Legal Aspects of Horse Management
Lesson
Two
Preventing
and Limiting Liability
In
Lesson One, we learned about some of the common situations that can result in
liability for equine professionals.
Now
that we know what causes liability, what can we do to limit it? At Equine Legal Solutions, we advocate a
“three goods” approach to limiting liability:
(1) good business planning, (2) good quality contracts and (3) good
insurance coverage. We will cover contracts
and insurance coverage in future lessons, but here are some tips for good
business planning.
Whoa,
There! Are You an “Expert?”
Good business planning is more than just cash management. Because there are so few standards and
certifications in the equine industry, nearly anyone can advertise their
services as a trainer or other equine professional.
The
horse industry is a trusting business - your customers will generally assume
you are an expert until you prove otherwise, and courts will hold you to the
standard of a reasonable professional in your industry. You risk incurring real liability if you
advertise yourself as an equine professional and you do not have a base level
of knowledge and experience in that area.
Example: While surfing the new
horse ads, you notice that attractive hunter ponies, even unregistered ones,
bring a rather high price compared to other types of horses. Pricey Ponies, the barn down the road, must
be doing well, judging from the new PVC fencing they put in last month. You don’t have any experience with hunters or
ponies, but you do have a lot of horse experience. On evenings and weekends, you’ve been working
as a groom and exercise rider for well-known breed show trainer, Big Thang.
Growing up, your family raised barrel horses, and you still compete on
your own barrel horse when your time and finances permit. How hard could it be? You know a good horse (er, pony) when you see
one, right? You quit your job with Big
Thang and convince your spouse, who protests, “What do you know about ponies?!”
to use part of your savings to purchase two young, greenbroke ponies.
You
school the ponies (fortunately, you are only 5’1”) and they are now going
willingly at the walk, trot and canter.
They can be a little feisty and ill-mannered, but that’s how ponies
are. Or so you’ve heard.
You
make a few small jumps out of scrap lumber and trot the ponies over them. After a little (ahem) convincing, they jump;
so you start advertising them as children’s hunters and order a new “Pocket
Ponies” sign for your ranch.
I.B. Whiny (who has recovered from her fall at Pricey Ponies and has
been begging her parents for her own pony) and her mother make an appointment
and arrive to look at your ponies. You
have used your show groom experience to make Teddy Bear and June Bug look
fantastic – their manes are pulled, their ears are clipped and their coats are
slick.
You
saddle up Teddy Bear and hand him over to I.B. Whiny, who mounts up a bit
unsteadily. Teddy Bear immediately
detects that I.B. Whiny is not in control.
He trots off at a brisk pace.
I.B. Whiny starts to cry, then falls off when Teddy Bear stops to nibble
a choice-looking weed. You think I.B.
Whiny is just whining, but as it turns out, her arm is broken.
I.B.’s mother blames you for the accident, huffing “But you said these
were children’s hunters!”
You
talk to the operator of Pricey Ponies and ask her advice. She tells you that “children’s hunter” has an
accepted meaning in your community, and that Teddy Bear and June Bug are far
too green to be considered children’s hunters.
Having second thoughts, you take down the “Pocket Ponies” sign and sell
Teddy Bear and June Bug to Pricey Ponies, barely breaking even.
Two
weeks later, I.B.’s father, Milton Megabucks, who happens to be an attorney,
calls and threatens to sue you. You
consult your own attorney, who advises you that settling the claim would be
cheaper than your potential legal bills.
If only you had researched your business idea more thoroughly and
acquired the knowledge you needed before you bought those ponies.
Once again, you are forced to admit that your spouse was right – darn!
The
Dangers of Branching Out
Most
equine professionals start out by marketing themselves in their core area of
expertise. However, the horse business
is not always too lucrative, so the equine professional often must be versatile
to make ends meet. It’s not uncommon for
equine professionals to have a few sidelines.
These side businesses may generate a bit of cash, but they can also
greatly increase the risk of liability.
Example: Birthday Buddies, your
pony ride birthday party business, doesn’t have a very predictable cash flow –
your clients cancel whenever it rains.
The
thought of going back to your old desk job is downright depressing, so you
decide to branch out to bring in some extra income. You’ve heard a lot of buzz about natural hoof
trimming on the horse chat boards and you realize that there must be a lot of
financial opportunity in anything horse-related that has to be done so
often. There’s a clinic coming up, and
you invest the $500 to enroll. At the
clinic, you absorb a lot of information, dissect a hoof, do a few test trims
and purchase the trim equipment. After
practicing on your own horses for a few weeks, you feel pretty confident and
decide to start advertising.
You
receive a ton of inquiries, and one of them is from Clara Clueless, who has
been having trouble keeping Count Fire, her Arabian stallion, sound. She wants to try natural hoof trimming and
sets up an appointment. You arrive at
Clueless Arabians and Clara brings out Fire, who is snorting and rearing. After Clara turns out Fire for a few moments,
he settles down enough to be trimmed.
His
feet are a mess – they haven’t been trimmed in well over two months and every
hoof is at a different angle. Your
course work covered only normal, healthy hooves, and Fire’s feet are far from
that. You start paring away at the sole,
trying to recapture the natural shape of the hoof. On the white hooves, it is easy to tell how
far to go, but the black hooves are much harder to see.
You
make a mistake and cut off way too much.
Poor Fire is now dead lame, not even wanting to put weight on that
foot. Clara is very upset, particularly
because she has entered Fire in a big show the next weekend and it is clear
that he will not be sound enough to compete.
You
realize that you have liability here, so you offer to reimburse Clara for her
entry fees. Unfortunately, she has
entered him in a stakes maturity with an entry fee of $500. With stall reservation fees, drug testing
fees and other entry fees, the total comes to almost $1,000. You’ll have to trim a lot of horses to make
that money back!
Making
Your Facility Safer
Is
your barn an accident waiting to happen?
If it is, you may be held financially responsible for any accidents that
occur. Here are some common barn hazards
and tips to correct them:
Fencing
What
kind of fencing do you have? Certain
types of fencing, while perhaps very prevalent, are generally recognized to be
unsafe for horses (e.g., barbed wire and T-posts). If your clients’ horses are
injured by your fencing, you may be held financially responsible.
In
addition to being generally safe for horses, your fencing must be designed and
maintained in such a way that it keeps the horses contained. If your fencing is inadequate and the horses
get out, you will likely be held liable, not only for damages to your clients’
horses, but also for any damages they may cause to others (e.g., automobile
accidents).
Example: At Studly Acres, your
stallion station, you house the stallions in box stalls with attached pipe
corrals. Clara Clueless, tired of
dealing with the hassle of collection and shipping, brings Count Fire to Studly
Acres.
Having heard of Fire’s reputation for being ill-mannered, you are a bit
apprehensive about taking him, but you consent to a one-month trial.
Your staff puts Fire in his new stall and he seems to be settling in
nicely. In the morning, you come out to
feed and discover that Fire’s neighbor, Impressive Expense, has a gigantic lump
on his hindquarters. Not only that, he
has some good-sized gashes on his neck.
Upon closer examination, you discover that the gashes are teeth marks
and the lump looks horseshoe-shaped. The
fence between Impressive Expense’s corral and Fire’s is still intact, but there
is no buffer zone – the corrals share a common fence. You will likely be held liable for Expense’s
injuries because your fencing, while perhaps fine for other horses, was
inadequate for stallions.
Barn
Hazard Areas
Just like bathtubs are one of the most dangerous areas in a human
household, wash racks are one of the most dangerous areas in a barn. What is your wash rack footing like? It is slick matting or smooth concrete? If so, consider replacing it with textured
concrete, gravel, ribbed matting or another non-slip surface.
Your wash rack tie rings are important, too – are they sturdy and
unlikely to come loose, or will they come loose if a horse pulls back too
hard?
We’ve covered fencing above, but what about your stalls? They should be large, bright and airy,
smooth-sided with no protruding objects (check for nails and sharp edges on
feeders and waterers). All bars and
walls should be free from gaps and spaces large enough to fit a hoof. If you are housing foals, consider how small
foal hooves are and adjust any gaps or spaces accordingly.
Latches should be sufficient to keep the horses contained – many horses
can undo a simple slide-bar latch if they can reach it, so consider that in
planning your stall design.
Pasture should be free of debris, natural and manmade. If you have old
rusty junk in your pasture, it’s time to rent a dumpster! Holes should be filled in and fences checked
regularly. Arenas and round pens should be fenced, reasonably level and free of
holes, rocks and debris.
Creating
and Enforcing Good Rules and Procedures
If
you are ever sued as a result of an injury that occurs in connection with your
business, you can create a good defense by showing that you had good rules and
procedures designed for safety, and that you and your staff followed those
rules and procedures.
You
should stay abreast of the latest safety practices and incorporate them into
your rules and procedures. When
developing your rules and procedures, you may wish to consult an equine law
professional
Example: I.B. Whiny reads an
article about Big Thang in a horse magazine and pesters her mother to let her
switch trainers. Upon I.B.’s arrival,
she and her mother receive a copy of Big Thang’s rules as well as a copy of his
training contract. I.B., her mother and
her father all sign the contract and initial the section that says they have
received a copy of the rules and had an opportunity to read them.
One
of Big’s rules is that no one can jump without a trainer present, and another
rule specifies that riders under 18 must be supervised by a parent if they are
not riding in a lesson.
I.B. discovers that complying with the jumping rule is a hassle, because
Big is at horse shows almost every weekend, and her parents occasionally ignore
the parental supervision rule. I.B. is
practicing for a Pony Club rally, and she takes her new pony over some small
jumps. He spooks at the brightly-colored
flowers and I.B. falls off, hitting her head.
I.B.’s parents want to hold Big responsible for I.B.’s injury (and
figure it is worth a try, considering the settlement they received from Pricey
Ponies). However, Big’s attorney advises
him that he has an excellent defense, based upon the fact that both I.B. and
her parents ignored the safety rules and had they not ignored the safety rules,
the accident likely would not have occurred.
Why
“Horse Traders” Have Developed a Bad Reputation
The
business of horse dealing has not changed very much over the past century –
dealers buy horses cheaply, then turn around and resell them for more money.
However, the legal landscape has changed a lot since the 1800s. It is no longer a buyer beware
environment. Horse sellers can now be held
liable for their failure to disclose a dangerous habit, such as biting, kicking
or bucking, and they can also be held liable for false advertising.
Here are some practices to help you avoid liability when selling a
horse. In a future lesson, we will cover
contracts that can also help you avoid liability when selling a horse.
Answer
Buyers’ Questions Truthfully
You
must answer buyers’ questions honestly. For example, if the buyer asks you,
“Has your horse ever been lame?” and he had a stone bruise last year, you must
tell the buyer about it, even if the horse is now completely sound. However, to
put the buyer at ease, you can also offer other facts about the horse’s current
soundness.
Put
Your Client’s Needs First
If
you are a trainer, riding instructor or other equine professional, your clients
are entitled to rely upon your advice in buying a horse. Because of your client
relationship, you must tell them what you know about the horse, and you must
consider your client’s interests before your own.
For
example, if you are selling a lesson horse because a vet has told you that a
pre-navicular condition may eventually make him lame, you must inform your
client, even if he doesn’t ask whether the horse is sound and even if the horse
is completely sound now.
You
may have commission arrangements with other trainers or breeders in your area,
but your recommendations should be based upon what is best for your client, not
what is best for you. You must advise your client frankly, including whether
you think the horse is fairly priced and whether it is suitable for your
client’s intended use. The more information that your client has, the less risk
of liability you will have.
Keep in mind that you may have more to lose if your clients leaves your
barn than if you lose a commission.
Be
Honest About Your Horse’s Abilities
If
a buyer tells you what she’s planning to do with your horse and you have
information that your horse wouldn’t be suitable for her plans, you must tell
her.
For
example, if she tells you that she wants to use your Quarter Horse to help
round up her cows and the horse spooks at your kids’ 4-H steers, you must tell
the buyer. Similarly, if she tells you that she’s a beginning rider and your off-the-track
Thoroughbred is a real handful, you must tell her that the horse is not a
beginners’ mount.
Remember that as the seller, you can refuse to sell your horse to a
buyer who doesn’t seem suitable to you, as long as you don’t discriminate against
the buyer on the basis of age, race, marital status, gender, or sexual
preference.
Correct
Any Wrong Impressions the Buyer May Have About Your Horse
While a buyer is talking, you may realize that she has some false
beliefs about your horse, and you must set her straight. For example, if she
mentions that she saw your Appy gelding win a snaffle bit futurity last year,
but your horse has never been off of your property, you must tell her that it
wasn’t your horse she saw.
Training
Your Employees
You
can be held liable for your employees’ negligence or willful misconduct if they
are acting within the scope of their employment. To mitigate this risk, we strongly recommend
that you provide training for your employees and develop written policies to
cover the dos and don’ts of your business.
Example: Clara Clueless wants to
learn more about show grooming, so she applies for a job as a show groom at Big
Thang’s training stable. Big likes
Clara’s “can do” attitude, so he hires her.
Everything goes well until Big instructs Clara to take a weanling out
and lunge him before the halter classes start.
Clara has never lunged a horse before, but she doesn’t want to look
stupid, so she takes the horse out anyway.
Ten minutes later, the lunge line is wrapped around the weanling’s back
legs, the weanling spooks and flips over backwards, injuring itself. Big will likely be liable to the weanling’s
owners for the injury – the weanling is in his care, and his employee’s
negligence caused the injury.
Had
Big trained Clara and/or questioned her more closely about her qualifications,
the accident would likely have been prevented.
Keeping
Your Business and Your Personal Life Separate
One
of the biggest mistakes that owners of horse-related businesses make is failing
to separate their business from their personal life.
There are lots of good excuses for not keeping them separate – “We’re
just getting started,” “We don’t have the money to pay a lawyer to draw up
incorporation papers,” “It’s too much hassle to balance two bank accounts every
month.”
However, if you don’t keep your personal assets separate from your
business, you risk losing ALL of your assets if there is a claim made against
your business!
One
key step in separating your business from your personal life is to create a
separate entity for your business, whether it is a corporation or a limited
liability company. You will want to
consult both an attorney and a tax professional to decide which entity form
best suits your business.
Typically, it costs between $1,000 and $2,000 to form your entity,
including the state filing fees. This
may seem like a lot of money, especially if you just starting out, but it is an
excellent investment in your peace of mind.
Keep in mind, too, that you are more likely to make mistakes in the
first years of your business when you are less experienced.
You
can easily obtain a taxpayer ID for your business by visiting www.irs.gov.
With your taxpayer ID and incorporation papers in hand, you can then
open a bank account for your business.
Having a separate bank account will make it easier to track your business’
cash flow and also serve as valuable evidence of the separateness of your
business.
As
you go forward, don’t forget to pay all business expenses out of your business
account.
Equine
Activity Statutes
In
response to a growing number of meritless lawsuits filed against camps, trail
rides and other providers of horse-related activities, many states have enacted
equine activity statutes. These laws are
designed to protect equine professionals from lawsuits arising from incidents
that are the result of ordinary horse behavior and ordinary horseback riding
risks.
As
of January 2004, only Alaska, California, Maryland, Nevada, New York and
Pennsylvania do NOT have equine activity statutes.
Equine activity statutes may help protect equine professionals from
liability, but there are traps for the unwary.
For example, each state’s statute is different, so what the equine
professional must do to be protected by the law is different in each state. Many equine activity statutes require the
equine professional to post or give certain types of notices, and if the proper
notice is not posted or given (and often it must contain exact wording), the
statute will not protect the equine professional.
Equine activity statutes also do not protect the equine professional
from claims of negligence or willful misconduct.
Example: Pay to Play, your dude
ranch, is located in a state that has an equine liability statute. Your state’s law requires you to post signs
containing certain language about the risks of riding. You are nervous after the Marshall Artz
incident, so you hire an equine attorney to make sure that the signs are worded
correctly and that they are posted prominently enough.
A
new wrangler helps a client saddle up, and forgets to tighten the cinch. The client falls off and breaks her
collarbone. You will likely be liable
for the client’s injuries because your employee was negligent, causing the
client’s injury.
Liability
Releases
There are two popular myths circulating about liability releases.
Myth #1 is that a good liability release means
you don’t have any liability. In
reality, many horse-related businesses require riders to sign liability
releases, but many of those releases won’t actually protect the business from
liability.
Myth #2 (far more popular than myth #1) is that liability releases
aren’t worth the paper they are written on.
In fact, whether your release will protect you from liability is a
matter of facts and circumstances.
For
example, regardless of what your release says, it usually will not protect you
in the event that you or your employees are negligent. Note that this is very similar to the way
that equine activity statutes operate – the legal principle is that you should
be able to disclaim responsibility for any risks that your customer assumed,
but retain responsibility for any risks that your customer did not assume.
In
addition, courts tend to construe the text of the release against you,
interpreting any ambiguities in a manner that favors the person suing you.
A
few reasons why it’s risky to download a generic release form from the Internet
or borrow someone else’s release form:
Here are some examples where horse business owners have been found
liable even though the plaintiff had signed a release. Each one of these
defects could have been prevented by having a well-drafted release.
·
The release form was not clear enough
to be enforceable because it didn’t specify what risks were inherent in
horseback riding.
·
The release form listed the stable’s
owner, but not the business entity operating the stable.
·
The release form listed the stable, but
not the trainer giving the lesson.
·
The release form didn’t specify that it
released the stable for liability due to defects in the stable premises.
The
best way to protect your business with a liability release is to have an equine
attorney draft a release customized for you and your business.