Hey everyone, It’s Dusty Druffel at the Equine Insurance Shop. I was going to write a post about common mistakes that the people we meet in the horse industry make, that can put themselves or businesses at risk. I had some fantastic points and examples all ready for you, when I stumbled upon an article that contains almost every point I was going to make. I thought it was very thorough and informative, and would perfect for all of our friends and customers to read. The article was on the website for Hey & Hey Attorney’s at Law LLP. The article is written by One of their Equine Law Attorney’s Polly Hey Panos. She was nice enough to allow us to post her article for your viewing.
After reading the article if you would like to discuss Equine Law or any of the topics with Polly you can call her at (650) 216-6012. Or E-mail her at polly@blueribbonlaw.com. You can also visit their website at www.blueribbonalw.com for additional information. As Usual if you want to get ahold of myself or one of our equine Insurance Agents you can find our contact information at the end of the article. I hope you enjoy the read!
17 Costly Mistakes That Force Horse Owners, Breeders & Trainers Into Court
Secrets and strategies you can use right now to protect yourself — and avoid the high costs, long delays and unbearable stress of a lawsuit
By Polly Hey Panos
Hey & Hey Attorney’s at Law LLP
Equine Law Attorney and Horse Owner
Horse Owners often find themselves in a hurricane of legal problems. These problems arise in many ways, such as: (1) an oral agreement to buy a horse, when you should have had a written agreement, (2) assuming you have liability insurance – only to learn that you don’t, (3) failing to disclose the horse’s past medical problems when applying for insurance, (4) buying a horse without a vet check, (5) buying a horse overseas — the list seems endless.
I’ve identified key mistakes and offered advice to help horse owners avoid the minefield of legal problems. If you make any of these mistakes, I hope my advice will help you correct them now – and prevent costly legal problems in the future.
MISTAKE #1: Assuming your homeowners insurance protects your equine related liability. Most homeowner’s insurance policies DO NOT provide any liability protection relating to your horse ownership. Here’s what may happen to you: You let your friend ride your trustworthy mare on the trail, and out of the blue she spooks. Your friend falls off breaking her leg. Though you’ve been friends for many years, she decides to sue you to recover for the costs of her injuries. You assume that your umbrella on your homeowner’s policy protects you and your family’s assets. But, unfortunately, in most cases, it does not — and you’re left paying thousands of dollars in medical bills and attorneys fees.
ADVICE: Instead of buying an umbrella policy on your homeowners insurance, buy private horse owners liability insurance. Private horse owner’s liability insurance provides coverage for the bodily injury or property damage to others, as caused by your horse ownership on or off your premises.
MISTAKE #2: Doing a deal on a handshake. When you buy or sell a horse — or complete any transaction using only a handshake or oral agreement — you put yourself at great risk. True, sometimes the deals work out flawlessly; however, when the sale turns sour and you do not have a detailed written contract, you may find yourself in court. Here’s how it happens: You purchase a horse with cash and take the horse home to your barn. Two months later the seller claims you stole the horse and demands that you give the horse back. You have nothing in writing, and no receipt from the transaction — so you either give the horse back or go to court.
ADVICE: Always prepare an agreement in writing that includes the essential terms of the contract. If the seller has made assurances to you that the horse has never been lame, then he or she should have no problem putting that assurance into a written document.
MISTAKE #3: Assuming you don’t need liability insurance because your students or boarders have signed a release form. Release forms and waivers have been found to be effective in some instances; however, they are examined on a case-to-case basis. Consider this: You are a trainer and you’re very careful to have all of your students’ parents sign a release form before they get onto a horse. Then you have a student who falls off and sues you for his injuries. You end up in a legal battle and as it turns out your release form wasn’t as good as you thought. You lose your case — and you don’t have liability insurance. As a result, you have to pay the former student thousands of dollars that you don’t have and you end up shutting down your training business.
ADVICE: Purchase liability insurance and have clients sign a release form that is drafted by an equine lawyer so it complies with California law.
MISTAKE #4: Relying on a form contract. Form contracts that you find in books or on the internet present a myriad of problems. They may be inexpensive, but they can contain language that is illegal or unenforceable. All situations are different. They’re based on specific facts. Form contracts can’t take into account the specifics of your situation. No question, you can buy form books on the internet with a liability and waiver agreement in it. BUT — the forms are written broadly so they could be used in any state. As an owner or trainer, if you use these broadly, badly written forms, you could end up in court when someone gets injured on your property. Then, sadly, the court could rule that your waiver was unenforceable. Why? Because important language was not indented from the rest of the agreement — and was not placed in a bold font, two requirements of waivers in most states. As a result, you are liable for the injury.
ADVICE: Research the law and make sure you use language that will make your contract enforceable. Or hire an equine attorney who has that knowledge.
MISTAKE #5: Deducting hobby losses on your income tax returns. If your horse related activity is a business, you are allowed to deduct your losses from unrelated income. However, if you don’t show profit or intent to make a profit for seven years, the IRS may re-evaluate your horse activity–declare it to be a hobby–then re-compute your tax liability for the past three years costing you thousands of dollars.
ADVICE: If your horse ownership is not really business, then do not treat it as one. If you are unsure about what expenses you can deduct, consult an equine tax specialist or equine attorney who can advise you.
MISTAKE #6: Not addressing risk of loss in installment contracts. Let’s say you purchase a horse using an installment contract and have not addressed the risk of loss. Then the horse injures its suspensory before the final payment is made. As the buyer, you want to return the injured horse and get your money back. However, the seller believes you are responsible for the horse’s injury and demands the remaining money due on the contract. Before you know it, you must hire an attorney to protect your rights and help get you out of this mess – which could have been prevented with a simple discussion about who bears the risk of loss.
ADVICE: Specify in the contract who bears the risk of loss while the installments are being paid.
MISTAKE #7: Failing to have a consent form for emergency medical, dental or surgical treatment for a minor child. Many trainers and stable managers have clients sign liability waivers yet they fail to obtain a consent form to perform emergency medical treatment. A minor cannot legally give consent for medical procedures. Suppose you are teaching a group lesson and one of the horses spooks and its rider, a child, falls off, gets injured and needs medical attention. You cannot reach the parents on their cell phone, and the local emergency center won’t treat the child because you do not have a consent form authorizing medical treatment.
ADVICE: Have all parents or guardians sign a consent form, preferably notarized, that authorizes medical treatment of the minor child as well as gives all health insurance information.
MISTAKE #8: Allowing a minor to sign your release form. A minor may not enter into a legally binding contract except for necessities. A release form signed by a minor is not binding on that minor. Here’s what might happen: A parent drops his child off for their first riding lesson and arranges for a babysitter to pick the child up at the end of the day. Because the child is already there you decide to let the child sign the release form and figure you will have the parent sign it when he comes to pick the child up. At the end of the lesson, you see the babysitter instead of the parent, and decide to have the babysitter sign the release form. A month later, the child falls off and is severely injured. The parents drag you into court, and the court examines your release form. The court finds that while the release form would normally be valid, the fact that it was signed only by the child, a minor, and the babysitter who had no legal authority over the child, it will not be enforced.
ADVICE: Always require a parent or guardian to sign the waiver of liability. To protect yourself even further, require that both parents sign the release form.
MISTAKE #9: Using a liability release with defective language. The courts have typically upheld release forms; however, they have given specific guidelines on what must be included in the release for it to be enforceable. Chances are you have all your students sign a liability release; however, you may not understand all of the legal ease in the form. Assume a student gets injured during a lesson and you end up in court. The court finds that your release form has defective language because it is “not simple enough for a layperson to understand.” If you cannot understand your release form then it may not be valid.
ADVICE: Know and understand recent case law developments regarding liability release forms. At the minimum have an equine attorney review your release form for any deficiencies.
MISTAKE #10: Notifying your mortality insurance carrier after your horse has been injured or put down. Many people believe that they can wait until after their horse has been treated to notify their insurance carrier. However, many insurance companies require that notification be made before treatment. Suppose your horse colics and has to undergo surgery at the vet hospital during which there are complications. You are so distraught over your horse’s condition you forget to call the insurance carrier. Two weeks later, you call them and explain what has happened. They inform you that they will not pay anything on the claim because you waited too long to call and inform them about the horse’s condition.
ADVICE: Make sure your trainer, barn manager, or anyone who is in charge of your horse has the proper insurance number to call if there is an emergency. Also, make sure they know to call the insurance carrier promptly. Insurance carriers’ policies vary, so you must check with your carrier to follow their procedure.
MISTAKE#11: Expecting a full payout from your horse mortality insurance. You purchase mortality insurance on your horse for $50,000, the price you paid for him. Three years later he colics and is euthanized. Right away you notify your insurance carrier and expect a check to arrive in the mail for $50,000. Instead, your insurance company notifies you that they believe the horse is not worth $50,000 and send you a check for $30,000. You find out that the mortality insurance you purchased on your horse is an “actual cash value” policy instead of an “agreed value” policy. Where an “agreed value” policy would have paid you the full $50,000, the “actual cash value” pays only the value of the horse at the time of death. The majority of horse mortality insurance policies are “actual cash value.”
ADVICE: Read and understand your mortality insurance policy. Review the policy yearly to keep up to date with any changes.
MISTAKE #12: Not defining “live foal guarantee” in your breeding contract. Many breeding contracts include this guarantee, though it can have several different meanings. When you enter into the breeding contract with the stallion owner, you both agree that there is a live foal guarantee. Your mare gives birth to the foal and it stands and nurses; however, a few hours later there are complications and the foal has to be put down. In your view, there was no live foal because the foal had to be put down before 24 hours. However, the stallion owner interprets live foal guarantee as a foal who stands and nurses. As a result, you end up in court with a lawyer at your side trying to rescue you from this costly mess.
ADVICE: Define all ambiguous terms in your breeding contract. Specifying terms minimizes the prospect of a lawsuit down the road.
MISTAKE #13: Purchasing a horse without a vet check. Most experienced horse owners understand the value and need for a vet check, but it is surprising how often they do not follow through with this simple precaution. Here’s a typical scenario: A friend in the barn is selling his horse and you and your trainer think this horse is perfect for you. You figure that the horse can’t have any big problems because you’ve seen him everyday in lessons and at horseshows. A week after buying the horse he goes lame. The vet determines that the horse has a chip in his fetlock that would have been detected if you had had a pre-purchase exam with x-rays. You try to talk with your friend who wants nothing to do with you or the horse. After a long messy court battle, you’ve lost your friend, a substantial amount of money, and you don’t have a horse to show on for the upcoming show season.
ADVICE: Hire an independent veterinarian to do a pre-purchase exam. A pre-purchase exam should include a physical examination of the horse as well as x-rays of the horse’s legs to determine if there are any degenerative lameness conditions.
MISTAKE #14: Sending a horse to a sales barn without any training or sales contract. Horses and ponies are often sent to a sales barn to be sold without any paperwork given to the current owner. This causes a myriad of problems for both the owner and trainer because neither one has protection. Here’s what could happen: You send your daughter’s show pony to a sales barn to be sold. You don’t have a contract with anyone, but your trainer assures you everything will be fine. Three months later the pony still is not sold, and returns to your barn. The pony has lost all of his conditioning and is no longer in shape to be sold. You feel the sales barn is responsible because they neglected to ride your pony while he was there, and they say you still owe them $3000.00 for the board and “training” while the pony was at their property. You have little recourse because you had no contract with them.
ADVICE: Before sending your horse to a sales barn, get a written contract with the trainer that includes at a minimum the following: number of days per week the horse will be exercised; cost for board and training; cost for supplements, blanketing, turnout; cost for farrier; what veterinarian will be used if the horse is injured; and the amount of sales commission paid when the horse is sold.
MISTAKE #15: Failing to define “standard breeding season” in your breeding contract. Every stallion and stallion owner are different. Thus, there is no uniformity in breeding seasons outside the racing industry. Entering into a breeding contract without the breeding season defined can cost you substantial money if your mare is not impregnated. For example: You own a mare and enter into a stallion service contract in March. You assume that you have through July; however, the stallion owner views that the breeding season is from February through June. As a result, you end up in a legal battle over something that could have been prevented with one sentence in your breeding contract.
ADVICE: Discuss and define the length of the breeding season, and understand the rules and dates of the breeding contract.
MISTAKE #16: Purchasing a horse overseas without using an escrow service. Many potential problems arise when you buy a horse overseas. Foreign laws generally govern the transaction, and if problem does arise, it usually must be dealt with in the originating country. Here’s what could happen: You purchase a horse overseas and send full payment. After receiving the payment, the seller then demands that you pay additional training fees, which had never been discussed. Because the seller has control of the horse as well as your money, you are at their mercy and your only recourse is to file a lawsuit in another country.
ADVICE: Use an escrow service to protect your money and your interests when buying a horse in another country. An escrow service provides you with some assurance that your money will not be transferred into the seller’s hands until the correct horse has arrived in a healthy condition.
MISTAKE #17: Waiting to seek advice from an equine attorney until after there is a problem. Many equine law problems could be avoided if proper precautions were taken ahead of time.
ADVICE: Hire an equine attorney to help you plan and avoid problems in the future. You will generally save money in the long run if you consult an equine attorney ahead of time.
You’re Invited to Call or E-mail!
“If you have questions or comments about any aspect of law relating to horses,
please don’t hesitate to call or send me an e-mail. I’ll be glad to hear from you —
and promise I will do everything I can to help you!” — Polly
Hopefully you all were able to find valuable information in this article that relates to you specifically. If you have any questions as to whether you are adequately protected by your insurance or if you want to discuss the many insurance options we have available to address many of these topics covered, you can contact me at (509) 330-0974. Until Next Time this is Dusty signing off!
