Liability policy.
All states have differences in insurance requirements relating to one’s employees. Be sure you know what your state requires. The best protection for a farm employer would be to purchase Worker’s Compensation insurance which automatically includes Part II – Employer’s Liability. If you are not required by your state to provide Worker’s Compensation insurance, it can still be purchased voluntarily.
Remember, your best protection is working with a trusted advisor. Your insurance agent is an excellent source of knowledge. Use them!
1 Liability of Farm Employers, Stephen F. Matthews and Timothy W. Triplett, Department of Agricultural Economics, University of Missouri Extension G451, Reviewed October 1993 http://extension.missouri.edu/publications/DisplayPrinterFriendlyPub.aspx?P=G451
2 June 1999 Commercial Insurance Update; Worker’s Compensation: State of the Market http://www.cavignac.com/publications/publications-commercial-client-commercial-insurance-updates/commercial-insurance-update-workers-compensation-state-of-the-market/
3 5 Reasons Employers Need Employer’s Liability Insurance; May 4, 2010 By Rebecca Shafer, J.D. http://blog.reduceyourworkerscomp.com/2010/05/5-reasons-employers-need-employers-liability-insurance/#axzz2M82wjQyl
4 February 2004 Commercial Insurance Update; Employer’s liability: What Does it Cover? http://www.cavignac.com/publications/publications-commercial-client-commercial-insurance-updates/commercial-insurance-update-employers-liability-what-does-it-cover/
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