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Although the horse industry's insurance practices are in the spotlight right now because of the controversy over jockeys, other agricultural industries should pay close attention because they could be next, says Laura Koester, practice leader for the agribusiness unit at broker Willis.

Employers are required by law to provide workers' compensation insurance for their employees. In the horse industry, however, jockeys are not eligible for workers' comp because they are considered independent contractors.

Kentucky Gov. Ernie Fletcher has promised a crackdown on the horse industry to make sure that everyone has the proper insurance. This scrutiny by regulators and insurance companies could extend to other farms and even cattle ranches in the west, Koester says.

"The horse industry is getting hit first because it is more high profile and you've got gambling involved," she says. "But the ranches are on the radar screen too. Although they haven't been targeted and hit as hard, they're about to be, and they are on the radar screen," she says. Some of the bigger ranches and cattle operations have been starting to step up to the plate and buy the necessary levels of workers' comp, she says.

Many farmers in the past, tried to rely on an agricultural exclusion that allowed them to get out of providing workers' comp insurance because most workers on small farms tended to be immediate family members, she says.

But some are now inappropriately relying on the exclusion to avoid buying insurance. Other farms and ranches are underreporting payrolls or claiming that workers are independent contractors when they really are not, she says.

To protect themselves, farms and cattle ranches must have certificates of insurance, independent contractor forms or opt-out forms from any vendor that provides a service that is customary, ordinary and recurring, she says.

"In our neck of the woods here in Lexington, you've got farriers that are on the farms all the time, veterinarians, the fencing is painted yearly or bi-yearly, the grain is delivered, hay is delivered," she says. "You've got all kinds of vendors coming on the premises," she also says. "If it's customary, ordinary and recurring, then you better have a certificate of insurance," she says.

Vendors should have certificates of insurance, but it is up to the farm to ask for it and have it on file, she says. Independent contractors, such as blacksmiths, she says, can waive the certificate of insurance by signing an independent contractor form. But blacksmiths cannot waive for apprentices and so then the farm will get charged back for that during an audit.

Blacksmiths can incorporate and officers can then opt out and buy their own insurance, she says. "I'm just telling them you just need to make multiple copies of your opt-out forms or your independent contractor forms and you need to give it to all the farms you go on to the premises of to perform any type of services," she says.

Although it may seem like a lot of extra paperwork, it can save farm owners money in the end, she says. "We had a couple of audits here in Lexington, where they (farms) had to pay a significant amount of money because they had to cover the blacksmiths on their workers' comp policy," she says. "They were not happy about that, I can assure you." By being aware upfront, the farm would have the opportunity to choose a blacksmith that had insurance of its own, she says.

Some employers have tried to avoid providing workers' comp insurance by arguing that their workers were independent contractors. However, employers can be taking a big risk if it's determined that the employee was not an independent contractor.

"Years ago there was a gentleman that was hurt here at the training center and the trainer tried to argue that, well, he's an independent contractor," she says. "Well, it didn't fly. He went through an audit and had to pay a tremendous amount of money for all the exercise riders he had not paid on for the previous five years."

By failing to buy sufficient insurance to cover all their employees, employers not only are shortchanging those workers and putting themselves at risk, but they are weakening the entire workers' comp system, she says. "What hurt was because you didn't have a true pool, the rates were higher for those who did do the right thing and purchased their workers' comp," she says. But with stricter enforcement, employers will have to buy the proper insurance. Although it may mean a higher out-of-pocket expense upfront, she says "the fact of the matter is you have to have it.

"You just can't play that game. They're going to clamp down on it. I know everyone is going to hate it at first. But I think in the long run, if you have everyone participating, then there should be a larger amount of money available for claims."

June 1, 2005

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