Understanding Equine Insurance, an article from Practical Horseman

Understand Equine Insurance

By Elizabeth Iliff

The better you understand the ins and outs of equine insurance, the better you can protect your horse—and yourself.

If your horse colicked tomorrow and needed emergency surgery, could you afford it? If he died suddenly, could you afford to replace him? What if he got loose at a show and injured a spectator, who then sued you to pay for her medical expenses?

Given the potential devastation, both emotional and financial, of such situations, every horse owner needs ready answers in place for questions like these before an emergency arises. An equine insurance policy on your horse could be the difference between losing him and keeping him—or between going bankrupt and staying solvent. In this article, we'll help you explore what equine insurance is available and determine if you're getting the equine insurance coverage you need, whether you're looking for a new policy for your horse or renewing a current one.

Find an Agent; Choose a Company

The first step in selecting equine insurance is finding an agent who can help you decipher the legalese of different policies. Mary Ann Kean, who directs the mortality-underwriting unit at Markel Insurance Company, says, "Some policies aren't very clearly written. You want someone who can go through them with you and explain the differences in coverage." She also recommends "working with someone knowledgeable about your particular breed or discipline," because those factors can affect rates. "Look through your breed- or discipline-related publications, where those specialists advertise."

Along with exploring policy options, ask about the reputation and financial stability of the company that underwrites the policy (pays for claims). Some agents work in conjunction with one or more underwriting companies; Markel is one of a few underwriters that deal directly with horse owners. (A. M. Best Company lists financial-stability ratings of all major insurers in its annual publication, Best's Insurance Reports—available in some libraries.) Also make sure the company is a licensed and admitted carrier in your state. "Each state has an insurance fund to protect residents in the event that they need assistance with claims settlements, and to ensure that products"—insurance policies—"are reliable and fairly priced," Mary Ann says.

Policy Particulars

In shopping for a policy, Michigan-based equine-law practitioner Julie Fershtman, who represents many major equine-insurance companies, advises, "Ask for things that really matter to you. Ask your agent to explain the policy. If he or she insists that your insurance covers something important but cannot find the exact policy language to support it, ask him or her to confirm the explanation in writing."

Comparing prices is a great idea— but, Julie warns, "A cheaper premium might reflect cheaper coverage. Make sure that the policies you are comparing have comparable coverage and that the insurance companies are financially sound and reputable." You can get free immediate quotes and read many insurers' policies online. Markel even offers immediate coverage online for horses valued up to $30,000. (We'll discuss later how to prove your horse's value.)

"What policy you choose depends on how much of a financial risk you want to be exposed to," says Mary Ann. The more add-ons or endorsements you select—major medical, loss of use, etc. (explained below)—the more protected you'll be, but the higher your premium.

However, before you can select any add-ons, your horse must be covered for basic …

Mortality

Somewhat comparable to human life insurance, equine mortality insurance covers death caused by accident, injury, or illness. Many policies also cover theft.

Eligible horses must be "sound and insurable." Most companies consider "insurable" horses to be those no younger than three to six months and no older than fifteen to eighteen years. (Horses older than eighteen can be covered with named or specified perils endorsements, which cover death caused by specific listed risks, typically fire, lightning, trailer accident, and theft.) Underwriters may refuse to write policies for full mortality coverage of horses with serious health problems, such as navicular disease, recurring colic, or chronic laminitis. They also reserve the right to exclude any pre-existing conditions from the policy.

Natalie Scarpaci, a customer-service representative for Hallmark Equine Insurance Agency, says, "We may remove an exclusion a year or two later, after the injury has been reevaluated by a veterinarian." What many customers don't realize, she adds, is that injuries or illnesses a horse experiences during one policy period may be excluded as preexisting conditions by the same company the following year. "This is very standard. Each year, your policy is considered a whole new policy."

Mortality premium rates for most horses range from about 2.5 to 4 percent of the horse's value, depending on age, breed, and discipline. (Rates for horses valued at more than $30,000 or older than fifteen may be higher: from 5 to 10 percent of value.) Horses doing lower-risk sports, such as dressage, tend to have lower rates; eventers and jumpers usually have higher rates. Many companies also offer slightly lower rates for some breeds, such as Arabians and Morgans.

To establish your horse's value for insurance purposes, the underwriters may ask you to supply records proving the price you paid for him. They'll also compare him with horses of similar age, breed, discipline, level of training, and competitive success in the current market. If you believe his value has increased since you purchased him, you'll need to substantiate that with performance records and/or receipts for training fees.

How much money you'll actually receive if your horse dies and the insurance company approves the claim depends on how his value is described in the policy. There are two methods:

• Fair-market value or actual cash value: The company has the right to review your horse's value at the time of loss. Mary Ann warns that this method, some form of which most insurers use, can be risky: "If your horse has a bad show season after the policy goes into effect, he may be worth less money."

• Agreed value: You are reimbursed for the value agreed upon at the time the policy was written, so long as that value has been substantiated. Some companies require that you prove the horse's value at the start of the policy; others require you to prove at the time of the claim that he attained the agreed-upon value at some point during the policy term.

Be sure the terms of the valuing method you choose are clearly written in the policy. Natalie says, "Whatever is in the policy at the time of death is what the company will reimburse you for, as long as you can prove that the horse's value was that amount at some point during the policy period." Some companies require this proof of value at the time the policy is begun; some require it at time of death. (Note: Insuring your horse for more than you can prove he's worth is a waste of money. Even if you pay the higher premium, you won't be reimbursed for more than his proven value.)

Here are some other features to clarify in your mortality policy.

• Euthanasia: In cases of catastrophic injuries and illnesses, such as bone fractures and severe colic, insurers have strict rules about when and why a covered horse can be humanely destroyed. Most follow the American Association of Equine Practitioners guidelines, which recommend that the following criteria be used in evaluating the need for euthanasia:

1. Is the condition chronic, incurable, and resulting in unnecessary pain and suffering?
2. Does the immediate condition present a hopeless prognosis for life?
3. Is the horse a hazard to itself or its handlers?
4. Will the horse require continuous medication for pain relief for the remainder of its life?

According to these guidelines, justification for euthanasia should be based on medical considerations, not economic ones, and the same criteria should be applied to all horses, regardless of age, sex, or potential value.

Most insurers ask to be consulted before an insured horse is put down. If the horse is euthanized without the approval of a veterinarian or the decision cannot be shown to be in accordance with AAEP guidelines, the company probably won't pay the mortality claim. "If the horse is put down for financial reasons, and a veterinarian says that it could have been saved, the company won't pay the claim," Natalie says. But "if it's absolutely impossible to contact the company and the horse is suffering severely, the company would generally accept an emergency euthanasia so long as the attending veterinarian will state that the horse met the AAEP guidelines for euthanasia."

Most nightmare stories about horses' suffering being prolonged while owners wait for approval to euthanize are myths, says Julie; reputable companies have knowledgeable claims staffs available twenty-four hours a day. "I've sat at a dinner table with clients"—claims adjusters—"who stop in the middle of the meal to answer their cell phones and talk to a customer's vet about an emergency. Most of these people are horsepeople themselves, and they're there to help you any time of day or night."

• Specified use: Be sure that you've disclosed to the company all the activities you may do with your horse. If you say he just does dressage and he dies as a result of a jumping accident, you may not be covered.

• Pre-policy proof of health: Before approving an application for horses worth more than a specified amount (usually $25,000 or $30,000), companies require the owner to pay for a veterinary exam. For horses worth less than that, owners must complete a declaration-of-health form. (Note: Be "up front" about your horse's medical history. If, while investigating a claim, your insurance company discovers records of a previously unreported problem, the discovery could nullify your policy or result in additional exclusions.

• Extra expenses: In most death claims, including euthanasia, companies require a veterinary death certificate and proof of a postmortem exam. These expenses, as well as the cost of body removal, are your responsibility.

• Specific exclusions: Most mortality policies list situations that they will and will not cover. For example, if your horse dies as a result of administration of any drug, hormone, vitamin, etc., given without approval of a licensed veterinarian, you may not be covered.

• Policy renewal: Some companies require you to repeat the entire application process each year. Some others guarantee renewal of your mortality policy for one year without exclusions for any illnesses or injuries incurred during the first insured year. A few agents, such as Hallmark's, offer a guaranteed extension endorsement, which covers death resulting from injury or illness that's been reported in writing to the company, for up to a year after the end of the policy period during which the illness or injury occurred—even if you haven't renewed the mortality policy. (Note: Clarify with your agent exactly which illnesses and injuries are covered and which might be excluded as preexisting conditions when you renew your policy. For example, after you've been reimbursed for a colic claim, the company may list colic as a preexisting condition in the renewed policy. You won't be covered if your horse dies from a colic case during the next year unless you can prove it was related to the first incident.)

• Coverage area: Most mortality policies cover a horse everywhere within the continental US and Canada. If you take your horse outside of North America, you can extend your coverage with territorial trip transit coverage.

• Extra coverage: Some mortality policies include extra coverage for no additional cost. For example, Hallmark's policies include an emergency colic surgery endorsement, which covers such surgery up to $3000.

• Payment options and discounts: Many companies offer payment plans at affordable rates. Some also offer multiple-horse discounts. The better you understand the ins and outs of equine insurance, the better you can protect your horse—and yourself.

Major Medical/Surgical

The most popular addition to mortality insurance is a major-medical endorsement. As in human health insurance, this covers medical and surgical procedures required to treat illness, injury, or disease. Covered expenses may include colic surgery, laceration suturing, anesthesia, hospitalization, x-rays, lab tests, and medications. Unlike some human plans, however, equine policies do not pay for preventive health expenses such as vaccinations, worming, and dental work. Julie adds, "Most major-medical policies don't cover performance-enhancement procedures, such as hock injections, either."

Major-medical coverage runs between $175 and $300 per year, depending on the coverage you choose. (Unlike with the mortality premium, breed and discipline don't influence rates.) For each injury or illness claim you make, you must pay a deductible, typically between $150 and $500. The total amount of medical expenses the company will reimburse you for in one year, called the annual aggregate limit, can range from $5000 to $10,000, again depending on the policy you choose and the value of your horse. (Some policies will not reimburse you for medical expenses exceeding the insured value of your horse.)

Some important things to know about major-medical coverage:

• Exclusions: As with a mortality policy, a company may add exclusions to your horse's major-medical coverage. Pre-existing conditions can be excluded, even if they occurred during a previous policy period, so read the policy carefully at renewal time. (Note: Guaranteed extension endorsements apply only to mortality claims. They don't cover medical expenses for conditions excluded in the renewed policy, even if you can prove the condition is related to one that occurred in the previous year.)

• Claims paid: Companies typically reimburse you for "reasonable and customary necessary veterinary fees" for claims reported in the policy period. Therefore, if your veterinary bills show fees higher than those usually charged by vets in your area for the same or similar service, you may not receive full compensation for them.

• Overall premium reduction: Some companies allow you to insure your horse for less than he's actually worth. This way, you pay a lower mortality premium but are still eligible for major-medical coverage. In these cases, the company usually has a minimum mortality premium. So, for example, if your horse's insurance rate is 3 percent and the minimum premium is $150, you'll want to insure him for at least $5000. Not all companies offer this option, however; if yours doesn't, your horse may not be eligible for major medical/ surgical insurance if you insure him for less than his actual value.

• Time limits: Some companies impose time limits on treatment coverage for each particular injury or illness. For example, if your policy covers only the first six months of treatment for a tendon injury, you'll have to decide whether to continue and pay for treatment if your horse needs more than six months' worth.

Many companies also offer "surgical only" endorsements. These cover operating-room surgical charges and aftercare medical fees—and specify a very small (about $50) to no deductible. The most a company will reimburse you for in one year under this coverage is about $5000. Adding a surgical-only endorsement to a mortality policy costs between $100 and $150.

Who's At Fault?

The combination of our litigious society and the unpredictable nature of horses can be a recipe for disaster for unwitting horse owners. Even if you're an amateur horseperson performing no equine-related services for money or in-kind payment, you may be vulnerable to lawsuits.In the last decade or so, forty-four states have adopted equine-activity liability laws to recognize the inherent risks associated with riding and being with horses. Michigan-based attorney Julie Fershtman says, "If an individual is injured as a result of one of the risks mentioned in your state law, he or she may not have recourse"—may not be able to sue. However, none of the laws completely eliminates all possible horse-related liabilities—and some are less effective than others. "Many issues are simply not settled yet as to what each law applies to," she says.

Some of these laws have already been put to the test in court—and some have successfully prevented lawsuits. (Julie knows of at least one equine insurer who now gives its customers a 15 percent credit because of their adherence to their state's liability law.) To find out if such a law exists in your state, consult your lawyer, cooperative-extension agent, state Department of Agriculture, or state horse council. Read your state's law carefully, says Julie, to see how it may or may not protect you.

In today's tough economic climate, Julie also recommends that you consider buying liability insurance. "When people are struggling to make a living and health-insurance costs are high, the potential for them to seek recourse for an injury is greater. Having a liability policy to protect yourself against such lawsuits will, at a minimum, help you sleep better at night."

Your homeowner's policy may cover some horse-related liability on your property (check the wording with your agent), but you may receive better protection from:

a personal horse-owner's liability policy—which covers you against lawsuits brought by injured third parties up to a limit of $300,000 to $1,000,000. Some companies offer the coverage as an endorsement to mortality policies. Others allow you to put as many as five horses on the same liability policy for no extra charge. Depending on the terms and limits, the cost will range from less than $60 to $265 per year. This insurance—which is available only to individuals with no commercial equine exposure (no boarding, training, etc.)—typically covers only injuries to third parties or property.

commercial general equine liability and professional liability insurance (premiums start at about $400)—for professional horsepeople.

care, custody, & control coverage (premiums start at about $300)—for people boarding and training horses.

an umbrella policy to increase your liability limit—can be useful for people with significant assets that a liability lawsuit could target.

There are two kinds of loss-of-use coverage:

Loss of Use
A permanent disability or loss-of-use endorsement reimburses you for a percentage of your horse's value (usually 60 percent or less) if he's permanently disabled. "It can be a very wise investment," Julie says, "but it is expensive, and you need to understand exactly what you're getting. ‘Loss of use' means a horse's totaland permanent inability to perform its specified use." Based on a percentage of your horse's value, the premium for loss-of-use coverage is usually higher than that for major-medical coverage.

• External-injury-only loss of use covers visible injuries caused by external, accidental, and violent means that render a horse permanently incapable of performing his insured use. For example, if you have a show hunter who's injured in a trailer accident and will never show in the hunters again, you'll receive compensation. Be aware, though, says Natalie, that for this type of policy "the ground is not considered an external force." In other words, concussion- or footing-related conditions, such as tendon and ligament injuries, aren't covered.

• Full loss of use covers a broader range of disabilities caused by accidents, injuries, or illness, including diseases such as EPM and navicular, as well as ground-related injuries. Policies do not cover losses due to preexisting conditions, scarring or blemishing (for example, on a halter horse), or losses related to use for racing and/or breeding. (Other special endorsements, such as stallion infertility, are available.)

Points to consider in comparing loss-of-use policies:

• An extensive exam, including X-rays and drug screening, must be performed on your horse—at your expense—before he can be approved for a full loss-of-use endorsement. Many external-injury loss-of-use plans don't require a vet exam.

• Many companies reserve the right to take your horse from you in the instance of a loss-of-use claim. Julie says, "Their intention may be to resell the horse to recoup some of the money they paid in the claim. In some cases, the company truly believes that it can rehabilitate the animal; in other cases, it may feel that the horse has other uses. In all of the instances that I've witnessed, the companies have had very good intentions and have found good homes for the horses." If keeping your horse, even if he can no longer perform in his original capacity, is important to you, read your policy wording carefully.

• Flat versus variable rate: Some companies pay a flat percentage of your horse's insured value. Others offer "up to" a certain percentage of that value. In the latter plan, how much money you receive from a claim may depend on how badly your horse is injured. For instance, if your hunter damages a suspensory ligament and can't return to the same level of competition but can still be used as a trail horse, you may receive less than the maximum possible claim. If he can't be ridden at all, you should receive the full claim. Before purchasing the endorsement, clarify exactly how much you'll receive in each different imaginable circumstance.

• Most loss-of-use policies require the owner to "do everything possible to treat the animal" before submitting a claim. (To make this financially feasible, Markel requires that owners purchasing a permanent-disability endorsement also buy major-medical coverage.)

• Horses in some sports may not be eligible for loss-of-use coverage, either because the sport is too high-risk or because soundness is not an identifiable factor in the sport. Markel, for example, offers permanent-disability coverage for hunters, dressage horses, and "performance" Quarter Horses with values greater than $10,000.

• In the case of a claim, most companies reserve the right to bring outside veterinarians in for additional opinions on the severity of your horse's disability.

• Once a loss-of-use claim has been paid, all other mortality coverage and endorsements in effect are then canceled.

Know the Notification Protocol
Once you've selected and purchased a policy, review all the things it requires you to do. You'll be required to notify your agent or company as soon as possible after any accident, injury, or illness. Post that phone number and your policy number by your horse's stall, in the tack room, and in your truck or trailer, tack trunk, etc. Also inform all the people involved in his care of the policy's notification requirements.

"One of the most common problems we see is late reporting of injuries or illness," says Mary Ann. "Obviously, we want you to call your veterinarian first. But call the company, too, within a reasonable amount of time: twenty-four hours or less." Many claims are void if submitted later than the time allowed in your policy, or if notification is not given within a certain amount of time after the incident. Check the wording in your policy!

When you notify the company, be sure you're calling the right person, says Julie. "If you check your insurance policy, you may be surprised to learn that the agent who sold you the insurance policy is not the one to notify if your horse is injured or ill or if you have a claim. Giving notice to the wrong person could be treated the same as giving no notice at all."

This article originally appeared in the July 2003 issue of Practical Horseman magazine.