For most people, equine insurance is a critical component of horse ownership. It is important for horse owners to know that changes in their ownership interest, such as leasing their horse, need to be reported to their insurance carrier. Leased horses present a unique scenario for the horse owner (the lessor) and for the individual leasing the horse (the lessee).
The most common insurance policies for leased horses are the same as for any other horse; the policy provides reimbursement for full mortality and non-routine medical care. However, there are several key components to insuring a leased horse that lessors and lessees should be aware of to be set up for success: agreeing on who holds the insurance policy, determining the full mortality/insured value of the horse, understanding what happens to the insurance coverage when the lease is terminated, and considering liability coverage. These factors are important for both parties to agree upon upfront to protect their financial investments and ensure peace of mind throughout the term of a lease agreement.
Let’s start at the top.
Leasing: Who Insures The Horse?
In insurance terms, a person can insure a horse as long as they have a financial interest/insurable interest in the horse. Some examples include a lessor, co-owner, loss payee or lessee. Full mortality coverage is the base coverage, and it reimburses up to the insured value for death due to any cause, theft and authorized humane destruction. Medical coverage for non-routine care can be added to the full mortality policy. In this discussion, I have assumed the policyholder has added medical coverage to the policy.
All insurance carriers require notification when a horse is leased. The insurance carrier will typically require the lease agreement to state the names of the lessor and lessee, the term (time frame of the lease), and the annual cash lease price. The mailing and email addresses should be provided for both parties named in the lease.
Insurance carriers prefer that the lessor insures the horse in their name. This is beneficial for the lessor because it allows the horse owner to maintain control of their insurance policy. Maintaining ownership of the policy allows the horse owner to keep the policy in place if the horse is returned from the lease in an ill or injured condition. As a lessee, being added to an existing policy that covers non-routine medical expenses is also important. Often, the lessee pays for veterinary care for the duration of the lease and would be reimbursed for covered medical expenses. Being added to the policy as a lessee also gives the lessee the right to contact the insurance agent or claims adjuster.
While the lessee can take out the policy in their name and name the lessor as the loss payee, this can present a significant downside to the lessor. For instance, if the horse is ill or injured and the lease is terminated, the horse may be in an uninsurable condition, and the horse owner may not be able to re-insure the horse, or the coverage may be restricted by exclusions for the existing illness or injury. With most carriers, the lessee is not able to transfer an existing policy from their name to the lessor’s name as insurance policies are not transferable. Some carriers provide an exception that will allow the policy to be transferred from the lessee to the lessor. Check with your agent to see what your carrier allows.
Determining The Insured Value Of A Leased Horse
The industry standard for determining the insured value of a leased horse is three times the annual cash lease price, not including board or upkeep. Commissions paid to one’s trainer or agent may be added to the cash lease price. While it is commonplace to insure at three times the cash lease price, there are exceptions. An exceptional show record may allow a higher insured value. An in-barn lease may be another situation where a value above the standard is allowed. In an in-barn lease, the horse owner may offer a discount on the lease price to allow the horse to remain in its home barn with a trusted trainer. If an owner finds themselves in this situation, they should present this information to their insurance agent and the agent will ask the insurance carrier to take this into consideration.
It’s important to note, however, that horses should not have an insured value over their current “market value.” The market value of a horse is considered the current value a horse could be sold for on the open market. As horses age, their market value may decrease, and they may not be eligible to be insured at the standard three times the cash lease price like their younger counterparts.
It’s important for the policyholder to have an upfront discussion with the insurance agent so all parties are clear on the insured value of the horse, the medical coverage included in the policy, and associated premiums.
Concluding a Lease Agreement
All horse insurance policies have annual terms that may or may not coincide with the lease agreement’s start and end dates. If the lessor is the policyholder, they should add the lessee at the start of the lease and remove them when the lease expires.
If the lessee is the policyholder, they must cancel the insurance policy when the lease ends as they no longer have an insurable interest in the horse. As stated above, with most carriers, policies are not transferrable so the lessee will not be able to transfer their existing policy to the lessor’s name.
Understanding Liability Clauses And Policies
Most horse lease agreements include a release/hold harmless clause stating that the lessee is assuming the risk of personal injury or death and that they are giving up the right to sue and/or make a claim against the lessor due to the inherent danger of equine activities. An attorney who is well-versed in equine law should assist the lessor in drafting the lease and include state-specific wording for the release/hold harmless clause.
Depending upon the activities/exposures of the parties to the lease, a personal horse owner liability policy or commercial equine liability policy should also be considered. These policies help protect the interested parties in the event the horse injures a third party or causes property damage during the lease period.
Communicate Early And Often
Given the nuances involved in insuring a leased horse, it’s advisable to communicate early with your insurance agent about the options available. An insurance agent can help explain insurance carriers’ requirements and assist the policyholder in making a decision that provides them with confidence and reassurance for the duration of the lease.
Laura Connaway is the founder and president of equine insurance agency Connaway & Associates Equine Insurance Services, Inc. Founded in 1992, the Little Rock, Arkansas-based company is a team of knowledgeable horse people known for its reputation as a reliable partner in competition and in business. In addition to running the agency, Connaway is a successful amateur grand prix show jumping athlete who breeds her own mounts.