The Ag Law Harvest

By: Jeffrey K. Lewis, Esq. Program Coordinator Income Tax Schools at The Ohio State University

Spring has officially sprung, and so have a few interesting legal updates. In this edition of the Ag Law Harvest we cover aggravated vehicular assault in a farm utility vehicle, “Made in the USA” labels, the Corporate Transparency Act’s legal woes, USDA’s Dairy Margin Program, and the U.S House Committee on Agriculture’s Agricultural Labor Working Group’s final report. 

Driver of Farm Utility Vehicle Cannot be Found Guilty of Aggravated Vehicular Assault. 
The Supreme Court of Ohio ruled that a driver of a farm utility vehicle involved in a crash cannot be convicted of a felony for injuring passengers because the vehicle does not meet the definition of a “motor vehicle” under Ohio’s criminal code. Joshua Fork of Sandusky County crashed his Polaris utility vehicle while driving under the influence at a party in 2020. Two of Fork’s passengers sustained serious injuries as a result of the accident. Fork was convicted of operating a vehicle under the influence (OVI), and two counts of aggravated vehicular assault. Fork did not contest his OVI conviction but did appeal his aggravated vehicular assault conviction to the Sixth District Court of Appeals. The case eventually made its way to the Supreme Court of Ohio. 

In its decision, the Court found that Ohio law has two definitions of “motor vehicle.” One definition applies strictly to traffic laws and the other applies more broadly to Ohio’s “penal laws.” The Court held that the definition of “motor vehicle” that applies to penal laws, such as aggravated vehicular assault, exempts utility vehicles. The Court concluded that because of the utility vehicle exemption and the fact that the utility vehicle’s principal purpose is for farm activities, Fork cannot be found guilty of vehicular aggravated assault. To read more on the Supreme Court’s decision, visit: https://www.courtnewsohio.gov/cases/2024/SCO/0321/230356.asp

USDA Announces Final Rule on “Made in the USA” Labels. 
The U.S. Department of Agriculture (“USDA”) announced the finalization of a rule to align the voluntary “Product of USA” label claim with consumer understanding of what the claim means. The USDA’s final “Product of USA” rule permits the voluntary use of the “Product of USA” or “Made in the USA” label claim on meat, poultry, and egg products. However, these labels can only be used if the products are derived from animals that were born, raised, slaughtered, and processed in the United States. The rule aims to prevent misleading U.S. origin labeling, ensuring that consumers receive truthful information about the origins of their food.

Under the final rule, the “Product of USA” or “Made in the USA” label claim will remain voluntary for meat, poultry, and egg products. It will also be eligible for generic label approval, meaning it won’t require pre-approval by the USDA’s Food Safety and Inspection Service (“FSIS”) before use, but establishments must maintain documentation supporting the claim. Additionally, the rule permits other voluntary U.S. origin claims on these products, provided they include a description on the package of the preparation and processing steps that occurred in the United States upon which the claim is made. 

Corporate Transparency Act Loses First Federal Court Battle. 
As we have previously reported (here), the Corporate Transparency Act (“CTA”) requires certain business entities to file Beneficial Ownership Information (“BOI”) with the Financial Crimes Enforcement Network (“FinCEN”) or face civil and criminal penalties. However, an interesting twist in the CTA saga has occurred. A federal court in Alabama issued an opinion ruling the CTA unconstitutional, concluding that the CTA exceeds the U.S. Constitution’s limits on Congress’s power, and issued an injunction against the U.S. Government from enforcing the CTA against the named plaintiffs in the case.  Therefore, the named plaintiff, Isaac Winkles, and companies for which he is a beneficial owner or applicant, the National Small Business Association, and the approximately 65,000 members of the National Small Business Association are currently not required to report beneficial ownership information to FinCEN. Everyone else must still comply with the CTA and the BOI reporting requirements. 

FinCEN released a statement acknowledging the court’s ruling but emphasized that only the named plaintiffs are excused from reporting beneficial ownership information to FinCEN at this time. On March 11, 2024, the U.S. Government filed a notice of appeal of the lower court’s ruling, hoping to reverse the injunction and the court’s decision. We will continue to monitor the situation and keep you informed of any updates to the CTA and BOI reporting requirements.

USDA Announces 2024 Dairy Margin Coverage Program. 
The U.S. Department of Agriculture (“USDA”) announced that starting February 28, 2024, dairy producers in the United States can enroll in the 2024 Dairy Margin Coverage (“DMC”) program. Enrollment for the 2024 DMC coverage ends on April 29, 2024. 

The USDA’s Farm Service Agency (FSA) has made revisions to the DMC regulations to allow eligible dairy operations to make a one-time adjustment to their established production history. This adjustment involves combining previously established supplemental production history with DMC production history for dairy operations that participated in Supplemental Dairy Margin Coverage in previous coverage years. DMC has also been authorized through the calendar year 2024 as per the 2018 Farm Bill extension passed by Congress.

FSA Administrator Zach Ducheneaux encourages producers to enroll in the 2024 DMC program, citing its importance as a risk management tool. The program has proven effective, with over $1.2 billion in Dairy Margin Coverage payments issued to producers in 2023. Ducheneaux highlights the program’s affordability, noting that it offers a sense of security and peace of mind to producers.

DMC is a voluntary risk management program that provides protection to dairy producers when the margin between the all-milk price and the average feed price falls below a certain dollar amount selected by the producer. In 2023, DMC payments were triggered in 11 months, including two months where the margin fell below the catastrophic level of $4.00 per hundredweight, marking a significant development for the program.

House Committee Releases Final Report Recommending Changes to H-2A Program. 
On March 7, 2024, the U.S. House Committee on Agriculture’s Agricultural Labor Working Group (“ALWG”) released its final report containing policy recommendations for U.S. agricultural labor. The report includes significant reforms to the H-2A program, many of which, as announced by the ALWG, received unanimous support from the bipartisan working group. The recommended policies encompass creating a single H-2A applicant portal, implementing H-2A wage reforms, establishing a federal heat standard for H-2A workers, and granting year-round industries such as livestock, poultry, dairy, peanuts, sugar beets, sugarcane, and forestry access to the H-2A program.

The Ag Law Harvest

By: Jeffrey K. Lewis, Attorney and Research Specialist, OSU Agricultural and Resource Law Program

Did you know that the loudest land animal is the howler monkey?  The howler monkey can produce sounds that reach 140 decibels.  For reference, that is about as loud as a jet engine at take-off, which can rupture your eardrums.  

Like the howler monkey, we are here to make some noise about recent agricultural and resource law updates from across the country.  This edition of the Ag Law Harvest brings you court cases dealing with zoning ordinances, food labeling issues, and even the criminal prosecution of a dairy farm.  We then look at a couple states proposing, or disposing, of legislation related to agriculture.  

A zoning ordinance has Michigan landowners hogtied.  The Michigan Supreme Court recently ruled that Michigan’s 6-year statute of limitations does not prevent a township from suing a landowner for alleged ongoing zoning violations, even if the start of landowner’s alleged wrongdoing occurred outside the statute of limitations period.  

Harvey and Ruth Ann Haney (“Defendants”) own property in a Michigan township that is zoned for commercial use.  Defendants began raising hogs on their property in 2006.  Defendants started with one hog and allegedly grew their herd to about 20 hogs in 2016.  In 2016, Fraser Township (“Plaintiff”) filed suit against Defendants seeking a permanent injunction to enforce its zoning ordinance and to prevent Defendants from raising hogs and other animals that would violate the zoning ordinance on their commercially zoned property.  Defendants filed a motion to dismiss and argued that Plaintiff’s claims were barred because of Michigan’s 6-year statute of limitations.  A statute of limitations is a law that prevents certain lawsuits from being filed against individuals after a certain amount of time has passed.  In Ohio, for example, if someone were to be injured in a car accident, they would only have 2 years to bring a personal injury claim against the person who caused the accident.  That’s because Ohio has passed a law that mandates most personal injury claims to be brought within 2 years of the date of injury.  

In the Michigan case, Defendants argued that because their first alleged wrongdoing occurred in 2006, Plaintiff could not file their lawsuit against the Defendants in 2016.  A trial court disagreed with Defendants and denied their motion to dismiss.  Defendants took the motion up to the Michigan Court of Appeals, and the Court of Appeals found that Plaintiff’s claim was barred because of the 6-year statute of limitations.  Plaintiff appealed to the Michigan Supreme Court, which overturned the Court of Appeals’ decision and held that Plaintiff’s claim was not barred.  The Michigan Supreme Court reasoned that the presence of the hogs constitutes the alleged unlawful conduct of the Defendants, and that unlawful conduct occurred in 2006 and has occurred almost every day thereafter.  The court concluded that because Defendants unlawful conduct was ongoing after 2006, Plaintiff’s claims were not barred by the statute of limitations.  The case now goes back to the trial court to be tried on the merits of Plaintiff’s claims against Defendants. 

Where there’s smoke, there’s fire.  Family Dollar Stores, Inc. (“Family Dollar”) has found itself in a bit of nutty situation.  Plaintiff, Heather Rudy, has filed a class action lawsuit against Family Dollar, alleging that Family Dollar has misled her and other consumers by marketing its Eatz brand Smoked Almonds as “smoked.”  Plaintiff asserts that Family Dollar is being deceptive because its Smoked Almonds are not smoked over an open fire, but instead flavored with a natural smoke flavoring.  Plaintiff’s claims against Family Dollar include violating the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”); breaches of express warranty and implied warranty of merchantability; violation of the Magnuson-Moss Warranty Act; negligent misrepresentation; fraud; and unjust enrichment.  

Family Dollar filed an early motion to dismiss, arguing that Plaintiff has not stated a claim for which relief can be granted.  A federal district court in Illinois dismissed some of Plaintiff’s claims but ruled that some claims against Family Dollar should be allowed to continue.  Plaintiff’s claims for breaches of warranty, violation of the Magnuson-Moss Warranty Act, negligent misrepresentation, and fraud were all dismissed by the court.  The court did decide that Plaintiff’s claims under ICFA unjust enrichment should stay.  The court reasoned that Plaintiff’s interpretation that Family Dollar’s almonds would be smoked over an open fire are not unreasonable.  Moreover, the court recognized that nothing on the front label of Family Dollar’s Smoked Almonds would suggest, to consumers, that the term “smoked” refers to a flavoring rather than the process by which the almonds are produced.  The court even pointed out that competitors’ products contain the word “flavored” on the front of similar “smoked” products.  Therefore, the court concluded that Plaintiff’s interpretation of Family Dollar’s Smoked Almonds was not irrational and her claims for violating the ICFA should continue into the discovery phase of litigation, and possibly to trial.  

Undercover investigation leads to criminal prosecution of Pennsylvania dairy farm.  A Pennsylvania Court of Appeals (“Court of Appeals”) recently decided on Animal Outlook’s (“AO”) appeal from a Pennsylvania trial court’s order dismissing AO’s petition to review the decision of the Franklin County District Attorney’s Office (“DA”) to not prosecute a Pennsylvania dairy farm (the “Dairy Farm”) for animal cruelty and neglect.  An undercover agent for AO held employment at the Dairy Farm and captured video of the condition and treatment of animals on the farm, which AO claims constitutes criminal activity under Pennsylvania’s animal cruelty laws.  

AO compiled a report containing evidence and expert reports documenting the Dairy Farm’s alleged animal cruelty and neglect.  AO submitted its report to the Pennsylvania State Police (“PSP”) in 2019.  The PSP conducted its own investigation which lasted for over a year, and in March 2020, issued a press release indicating that the DA would not prosecute the Dairy Farm.  

In response, AO drafted private criminal complaints against the Dairy Farm and submitted those to the local Magisterial District Judge.  The local Magisterial Judge disapproved all of AO’s complaints and concluded that the complaints “lacked merit.”  AO then filed a petition in a Pennsylvania trial court to review the Magisterial Judge’s decision.  The trial court dismissed AO’s petition and concluded that the DA correctly determined “that there was not enough evidence, based upon the law, to initiate prosecution against any of the Defendants alleged in the private criminal complaints.”  AO appealed the trial court’s decision to the Court of Appeals which ended up reversing the trial court’s decision.    

The Court of Appeals concluded that the trial court failed to view the presented evidence through a lens that is favorable to moving forward with prosecution and the trial court failed to consider all reasonable inferences that could be made on the evidence.  The Court of Appeals observed that the trial court made credibility determinations of the evidence by favoring the evidence gathered by PSP over the evidence presented by AO.  The Court of Appeals noted that a trial court’s duty is to determine “whether there was evidence proffered to satisfy each element of an offense, not to make credibility determinations and conduct fact-finding.” Additionally, the Court of Appeals found that the trial court did not do a complete review of all the evidence and favored the evidenced obtained by PSP over the evidence presented by AO.  The Court of Appeals determined that had the trial court reviewed all the evidence, it would have found that AO provided sufficient evidence to establish prima facie cases of neglect and animal cruelty, which would have provided the legal basis for the DA’s office to prosecute the claims.  

Lastly, the DA argued that no legal basis for prosecution exists because the Dairy Farm is protected by the normal agricultural operations exemption to Pennsylvania’s animal cruelty laws.  However, the Court of Appeals found that the conduct of the Dairy Farm, as alleged, would fall outside the normal agricultural operations exemption because AO’s report demonstrates that the Dairy Farm’s practices were not the dairy industry norm.    

Ultimately the Court of Appeals found that AO’s private criminal complaints did have merit and that the DA had enough evidence and a legal basis to prosecute AO’s claims.  The Court of Appeals remanded the trial court’s decision and ordered that the DA to go ahead and prosecute the Dairy Farm on its alleged animal cruelty violations.  

Wyoming fails to pass legislation limiting what can be considered agricultural land.  The Wyoming House of Representatives struck down a recent piece of legislation looking to increase the threshold requirement to allow landowners the ability to classify their land as agricultural, have their land appraised at an agricultural value, and receive the lower tax rate for agricultural land.  Current Wyoming law classifies land as agricultural if: (1) the land is currently being used for an agricultural purpose; (2) the land is not part of a patted subdivision; and (3) the owner of the land derived annual gross revenue of $500 or more from the marketing of agricultural products, or if the land is leased, the lessee derived annual gross revenues of $1,000 or more from the marketing of agricultural products.  

Wyoming House Bill 23 sought to increase the threshold amount of gross revenues derived from the marketing of agricultural products to $5,000 for all producers.  The Wyoming Farm Bureau Federation and Wyoming Stock Growers associations supported the bill.  Proponents of the bill argued that the intent of agricultural land appraisals is to support commercial agriculture, not wealthy landowners taking advantage of Wyoming’s tax laws.  Opponents of the bill argued that House Bill 23 hurt small agricultural landowners and that the benefits of the bill did not outweigh the harms.  House Bill 23 died with a vote of 34-25, failing to reach the 2/3 approval for bills to advance.  

Oregon introduces legislation relating to overtime for agricultural workers.  Oregon House Bill 4002 proposes to require agricultural employers to pay all agricultural employees an overtime wage for time worked over 40-hours in a workweek.  House Bill 4002 does propose a gradual phase-in of the overtime pay requirements for agricultural employees.  For the years 2023 and 2024, agricultural employees would be entitled to overtime pay for any time worked over 55 hours in a workweek.  For 2025 and 2026, the overtime pay requirement kicks in after 48 hours.  Then in 2027, and beyond, agricultural employers would be required to pay an overtime pay rate to employees that work more than 40 hours in a workweek.   

The Ag Law Harvest

By:Jeffrey K. Lewis, Attorney and Research Specialist, Ohio State Agricultural & Resource Law Program

Did you know that the “wise old owl” saying is a myth?  Generally speaking, owls are no wiser than other birds of prey.  In fact, other bird species like crows and parrots have shown greater cognitive abilities than the owl.  An owl’s anatomy also helps dispel the myth because most of the space on an owl’s head is occupied by their large eyes, leaving little room for a brain. 

This week’s Ag Law Harvest brings you EPA bans, Ohio case law, USDA announcements, and federal case law which could make your head spin almost as far as an owl’s.  

EPA banning use of chlorpyrifos on food crops.  The EPA announced that it will stop the use of the pesticide chlorpyrifos on all food to better protect producers and consumers.  In its final rule released on Wednesday, the EPA is revoking all “tolerances” for chlorpyrifos.  Additionally, the EPA will issue a Notice of Intent to Cancel under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) to cancel all registered food uses of chlorpyrifos.  Chlorpyrifos is an insecticide used for a variety of agricultural uses, including soybeans, fruit and nut trees, broccoli, cauliflower, and other row crops, in addition to non-food uses.  The EPA’s announcement comes in response to the Ninth Circuit’s order directing the EPA to issue a final rule in response to a petition filed by opponents to the use of chlorpyrifos.  The petition requested that the EPA revoke all chlorpyrifos tolerances because those tolerances were not safe, particularly because of the potential negative effects the insecticide has on children.  For more information about chlorpyrifos and the EPA’s final rule, visit the EPA’s website.

Trusts aren’t to be used as shields.  An Ohio appeals court recently reinforced the concept that under Ohio law, trusts are not be used as a way to shield a person’s assets from creditors.  Recently, a plaintiff filed a lawsuit against a bank alleging breach of contract and conversion, among other things.  Plaintiff, an attorney and real estate developer, claimed that the bank removed money from his personal account and a trust account in violation of Ohio law and the terms of the loan agreement between the parties.  Prior to the lawsuit, plaintiff established a revocable trust for estate planning purposes and to acquire and develop real estate. This dispute arose from a $200,000 loan from the bank to the plaintiff to help establish a restaurant.  A provision of the loan agreement, known as the “Right to Setoff” provision, allowed the bank to “setoff” or effectively garnish all accounts the plaintiff had with the bank.  The setoff provision explicitly prohibited any setoff from any IRA or trust accounts “for which setoff would be prohibited by law.”  Plaintiff made all monthly payments but failed to make the final balloon payment on the loan.  Plaintiff argued that the bank broke the loan contract and violated Ohio law by taking funds from the trust account to pay off the remaining balance of the loan.  The court disagreed.  The court noted that under Ohio law, a settlor’s property in a revocable trust is subject to the claims of the settlor’s creditors.  A settlor is a person who creates or contributes property to a trust.  In this case, plaintiff was the creator, settlor, and sole beneficiary of the revocable trust.  Because of that, the court concluded the bank did not violate Ohio law when using the trust account to setoff the balance of the loan.  Additionally, the court found that the bank did not violate the terms of the loan agreement because a setoff from the trust account was not prohibited by law.  The court noted that Ohio law did not intend to allow a settlor who is also a beneficiary of the trust to use a trust as a “shield” against creditors.  Although trusts can be a useful estate planning tool, there are limits to what a trust can do, as evidenced by this case. 

Renewable fuel supporters file appeal on E15 summer sales. Corn farmers have joined forces with the biofuel industry (“Petitioners”) to ask the D.C. Circuit Court of Appeals for a new hearing on a ruling that struck down the EPA’s 2019 decision to allow year-round E15 sales.  Earlier this year, the same D.C. Circuit Court of Appeals issued an opinion that ruled the legislative text in the law supporting the biofuel mandate does not support the Trump administration’s regulatory waiver that allowed E15 to be sold during the summer months. In their petition, Petitioners argue that the D.C. Circuit Court made “significant legal errors.”  Petitioners contend that the court should rehear the case because the intent behind the nation’s biofuel mandate is better served by the sale of E15 through the summer months because it is less volatile, has less evaporative emissions, and is overall better for the environment than other fuel sources.  Petitioners also believe the court’s original decision deprives American drivers the choice of lower carbon emitting options at the gas pump.

Monsanto asks Supreme Court to review Ninth Circuit’s Roundup Decision.  In its petition to the Supreme Court of the United States Monsanto Company (“Monsanto”) asked the Supreme Court to review the $25 million decision rendered by the Ninth Circuit Court of Appeals.  In that decision, the Ninth Circuit held that the Federal Insecticide Fungicide and Rodenticide Act (“FIFRA”) did not preempt, or otherwise prevent, the plaintiff from raising California failure-to-warn claims on Roundup products and allowed plaintiff to introduce expert testimony that glyphosate causes cancer in humans.  In trial, the plaintiff argued that Monsanto violated California’s labeling requirements by not including a warning on the Roundup label that glyphosate, which is found in Roundup, causes cancer.  Monsanto argues that FIFRA expressly preempts any state law that imposes a different labeling or packaging requirement.  Under FIFRA, Monsanto argues that the EPA did not require Monsanto to include a cancer warning on its Roundup label.  Therefore, Monsanto maintains, that because California law differed from FIFRA, Monsanto was not required to follow California law when it came to labeling its Roundup product.  Secondly, the Ninth Circuit allowed plaintiff to present expert evidence that glyphosate could cause non-Hodgkin’s lymphoma in the general public and that glyphosate caused the plaintiff’s lymphoma.  Monsanto contends that the lower courts have distorted established precedent by allowing the expert testimony because the testimony is not based on generally accepted scientific principles and the scientific community has consistently found that glyphosate does not cause cancer in humans.    

USDA working to protect nation’s dairy industry.  The USDA’s Agricultural Marketing Service (“AMS”) has struck a deal with the European Union (“EU”) to satisfy the EU’s new import requirements on U.S. dairy.  The EU will require new health certificates for U.S. dairy products exported to the EU to verify that the U.S. milk used for products exported to the EU is sourced from establishments regulated under the Grade “A” Pasteurized Milk Ordinance or the USDA AMS Milk for Manufacturing Purposes.  Officials representing the U.S. Dairy Export Council and International Dairy Foods Association claim that the deal will allow U.S. producers to comply with the EU’s mandates while also satisfying the concerns within the American dairy industry.  The deal pushes back the EU’s deadline for new health certificates to January 15, 2022, to allow U.S. producers and exporters enough time to bring their products into compliance.  The USDA also announcedthat it is providing around $350 million to compensate dairy producers who lost revenue because of market disruptions due to the COVID-19 pandemic and a change to the federal pricing formula under the 2018 farm bill.  Additional details are available at the AMS Dairy Program website.

Tale as old as time.  An Ohio appeals court recently decided a dispute between neighbors about a driveway easement.  The driveway in dispute is shared by both neighbors to access their detached garages. Defendants used the driveway to access their garage and then the driveway extends past the Defendants’ garage onto Plaintiff’s property and ends at Plaintiff’s garage.  The dispute arose after Defendants built a parking pad behind their garage and used parts of the driveway they never used before to access the parking pad.  The original easement to the driveway was granted by very broad and general language in a 1918 deed, when the property was divided into two separate parcels.  In 1997, a Perpetual Easement and Maintenance Agreement (“Agreement”) was entered into by the two previous property owners.  The Agreement was much more specific than the 1918 deed and specifically showed how far the easement ran and what portions of the driveway could be used by both parties.  The 1997 Agreement did not allow for Defendants to use the portion of the driveway necessary to access their parking pad.  Plaintiffs argue that the 1997 Agreement controls the extent of the easement, whereas Defendants argue that the broad general language in the 1918 deed grants them authority to use the whole length of the driveway.  The Court found the more specific 1997 Agreement to be controlling and ruled in favor of the Plaintiffs.   The Court reasoned that the 1918 deed creates an ambiguity as to the extent of the easement and there is no way of knowing what the original driveway looked like or how it was used.  The Court concluded that the 1997 Agreement does not contradict or invalidate the 1918 deed, rather the 1997 Agreement puts specific parameters on the existing easement and does not violate any Ohio law.  The Defendants were found liable for trespass onto the Plaintiffs’ property and is expected to pay $27,500 in damages.  The lesson to be learned from all of this?  Make sure your easements are as specific and detailed as possible to ensure that all parties are in compliance with the law.

What sparks insurance coverage for the loss of dairy income?

Written by Jeffrey K. Lewis, Attorney and Research Specialist, OSU Agricultural & Resource Law Program

When was the last time you read your farm business insurance policy? Under your policy, do you know when coverage is triggered for loss of business profits and loss of assets? In the case below, you will learn about a dairy farm that recently dealt with the issue of stray voltage causing dairy cattle to unexpectedly pass away. Even though the farm had insurance, the farm continued to operate, albeit at a reduced capacity, while it dealt with the silent killer. The farm continued to operate under the assumption that any loss of business income and the loss of its primary assets would be covered under its insurance policy.

Mengel Dairy Farms

Mengel Dairy Farms (“Mengel”) could not begin to fathom why its dairy cattle were unexpectedly dying off. Beyond its loss of livestock, Mengel also suffered loss of milk production and business profits. The farm eventually hired an expert to help it determine the cause of death of its cattle. The expert determined that a stray electrical current was present on the property, causing the dairy cattle to die. 

Mengel then proceeded to file an insurance claim with its insurance provider, Hastings Mutual Insurance Company (“Hastings”), hoping to receive insurance benefits for the lost cattle, cost of the investigation into the death of the cattle, the subsequent repairs to correct the stray electrical current, and for its lost business profits. 

Hastings, however, sent out its own expert to help determine the cause of death of the cattle. Hastings’ expert could not find any stray voltage on the property but did believe that electrocution may have caused Mengel’s cattle to stop eating and ultimately die. 

After its investigation, Hastings paid Mengel for the death of its cattle and the cost of the investigation into the deaths of the livestock, but Hastings rejected coverage for the loss of business income. Hastings then filed an action in the Federal District Court, asking the court to determine that there was no coverage for Mengel’s lost business income as a result of the electrocuted dairy cattle. 

After Hastings filed its action, Mengel submitted a second insurance claim to Hastings for the death of additional livestock, costs of additional investigation and repair, and additional lost profits. Hastings did not provide any coverage, this time, to Mengel for its second insurance claim and instead issued a reservation of rights letter to Mengel stating that coverage for Mengel’s second claim may be subject to exclusions under Mengel’s insurance policy. Hastings then asked the court to also determine whether Hastings was required to pay for the loss of the additional dairy cattle and additional lost profits. 

Coverage for Electrocuted Dairy Cattle

In its argument to the court, Hastings claimed that under the dairy farm’s insurance policy, Hastings was not required to pay any insurance benefits for the additional dairy cattle that passed away from the stray electrical current. Hastings argued that even though death or destruction of livestock by electrocution is a covered peril under Mengel’s insurance policy, the term electrocution means instant death, and because Mengel’s cattle did not die instantly, Mengel was not entitled to insurance benefits for the cattle. 

The Court disagreed. The court found that the term “electrocution” was an ambiguous term within the insurance policy because it was not expressly defined. Additionally, the court went on to analyze that coverage existed for both the death or destruction of livestock. The court determined that the term destruction encompasses more than just death. Reading the terms destruction and electrocution together, the court held that electrocution can consist of an event that does not necessarily result in instantaneous death but may still cause irreparable harm. 

Therefore, the electrocution causing Mengel’s cattle to stop eating and ultimately die could be considered “destruction of livestock” which would be covered under the farm’s insurance policy.

Coverage for Lost Business Income

Since discovering the cause of death to its dairy cattle, Mengel reduced its farming operations to deal with the stray electrical current. Under Mengel’s insurance policy, coverage existed for lost business income “due to the necessary suspension” of operations. The insurance policy also indicated that the necessary suspension of farm operations must have been caused or resulted from an insured peril. Mengel thought that because it reduced operations for a covered peril (the electrocution of its livestock), it was entitled to coverage for its lost business income. Hastings disagreed and claimed that coverage did not exist for Mengel because the farm did not shut down its farming operations completely, it only reduced operations. 

The court sided with Hastings. The court found that “necessary suspension” means a complete shutdown of operations, even if temporary. The court noted that a slowing down of business is not covered under the insurance policy. Therefore, Mengel’s claim for lost profits is not covered under the policy because it continued to operate at a reduced capacity. 

Other Claims

Mengel filed its own claims against its insurer for bad faith and breach of contract. However, after the court’s determination that coverage existed for electrocuted cattle that did not die instantly and the court’s conclusion that Mengel was not owed any insurance benefits for lost profits, the parties settled their dispute out of court.

Conclusion

It may not be as easy as you think to determine what is covered (and what should be covered) under your insurance policy. Insurance companies do their best to draft insurance policies to be as precise as possible. Certain prerequisites must be met in order for coverage to exist for a farmer and their business. It is vital that you understand what is covered (and not covered) under your insurance policy. You may be taking steps to remediate any issues with the assumption that insurance will cover any expenses or lost revenue you may endure, but as the above case demonstrates, this is not always true.

To learn more, visit the Federal Court’s opinion on Hastings Mutual Insurance Company v. Mengel Dairy Farm, LLC.  

The Farm Office is Open!

As you may know, Ohio State’s campuses and offices are closed.  But we are all working away at home, and our virtual offices are still open for business.  Starting today, April 6th, the OSU Extension Farm Office Team will open our offices online and offer weekly live office hours from 8:00-9:30 pm EST.  We’ll provide you with short updates on emerging topics and help answer your questions about the farm economy.   Each evening will start off with a quick 10-15-minute summary of select farm management topics from our experts and then we’ll open it up for questions and answers from attendees on other topics of interest.  For tonight’s office hours, we’ll focus on the newly enacted CARES Act and how it affects agriculture.

Who’s on the Farm Office Team?  Our team features OSU experts ready to help you run your farm office:

• Peggy Kirk Hall — agricultural law
• Dianne Shoemaker — farm business analysis and dairy production
• Ben Brown — agricultural economics
• David Marrison — farm management
• Barry Ward  — agricultural economics and tax

Each office session is limited to 500 people and if you miss our office hours, we’ll post recordings on farmoffice.osu.edu the following day.  Register at  https://go.osu.edu/farmofficelive.  We look forward to seeing you there!