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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.

 

 

Posted In: Business and Financial
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Buckeye candies on a plate
By: Peggy Kirk Hall, Tuesday, March 07th, 2023

Did you know Buckeyes can make and sell homemade Buckeyes?  That’s because those peanut butter and chocolate candies we call Buckeyes are a “cottage food” in Ohio.  And our Cottage Food Law allows home-producers to make cottage foods with little agency oversight and without obtaining a food license.  There are several laws that do apply to making Buckeyes and other cottage foods, though.   We explain them in our newly updated law bulletin on Ohio’s Cottage Food Law.

Why do we have a Cottage Food Law?

Food science teaches us that some foods pose a lower food safety risk than other foods.  Likewise, some foods have a higher chance of causing a foodborne illness if not handled properly.  Our Cottage Food Law recognizes this difference and allows home-producers to make and sell those food products that have a low food safety risk and don’t require special handling.  At the same time, the Cottage Food Law prohibits home-producers from making higher risk “potentially hazardous” foods.

Which foods are cottage foods?

The Ohio Department of Agriculture (ODA) has the responsibility of determining which foods are cottage foods.  If a food is on the cottage food list, the Cottage Food Law applies.  The full list is in our Ohio Cottage Food Law Bulletin and in Ohio Administrative Code Section 901:3-20-04.  It includes items like baked goods, candies, jams and jellies, granola, and many dry mixes, herbs and mixes.  But note that there are exceptions in many of the categories.  For example, freezer jam and sugar free jam are exceptions in the jam category, and those types of jams are not cottage foods.  For this reason, it’s important to identify whether a specific food product is on the cottage foods list.  ODA also maintains a helpful list of foods that are not cottage foods, and we explain those in the bulletin.  Many producers will be disappointed to know that salsa is on that list.

What laws apply to cottage foods?

Even though a home-producer need not obtain a food license to make and sell a cottage food, there are four laws that do apply to a cottage food product.  These laws address:

  1. Labeling requirements
  2. Packaging restrictions
  3. Sales restrictions
  4. ODA product sampling authority

Read about these legal provisions and more in our Ohio Cottage Foods Law bulletin, available in the Food Law Library on farmoffice.osu.edu.  Also check out our recent webinar that addresses product development and laws for cottage foods and other home-produced foods in the Starting a Food Business webinar series. 

By: Robert Moore, Friday, March 03rd, 2023

Legal Groundwork

On March 23, 2023, Ohio Senate Bill 210 will become law.  Prior to this new legislation, Ohio was one of only two states (Iowa) that did not allow for postnuptial agreements.  This new law will allow married couples to modify or terminate their existing prenuptial agreement or enter into a new postnuptial agreement.  This needed change to Ohio law will allow married couples to adapt to changes with their assets, families and goals.

Ohio prenuptial agreements have long been available to Ohio married couples.  A prenuptial agreement, in basic terms, identifies what assets are to be considered marital assets and which assets are non-marital assets.  In the event of divorce or death, the other spouse is not entitled to the non-marital assets.  Prenuptial agreements are entered into prior to marriage.

Prenuptial agreements can become outdated, especially when marriages last many years.  A married couple who enters into a prenuptial agreement when they are 25 may have very different assets and goals when they are 65.  Until now, married couples were stuck with their prenuptial agreement regardless of how unfair or obsolete the agreement had become.

A postnuptial agreement is similar to a prenuptial agreement in that it identifies which assets are to remain outside of the marriage and what assets are considered joint, marital assets.  A postnuptial agreement is signed sometime after marriage begins.  There are no term requirements for a postnuptial agreement – it can be entered into shortly after marriage or many years after marriage.

For a prenuptial agreement to be terminated or amended or for a postnuptial agreement to valid, the new law requires the following:

  1. The agreement be in writing and signed by both spouses,
  2. The agreement is entered into freely without fraud, duress, coercion or overreaching,
  3. There was full disclosure, or full knowledge, and understanding of the nature, value and extent of the property of both spouses,
  4. The terms do not promote or encourage divorce or profiteering from divorce.

Special notice should be given to the third requirement.  It is important for each spouse to fully declare the assets that they own and the value of those assets.  Failure to inform the other spouse of their assets and the extent of those assets is another way to invalidate a prenuptial or postnuptial agreement.  If one spouse is unaware of the extent of the other spouse’s assets and/or wealth, they may unknowingly enter into a prenuptial or postnuptial agreement that is unfair.  It is best to include an inventory of both spouses’ assets with values in the prenuptial or postnuptial agreement and clearly identify which assets are to be considered marital assets and which are to be non-martial assets.

This new legislation has ramifications for farm planning.  Before now, if a prenuptial was not already in place, there were risks to bringing in family members to the farming operation.  After someone comes into the farming operation, their ownership in the farming operation may become a marital asset subject to a divorce.  This concern sometimes causes parents or grandparents to be hesitant to bring a child/grandchild into the farming operation.

Now, the parents/grandparents can require a postnuptial agreement before admitting a family member into the farming operation.  While this requirement can cause friction with family relationships and may be an awkward issue to raise, it is something to consider.

Consider the following example:

Father would like to bring Daughter into Farming LLC.  Daughter is recently married but does not have a prenuptial agreement.  Father is considering gifting a 25% ownership interest in Farming LLC to Daughter valued at $500,000.  Father is concerned that if Daughter’s marriage fails, he may have to buy back some of the 25% ownership from Daughter’s ex-husband.

The first thing to consider in the example is the nature of gifted assets.  Under Ohio law, gifted assets are not marital assets.  However, appreciation in the value of the gifted asset can become a marital asset.  So, Father’s concern is justified.  On the day that Daughter receives the 25% ownership gift, her husband has no marital rights in the ownership.  However, after the ownership has appreciated in value, particularly if the appreciation can be attributed to Daughter’s labor or management, Daughter’s husband may have marital rights in some of the ownership.

With the new legislation, Father can require Daughter to enter into a postnuptial agreement making her ownership in Farming LLC, including future appreciation, a non-marital asset.  If Daughter and her husband divorce, Daughter’s ownership in the LLC will be protected.  Father is now more likely to bring Daughter into the farming operation due to the postnuptial agreement.

Like many farm transition legal issues, family dynamics are involved.  It may be difficult for Father to ask Daughter to enter into a postnuptial agreement or the request may upset Daughter.  Perhaps Daughter’s husband refuses to enter into a postnuptial agreement.   While a postnuptial agreement can help protect the financial viability of a farming operation, the toll it may take on family relationships must also be considered.

Senate Bill 210 is a positive change to Ohio law.  While postnuptial agreements are not a solution in all situations, it is another tool in the farm transition toolbox.  Like most legal agreements, an attorney should be consulted before entering into a postnuptial agreement and each spouse should have their own, independent legal counsel.

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
Vintage cowgirl with a lasso on a horse
By: Peggy Kirk Hall, Tuesday, February 21st, 2023

Yes, you read it right: our roundup of agricultural law questions includes a question on popcorn--not one we often hear.  Below is our answer to it and several other legal questions we’ve recently received in the Farm Office.

A farm lease landlord didn’t notify a tenant of the intent to terminate a verbal farm lease before the new September 1 deadline.  What are the consequences if the landlord now tries to enter into a new lease agreement with another tenant operator?

Ohio’s new “statutory termination law” requires a landlord to provide written notice of termination of a verbal farmland lease by September 1 of the year the lease is effective.  The law is designed to prevent a tenant from losing land late in the leasing cycle, after the tenant has made commitments and investment in the land.  The new law now establishes September 1 as the deadline for a valid termination, unless a lease provides otherwise.  If a landowner terminates after September 1, the consequences are that a tenant could either try to force continuation of the lease for another lease period or seek damages for the late termination. Those damages could include reimbursement for work already completed, such as fall tillage, nutrient applications, and cover crops; reimbursement for input costs such as seed and fertilizer that tenant cannot use or return; and lost profits from the tenant's loss of the crop. Find our law bulletin on the new statutory termination date for farm leases on the Farm Office website.

A farmer plans to build a barn and grain bins close to the property line of a neighbor.  Does the neighbor have a legal right to stop the farmer from building so close to the boundary?

No, probably not. Because the neighbor lives in a rural area, Ohio’s “agricultural exemption” from local zoning regulations applies to the situation.  The agricultural exemption law states that except in limited circumstances, agricultural land uses and structures used for agriculture, like barns, are not subject to township or county zoning regulations and building permit requirements.  If this township has building setback requirements in its zoning resolution, for instance, the farmer is not subject to the regulations and can build the barn closer to the property line than the setback provisions require and farmer is not required to obtain a zoning or building permit for the barn.  One exception is that if the farmer’s land is less than five acres and is one of at least 15 lots that are next to or across from one another, the agricultural exemption would not apply to the farmer's land.   Find the agricultural exemption from zoning in Ohio Revised Code 519.21.

In replacing a line fence, a landowner entered a neighbor’s property and cleared 10 feet from the fence of all brush and trees, even though the neighbor warned the landowner not to do so.  Did the landowner have a right to cut and remove the neighbor’s trees and vegetation?

No.  Ohio law in Ohio Revised Code 971.08 does allow a person to enter up to 10 feet of an adjacent neighbor’s property for the purpose of building or maintaining a line fence, but it is only a right of entry for the purpose of working on the fence.  It allows a person to access the neighbor's property without fear of legal action for trespass.  But the law does not allow a person to remove trees or vegetation within the 15 foot area. In fact, the law specifically states that a person will be liable for any damages caused by the entry onto the neighbor’s property, including damages to crops.  Additionally, since the neighbor stated that the trees should not be removed and the landowner removed them anyway, the landowner could be subject to another Ohio law for “reckless destruction” of trees and vegetation.  That law could make the landowner liable for three times the value of the trees that were removed against the neighbor’s wishes. Find the reckless destruction of vegetation law in Ohio Revised Code 901.51.

Would a milk contamination provision in an insurance policy address milk that could be contaminated as a result of the East Palestine train derailment?

Probably not.  Milk contamination coverage provisions in a dairy's insurance policies typically only apply to two situations: unintentional milk contamination by the dairy operator and intentional contamination by a party other than the dairy operator. Contamination resulting from an unintentional pollution incident by a party other than the dairy operator would not fit into either of these situations.  But insurance policies vary, so confirming a farm’s actual policy provisions is important when determining insurance coverage.   

A grower of popcorn wants to process, bag, and ship popcorn.  Does the grower need any type of food license?

No.  Popcorn falls under Ohio’s “cottage food law.”  Popcorn is on the list of “cottage foods” identified by the Ohio Department of Agriculture (ODA) as having lower food safety risk than "potentially hazardous foods."  A producer can process and sell a cottage food without obtaining a food license from the ODA or the local health department.  However, the producer may only sell the food within Ohio and must properly label the food.  Labeling requirements include:

  • Name of the food product
  • Name and address of the business of the cottage food production operation
  • Ingredients of the food product, in descending order of predominance by weight
  • Net weight and volume of the food product
  • The following statement in ten-point type: "This product is home produced."

Read our law bulletin on Ohio’s Cottage Food Law on the Farm Office website.

Ohio farm and rural road
By: Peggy Kirk Hall, Friday, February 17th, 2023

It’s the time of year when farmers are cleaning up fence rows and boundary lines to prepare fields for planting season.  Tree law questions pop up a lot during this time.  Here are answers to the most commonly asked questions we receive about trees along boundary lines in Ohio’s rural areas.  Note that there can be different laws addressing trees within a city or village.

Who owns a tree that’s on the property line?

When a tree is on the boundary line between two properties, both neighbors have ownership interests in the tree.  However, if only the branches or roots of a tree extend past the property line and into a neighbor’s property, the branches and roots do not give that neighbor an ownership interest in the tree. 

Can I cut down a tree on the boundary line?

No, not if your neighbor doesn’t agree to the removal.  Because both you and your neighbor jointly own the tree, you must both agree to cutting down the tree.  If you remove the tree without the neighbor’s approval, you could be liable to the neighbor or the neighbor’s share of the value of the tree, or for three times the value of the tree if you behaved “recklessly,” explained further on.

Can I trim the branches of the neighbor’s tree that hang over my property?

Yes, even if the tree isn’t on the boundary line and you don’t have an ownership interest in it, you still have the legal right to trim branches that hang over your property. However, you must take “reasonable care” in trimming the branches.  Failing to act with reasonable care and causing harm such as disease or death of the tree could result in liability.

How does the law determine liability for harming or cutting down a tree?

Ohio Revised Code 901.51 addresses injury to vines, bushes, trees, or crops on land of another, referred to as the “reckless destruction of vegetation law."  The law states that a person shall notrecklessly cut down, destroy, girdle, or otherwise injure a vine, bush, shrub, sapling, tree, or crop standing or growing on the land of another or upon public land.”  The word “recklessly” means the action occurred with complete disregard to the rights of the landowner.  Violations of the reckless destruction law can result in criminal misdemeanor charges or a civil negligence lawsuit by the tree owner.  The law provides potential punitive “treble damages” that make the violator liable for three times the value of the damaged tree, crop, or vegetation.

If my neighbor’s tree falls onto my property, is the neighbor liable for the damage?

Possibly, if the neighbor had knowledge that the tree was diseased, weak, or “patently dangerous.”  If the tree was not in a weakened or damaged condition or the neighbor had no knowledge of its condition, the law would not likely create liability for the damage. You'd have to take action against the neighbor to establish liability, however.  If there is harm to a structure, your insurance provider might be involved and take the lead on establishing responsibility under the neighbor's insurance coverage.   Even so, there is no law that creates an affirmative duty for the neighbor to clean up the tree.  Landowners are expected to use the remedy of “self-help,” i.e., to clean up natural and ordinary tree debris on their property, even if from a neighbor’s tree.  Likewise, the neighbor is expected to clean up debris from your trees that fall onto the neighbor’s property.

Can I keep the timber or firewood from the neighbor’s tree or a boundary tree that fell on my property?

Ohio law doesn’t address this issue.  The “self-help” remedy for tree debris that falls on the property suggests that you are responsible for removing the debris, which could logically allow you to do as you wish with the debris.  But if the tree is valuable or was a jointly owned boundary tree—might the neighbor have rights to the tree or its value?  Because Ohio law doesn’t clearly answer this question, it’s wise to talk with the neighbor and provide a reasonable amount of time for the neighbor to claim ownership and remove their share of the tree.  Document the notice given to the neighbor as well as the timber or firewood resulting from the tree in case the neighbor fails to respond until after tree removal and claims an ownership interest at that time.

National Agricultural Law Center webinar announcement
By: Peggy Kirk Hall, Monday, February 13th, 2023

After many years in private law practice, OSU’s Robert Moore knows the unique estate planning challenges farm families face.  The capital-intensive nature of farming and the family legacy associated with it are just two of the many issues that contribute to those challenges.  But Moore also knows there are legal strategies that can help farm families meet their estate planning needs.

Join Moore as he reviews both the challenges of farm family estate planning and ways to address those challenges in a webinar this Wednesday at Noon.  The webinar offers a chance to learn more about topics such as dealing with on-farm and off-farm heirs, distribution plan ideas, and how trusts can benefit a farm estate plan.  The National Agricultural Law Center will host the webinar as part of its free monthly webinar series. Registration is necessary and is available online at https://nationalaglawcenter.org/webinars/estate-planning/.

The webinar represents an ongoing partnership between OSU’s Agricultural & Resource Law Program and the National Agricultural Law Center.  For eight years, the two institutions have worked together to bring agricultural law research and information to the nation’s agricultural community with support from the USDA’s National Agricultural Library.  Our agricultural law library on farmoffice.osu.edu contains many resources developed through this partnership, including recent publications on Planning for the Future of Your Farm, Keeping Farmland in the Family, and Long-Term Care and the Farm.  Those and a multitude of other agricultural law resources are also available on the National Agricultural Law Center’s website at nationalaglawcenter.org. 

If you’re not available to attend the webinar this Wednesday, find a recording of it and all other webinars in the monthly series at https://nationalaglawcenter.org/webinars.

Logos

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.

Posted In: Business and Financial
Tags: farm insurance
Comments: 0
United States Department of Agriculture
By: Peggy Kirk Hall, Tuesday, February 07th, 2023

Sometimes a legislative proposal stalls, appears dead, then emerges in another piece of legislation in a slightly different form.  That’s exactly what happened with the Growing Climate Solutions Act and its plan to help farmers with carbon and environmental credit markets.  First introduced in 2020, the bill gained some momentum and passed the U.S. Senate before coming to a standstill in the House. But Congress added the bill, with some negotiated changes, into the Consolidated Appropriations Act it passed in the final days of 2022. The USDA is now charged with implementing its provisions.

Purpose of the bill

The bill aims to reduce barriers for farmers, ranchers, and foresters who want to enter into voluntary markets that establish environmental credits for greenhouse gas emission reductions resulting from agricultural or forestry practices (also known as carbon credits).  It allows the USDA to create the “Greenhouse Gas Technical Assistance Provider and Third-Party Verifier Program” if it appears, after an initial assessment, that the program would accomplish these purposes for farmers, ranchers, and private forest landowners:   

  • Facilitate participation in environmental credit markets
  • Ensure fair distribution of revenues
  • Increase access to resources and information on environmental credit markets

Advisory Council

If the USDA determines that the program would meet the above purposes, it must establish an Advisory Council to help guide the program.  At least 51% of the Advisory Council must be farmers, ranchers, and private forest landowners, including beginning, socially disadvantaged, limited resource, and veteran members.  Other members on the Advisory Council would include representatives from agencies, the agricultural and forestry industries, the scientific research community, non-governmental organizations,  and professionals and private sector entities involved in credit markets.

Protocols

A primary concern with the environmental credit market is uncertainty and variations in how to establish, quantify, and value environmental credits.  An important component of the new program is for USDA to publish lists of widely accepted protocols that are designed to ensure consistency, reliability, effectiveness, efficiency, and transparency of the markets along with documents relating to the protocols.  The act directs the USDA to include protocol documents and details on calculations; sampling methodologies; accounting principles; systems for verification, monitoring, measurement, and reporting; and methods to account for issues such as additionality, permanence, leakage, and double counting of credits.

Vendor registry

Another concern for landowners who want to participate in environmental credit markets is knowing who to turn to for technical assistance.  To address this issue, the program would require the USDA to create a registry of third-party vendors of environmental credits who can help farmers, ranchers, and forest landowners measure the carbon reduction benefits of different types of practices.  Unlike an earlier version of the bill, the USDA would not establish a certification program for these vendors, although the agency must ensure that the vendors possess demonstrated expertise in practices that prevent, reduce, or mitigate greenhouse gas emissions. 

Assessments

The USDA, in concert with the Advisory Council, must submit an initial and ongoing assessments to the agricultural committees in the Senate and House.  The initial assessment must examine ways to ensure certainly for farmers, ranchers and forest landowners in the marketplace.  Ongoing assessments would examine the environmental credit market itself, including actors in the market, participation, credits generated and sold, barriers to entry, opportunities for other voluntary markets, and more.

Program funding

The act provides an appropriation of at least $1 million per year to fund the program through 2027 and another $4.1 million of potential unobligated American Rescue Plan Act funds.  It specifically prohibits the USDA from using funds from the Commodity Credit Corporation for the program, a demand of the House Agriculture Committee Chairman Glenn Thompson, who states that those funds are obligated for Farm Bill program payments.

What’s next?

Farm Bill negotiations this year and other climate initiatives recently undertaken by the Biden administration, such as the USDA’s Partnerships for Climate-Smart Commodities, could reduce the focus the Growing Climate Solutions Act would have received if it had passed when first introduced back in 2020.  Even so, the timeclock has started for the USDA to make its initial determination of whether the program would meet the intended purposes. Secretary Vilsack must make that determination by late September, and the expectation is that the program will proceed.  We should then see the Advisory Council established by fall and and can expect program outputs such as protocols and the third-party registry as early as 2024. 

Read the provisions of the new law beginning on page 1,512 of the Consolidated Appropriations Act of 2023, H.R. 2617.

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