liability protection
By Robert Moore, Research Specialist, OSU Agricultural & Resource Law Program
A common business strategy for farming operations is to place their machinery in a separate, stand-alone LLC. The idea behind this strategy is that by putting the high-liability machinery in its own LLC the other farm assets are protected. Unfortunately, the liability protection of a machinery LLC is sometimes overstated and may not provide as much protection as intended.
The compromised liability protection of a machinery LLC is not due to a defect in LLCs, but rather it is a result of who is operating the machinery. Typically, the persons operating the machinery are the owners or employees of the farming operation. Many liability incidents involving farm machinery are the result of operator error which pulls the liability back to the farming operation.
Consider the following example. XYZ Farms is a grain operation. To mitigate the liability of having large machinery traveling on roadways, XYZ Farms establishes Machinery LLC and transfers all machinery to the LLC. An employee of XYZ Farms causes an accident while driving machinery on a roadway. Because employers are liable for the actions of employees, XYZ Farms is liable for the accident even though the machinery was held in Machinery LLC.
A machinery LLC does provide some liability protection. If the liability incident is caused solely by an issue with the machine and not the operator, the LLC may prevent liability from transferring to other assets. Again, most accidents are caused by operator error so relying on this liability protection is planning against the odds.
As seen in the example, machinery LLCs do not completely insulate owners and other assets from liability. In fact, no entity used in a farming operation is guaranteed to prevent liability exposure for the owner. Therefore, liability insurance should always be the primary liability management plan for farm operations. Business entities should be used as the backup plan if liability insurance fails to cover liability exposure.
Machinery LLCs do have other beneficial uses. One of the more common uses is to consolidate various machinery ownership among family members. Having one entity own, buy, and sell all machinery is often a simpler plan than multi-ownership. For example:
Mom and Dad, Son, and Daughter each own some machinery. Each time they need to buy a new piece of equipment, it is a challenge to determine how the trade-in is handled and who should be the new owner. Instead, they establish a machinery LLC and put all their machinery in the LLC. They each receive ownership in the LLC in proportion to the ownership in the machinery. For all future purchases, the LLC provides the trade-in and buys the new machine.
The liability protection provided by machinery LLCs may not be as thorough as sometimes expected but they can still be a valuable component of a business structure plan. They do provide some liability protection and are useful in other ways such as consolidating ownership. Before establishing a machinery LLC, be sure to have a thorough discussion with legal counsel to fully understand it’s benefits and limitations.
“Will I be liable for that?” is a common question we hear in the legal world. COVID-19 has made that question even more commonplace, especially as more businesses reopen or expand services and more people reengage in public activities. About a dozen states have acted on the liability concern and passed COVID-19 liability protections, and Congress is also deliberating whether federal legislation is necessary. Here in Ohio, the House and the Senate have been reviewing separate immunity proposals. Yesterday, Ohio’s House passed its bill, which aims to limit liability in certain situations where a person claims harm from the transmission of COVID-19.
The language of House Bill 606 effectively explains the House’s intent in putting forth its proposal, stating that:
- The Ohio General Assembly is aware that lawsuits related to the COVID-19 health emergency numbering in the thousands are being filed across the country.
- Ohio business owners, small and large, as they begin to re-open their businesses are unsure about what tort liability they may face, and recommendations regarding how best to avoid infection with COVID-19 change frequently.
- Businesses and premises owners have not historically been required to keep members of the public from being exposed to airborne viruses, bacteria, and germs.
- Those individuals who decide to go out into public places are responsible to take those steps they feel are necessary to avoid exposure to COVID-19, such as social distancing and wearing masks.
The House bill declares that for the above reasons, any COVID-19 “orders and recommendations from the Executive Branch, from counties and local municipalities, from boards of health and other agencies, and from any federal government agency, do not create any new legal duties for purposes of tort liability.”
The bill’s reference to not establishing a legal duty in regards to COVID-19 is important, as it forms the basis of immunity from liability for COVID-19 infections. Under Ohio law, a person who can prove that harm resulted because another failed to meet a required duty of care can make a successful claim of negligence and receive damages for harm caused. Negating a legal duty of care for handling of COVID-19 removes the possibility of civil liability.
The House bill clearly lays out its general liability protection in Section 4 and extends the immunity from March 9 to December 31, 2020 to “any person,” which includes an individual, corporation, business trust, estate, trust, partnership, association, school, for-profit, nonprofit, governmental, or religious entity, and state institution of higher education. But it also makes an exception from immunity where a person has acted recklessly, intentionally, or with wanton misconduct:
- No civil action for damages for injury, death, or loss to person or property shall be brought against any person if the cause of action on which the civil action is based, in whole or in part, is that the injury, death, or loss to person or property is caused by the exposure to, or the transmission or contraction of [COVID-19] or any mutation thereof, unless it is established that the exposure to, or the transmission or contraction of, any of those viruses or mutations was by reckless or intentional conduct or with willful or wanton misconduct on the part of the person against whom the action is brought.
Opponents to the bill claim that it would encourage persons not to take any COVID-19 precautions, but proponents argue that the bill does so by discouraging reckless behavior. Under the legislation, to behave recklessly means that “with heedless indifference to the consequences, the person disregards a substantial and unjustifiable risk that the person's conduct is likely to cause an exposure to, or a transmission or contraction of [COVID-19] or any mutation thereof, or is likely to be of a nature that results in an exposure to, or a transmission or contraction of, any of those viruses or mutations.”
In addition to the general immunity protection explained above, the House bill also provides temporary civil immunity for health care providers, grants immunity to the State for care of persons in its custody or if an officer or employee becomes infected with COVID-19 in the performance or nonperformance of governmental functions and public duties, and expands the definition of “governmental functions” for purposes of political subdivision immunity to include actions taken during the COVID-19 pandemic.
The Ohio Senate is working on its own version of a COVID-19 immunity bill. A fourth hearing on Senate Bill 308 took place on May 27 before the Senate Judiciary Committee. Several substitute bills have replaced the original bill, and it's yet uncertain what the final version will contain.
Tags: coronavirus, COVID-19, COVID-19 immunity, liability protection
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