If your clients provide contract services to other farms, are they covered by their insurance? Learn more about farm contracting and farm insurance with Prevail.
It's common for farmers to subsidise their income by offering their services to other farmers on a contract basis.
Known as farm contracting, this may include activities such as using their harvester to harvest another farmer's crops, supplying a sprayer and crop spraying services to another farm, or shearing another farmer's sheep, mustering their cattle or transporting their grain or livestock.
But what happens if a loss is suffered when a farmer is offering these services? Does their farm insurance cover them?
The limits of occasional farm contracting
As National Product Lead – Farm, Peter Morsley explains whether this type of service is covered under the Prevail Extra Farm Insurance Product Disclosure Statement (PDS) depends on how often the farmer performs these activities.
"We don't offer to arrange insurance cover for contracting businesses, so the question of whether or not they are covered depends on how frequently they are contracting their services to other farmers. The Prevail Extra Farm Insurance PDS covers occasional farm contracting, but it must only be occasional, as defined in the PDS."
Peter says that a farmer can only generate a maximum of $100,000 or 20% of their combined annual turnover (whichever is the lesser amount) from farm contracting activities in a financial year, to be covered for occasional farm contracting as opposed to operating a contracting business.
In addition, under the Prevail Extra Farm Insurance PDS, occasional farm contracting activities must be consistent with a farmer's own farming operations as listed in the insured's Certificate of Insurance to be covered. For example, a sheep farmer offering shearing services to others on a limited basis may be covered, but a grape grower offering a sheep shearing service will not be covered.
The extent of cover for occasional farm contracting
Provided farmers meet the definition and limits of occasional farm contracting, cover is extended for liability as well as property damage, and damage to the farmer's vehicles or equipment used to complete the job, Peter explains.
For example, when a grain grower providing contracted harvesting services on another farm hits a stump that damages their harvester, they will be covered for the cost of repairs to the harvester. Likewise, if that farmer's harvester caught fire and destroyed a field on another farm, cover will be extended to both the harvester and the field.
How brokers can help ensure their clients are covered
Peter says that, brokers should ask their farming clients if they perform contracting work, to ensure it is covered by the policy terms and conditions.
"We ask if they are doing any contracting work on our proposal form, but it's worth brokers checking with their farming clients annually, as it's something they could begin doing at any time," Peter says. "By pointing out what's covered and the income limitations and the contracting requirement (that the contracting is to be consistent with their core business), brokers can ensure their clients don't have a gap in their cover."
He says brokers should also discuss the potential risk to their farming clients' core business; from any contracting work they may do.
"For example, if a key piece of machinery does get damaged doing a job on someone else's farm, it could be out of action for some time, which could affect their own farming operations."
Peter says that if a farmer is running a farm contracting business, rather than performing occasional contracting, they should have the adequate insurance in place for that business.
"Likewise, if they are close to those maximum financial thresholds, we may advise the broker to arrange separate cover for the contracting activities because if they exceed those limits even slightly, cover is excluded under the Prevail Extra Farm Insurance PDS."
Here to help
For more information about our cover for occasional farm contracting or for general enquiries about Prevail Extra Farm Insurance, visit our Prevail website at www.prevailinsurance.com.au or contact us on 1300 188 299.
The cover is subject to terms and conditions, limits and exclusions of the policy. Any information provided above is general advice only and has been prepared without taking into account your client's objectives, financial situation or needs. Prevail Insurance Pty Ltd acts for the insurer, Pacific International Insurance Pty Limited (‘Pacific’). Consider the Prevail Extra Farm Insurance Product Disclosure Statement and Target Market Determination, available by contacting Prevail on 1300 188 299 or visiting www.prevailinsurance.com.au before deciding if it is right for your client. For full details of cover, terms, conditions, limitations, and exclusions, please read the Prevail Extra Farm Insurance PDS.