Develop a Plan to Deal With Your Worries
Suggestions on how to protect your ranch from disaster losses, liability and other financial hazards
By Larry Stalcup
The International Risk Management Institute Inc. in Dallas defines risk management as “the practice of identifying and analyzing loss exposures and taking steps to minimize the financial impact of the risks they impose.”
That thought extends to nearly all businesses and organizations. And for a ranch, there’s a never-ending list of potential risks.
Ranch risk management goes far beyond hedging the price on your calves or pre-buying supplemental feed in bulk. There’s something around every fence post that can cause havoc — threats of fire, tornado and flood damage, drought, someone injured while hunting feral hogs or a neighbor’s city cousin drowns in a stock tank.
Bart Wulff, a Dallas-based attorney who specializes in agricultural and other business law, says all ranchers should develop and follow a well-planned risk management program.
“Hedging, lease agreements and insurance can’t be the single focus of risk management,” says Wulff, a director of Texas and Southwestern Cattle Raisers Association (TSCRA) whose family owns ranches outside Brady in the Texas Hill Country.
“Ranchers need to ask themselves, ‘What are the risks I’m exposed to, which ones am I most worried about and how can I best deal with them?’”
Starting a ranch risk management plan should first involve analyzing the basic inputs needed to operate a ranch. “Measure whether you have enough rain, water and money. If any one of those collapses, you’re done,” Wulff says.
“A new tank or water line may be more important for long-term survival than insuring against potential losses that may or may not occur. Don’t lose track of the big picture.”
Still, it’s important to plan. “Look at the big picture and what needs to be done to deal with it. Look at your overall operation and determine what things can cripple it,” Wulff explains. “What is most likely to happen, and which aspects of the ranch are the most important.
“For example, property insurance will likely cover against a tornado or fire. You probably don’t have the resources to deal with them, so you need insurance. That gives you a priority of what to deal with.”
Insurance policies are typically broken down into 2 kinds: first-party policies that pay you and your family for your own losses, and third-party policies that protect against and pay your liability to others for their losses.
First-party insurance policies cover your property including damage to your vehicle if it is damaged in a collision, fidelity bonds, burglary and robbery, computers and other electronic equipment, etc. “It gets down to risks you need covered,” says Wulff, a partner in Koning Rubarts LLP law firm.
“You may have better things to do with your resources than take out burglary insurance. Again, that new water tank may be more important to the welfare of the ranch.”
Third-party insurance would include general liability, such as vehicle liability, ranch owner, family member or ranch manager liability, worker’s comp and employee practices liability. Wulff says with third-party and first-party insurance, ranch owners or managers should determine the need for insurance by identifying the risks, the likelihood of a particular risk occurring, the severity of the loss if the risk materializes, and other techniques in place to reduce risk.
“They should review existing insurance coverage, take any insurance substitute into account, look for any gaps in coverage, review insurance options and consider treatment of defense costs, and determine if spending those dollars on insurance is the best use of the money overall.”
Reducing risks should help improve your operation. A good record-keeping system is essential. Also, provide job descriptions for full-time and seasonal employees, screen employees and conduct background checks, provide good training and supervision, and maintain a set policy and procedure for accidents. ➤
Risk transfer agreements
These transfer agreements can be used to protect ranch owners when others enter their property. “More people are coming onto ranch property than ever before,” says Wulff. “Once you start bringing in deer hunters, which many of us do, you may also find photographers, hikers and others who are willing to pay for use of your land. Ranchers need a legal agreement that shifts the risk back to those using the land.”
Wulff lists 5 elements that can be included in an agreement to shift risks back to hunters, fishermen, etc.:
- A “Disclaimer,” which makes clear that you are not accepting a risk which otherwise might be imposed on you.
- A “Waiver,” which is the intentional voluntary act of relinquishing a known right, claim or privilege.
- A “Release,” a document by which the person signing it acknowledges the surrender of specific claims or rights in return for consideration.
- “Indemnity,” which is a contract provision that one party will provide reimbursement for losses the other party may incur.
- A “Hold Harmless” provision that one party will assume the other party’s liability.
The court’s analysis of the enforceability of an agreement will include 4 “fairness factors,” Wulff says.
They are a relative bargaining position, clarity of the document’s intent to transfer this risk, consideration that the party giving up something has received something valuable in return, such as access to your ranch, and how clear it is that the signer had actual notice of what they were agreeing to.
To ensure enforceability, Wulff says agreements should clearly state the major risks. Also, state that the signer has voluntarily decided to encounter risk, and state that the ranch or organization “has not promised activity safe — i.e. with no warranty.”
Also, make release language conspicuous or easily visible. Language should clearly indicate that the ranch ownership is not liable for injuries or other issues that may occur.
“The agreement should state that the signer wants to be allowed to participate in an activity voluntarily or receive benefits from an activity and gives up rights in return,” Wulff says.
In addition, the agreement should include a provision that the signer promises not to sue the ranch or organization, state that the signer has read and understood the document and has initialed beside items crucial to the agreement. “If few enough participants talk about it, actual notice is always better than implied notice,” Wulff says.
Risk transfer agreements may not be as easily enforceable if minors are involved. “I think it’s important for us to encourage people coming to our land for recreational use to bring their kids to learn about the outdoors,” Wulff points out. “However, if a child is hurt on your property, you will likely be held responsible, no matter what agreement you have with their parents. The law does not normally allow parents to agree that someone may harm their child.”
He encourages ranchers to learn if kids accompanying their parents are familiar with hunting or other activities before allowing them to hunt or conduct other recreational activities. For more on recreational use of agricultural land, visit www.statutes.legis.state.tx.us. Scroll to “CIVIL PRACTICE AND REMEDIES CODE” and select “CHAPTER 75. LIMITATION OF LANDOWNERS’ LIABILITY” from the drop-down menu.
“Also, if you buy insurance to cover your liability, make sure that the limits of the insurance policy satisfy the requirements of Chapter 75,” Wulff says. “Cattle Raisers Insurance has a liability policy. The Farm Bureau will add that liability to your ranch schedule policy. Other insurers and agencies may also have policies available that comply with Chapter 75.”
A “no trespassing” or “no hunting” sign can provide some protection against liability. “If someone is a trespasser they have fewer rights than as an invitee,” Wulff says. “Having your land properly posted that someone is a trespasser is a good, cheap risk management tool. The TSCRA blue gate sign is a good one to have.”
Who is liable?
When further dealing with liability issues involving the ranch, there can be a question as to whether a ranch or employee was negligent in a situation in which a person was injured or harm was done financially. Wulff says a ranch should have specific documentation stating the duty of the ranch or employee, if there was a breach or violation of that duty, if the injury was caused by the breach and if damages resulted.
Documentation can help determine who is liable; the rancher, the employee, the ranch visitor, vendors involved in an activity or other involvement. No doubt, this is where legal advice and counsel will likely be required, just as insurance professionals will be needed to help determine true risk coverage needs and availability.
Risk is also an issue for landowners who are considering oil and gas drilling or production activities on their ranches or farms, wind farms, pipeline easements or any other area where you are negotiating with professionals and you are an amateur.
“Go talk to your lawyer. Don’t try to do it on your own,” Wulff says. These situations present complicated areas in which there is a history of what people do and do not agree to. If you just take the lease offered for oil and gas or wind, you’re going to be taken advantage of. You need to talk to your legal advisor and see what’s needed in an agreement to protect yourself and hold others liable if they cause damage to your ranch.”
That was all too evident with Hurricane Harvey and the massive flooding in southeast Texas, as well as wildfires that rampaged across hundreds of thousands of acres in the northeast Panhandle, western Oklahoma and southwest Kansas. While big cities got the TV coverage during Harvey last fall, hundreds of ranchers and farmers also faced damages. The late-winter wildfires of 2017 killed thousands of head of livestock and caused millions of dollars of damage in lost barns, homes, fencing and vehicles.
Last summer, the Oklahoma Cattlemen’s Association convention featured a seminar on crisis management to address large and small-scale disaster situations. “By nature, a crisis is an undeniable event,” noted David Pelzer, a former communications director for the National Live Stock and Meat Board, who now specializes in helping farmers and ranchers develop crisis management plans.
He encouraged ranchers to develop a crisis management plan before disasters occur. It should start with a crisis team, which identifies stakeholders (family members, landowners, vets, lenders, etc.) and potentially devastating scenarios. It may involve the development of a public relations plan and even actual public statements for use in the event of a crisis.
Those crises could include employee injuries, weather damage, unexpected animal safety or health concerns, real or perceived danger in consuming beef, the sudden lack of community trust, sudden death of senior management, etc.
The manner in which such crises are managed may “make or break you,” Pelzer said, adding that a written document to help guide first responders to remote areas of your ranch should be part of the crisis plan. A close relationship with TSCRA, OCA or other cattle association could be vital if there is a problem that may create concern for public health.
So, you take out price risk management on your cattle or feed; remember that potential threats to the livelihood of your ranch, farm or feedyards are risks that should also be hedged against.
“Look at your operation and all the things that can go right and wrong, and what worries you the most,” concludes Wulff. “Then set your priorities. Be ready for what can harm your operation, something that can help keep your ranch operation in business.”
Develop a Plan is excerpted from the March 2018 edition of The Cattleman magazine.