Victory for Horse Industry in Texas Supreme Court

The horse industry scored big on April 29, 2011, when the Supreme Court of Texas issued their first-ever opinion addressing the scope of the Texas Equine Activity Limitation of Liability Act. 

The Act (Sections 87.001-005 of the Texas Civil Practice & Remedies Code) limits the liability of equine activity sponsors and other persons for damages resulting from inherent risks of an equine activity. It is the same law referred to on the warning signs posted by horse show sponsors, boarding stables, race tracks, and training facilities.

The Texas Supreme Court case, entitled Loftin v. Lee, involved a woman who fell off a horse and fractured a vertebra when the horse she was riding spooked at a patch of mud and a vine hanging from a tree during a trail ride. The injured woman (Janice Lee) had raised horses for years, but had not ridden much. Lee sued her friend, Terri Loftin, who had invited Lee to ride her daughter’s horse “Smash”, a twelve-year-old gelding. Loftin also accompanied Lee on the ride.

I filed an amicus brief in the case on behalf of the Texas Quarter Horse Association, in support of Terri Loftin’s position. A link to the Court’s opinion can be found here.

The Court addressed two issues in its opinion:

1)      Are risks “inherent in an equine activity” only if they relate to animal behavior or are otherwise unavoidable? 

Court’s finding: No.  An inherent risk is one that, in its general character, is associated with activities involving equine animals.

2)      Is a person immune from liability under the Act for failing to fully asses a person’s ability to participate in an equine activity if that failure did not cause the injury?

Court’s finding: Yes.

The Loftin case is a great victory and great relief for Texas horsemen, for if a muddy patch or a hanging vine on a trail ride is not an inherent risk, what is? The Texas case incidentally comes on the heels of a 2010 Michigan Supreme Court case, Beattie v. Mickalich, where the Michigan Supreme Court found that defendants are not immune from general negligence actions under Michigan’s version of the Act. The Beattie opinion practically nullifies the main benefit of the Michigan Act for defendants—the ability to have a negligence case involving an inherent equine risk dismissed summarily before trial. Hopefully other states will follow Texas’s lead on this extremely important issue.

Horse Insurance 101: Special Event Liability

Special Event Liability insurance will be the final topic of this week's discussion about the various types of equine liability insurance available for purchase.  If you are hosting an event such as a clinic, a roping, a show or a trail ride, you should consider buying insurance.

Special Event Liability insurance typically extends to the organization putting on the show and its members.  Show officials, committee members, judges, course designers and premises owners can usually be included as additional insureds (and I recommend getting coverage for all of the above, if applicable).

If considering Special Event Liability insurance, ask your agent what types of incidents are covered and what parts of the premises are covered.  Many accidents that occur at a horse event do not involve horses and do not happen in the arena.  I know of one instance where a horse show sponsor was sued in connection with a golf cart wreck in the parking lot.  As such, the Equine Activity Laws will not always provide a defense so you need to make sure you have insurance coverage.

Also, make sure that claims made by spectators and guests (not just participants) are covered under the policy.

In addition to Special Event Liability insurance, I recommend that event sponsors1) post the Equine Activity Law signs at the event; and 2) have each participant sign a liability waiver form that is a separate document from the entry form.

The "downside" for some sponsors (depending on the event) is that the liability carrier may prohibit the sponsor from allowing dogs or alcohol on the premises during the event.  Even if the sponsor is not selling alcohol, that "col'beer" in people's private ice chests in their pickups might be disallowed under the insurance policy.  So add dogs and beer to the list of things to discuss with your agent to make sure you're covered.

Photo credit:  Eric Ashford (Flikr)

Horse Insurance 101: Commercial Equine Liability


If you board, breed, race, train, give riding lessons or conduct any kind of business-related equine activity, I highly recommend that you consider a Commercial Equine Liability policy. 

Homeowner’s and standard Farm & Ranch insurance policies completely exclude your equine business pursuits. 

Commercial liability insurance pays the damages for liability imposed upon you or your business by a liability claim or court judgment.  It also pays the cost of defending you when a lawsuit is brought against you.

This policy kicks in when an accident occurs and someone is hurt, regardless of whether you own the horse involved.

However, the basic Commercial Equine Liability policy does not cover claims for damage to property in your care, custody or control.  If someone claims, for example, that you injured their horse in the course of training it, you would need a Care, Custody & Control policy to cover that damage claim.

The Equine Activity Laws may help you provide a defense in the event of an equine incident, but they will not prevent you from being sued.  Without adequate liability coverage you will have to pay damages and defense costs yourself.  And the Equine Liability Laws only cover “inherent risks” in equine activities.  Some plaintiffs are able to successfully argue that their situation did not involve an “inherent risk”.  In other words, you could lose the case.  It bears repeating that defense costs are generally not recoverable by defendants in Texas lawsuits.

Commercial Equine Liability policies are designed to help protect you if you are sued by a third party who is injured or whose property is damaged.  A third party is generally someone who is not a family member or employee. 

If you have employees, you should consider carrying workman's compensation insurance as they are not covered under the general liability policy.  You should also make sure that any independent contractors that work with you show proof of their own liability insurance and ask that you be named as an Additional Insured on their policy.  This is especially true if you have an independent instructor or trainer working at your facility.

In addition to this policy, I recommend that all equine businesses 1) post the applicable Equine Activity Law in your state in conspicuous areas in your barn and on your property; and 2) have each third party who uses your facility sign a liability waiver that contains a covenant not to sue and specifically waives liability for ordinary negligence.   

 

Photo credit:  Katarina 2353 (Flikr)

Horse Insurance 101: Private Horseowner's Liability (PHO)

Many lawsuits involving horses can be avoided altogether if the right insurance policy is in place. Or, if a lawsuit cannot be avoided, a horse owner with the right insurance policy does not have to rack up $75k plus getting their case to trial and face a potential judgment of thousands or millions of dollars.

Remember, posting the Chapter 87 Equine Activity Act sign, setting up an LLC, or getting people to sign a liability waiver does not immunize you from suit.  If you are sued, you will still have to pay a lawyer to defend you even if you eventually win the case.  In Texas, defendants usually cannot recover attorneys' fees in court.

So, the theme this week is equine insurance.  Do you need it and what kind do you need?

In the May 2010 Issue of SuperLooper, insurance specialist Amy J. Daum talks about Private Horseowner's Liability Policies (PHOs).

A PHO is meant to cover you if your horse directly injures someone or damages someone's property, and you are sued.  Some examples of when a PHO might cover you are:

1) One of your horses gets out of your pasture and is hit by a car, and the motorist sues you;

2) Your horse is tied to your horse trailer at a show or roping and kicks someone's child while you are around the corner doing something else; and

3) You allow your friend to ride your best horse and he falls off when your horse stops quickly.  Your friend has no medical insurance so has to sue you to pay his medical bills.

Even if you have a farm & ranch or homeowner's policy, a PHO might cover you under circumstances that your farm & ranch policy would not.  For example, some farm & ranch or homeowner's policies will not cover you if the accident happened off your property.  Also, if an accident happens at an event where money can be won (roping, barrel race, cutting, etc), some policies will consider the event a "commerical activity" and exclude coverage.  

The really cool thing about PHOs is that they are cheap!   By way of example, PHOs with Broadstone Equine Insurance Agency start at about $130 per year for $300,000 in coverage, and $235 per year for $1million in coverage.  

Even the $1 million policy costs less per year than one hour of work for the average trial lawyer!

But PHOs are not available for everyone.  Daum says that an equine professional who teaches lessons, boards, trains, or buys and sells horses cannot get a PHO.  

Also, a PHO only covers you if you are sued by a "third party".  A third party is someone who is not a family member or someone performing services for you (such as a vet, farrier, or employee). 

An equine professional or someone being sued by a service provider could be covered by a general liability policy, a type of insurance that will be discussed in a future post.

For those horseowners who do qualify, I believe getting a PHO is worth the money.  This is especially so if 1) you haul to shows, ropings, or rodeos on a regular basis, 2) other people will frequently be riding your horses, or 2) you have any reason to believe your horses might get out and make their way onto a road.

Highlights from 2010 National Conference on Equine Law

I just returned from the 2010 National Conference on Equine Law , held last week in Lexington, Kentucky. This was my fifth year in a row to attend the conference, and it was a great year.  The conference had a record number of attendees--180 practitioners from all over the United States. This year's lineup of speakers and topics was the best I've seen so far in five years.

I was lucky enough to be invited to speak this year.  My topic was "A Multi-Jurisdictional Comparison of Equine Liens".  With only 30 minutes to speak, I only had time to cover Texas, Kentucky, and Florida.  However, I hope the materials are helpful by reference to every practitioner or horseman regardless of state.  My handout can be accessed in two parts: Part 1 and Part 2.  Click here for a copy of my PowerPoint presentation.

Takeaways from my presentation:  1) no matter what state you're in, and regardless of whether your state requires it, always send written notice directly to the debtor (if you can find them) before foreclosing on an equine lien; 2) if you want to do a private lien sale under the UCC foreclosure provisions, make sure you can prove to a judge or jury that your debtor was engaged in a "farming operation" (i.e. they are in the horse business--not just a hobbyist); and 3) there may be multiple liens on the horse at issue.  Be aware of which lien has priority.  The person in possession of the horse almost always has the most bargaining power, regardless of priority.

Ned Bonnie, a long-time Kentucky horseman, equine lawyer, and graduate of Yale undergrad and law school, told me he also attaches (seizes via court order) the original registration papers to a horse when a lien dispute arises.  I like this idea, though it requires filing a lawsuit in Texas.

Other highlights from this year's conference:

1) Frank T. Becker's annual Equine Case Law Update--The "case of the year" (the year's most wacky or novel case) was State v. Coates, 2009 WL 2414334.  Frank calls it a "silly case of no legal significance", but interesting nonetheless!  It involved a case of "road rage" between a jogger and a horseman fighting over who should yield a pathway.  The jogger intentionally startled the horse and ended up getting arrested.  Horsemen 1, joggers 0.

2) Ted Martin and April Neihsl talked about the recoverability of damages in equine cases.  Ted stressed the importance of determining the fair market value of the horse at issue and said it is usually determined by 1) expert testimony; 2) previous sales prices and offers to buy; and 3) the owner's testimony (in some cases).

April addressed the recoverability of lost profits, sentimental, and punitive damages.  April stressed that when proving up lost profits, it is essential that the plaintiff had income in the past and that the focus is on net profits rather than gross profits.  Also, while sentimental damages are rarely awarded in equine cases, some states (Colorado, Illinois, Oregon, Tennessee, and Utah) allow them by statute.  

3) Bob Webb and Chris Coffman discussed the IRS's "National Research Program" that is targeting many horse businesses.  The key issue to survive these audits is to prove that the horse operation is a for-profit business, or a trade at the very least.

4) Doyice and Mary Cotten discussed changes in the law affecting the enforceability of liability waivers.  The most frequent causes of liability waiver failure are, according to the Cottens: 1) statutory prohibition of waivers in some states (such as Montana and Louisiana); 2) lack of clarity in the waiver (use of phrase "all liability"); 3) inclusion of waiver in entry form or membership contract; 4) waiver is overbroad or too narrow; and 5) surprisingly--the party to be released is not named in the waiver!

5) Paul Husband presented on the law determining whether someone is an independent contractor or an employee.  Paul stressed the importance of this issue as 6,000 employment tax audits are planned as part of the IRS National Research Program.  The Obama administration has budgeted $25 million to target misclassification of workers as independent contractors.  If an employer misclassifies an employee as an independent contractor, they can receive the "100% penalty" (the person with signature authority on checks for the employer personally pays the employee's tax and serves time in jail).

6) Jay Hickey of the American Horse Council addressed current federal legislation affecting the horse industry.  The Economic Stimulus Bill contains at least one thing that might benefit horse owners--$1.7 billion that can be used for the maintenance and construction of equine trials.  The AHC encourages local organizations to contact district offices to make sure funds are appropriated to horse-related projects.

7) Julie Fershtman discussed liability issues surrounding equine shows and events.  Because most shows or rodeos do not get each spectator to sign a liability waiver, it is important that event sponsors ask their insurance company about insuring against spectator liability.  Furthermore, it was noted that many accidents at equine activities do not involve horses at all, thus bringing them outside the Equine Activity Acts.  Sponsor insurance should, if possible, cover all premises liability issues...not just accidents involving horses.

8) Krysia Carmel Nelson and Tamara Tucker addressed liability issues in boarding and training arrangements.  They suggested including the following clauses in some boarding/training agreements: 1) "training disclaimer" to protect against claim that bad training diminished value of horse; 2) "risk of loss/indemnity" provision to curtail claims that the trainer or boarding facility injured the horse; 3) "veterinary power of attorney" to protect boarding facility from claim that veterinary services were not authorized and ruined horse; 4) "abandonment clause" holding that after a certain period of time, a horse becomes property of the boarding facility/trainer if the owner doesn't pay, make contact, or move the horse.

9) Bruce Smith and Mike Meuser covered fraud in horse sales transactions.  They addressed the crucial issue of a seller's duty to disclose a known defect in a horse.  A duty to disclose can arise when 1) a sales contract requires it; 2) a seller voluntarily makes a partial disclosure that is misleading; 3) the seller knows the buyer has the wrong impression about something related to the horse; 4) a confidential or fiduciary relationship exists; and 5) the seller knows the horse has dangerous propensities.

10) Gregory Dennis, a practitioner who specializes in veterinary malpractice and disciplinary proceedings, discussed various issues surrounding veterinary malpractice cases involving horses.  His presentation highlighted the difference between general negligence in veterinary actions versus veterinary malpractice.

If you would like further information about this year's conference, please click on the individual presenters' names discussed above to find their contact information, or contact me for details.