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By: Robert Moore, Friday, June 02nd, 2023

Legal Groundwork

The National Agricultural Law Center (NALC) is holding its 10th Annual Mid-South Agricultural and Environmental Law Conference on Thursday (June 9th) in Memphis, Tennessee.  The conference primarily addresses agricultural legal issues in the Mississippi Delta region.  Robert Moore will be providing a presentation on Long-Term Care and its impact on farming operations.  Other topics will include real estate title issues, the 2023 Farm Bill and conservation easements.  More information can be found here and an online attendance option is available.

The NALC, funded through the National Law Library, is a long-time partner with OSU’s Agricultural and Resource Law Program.  The NALC maintains resources that are understandable and available to the general public.  The Center’s website serves as a hub for research and information within the agricultural, food and environmental law field.  You can view their extensive catalogue of information at https://nationalaglawcenter.org/

 

By: Robert Moore, Friday, May 12th, 2023

Legal Groundwork

The recent failures of three banks may have some farmers concerned about the security of their cash reserves.   Many farms hold large reserves of cash, the loss of which would be financially devastating.  The federal government does provide protection through the FDIC but not all financial institutions participate in FDIC, not all account types are covered and there are limits to the protection.  However, with a little bit of planning, even large amounts of cash can be fully protected from bank failures.

 

FDIC

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation’s financial system. The FDIC insures deposits and examines and supervises financial institutions for safety, soundness, and consumer protection.  FDIC deposit insurance coverage depends on two things: (1) whether your bank is FDIC-insured and (2) whether your chosen financial product is a deposit product.  If a bank fails, the FDIC will immediately ensure that holders of eligible accounts will receive their funds subject to coverage limits.  To determine if a specific financial institution participates in FDIC, the name of the bank can be searched in the following database:  https://banks.data.fdic.gov/bankfind-suite/bankfind.

 

Eligible Accounts

The following accounts are eligible for FDIC coverage:

  • Checking accounts
  • Savings accounts
  • Money Market Deposit Accounts (MMDAs)
  • Time deposits such as certificates of deposit (CDs)
  • Cashier's checks, money orders, and other official items issued by a bank

Accounts that are not eligible for FDIC coverage are as follows:

  • Stock investments
  • Bond investments
  • Mutual funds
  • Crypto Assets
  • Life insurance policies
  • Annuities
  • Municipal securities
  • Safe deposit boxes or their contents
  • U.S. Treasury bills, bonds or notes1

 

Coverage Limits

FDIC coverage is not unlimited.  Generally, coverage is capped at $250,000 but can be more depending on the type of account and number of owners/beneficiaries.  The coverage limit for each type of account is as follows:

Single Accounts (Owned by One Person)                  $250,000

Joint Accounts (Owned by Two or More Persons)      $250,000 per co-owner

Corporation, Partnership Accounts                             $250,000

Revocable Trust Accounts                                          $250,000 per owner per unique beneficiary

Irrevocable Trust Accounts                                         $250,000 for each unique beneficiary

Government Accounts                                                $250,000

 

Strategies to Insure Large Reserves of Cash

The account restrictions and coverage limits can be problematic for many farms.  It is not uncommon for farms to hold more than $250,000 in a single account to buy inputs, buy the next farm or as a reserve for lean times.  Consider the following example:

Farmer has $1,000,000 in his individual savings account at Bank Co.  If Bank Co. were to fail, FDIC would only protect $250,000 of his $1,000,000, leaving $750,000 unprotected and at risk.

The following are a few strategies that can be used to insure large cash reserves:

Bank Networks.  Some banks are part of a network that allow eligible accounts to be set up at other, cooperating banks.  The primary bank establishes eligible accounts at other banks and then transfers up to $250,000 into each account.  Continuing the above example, Bank Co. establishes a savings account at three other banks – 1st Bank Co., 2nd Bank Co. and 3rd Bank Co.  Bank Co. then transfers $250,000 to each bank.  Farmer now has fully protected accounts at four different banks and his entire $1,000,000 is shielded with FDIC protection.  Bank Co. took care of setting up the three additional accounts and transferring the funds.

Open Different Types of Eligible Accounts.  FDIC will cover different types of eligible accounts at the same bank.  So, multiple type accounts at the same bank can insure more than $250,000.  In this scenario, Farmer can change his individual account to a joint account by adding his spouse ($500,000 coverage), transfer $250,000 to an account held by his farm corporation and transfer $250,000 to an account owned by his trust.  By adding owners and establishing different types of eligible accounts, Farmer’s entire $1,000,000 can be covered by FDIC and remain at Bank Co.

Open Accounts at Multiple Banks.  This strategy is similar to using a Bank Network except that the account holder establishes the accounts.  The account holder may prefer to personally open accounts at multiple banks rather than allowing his bank to do so.  With this strategy,  Farmer opens savings accounts at 1st Bank Co, 2nd Bank Co. and 3rd Bank Co. and transfers $250,000 to each new account.  Now, Farmer’s entire $1,000,000 is covered by FDIC but at four different banks. 

 

Conclusion

Producers holding funds in accounts not eligible for FDIC coverage or holding funds in excess of FDIC limits should consider implementing strategies to cover any unprotected money.  As the above examples illustrate, it is relatively easy to cause large cash reserves to be entirely insured by FDIC.  The producer’s banker or financial advisor should be consulted to determine the strategy that will work best to protect the maximum amount of funds. 

 

1 These investments are backed by the full faith and credit of the U.S. government.

 

 

Posted In: Business and Financial
Tags: FDIC
Comments: 0
Farmer working on machinery with Farm On  Farm Financial Management title overlay
By: Peggy Kirk Hall, Friday, April 07th, 2023

We're excited to announce that our new farm financial management online course is now available.  Named "Farm On," the self-paced, on-demand farm financial management course was created by our Farm Office team under the leadership of new Farm Management Field Specialist Eric Richer.  It is offered through OSU Extension’s new Farm Financial Management and Policy Institute.

We created the Farm On course to address the needs of Ohio’s new and beginning farmers who want to better prepare themselves to operate a commercial farm in Ohio and do that with a high level of economic stability while remaining profitable and responsible along the way.  What’s unique about the Farm On course is that, not only does it comply with the regulations of the new Ohio House Bill 95 Beginning Farmer Tax Credit program, it also meets the borrower training requirements for the U.S. Department of Agriculture Farm Service Agency’s Beginning Farmer and Rancher Loan Program.

The 10-module Farm On course includes video lessons, quizzes, and opportunities to apply knowledge gained through graded course exercises. Students can engage with the lead course instructor  through virtual office hours and scheduled appointments. The course covers the following topics:

  • Farm Business Planning
  • Balance Sheets
  • Income Statements
  • Cash Flow Projections
  • Calculating Cost of Production
  • Farm Record Keeping
  • Farm Taxes
  • Farm Financing
  • Risk Management
  • Farm Business Analysis

The Farm On course allows CFAES to serve the needs of all farmers through OSU Extension and our Farm Financial Management and Policy Institute, said Cathann A. Kress, Ohio State vice president for agricultural administration and dean of CFAES. 

“We are excited to partner with ODA and USDA-FSA to address the farm financial training that is required for running a farm business,” Kress said. “Currently, we are the only educational institution in Ohio with a course like ‘Farm On’ that qualifies for ODA’s Beginning Farmer Tax Credit Program and FSA’s Borrower Training Requirements.

“As part of our Land-Grant mission, CFAES educates not just college students but over two million individuals across the lifespan.”

The Ohio House Bill 95 Beginning Farmer Tax Credit program went into effect in July 2022 and grants a 3.99% tax credit to landowners who sell or lease assets to a certified Ohio beginning farmer. The new law also allows an Ohio tax credit to the certified beginning farmer equal to the cost of the financial management course completed. The Farm On course costs $300 per person.

“OSU’s Farm On course is a great way to help Ohio farmers qualify for Ohio Department of Agriculture’s (ODA) new Beginning Farmer Tax Credit program, which is an important tool to help current beginning farmers and potential future farmers do what they do best,” said ODA Director Brian Baldridge. “We are thankful for this partnership that is helping to keep Ohio’s hard-working farmers at the forefront.”

According to Darren Metzger, Ohio Farm Service Agency Loan Chief, “The course is in-depth financial management training that can assist our borrowers to obtain and/or improve their knowledge in this critical area of farm management. OSU’s Farm On course is now 1 of 5 approved vendors for our borrowers in Ohio.”

CFAES’ new Farm Financial Management and Policy Institute was created last year with the goal of sharing resource-based knowledge and best practices to help Ohio farmers manage their businesses as the agricultural industry changes and evolves. Housed within OSU Extension, the goal of FFMPI is for the integration, translation, and communication of CFAES’ farm management and ag policy presence that addresses critical farm management and policy issues affecting Ohioans.

“Farm On is meeting a need of today’s modern crop farmers and it’s packaged in a way that respects the busy schedules of family farmers.  It’s this type of tangible benefit that earns the support of Ohio’s corn and small grains checkoff funds.  We are proud to partner with OSU Extension on this important new institute,” said Tadd Nicholson, executive Director of Ohio Corn and Wheat.

Farm On isn’t just for new and beginning farmers. The course provides an opportunity for any farmer in Ohio, whether you’re a new farmer, a seasoned farmer, a small farmer, or a large farmer.  For a long time, we’ve needed to have this course in Ohio because farm management is so critical to ensuring the future of our farms.

To learn more, view our video and to sign up for Farm On, go to go.osu.edu/farmon. 

 

By: Robert Moore, Thursday, March 23rd, 2023

Legal Groundwork

In the final installment of the farm insurance series, we look at unique activities and/or assets that may not be covered by a typical farm policy.  Most farm policies will automatically cover traditional farming activities and assets related to crop and livestock production.  However, many farming operations include assets or activities that may be non-traditional and thus not covered by the farm policy.

Below is a list of farm activities and farm assets that may not be covered by standard farm policies. Each of these activities and assets are a source of liability exposure. Farmers can review this list and identify any asset or activity that may apply to their farming operation.  Then, the list can be provided to their insurance agent to ensure that the farm has full liability protection.  Almost any asset or activity can be covered with the addition of an endorsement to the farm policy. 

  • Agritourism
  • Aircraft application of pesticide/fertilizer (own or custom)
  • Aircraft for personal use
  • ATV/side x side/recreational vehicle
  • Barns and structures that are not currently being used
  • Confined animals
  • Custom application of pesticides or fertilizer
  • Custom farm operations such as planting or harvesting
  • Drones – scouting
  • Drones – application of pesticides/seed
  • Embryos stored or in recipient animal
  • Exotic or non-domesticated animals
  • Farm Markets
  • FFA/4-H Projects
  • Hauling crops, goods or cargo for others
  • Holding products for customers after payment (seed, hay, inputs)
  • Horse boarding, riding or training services
  • Hunting leases or other paid recreational uses
  • Leasing buildings or structures to others
  • Non-owned livestock
  • Off-premises use of ATV/recreational vehicles
  • Oil/gas wells
  • Ponds with docks, diving boards
  • Pick-Your-Own
  • Portable buildings or structures
  • Pulling tractor/truck
  • Purchased feed/seed/inputs purchased but not picked up/delivered
  • Radio or TV Antennas
  • Rental property
  • Rental of grain bins
  • Sale or production of food or other consumable goods
  • Solar panels
  • Swimming pool
  • Tractor shows/parades
  • Tours (paid or unpaid)
  • Using borrowed equipment
  • Using rented equipment
  • Unoccupied houses
  • Valuable refrigerated or frozen products
  • Valuable or important information on computers
  • Watercraft
  • Wind turbines
  • Website or online presence that collects money or stores customer information.
  • Other____________________
  • Other____________________
  • Other____________________
Posted In: Business and Financial
Tags: farm insurance
Comments: 0
Ohio Agritourism Conference title with photo of farm market building and greenhouse
By: Peggy Kirk Hall, Friday, March 17th, 2023

OSU Extension's Ohio Agritourism Conference on April 1 is not an April Fool's Day joke, but it does promise to be fun learning!  If you're thinking about adding or expanding agritourism activities on your farm operation, consider joining us as we learn more about what makes a successful agritourism operation.  We'll visit two popular agritourism operations in southwest Ohio-- Blooms & Berries Farm Market and The Marmalade Lily -- with touring and talks planned at both locations.

Here's the full agenda for the day:

9 a.m. – Registration at Blooms & Berries.

  • Blooms & Berries, an Inside Look.  Jeff and Emily Probst - Owners. Meet the team and take a closer look at how we serve about 100,000 guests a year by staying authentically true to our brand and our team!

Morning breakout sessions, featuring Blooms and Berries Farm Market personnel:

  • Love Your Staff.  Erica Clayton - Retail and Events Personnel Manager.  Learn how Blooms & Berries uses culture to create buy-in and develop an amazing guest experience while easing the burnout.
  • Ag and Operations Show and Tell.  Ben Autry - Ag Production Manager and Derek Rice - Operations Manager. This Q&A session explores the equipment barn, workshop and organizational systems, and specialized equipment.
  • The Market Barn - Shopping is an Attraction Too Emily Probst - Owner.   Emily shares top sellers and guest favorites!
  • The Pie Dough $.  Marie Graves - head baker and Cathy Probst - Owner.  Hear how the team makes and sells 5,000 pies from scratch each year, plus cookies and much more.  

Noon – Lunch at The Marmalade Lily Event Venue and Floral Farm, with an operation overview from owner Laura Fisher.

Afternoon general session

  •  Pouring a New Revenue Stream for Your Operation:  Adding Alcohol to Agritourism – Peggy Hall, OSU Agricultural & Resource Law Program and Jeff Probst, Blooms & Berries Farm Market
  •  Pre-sale Ticketing Trends – Shadi Hayek, Ticket Spice
  •  Minding Your P’s and Q’s – Trademark/Copyright Concerns in Marketing Your Business – Hannah Scott, CFAES Center for Cooperatives
  • Employee Hiring, Training, and Empowerment: People Make Your Business – Rob Leeds, OSU Extension Delaware County
  • Ask Us Anything – Ask that burning question of our experts and your peers

Registration for the conference is $50 and is now open at: https://go.osu.edu/agritourism.

 

 

Posted In: Business and Financial
Tags: agritourism
Comments: 0
By: Robert Moore, Thursday, March 16th, 2023

Legal Groundwork

The need for good farm insurance is well known and obvious to everyone in the farm community.  However, understanding how farm insurance works is not as universal.  Farmers know they need insurance and that the premiums must be paid but they may not be familiar with some of the key concepts of an insurance policy.  One such concept is co-insurance.

A farm insurance policy is a contract between the insured and the insurance carrier.  For the policy to be fair to both parties, the insured must provide an accurate inventory of the assets to be covered, including values.  The insurance carrier then uses the inventory of assets and values to calculate the premiums it must charge to carry the insurance. 

A policyholder may be tempted to suppress the values of the assets in an attempt to keep the premiums lower or, perhaps more likely, may not keep up with the replacement value of property.  In either case, whether intentional or not, the insurance carrier is put into an unfair arrangement as it calculates premiums based on undervalued assets.  Consider the following example:

Farmer bought a tractor five years ago for $80,000.  Farmer believes the tractor has declined in value and includes a $60,000 value on his insurance policy.  a similar tractor today would cost $100,000. Farmer’s insurance policy pays replacement value in the event of damage or loss.  The tractor is lost in a fire.  Farmer expects to be paid the replacement value of $100,000. 

In this scenario, Farmer may expect to be paid $100,000 to replace the tractor but he paid premiums based on a $60,000 value.  It would be unfair to make the insurance carrier pay $100,000 in replacement costs when it based its premiums on a $60,000 tractor.

To avoid the scenario in the above example, farm insurance policies include a co-insurance provision.  This concept is an agreement between the insured and the insurance carrier that a minimum amount of insurance must be purchased to replace property in the event of a loss.  If the policyholder purchases less than the specified percentage, the insurance carrier is not required to payout the full replacement value – making the policy holder a “co-insurer”.  The insurance policy usually requires the insured to purchase insurance on 80% - 100% of the value of property.  Co-insurance generally applies to outbuildings, dwellings, and blanket farm personal property.  Consider the following example:

Using the same example as above, Farmer’s co-insurance provision requires 80% coverage.  The tractor was only valued at 60% of the replacement value so the co-insurance provision in Farmer’s insurance policy is triggered.

The payout calculation for this loss is as follows:

                        Tractor Replacement Value =                        $100,000

                        Co-insurance requirement =                           80%

                        Required amount of insurance =                    $80,000 ($100,000 x 80%)

                        Actual amount of insurance purchased =       $60,000

                        Actual insurance/ required insurance =          75% ($60,000/$80,000)

                        Required payout1 =                                        $75,000 (75% x $100,000)

As this example illustrates, Farmer did not meet his obligation to buy insurance on at least 80% of the value of the tractor.  Farmer reported a value of $60,000 or 75% of the value of the tractor.  By not meeting the 80% co-insurance requirement, Farmer triggered the co-insurance provision and is therefore partly responsible for the replacement cost.   Farmer becomes the co-insured for 25% of the replacement value, the proportion that Farmer undervalued the combine.  If Farmer had valued the tractor at $80,000 or higher, the insurance carrier would have been required to payout the full $100,000 for the loss.  By inadvertently undervaluing the combine, Farmer forfeited $25,000 of insurance payout.

Co-insurance is an important part of a farm policy insurance that most people have never heard of. The co-insurance provision should be reviewed with the insurance agent along with the value of assets to ensure that full payouts will occur in the event of a loss.  It does no good to discover that assets are valued too low after a claim is submitted, any adjustments in value to comply with the co-insurance requirement must be done before there is a loss.


1 Any deductible would also be deducted from the payout.

Posted In: Business and Financial
Tags: farm insurance
Comments: 0
Farm Office team members on webinar screen
By: Peggy Kirk Hall, Tuesday, March 14th, 2023

It's almost as fun as basketball!  Join the OSU Extension Farm Office team for the March Madness Edition of Farm Office Live on Friday, March 17 from 10:00 to 11:30 a.m. This monthly webinar delivers the latest on current farm management and agricultural law issues for Ohio farmers and agribusiness professionals.

Here's what we'll be covering:

  • Legislative Update (Peggy Hall)
  • New Postnuptial Agreement Legislation (Robert Moore)
  • Selling Timber--Call Before You Cut (Dave Apsley)
  • Update on Crop Input Costs and Crop Budget Outlook for 2023 (Barry Ward)
  • Sales Tax Exemption Issues (Jeff Lewis)
  • Spring Crop Insurance Update (Eric Richer)
  • Emergency Relief Program (David Marrison)

There is no fee to attend Farm Office Live, but attendees need to register at go.osu.edu/farmofficelive.  We hope to see you there!

Posted In: Business and Financial
Tags: Farm Office Live
Comments: 0
By: Robert Moore, Friday, March 10th, 2023

Legal Groundwork

Cell tower leases can be a great source of income for landowners.  The towers have a relatively small footprint on the land and can provide monthly income of $1,000 or more.  Additionally, and in some cases most importantly, having a cell tower can increase cell service quality and dependability.

Many landowners are eventually contacted by the cell tower company or another third-party company to purchase the lease rights.  The purchasing company offers a large, one-time payment to buy out the lease rather than continuing to receive monthly payments.  This buyout presents the landowner with an opportunity to generate a large, one-time payment rather than waiting on the monthly payments.  The issue for the landowner is whether the one-time payment is large enough to give up the future stream of payments.

When deciding if the one-time payment is enough to relinquish the monthly payments, the first course of action is to determine the Present Value of the lease.  Present Value calculates the current value of a future stream of income.  There are calculators available online to easily calculate the Present Value.  The offered payment should be something close to the Present Value.

Another factor to consider when analyzing the payment structure is the number of carriers on the tower.  Some cell tower leases pay additional rent when carriers are added to the tower.  Thus, the value of the lease many not be limited to just the Future Value of the current income stream but also the potential for increased revenue due to additional carriers added to the cell tower.  For leases with the opportunity to increase revenue with the addition of new carriers, this additional value should be factored into the one-time payment analysis.

Like most business transactions, taxes are an important factor in analyzing the favorability of the deal.  Cell lease buyouts are no different.  The buyout payment will likely be considered a capital gain.  Therefore, the gain will likely be taxed as capital gains rate rather than ordinary income.  Capital gains tax rates tend to be lower than ordinary income tax rates.

Taking the one-time payment has advantages.  The first, and most obvious advantage, is it creates a much larger and immediate payment than the monthly payments.  Additionally, the buy-out payment can usually be used in a like-kind exchange.  That is, if the sale proceeds are invested into other business real estate, the capital gains tax is deferred.  Lastly, the one-time payment is a guaranteed payment for a certain amount.  There is not the same certainty with the lease payments.  Cell leases typically allow the cell company to terminate the lease at any time.

The obvious disadvantage of taking the one-time payment is the loss of the monthly payments.  The payments are a nice supplemental income and are a dependable source of income.  Additionally, taking the one-time payment could cause the landowner to be pushed into the higher, 20% capital gains tax rate.

For those landowners who have cell leases and receive an offer to buy out the lease, seeking tax and legal advice is a good idea.  An accountant and/or attorney can provide valuable guidance and insight into analyzing the advantages and disadvantages of having the lease bought out. Working with an attorney who has experience with cell tower leases can have significant benefits.  The attorney can help advise as to how much the buyout payment should be, help negotiate better terms and, also help reinvest those funds into other real estate to defer capital gains.

 

 

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By: Robert Moore, Thursday, February 23rd, 2023

Legal groundwork

In the event of a property loss or a liability incident, the insured and the insurance carrier cooperate to determine the type of coverage and the extent of coverage required by the insurance policy. As a practical matter, an insured is well-advised to thoroughly document the loss event.  This may include written notes, pictures and/or retained documents.

Notification

The insured should notify law enforcement if any laws were broken in causing the loss event. This notification should be promptly followed by notice to the insurance company and include a general description of the events and the property that is damaged. This notice does not usually need to be in great detail, but a simple explanation of how the damage occurred, when the damage occurred, and what property was damaged. Additionally, it is important for the insured to take reasonable steps to protect the property from further diminishing in value. Essentially, the insured should not allow the property to be completely destroyed if the insured party can salvage any of the value.

Accounting 

After notification is provided, the duties and responsibilities of the insured are not over.  For a property loss, the insured party should complete an accounting of the damaged property. The accounting may include quantities, costs, values, and the specific amount of loss claimed. An accounting serves multiple purposes.  First, it causes the insured to identify all property subject to loss and the extent of the loss in an organized manner. An accounting also provides a summary to the insurance carrier so that the carrier may begin the claim process more expeditiously. The insurance provider will likely conduct an investigation into the claimed loss and an accounting will assist the carrier in its investigation.  Last, in the event the insured disputes the insurance carrier’s determination related to the loss, the accounting will make the process of challenging the insurance carrier’s payout easier.

Payout Determinations

Obviously, insurance is obtained for the financial protection it provides to the insured in the event of a loss event. Thus, the amount one receives from their insurance carrier is likely one of the main considerations when reviewing or shopping for a new policy. Essentially, insurance payouts are calculated based on two different mechanisms, the replacement value or the actual cash value. These two payout methods create the basis for the amount of money an insured party will receive for their loss.

Replacement value, as the name suggests, means that an insured party will be paid the amount it will cost to replace the lost items and/or structures. Essentially, a policy utilizing replacement value will pay the smaller amount of restoring the items to their condition at the time of damage or the cost of replacing them with items of the same condition. This method can provide a more stable and higher amount of payout in certain circumstances.

The other means of determining an insurance payout is by using actual cash value. Generally, because most items depreciate over time, the amount paid under this method is commonly lower than the replacement value method. Under the actual cash value method, the insured will be paid the value of the item’s depreciated value rather than the amount it will cost to replace.

The difference between these two payout methods is an important consideration when analyaing insurance policies, especially with the recent rise of inflation. Consider the following example:

A new tractor was purchased in 2020 for $300,000. The tractor is now worth $200,000 due to depreciation caused by wear and tear.  The same model tractor is selling new today for $350,000. In this situation, someone who has a replacement value insurance policy would receive the $350,000 necessary to repurchase the same/similar model. On the other hand, someone covered under the actual cash value method would only receive the $200,000 amount.

The above example is a simple explanation of the difference between replacement value and actual cash value payouts.  Many smaller calculations can make the difference more nuanced. Be sure to work with your insurance agent to determine the payout for specific losses.

An insurance policy will typically include a limit on the payout.  The insurance carrier includes the limit to protect itself from unusually large claims or unforeseen claims.  For example, using the above scenario, the insurance carrier may have included a limit of $300,000 for the payout.  In that event, the owner would have only received $300,000 for the payout rather than the $350,000 for the replacement value payout.  Limits to payouts are an important term in insurance policies, be sure review the limits carefully to ensure adequate coverage for farm assets.

Appealing Coverage Determinations

After submitting a claim, the insurance carrier will typically send a letter stating the extent of the coverage or a denial of coverage.  The letter will also include instructions on how to appeal the determination.  If the insured does not believe the coverage or denial determination is correct, they can appeal the determination.  The notice of appeal is sent to the insurance carrier and will initiate the appeal process.  Be sure to meet all deadlines and follow the instructions for appealing carefully.  A missed deadline or a misstep in filing the appeal can extinguish appeal rights.  The matter must typically be appealed to the insurance carrier before taking the matter to arbitration or litigation.

If the insurance carrier denies the appeal, then litigation and/or arbitration may be the next step in obtaining the claim.  At this point, hiring an attorney is often warranted.  An attorney experienced in working with matters related to insurance and insurance carriers can provide valuable insight and counsel in an insurance claim appeal.  Some policies may require arbitration to resolve a dispute.  Arbitration is a private dispute resolution process where a person or persons hear arguments from both parties then issue a decision.  Arbitration can be more expeditious and less costly than litigation.  Matters taken to litigation are decided by a court.  Litigation may take longer and be more expensive than arbitration but also may provide more appeal rights.

In addition to appeals to the insurance carrier, complaints about the conduct of insurance carriers can be submitted to the Ohio Department of Insurance.  The complaint should explain the matter in some detail.  Including photos or other supporting evidence with the complaint is often a good idea.  The agency will review the complaint and, if warranted, conduct an investigation into the matters provided by the complaint.  The agency may reach out to the carrier to encourage a resolution of the matter identified in the complaint.  All insurance carriers conducting business in Ohio are subject to the rules and regulations of the Ohio Department of Insurance.

 

Posted In: Business and Financial
Tags: farm insurance
Comments: 0
By: Robert Moore, Friday, February 10th, 2023

Legal Groundwork

Choosing An Insurance Agent and Carrier

An insurance agent is an important person on a farmer’s management team.  Selection of the agent is important to ensure the insurance policy meets the needs of the farm. The insurance agent should have a good understanding of agriculture and experience working with farms. Additionally, the agent should be able and willing to build a policy for each farm, not simply use the same template for every farm. Each farm is unique, and the farm insurance policy should be unique as well. When interviewing prospective agents, be sure to ask for their background and experience with farms and consider asking for referrals from other farms.

The insurance agent can only design an insurance policy to cover the farm activities and farm assets that they know about. It is the farm owner’s responsibility to inform the insurance agent of how the farm operates, who is involved with the farm, and the assets owned by the farm. Consider inviting the insurance agent to visit the farm to be sure they have a good and full understanding of the operations of the farm.

Each insurance agent works with one or more insurance carriers. Several services provide financial ratings of insurance carriers, and it is worthwhile to know the rating of the carrier you work with. The rating indicates the carrier’s ability pay claims, especially in times of large claims like a natural disaster. Understanding your carrier’s rating is important because the carrier has an ongoing financial obligation to you. If the carrier is unable to cover all claims in a natural disaster or otherwise fails to meet is coverage obligations, a farm covered by that carrier can be at risk. Ask the insurance agent for their carrier’s rating. Keep in mind that the same rating can mean different things depending on the service used. For example, an A+ score is the second to highest score for A. M. Best while an A+ is the fifth best rating for Moody’s.

 

Potential Reasons for Cancellation of Your Policy

Your farm insurance will include several reasons for cancellation. A farm insurance policy likely includes more intricate reasons for cancellation than a typical homeowner’s policy.  When cancelling a policy, the insurance carrier will generally mail the notice of cancellation to the insured at least 30 days before the effective termination date. This notice period provides time for the insured to obtain another insurance policy or to correct errors to maintain the current insurance. When a policy is cancelled, a refund is usually issued to the insured for any amount that is already paid for a period that will not be covered under the cancelled policy.

Nonpayment of Premiums.  The first reason for cancellation is the most obvious one, nonpayment of premiums. This is as simple as it sounds. The insured must make sure to make timely payments to continue to keep its insurance policy in place and at work.  Insurance carriers are required to provide written notice to the insured that premiums are past due and that the policy will be cancelled if payment is not made.

Fraud and Reckless Omission.  Other reasons that a policy might be cancelled are connected, (1) the discovery of fraud or material misrepresentations in the information given to obtain the policy and (2) a reckless omission of information given to obtain the insurance policy. These two provisions cover any incorrect information that may have been provided, intentionally or not, to the insurance agency when procuring the policy. An insurance company relies on the accuracy and validity of the information they are provided when deciding the appropriate methods of coverage. It is necessary to ensure that accurate information is transmitted to any insurance provider.

Risk Profile.  A policy can be cancelled due to changes in an insured’s risk profile. The insurance carrier issues a policy based on the known risks attributable to the insured.  If the insured increases their risk exposure, the insurance carrier may not be willing or able to cover the additional risk exposure and cancel the policy.  An example provision in an insurance policy may be something like “a substantial change in the individual risk which increases the hazard potential to the insurer unless the change was reasonably foreseeable.” Similarly, a policy may include language such as “any determination that the insurer determines could create a condition that is hazardous to the public.”   

Compliance. If the insured fails to maintain adequate compliance with the safety codes applicable to a building or structure the insured party risks losing their coverage for the building or structure.

Cancellation by Insured. An insured typically has the right to cancel their policy at any time, although some fees might apply. Generally, cancellation by the insured will require the individual to deliver notice to the insurance company.

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Tags: farm insurance
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