University of Maryland Extension

Business liability protection

Nicole Cook, B.S., J.D., LL.M., Environmental and Agricultural, Faculty Legal Specialist, Agriculture Law Education Initiative (ALEI), University of Maryland Eastern Shore

Urban Ag home | Table of contents

Liability insurance is a part of the general insurance system of risk financing, It protects the purchaser of the insurance (the "insured") from the risks of liabilities imposed by lawsuits and similar claims. It provides legal counsel and pays the costs and any damages that might be awarded against the insured in the event someone sues or makes a claim that comes within the coverage of the insurance policy.

Commercial general liability (CGL)

A CGL policy is a standard insurance policy issued to business organizations to protect them against liability claims for bodily injury and property damage arising out of premises, operations, products, and completed operations; and advertising and personal injury liability (injury to mind or emotional injury).

CGL policies have different levels of coverage. A policy might cover premises liability, which protects the business from bodily injury or property damages that occur at the business’ physical location. It may also include coverage for bodily injury and property damage that is caused by the farm’s products (product liability).

Product liability

Covers the cost of defending claims in the event that a product from your farm causes injury or other damage to third parties.

For farms, product liability insurance protects them in case a food that they produce for sale harms a consumer. This is different than general liability insurance, which covers risks of bodily injury or property damage caused by direct or indirect actions of the insured, like a customer slipping on water in the greenhouse. Product Liability insurance covers the legal defense costs as well as paying any judgments that might be awarded against the farm, which, in the case of foodborne illnesses can be in the millions of dollars. Although food safety planning and good agricultural practices reduce the chance of a farm product making someone sick, they won’t protect you from being sued and having to defend your business. In addition, many farmers markets require vendors to carry product liability insurance.

Employer liability

Covers financial loss if a worker has a job-related injury or illness not covered by workers’ compensation.

Premises liability

Premises liability insurance protects the property owner from claims that a person was injured on the premises. If your farm business is located on your personal property, like your home, it is unlikely that your homeowners policy will provide protection in the case that a customer or visitor to the farm is injured while at the farm. Your farm business will need to be separately protected under a business liability policy. Premises liability coverage for businesses is often part of a CGL policy, but it can be purchased as a separate policy. Contact an insurance agent for information.

Errors and omissions (an “E&O” policy)

Covers errors and omissions made in financial reporting statements, as well as coverage for damages, resulting from the actions of its directors and officers. This policy is useful for businesses that have boards of directors, and investors. An E&O policy can be made part of a CGL policy or can be purchased separately. Contact an insurance agent for information.

Note that, depending on who owns the land on which your urban agriculture project is located, you may need to consider different ways of obtaining liability insurance. Any agreement allowing use of land (for example, a lease, license, etc.) should make clear which party is responsible for obtaining liability insurance. If the lease or license indicates that the farmer or urban agriculture organization will be liable for all activities conducted on the property, it will be the organization’s responsibility to obtain liability insurance. It is likely to be much easier for the property owner to obtain private property insurance. This insurance can protect the property owner and the organization farming the land, as lessees or licensees, from the costs of any injuries caused on the site. If an organization is leasing land it will be important to check with the landowner to make sure that the agricultural project is covered by the landowner’s private property insurance. If the property owner does not wish to obtain property insurance or if the organization is unable to obtain insurance, the organization may want to consider extra precautions such as fencing the property, if permitted, posting signs around the lot limiting open hours, and warning of hazardous conditions on the property. Cities do not provide liability insurance for city-owned property, but they also typically do not require the lessees or licensees to obtain their own liability insurance either.

For more information about liability insurance, read Goeringer (2015) “Understanding agricultural liability” and Goeringer (2014) “Premise’s liability.”

Tort liability

Tort liability arises from the negligent or intentional infliction of damage to a person or to property. This type of liability is commonly insured under a general liability insurance policy. The simplest type of tort arises where someone is injured on a farm. Tort liability may also include employment torts, such as wrongful discharge, discrimination, or harassment. The effects of agricultural activity on the environment has both statutory and liability components. Adjacent landowners, communities, and public interest groups may use a combination of regulation and tort liability to influence agricultural activities. Traditional liability insurance policies may not cover pollution claims, and noncompliance with environmental regulations could result in severe civil or criminal penalties. Use of sound and safe production practices; education, certification, and licensing; third party audits; and compliance with statutes and regulations can mitigate the risk of tort liability. Accurate records of production activities, pesticide and fertilizer application; proper sanitation; and timely and appropriate response to adverse events, like spills or contamination, can provide evidence of reasonable care to protect workers, neighbors, and the environment.

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