Insurance implications of a contract farming agreement
Q. I am entering into a contract farming agreement (CFA) with a neighbour. I am the contractor. I have been told the agreement will include an insurance clause. What will this mean, what should I be looking for in the agreement, and how do I comply?
A. It is quite normal for CFAs to include an insurance clause and this is helpful to both parties as the agreement will set out insurance responsibilities for both sides. I would expect the farmer to be responsible for insuring crops while growing and in his store, while the contractor will be required to have public liability and employer’s liability cover for his machines operating on the farmer’s land. A minimum indemnity limit on claims of £10m would be recommended.
The CFA will generally only stipulate the minimum covers required (crop cover for the farmer and liability for the contractor). However, it is important as the contractor that you look at other insurable risks associated with contract farming. It is important that you discuss the CFA at an early stage with your insurance adviser. Any insurance adviser that understands farming will make you fully aware that insurers perceive a big difference in risk between an agricultural contractor and a whole farm contractor, which you will be under a CFA.
From an insurance viewpoint the agricultural contractor performs individual operations/jobs on numerous different farms, whereas the whole farm contractor performs all operations on the same farm(s), year on year, acting as a farmer.
The premium cost implications are much lower for those rated as a whole farm contractor rather than as an agricultural contractor. Premium rates for agricultural contractors can be up to twice the price for contract farmers and we come across too many cases where incorrectly high premiums are being charged.
Beyond what is in the agreement, the whole farm contractor needs to carefully consider other risks in the work they are taking on. These are:
Cross compliance if as the contractor you inadvertently breach cross compliance rules and the farmer suffers a subsidy penalty as a result, you may be held responsible – cover is available.
Failure to perform – for example, where there is a problem with a drill, resulting in completely uneven crop emergence with loss of yield and increased blackgrass – again, insurance cover is available.
Giving advice – if as the contactor you are giving advice to the farmer on what chemicals, fertiliser and seed rates to use, cultivation strategy, crop marketing and so on, if something goes wrong and there is a claim against you, your public liability insurance will not cover it. To cover giving advice you need professional indemnity insurance.
Grain storage/drying – if as part of your contracting service you are drying and storing grain on behalf of customers for whom you contract farm, you may need to extend your own insurance to cover this. Cover can be arranged within your own crop insurances.
The premium costs associated with contract farming are not generally high because cover is usually arranged as an extension to the contractor’s existing own farm policy. Budget for something in the region of £2.50/ha.
The most important points are to understand exactly what you are insured against, which risks you are prepared to cover yourself and to fully inform your insurance advisor.
This article was written by Nigel Wellings at Acres Insurance Brokers, printed and published by Farmers Weekly in September 2019 https://www.fwi.co.uk/business/business-management/business-clinic/insurance-implications-of-changing-building-use