UNPREDICTABLE PROFESSION. Not every horseshoeing goes exactly as planned. That’s one reason farriers need to invest in liability coverage that will help protect them from lawsuits.
Things are going good; your business is growing, you work on horses who know the drill, and your clients pay on time. You’re even thinking about outfitting a new truck. And then a high-end jumper, who’s normally quiet when standing in cross-ties, spooks just as you’re driving in the last nail. He gets cut, flips out and throws you against the wall, breaking your arm in two places — just as he bolts into your tool box, then falls on a rasp, puncturing his leg.
After all is said and done, the feeling of relief you have that you’re still alive fades into the grim reality of being out of work for 12 of the busiest weeks in the season — made grimmer by the fact that the horse owner is threatening to sue you for negligence . . . and you have no insurance . . .
Because farriery can be a risky business, it’s worth understanding the ins and outs of legally protecting yourself, since as farriers know too well, with horses, anything can happen. William Miller, Jr., horse owner and attorney at law with Langrock, Sperry & Wool, LLP, recently talked about the importance of taking steps BEFORE an incident at a meeting of the Vermont Farriers Association.
“Terms like negligence and liability are often tossed around without a clear understanding of what they mean,” Miller says. “Negligence and the resulting liability refer to one person’s failure to act in conformance with that of a reasonable person in the same situation. So, the average person in a position of responsibility who does the prudent thing in a given set of circumstances only needs a reasonable amount of care to avoid being held accountable for damages.”
Miller gives this example.
“You take the precaution of spraying a horse with bug repellant before you shoe him, but he flips out anyway because a wasp stings him, and he breaks the cross-ties, takes off and skids into a into a child getting out of a parked car,” he says. “On the other hand, if you’re talking on your cell phone, at the same time your three dogs that jumped out of the truck are fighting under the horse’s feet as you’re about to hot shoe him, and he flips out, breaks the cross-ties, takes off and skids into the child getting out of a parked car, well, that’s another story.
“In either situation though, if you have to fight your case in court, even if you’re exonerated from any wrongdoing, without insurance, the out-of-pocket costs could ruin you.”
Another situation Miller cites is the unavoidable or “freak” accident, which falls into the same realm as with the horse that got stung by that wasp.
“A horse under your care rears for no foreseeable reason and strikes a passerby who normally would have been well out of the way,” he says. “It seems that these days the courts are increasingly in favor of holding someone responsible for a harmful action, so even though it wasn’t your fault, you could be sued nevertheless, putting you in the same quagmire.”
That’s why one of the most important benefits of having liability insurance is the company’s obligation to defend you.
“Doing investigation is a key part of resolving a case, which can become quite costly, not to mention the expenses attached to retaining an attorney,” he says. The bottom line, according to Miller, “is that having insurance protection allows you to sleep at night.”
However, he notes that when you fill out an insurance application, you need to be sure to declare the specific actions you’ll be performing in connection with your business.
“For instance, if you state that you shoe horses in the United States and Canada, but happen to travel on behalf of your client to England, the insurance company can deny coverage for a claim arising from that job, even if it was a one shot deal and the horses were from the U.S.,” he says. “The reason: You didn’t specify that you would be traveling outside of the country.”
Care, Custody And Control
“Don’t think that because you have a general liability policy you’ll be covered in all circumstances,” emphasizes Miller. “Having care, custody and control insurance is essential because it protects you in the event the horses on your watch are harmed or injured.”
Miller says that the two main benefits of getting this coverage are that the insurance company will defend you by paying your attorney costs, and will pay in the event a judgment is entered against you — so long as the dollar amount is within the policy limits.
He again points to the example of the horse running into the child getting out of the parked car.
“If the horse broke a leg in the process and the owner tried to hold you accountable, you’d be covered through your care, custody and control policy,” he says. “Even if you are working under the direction of a vet — which is referred to as ‘The Captain of the Ship’ doctrine — and the prescribed procedure damages the horse, you could very well be named as a co-defendant, although you were just following instructions.”
That leads to another important point. “Develop a relationship with a bookkeeper, accountant and lawyer before you have a problem. There’s nothing like frantically scouting around trying to find someone when you’re in the throes of a crisis,” Miller contends. “And,” he goes on, “find out their costs beforehand. Another benefit to establishing a relationship is that you’ll be able to pick up the phone and get immediate advice, which often times will be free, because, like you, we’re in a service businesses, too.”
When looking into insurance costs, Miller recommends getting a policy with a high deductible.
“By getting the highest deductible you can live with, you’ll keep your payments low. In the event you have to pay on a claim, it’ll only be the amount of the deductible instead of everything you own plus your first-born,” he says.
Equine Business Options
Miller also says different types of business ownership provide different levels of protection. Here’s his take — including tax treatments — that best apply to farriers.
Sole Proprietorships. “What makes doing business as a sole proprietor attractive is that there are only token formalities to setting up shop (for example no need to file articles of incorporation) and little if any up front monies need to be spent. But, on the downside, as a sole proprietor you have unlimited personal liability for obligations of the business (such as a personal injury claim if someone is hurt while you’re shoeing a horse) and creditors can attach your personal assets to satisfy any judgments against you,” Miller says.
“There’s good news from a tax standpoint though, because the income and expenses for the business are typically included on your individual tax form. For instance, if you buy new tools, you can write them off as a cost of doing business, thereby offsetting your income, which, depending on your situation, could make a sole proprietorship a worthwhile option,” he explains.
Miller adds another point to keep in mind. If you’re operating your business under any name other than your own, you are required to file a trade name registration with the secretary of state AND the community in which you live. You also have to renew your status every 5 or 10 years depending on your state’s requirements.
Corporations/ Limited Liability Companies (LLCs). The advantage of setting up a corporation is that it can protect its shareholders (you) from unlimited personal liability for business debts and claims. As a result, legal liability falls on the corporation, rather than on you personally.
“But, there are some disadvantages to forming a corporation, which include increased costs for start-up (secretary of state filing fees, accounting costs, etc.) and — unless you elect to be taxed as what is known as a Subchapter S corporation — double taxation,” Miller notes.
“Double taxation occurs when a corporation’s earnings are taxed at a corporate rate and then again upon its after-tax earnings,” he explains. “So, you’re essentially paying twice.”
Alternatively, Miller believes LLCs are a much better bet.
“LLCs are a relatively new business form; they’re easier to set up than corporations (around $500), yet they provide you with the same protection against business debts arising from contract obligations or liabilities,” he says. “And, it is especially important to consider a corporation or LLC if you have any employees since that entity can shield you from personal liability for your employee’s negligence.”
While Miller says that there aren’t any real tax advantages to becoming an LLC, he feels there are some very real promotional advantages. “There’s something about seeing LLC attached to a business name to give it more weight,” he says. “And, from a bookkeeping standpoint, it’ll make it much easier for you to separate your business from your personal expenses.