Ninety-nine percent of farm insurance policies sold today have fundamental coverage flaws when it comes to dealing with environmental liability. Those gaps in your general farm liability insurance coverage may be leaving your dairy open to substantial financial risk.
I have received more requests for environmental insurance coverage from farmers and their manure haulers/applicators than at any time in my tenure as an environmental insurance brokerage professional. The requests for coverage are valid. As dairy herd sizes grow, they’re increasingly exposed to environmental liability claims arising from everyday operations.
Changing legal and regulatory landscapes are driving the demand for environmental liability coverage. Court rulings and the application of decades-old federal environmental protection laws are now opening common farming practices to liability concerns. State regulators are obligated to follow the federal lead.
State courts have concluded “pollution exclusions” in farm liability insurance policies now apply to manure and bacteria as contaminants and waste. By stripping environmental damage liability coverage from existing general farm business insurance policies, farmers are left liable for costly fines and penalties, cleanup responsibilities and financial awards under citizen lawsuits. While insurance case law is state-specific, lawsuits frequently set far-reaching precedent, making it a national concern.
Following court rulings and regulatory changes in 2014-2015, our company reviewed more than 140 existing environmental liability insurance policies, finding none provided adequate coverage for the agricultural sector.
In many cases, policies only provided sudden and accidental pollution coverage on owned or managed property. Pollution coverage required a triggering event, such as a fire. Since manure storage systems (lagoons) can have gradual releases and manure application is not sudden or accidental, they were excluded from standard coverage for pollution resulting from handling, storage, processing or movement of a waste by the farm owner, employees or custom applicators. And, standard policies usually only covered 10 percent of the policy’s limit of liability.
Working with the Wisconsin Department of Natural Resources, the University of Wisconsin – Madison and others, we helped launch the first true environmental impairment liability insurance policy in March 2015.
The need for coverage has only grown since then. Specially modified environmental impairment liability insurance policies are needed to address nitrate contamination of groundwater. And, bacteria from animal waste now qualify as excluded “pollutants.” Not all environmental insurance policies cover all types of bacteria.
Below are some common environmental loss exposures now of concern for farms and custom operators:
- Groundwater contamination
- Surface water contamination
- Crop overspray
- Odors
- Reducing neighboring property values
- Public nuisance
- Operating or participating in manure digesters
- Natural resource damages
- Bodily injury from exposure to bacteria
- Groundwater remediation
- Fuel storage tanks
- Fertilizer spills or releases
- Custom farming operations
- Transportation risks
- Storage of pesticides and herbicides
What is environmental insurance?
Environmental insurance policies are designed to fill gaps in property and liability insurance policies created by pollution exclusions. The most common environmental insurance policies can be categorized in two categories:
- Environmental Impairment Liability – primarily insures designated locations (a farm or leased land)
- Contractors Environmental Liability – primarily insures the described operations of the named insured (custom manure applicators and certified crop advisors)
What is covered under an environmental insurance policy?
An environmental insurance policy covers losses arising from the release or escape of defined “pollutants” during the coverage period.
Core coverages include:
- Liability to others for causing them bodily injury or property damage
- The cost of legal defense
- The cost to clean up pollutants
Common coverage extensions include:
- Transportation of materials that could lead to contamination (automobile policies usually exclude spills)
- Non-owned waste disposal sites
- Damage to natural resources
- Bacteria and manure as defined “pollutants”
In general, environmental insurance policies will exclude anything covered under other forms of property and liability insurance.
Other concerns
Dairy farm owners must not only be concerned about their own environmental liability insurance coverage.
When dealing with federal environmental laws, it’s important to note pollution losses are funded under the “let the polluter pay” concept. Federal environmental laws apply statutory liability to all parties in the waste stream, regardless of fault. Since the farmer owns the cows, they are considered the original owner of the manure.
As a consequence, farm owners must do all they can to spread this financial risk. Farmers should ask for proof their custom manure haulers/applicators are adequately covered in case a spill, equipment malfunction or other event results in environmental contamination. And, private consultants who assist with creating nutrient management plans should also carry liability coverage, in case a design flaw leads to contamination.
Advances in science increase the potential environmental liability. Genetic sequencing enables scientists and the plaintiff’s lawyers to trace the parties responsible for water contamination from fecal bacteria down to a specific farm or herd of cattle. Once considered a nonpoint source of pollution with no individual responsibility, the technology creates potential liability for a single farm source.
Farmers can expect their dairies to increasingly become targets of more legal actions. As farm sizes grow, they look more like industrial-sized “polluters.” It is becoming less socially acceptable to contaminate a natural resource, regardless if the contamination is “just a consequence of normal farming operations.” “Right-to-farm” laws, which may have protected farmers from nuisance lawsuits related to odor or other common farming practices in the past, are no longer viewed as “right to pollute” statutes. And, with the Trump administration’s pledge to roll back regulatory pressures on businesses of all types, environmental advocates will increasingly view lawsuits as their only recourse to advance their agendas.
Insurance part of risk management toolbox
Dairy farms have always needed to manage environmental risks. Court cases and regulatory changes have made environmental liability insurance a piece of that dairy business management toolbox.
Affordable, custom-designed farm environmental impairment liability insurance is available through local independent insurance agents.
Premiums are determined primarily based on number of acres, number of animal units, waste management practices and loss history. Premiums can be as low as $1,500 annually, providing up to $500,000 of coverage for a 400-cow dairy herd. But since pollution insurance is considered catastrophic risk coverage, the minimum coverage limit is $1 million.
Existing policies provide a maximum liability coverage of up to $10 million. Cost per cow generally goes down as the herd size increases.
While premiums are fairly consistent across the country, areas with higher environmental advocacy activity may be higher. The standard deductible is $10,000. There’s generally a $5,000 option, and higher deductibles are also available.
As an insurance brokerage, we are not lawyers. Dairy producers should consult with their own attorneys for additional legal advice. 
Read also: Changing environmental risk picture changes dairy liability insurance needs
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Harrison Scheider
- Vice President, Environmental Broker and Agricultural Programs Manager
- American Risk Management Resources Network LLC
- Email Harrison Scheider
