Posted 21-Sep-2023 13:30:01
Category: Broadstone Equine
Understanding Insurable Interest in Horse Insurance Policies
Leases, Horses on Trial, Purchases over Time
The concept of insurable interest is a common topic in equine insurance, especially when clients are working on insuring a horse that they lease, are taking on trial, or purchasing over time. Basically for a party to have an insurable interest in a horse, they would need to be at risk for suffering a financial hardship in the event of damage or loss of that insured horse. In the case of a horse that is owned 100% by one party, insurable interest is a pretty straightforward concept. Following are some scenarios where this can be a little more complicated.
Typically, there are two parties to a Lease – the Lessor (the person who owns the item being leased) and the Lessee (the person/party leasing the item). It depends on how the lease agreement is written whether or not both parties have an insurable interest in the horse.
The Lessor will always have an insurable interest. As the owner of the horse, if the horse dies, the Lessor will suffer the financial loss – the value of the horse. Situations where the Lessee typically becomes part of the equation is if they are financially responsible for veterinary expenses in the event the horse they are leasing is injured or suffers some sort of illness or other health issue. In these cases, the Lessee will want to have access to reimbursement for Medical/Surgical types of coverages to help reimbursement them for covered expenses.
In most cases, for Lessees responsible for veterinary expenses, the Lessee will apply for the equine insurance policy, but name the Owner/Lessor as a Loss Payee on the Mortality coverage, since in the event of the horse’s death the Owner/Lessor should be the beneficiary of the policy. This then allows the Lessee to have access to the Medical or Surgical endorsement for covered veterinary expenses that they are responsible for.
In cases where the Owner/Lessor takes out or already has a policy in place and they want the Lessee to have access to the policy’s Medical/Surgical coverage, most companies will offer an endorsement for the Lessee that is usually a Loss Payee Endorsement that typically indicates the endorsement is for the Lessee and/or that the Loss Payee “has access to medical coverage only”.
Important: For insurance purposes, it is very important that Lease Agreements make it clear who the parties to the Lease are, the dates that the lease is in effect, the value of the horse, the amount the horse is to be insured for on an insurance policy, what expenses the Lessee is responsible for, and the coverages (and limits) required to be in place on the equine insurance policy.
Horses on Trial
Occasionally we will have a client that is hoping to purchase a horse and as part of that process will take the horse on trial. In these situations, often the current owner/potential seller will require that the potential buyer insure the horse for the trial period (if the owner does not currently have the horse insured). Often in these cases the potential buyer will also want to continue to insure the horse if the sale goes through.
For trial situations, the potential buyer can apply for coverage, but must indicate that they are not the owner of the horse, and have the owner listed as the Loss Payee on the equine insurance policy. If the current owner/potential seller requires that the potential buyer be responsible for veterinary expenses incurred during the trial period, it should be possible for the potential buyer to request a Medical/Surgical endorsement in order to have access to those coverages in the event of a covered health issue that occurs during the policy period.
Important: Similar to the Lease Agreement, for trial situations a written Trial Agreement must be in place, and it must list all parties, the effective dates of the trial, amount the horse is to be insured for, expenses each party is responsible for, as well as coverages and limits required.
Extra Info: Sometimes we will have a potential buyer who is taking out the policy and chooses Mortality coverage only (without adding any Medical/Surgical coverage), thinking that they can add Medical/Surgical later if they purchase the horse. This may not be an option, depending on the insurance company, so we recommend that if the Buyer will want the Medical/Surgical coverage on the policy if they purchase the horse, they should get it during the trial.
Purchases over Time
In situations where a Buyer is purchasing a horse by making payments to the Seller over time, and the Buyer takes out the policy and is the Named Insured – with the Seller named as a Loss Payee since while payments are being made, they will have partial ownership of the horse until the final installment is paid - there can sometimes be confusion/concern when the parties review the policy.
Two common scenarios:
- The Buyer reads the Loss Payee endorsement and sees that it only names the Seller, leading them to believe that they are somehow not covered by the policy. This is not the case. The Named Insured is the person who takes out the policy, and they will be identified on the first page of the policy documents, so they do not need to be named on the Loss Payee endorsement. A Loss Payee endorsement is only added if there is another party, besides the Named Insured, who has an insurable interest in the horse.
- The Buyer/Named Insured reads the Loss Payee endorsement and is concerned that it does not list their percentage of ownership in the horse. This is why we request a copy of the Bill of Sale/Purchase Agreement, since often when people are making payments over time, so their interest changes frequently. Loss Payee does not mean that party will have the full amount in a Mortality (or any) claim – in the event of a loss, the Bill of Sale/Purchase Agreement will be consulted and payments made accordingly.
While we have not yet insured a fostered horse, we do work with one company that might be an option for a horse that is being fostered, depending on the horse’s health situation and the fostering party’s arrangement with the rescue.
Professional Trainer Earning an Ownership Interest in a Non-Owned Horse
We have had a situation where a professional horse trainer put together a legal agreement with a client where they would gain a percentage of ownership over time, based on the horse’s increased value due to their training. The insurance company was willing to put together a policy with both parties named as insureds, keeping in mind that in the event of a claim the written agreement would be consulted to determine how any payments would be made.
Borrowing a Friend’s Horse
On occasion we have had a potential client call to see if they can insure their friend’s horse since they will be riding it for a period of time. The short answer is: Possibly, if you have a formal Lease Agreement in place that spells out the arrangement between you and the friend, as laid out in the Lease section above.
**These blogs are for basic information purposes only, and do not constitute advice from Broadstone Equine Insurance Agency, a division of Marshall and Sterling Insurance, or its affiliates. Contact our office directly at 888-687-8555 or info@BroadstoneEquine.com to contact an agent for complete and current information regarding all coverages.
Tips for Completing the Horse Insurance Application