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If you follow this blog, you know we often write about managing food safety risks identified on your farm. Most often, that means thinking about managing the risks related to the food you grow or make on your farm. Many farmers, however, also sell produce or value-added foods provided by other farms or businesses. In this post, we’ll look at how to manage the business risk of one of your customers getting sick after eating food they bought from you, but which you bought from someone else.
What are the Risks?
In legal terms, what we’re talking about in this kind of scenario is “product liability.” As we discussed in a previous post, product liability claims in Maryland can be based on “negligence,” “strict product liability,” or “breach of warranty.” Product liability applies to raw produce, baked goods, and value-added products you grow or make, and also to goods you purchase from others for resale.
When food poisoning or contamination causes illness or injuries, a plaintiff (the person who was hurt) can bring a civil cause of action against the person(s) or business(es) in the food supply chain they think are responsible or “legally liable,” and if they prove their case, they are entitled to receive “compensatory damages.” Compensatory damages are just what they sound like. They compensate the plaintiff for medical bills, lost income, and out-of-pocket expenses incurred as a result of the injury, as well as compensating them for pain and suffering. Depending on the severity of the illness or injury, compensatory damages can reach into the millions of dollars.
Plaintiffs can also receive compensation for proven emotional distress related to their injuries. In some cases where the negligence was extremely reckless, plaintiffs may also be awarded punitive damages and attorney fees.
In rare and extreme cases, death can result from ingesting food contaminated with disease-causing microbes, pathogens, poisonous chemicals, or other harmful substances, and the loved ones of the deceased may be able to file a wrongful death action against the responsible person or business.
How Can I Protect Myself and My Farm?
There are generally four ways to address any risk: avoid it, reduce it, accept it, or transfer it to another party. Obviously, avoiding the risk here means not selling other people’s food products. Below, however, are ways you can accept the risk while also reducing and/or transferring it.
Use Insurance to Transfer the Cost of the Risk
Product Liability Insurance
Many farmers believe their typical farm liability insurance policy will provide them with product liability coverage. In most situations, however, this is probably not true. Farm liability coverage applies in situations when people are injured while on the farm premises (like when someone trips and falls at your farm) or as a result of performing farm operations. This is a different issue than someone being injured off the farm by a product they purchased from you. The sale of food made or produce grown by another farmer, even if you sell the produce raw and unprocessed, is not likely to be covered under a general farm liability policy. In that case, a product liability policy is appropriate.
Product liability insurance provides protection if a food borne illness results from a product you sold. It will pay for injuries and medical treatment resulting from consuming your product. It will also pay your defense costs in a lawsuit and any judgments, up to the policy limit.
Commercial Business Liability Insurance
Some farm operations, like growers who have fresh-produce processing facilities, also carry commercial business liability insurance. This kind of insurance may be necessary if you undertake activities not considered “agricultural” or “farming.” It works essentially the same way as general farm liability insurance, but is also appropriate for growers who sell at farmers’ markets or sell more than a certain percentage of off-farm products. These policies may provide coverage for injuries excluded in a general farm liability insurance policy.
Other Business Insurance Policies
There are other types of insurance policies you might also consider, depending on the size of your operation and the level of risk, which cover the costs of recalling a defective product or which cover losses from criminal actions of sabotage against a farmer as well as the losses covered in the accidental or product contamination policy (the indirect and direct recall costs). Talk to other farmers, farm organizations, the Farm Bureau, cooperative extension educators, and other agricultural professionals. Let them know what kinds of markets you plan to sell to, and ask them for recommendations on which insurance company and policy to choose.
Like with any insurance policy, what kind and how much coverage you need will depend on things like the value of your assets, the probability of a loss occurring, what you are doing to reduce the risk, and the dollar value of potential claims. When you talk to an insurance agent, explain your farm business in detail and ask the agent what types of policies are available to protect you and your assets. Work closely with your insurance agent to make sure the proper farm entity is insured and communicate often to be sure the insurance coverage is adequate for your type of operation.
Use Written Vendor Agreements
One way to reduce and transfer the risk is to include indemnity provisions, product liability insurance requirements, and mandatory food safety practices in written contracts with your suppliers. Many operators in the food distribution chain include a clause in their contracts stating that a particular party is responsible to indemnify them against all damages if someone gets sick or is injured from a food product. For instance, a food distributor can include language in contracts with various growers that the grower is responsible for all damages if someone gets sick from consuming the produce, even if a court would find the distributor liable for all of the injury. These agreements also frequently require the grower to have a minimum amount of product liability insurance to cover the cost of potential lawsuits and to name the distributor on the policy as an additional insured. In addition, these agreements can require the grower to follow certain safety or inspection practices, like requiring them to be GAP-certified or compliant with the Food Safety Modernization Act. Work with an attorney to craft a vendor agreement addressing the risks specific to your operation. If you don’t have an attorney, you can find one who practices in commercial or contract law here.
Consider Selling Only Whole, Raw Products
Exposure to legal liability increases with increased processing of the product. Something as simple as slicing a cantaloupe in half for sale at a farmers market counts as processing, regardless of whether you grew the cantaloupe or bought it from someone else and then sliced it and sold the slices. The more processing you do to a food product, the greater your exposure to liability, as well as possibly limiting your insurance coverage.
Consider Selling Only Products Sealed in a Container
In a previous post, we covered Maryland’s “sealed container defense.” This defense provides protection from liability for sellers who sold defective products when the seller received the product in a sealed container and could not have learned of the defect nor caused the defect, like selling honey in jars for a beekeeper.
All operators who sell any food products to consumers should familiarize themselves with the general principles of product liability and ways to reduce and transfer the associated risks. This is true even if the food sold was produced or processed by others and regardless of the size of the operation.