Date: February 2020
Careful Planning Required
Conservation and preservation activities often require the use of specialized equipment such as a no-till drill, tree planter or sprayer. Considering the cost and their infrequent use, many soil and water conservation districts (SWCDs) have chosen to purchase this equipment and rent it to the public. Although equipment rental programs have many advantages, they also present several risks for the SWCD that must be considered when implementing such a program.
The following is an examination of MCIT coverage and risk management suggestions intended to help SWCDs manage the unique exposures of equipment rental programs.
Property, Inland Marine Coverage
Inland marine coverage generally applies to equipment that is moveable and portable but is not road licensed. In the event of a loss for coverage to apply, equipment must be scheduled and the loss must be reported to MCIT.
Equipment rented to the public should be scheduled as inland marine, miscellaneous personal property or contractors equipment. Coverage follows the equipment, so regardless of who uses the equipment, MCIT’s property coverage applies, subject to any exclusions.
When equipment is damaged as the result of a covered loss, MCIT pays for the repair or replacement of the equipment, less the cost of any deductible. This coverage is on an actual cash value basis, meaning the amount of coverage is limited by the age and condition of the equipment. Because the SWCD owns the equipment, it is obligated to pay the deductible for the loss.
Injuries to Renters
Individuals who sustain injuries while using rented equipment are not entitled to workers’ compensation coverage because no employee-employer relationship exists. However, the individual can make a liability claim against the SWCD alleging negligence, such as lack of training or poor maintenance of the equipment.
When a supervisor, SWCD employee or authorized volunteer uses the equipment for the benefit of the SWCD, he or she is considered a covered party under MCIT’s coverage. MCIT’s liability coverage only applies to a covered party, and therefore, does not apply to individuals who rent the equipment from the SWCD. As a result, any bodily injury or property damage to a third party caused by the renter’s use of the SWCD equipment would likely not be covered by MCIT.
In the event a claim is made against the SWCD by the renter or another party, MCIT would defend the claim subject to any limitations in the MCIT Coverage Document. If the SWCD is found liable, MCIT would pay damages to a maximum of $500,000 per claimant and $1.5 million per occurrence.
Like property coverage, the SWCD is responsible for the deductible for a liability claim.
In an ideal world, people renting equipment should provide the SWCD with a certificate of insurance listing the SWCD as an additional insured on a policy with general liability coverage with limits of at least $500,000 per claimant and $1.5 million per occurrence. In reality, this may not be practical. As a result, each SWCD must decide how much risk it is willing to assume.
Risk Management Advice for Equipment Rental Programs
The soil and water conservation district can mitigate risks by taking steps included in the following risk management advice.
Consideration should be given to developing written policies and procedures that can mitigate potential claims of property damage, bodily injury to the renter or others and negligence (maintenance, training, etc.) claims. Members should consider how the SWCD would deal with the following issues.
- reservations, cancellations and late returns
- rates (including the cost of insurance and the deductible if a claim is made)
- how equipment is to be picked up and what condition it should be in when returned
- training requirements for renters before they use the equipment
- what to do in case of breakdown
- safety features of the equipment
- required personal protective items
Consider having renters initial or sign off that they understand what to do if something goes wrong (e.g., the renter should not fix equipment and who the renter should contact).
For the protection of the SWCD and those renting the equipment, the SWCD should develop a system to ensure that the items are in good working order, which would include:
- a routine maintenance and repair program for each piece of equipment.
- inspecting equipment before and after each usage; making repairs or removing equipment from use as necessary.
- never disabling safety measures. Maintain all guards/safety measures and warning labels.
- keeping all manuals and other pertinent written material provided by the manufacturer with each piece of equipment.
- keeping a written record of all maintenance and repair work performed on each piece of equipment.
A written rental agreement is also advisable. This should include such terms as:
- duties and responsibilities of each party.
- a defense indemnification and hold harmless clause written to the benefit of the SWCD so the renter understands he or she is legally and financially responsible for his or her actions
- a statement that the SWCD’s liability coverage does not apply to claims arising out of the renter’s use of the equipment.
- advise the renter that his or her personal liability coverage will apply if a loss occurs.
- a waiver whereby the renter accepts liability for any injuries arising out of use of the equipment.
MCIT recommends that the SWCD consult with the county attorney or other legal counsel for assistance in developing or reviewing contracts, waivers and insurance requirements. SWCDs that have questions or want additional information about equipment rental programs should contact their MCIT risk management consultant toll-free at 1.866.547.6516.