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Changing environmental risk picture changes dairy liability insurance needs

Progressive Dairyman Editor Dave Natzke Published on 11 March 2016

Court interpretations of environmental laws, combined with increased financial risks related to the environment, are converging to create a new reality: Manure is manure until it pollutes, and environmental insurance protects dairy farms against liability until it doesn’t.

The result is creation of new environmental liability insurance policies designed specifically for dairy farmers.



“More has changed in the environmental risk management picture for dairy farms in the past year than in the past 20 years combined,” according to Harrison Scheider, assistant vice president with American Risk Management Resources Network (ARMR.Network) LLC, Middleton, Wisconsin.

The Professional Dairy Producers of Wisconsin (PDPW) recently hosted a webinar on environmental insurance featuring Scheider and David Dybdahl, ARMR.Network president.

The company is a Wisconsin-based, nationally licensed wholesale insurance brokerage firm, providing custom-designed environmental impairment insurance and other policies for dairy farms and other businesses.

Interest in customized environmental insurance grew out of a December 2014 Wisconsin Supreme Court decision (Wilson Mutual v. Falk Farms) in which the components of manure (bacteria and nitrates) were deemed pollutants and were not covered under the farm’s existing environmental liability insurance policy.

Subsequently, Scheider and Dybdahl reviewed more than 140 existing environmental liability insurance policies, finding none provided adequate coverage.


According to their findings, standard environmental liability insurance policies – around since the 1970s and often adapted from other industries – were full of exclusions.

In many cases, Dybdahl warned, policies only provide sudden and accidental pollution escape coverage on owned or managed property. The pollution incident may require 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 are excluded from standard coverage.

There’s likely no 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 cover 10 percent of the policy’s limit of liability.

“Pollution exclusions are not well understood and often the most litigated part of a policy,” Dybdahl said. “Specially designed genuine environmental impairment liability insurance is needed to insure the day-to-day activities of a dairy farm.”

After the Wisconsin court ruling, Dybdahl, Scheider and others worked to modify coverage suited to the needs of dairy farmers, rolling out the first such policy in March 2015.


Regulatory, legal environment is changing

Regulatory and legal challenges necessitate the new insurance policies, Scheider and Dybdahl said. In addition to the Wisconsin case, they cite legal actions in Iowa and Yakima Valley, Washington. While insurance case law is state-specific, lawsuits frequently set far-reaching precedent, making it a national dairy farmer concern.

Large farms are beginning to look more like industrial polluters to the general public. Citizen legal actions under environmental protection laws are becoming increasingly successful, and decades-old federal environmental laws – including the Clean Water Act (CWA) and Resource Conservation and Recovery Act (RCRA) – are being applied to farms.

While state right-to-farm laws are designed to protect farmers from nuisance claims arising from customary farming practices, they do not eliminate liability for bodily injury to others and are not right-to-pollute laws, Scheider warned. And federal environmental protection laws prevail over state right-to-farm laws every time.

The bottom line

As a result, existing farm liability protection under standard insurance policies related to pollution losses is being stripped away, leaving the farmer liable for costly fines, penalties and financial awards under citizen lawsuits.

“Separate environmental impairment liability insurance was always needed for farms,” Dybdahl said. “An off-the-shelf farm liability insurance policy is totally unreliable to insure contamination events due to the pollution exclusions that all of these insurance policies contain.”

Coverage recommendations

Dybdahl recommended dairy farmers explore environmental insurance options, sitting down with their insurance agents to make sure the policy provides coverage for:

  • Liability to others for bodily injury or property damage arising out of pollution conditions from your farming activities

  • The cost of legal defenses, plus civil and criminal fines and penalties where allowable by law

  • Waste disposal, transportation and storage activities

  • Coverage for damages to “natural resources”

In addition, the policy should provide coverage specifically for:

  • Pre-existing low-level nitrate contamination events

  • Losses arising from manure application, hauling and storage

  • Gradual, sudden and accidental pollution events

Finally, be sure the policy defines insured “pollutants,” specifically including odors, manure, bacteria and nitrates.

Manage risks

Risk management is a part of limiting liability. Dybdahl recommended:

  • Implementing safeguards against pollution releases

  • Working with credentialed crop advisers to ensure 590 nutrient management plans are up-to-date and following them as much as possible

  • Ensuring your environmental impairment liability insurance policy is specifically designed for your dairy farm and associated risks

  • Requiring custom applicators, haulers and even crop advisers to carry their own liability insurance coverage which does not exclude losses associated with “pollution”

Policy costs

Affordable, custom-designed environmental impairment liability insurance for farms 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 up to $10 million. Cost per cow generally goes down as the herd size increases, Dybdahl said.

While premiums are fairly consistent across the country, areas with higher environmental advocacy activity may be higher. The standard deductible is $10,000. Higher deductibles are available, as is a $5,000 option.

As an insurance brokerage, Dybdahl and Scheider are not lawyers. They urge dairy producers to consult with their own attorneys for additional legal advice.  PD

For more information, visit ARMR.Network or call (608) 836-9590.