Equine Insurance

The great day has arrived. You've been patient. You've saved your money. You've looked at dozens of candidates. Now you know this is the horse for you, the one that will take you to the training level at the horse trials or, if another discipline is involved, allow you to move up in your chosen competition. The only problem is that the horse costs a good deal of money. He has wiped out your savings and now worries begin to assail you. What if the horse needs colic surgery? What if he blows a suspensory? What if he gets laminitis? What if he dies?

Can you protect yourself against these potential calamities by purchasing insurance? The answer to that question is easy. Yes. You can insure your horse for a wide variety of eventualities--all the way from being struck by lightning or hit by a car to not becoming pregnant.

Immediately, a second question surfaces: should you? The answer to that one isn't as easy, as there are many variables. If you do insure the horse, what should you insure it against?

To help horse owners find answers to their questions regarding insurance, we have turned to three agents in the field, each one representing a different focus in regard to the type of horses with which they are involved. Shawna Dietrich of Dietrich and Company of Simpsonville, Ky., has an emphasis on sport horses; Kay Cassell of Kay Cassell Equine Insurance, of Jonesborough, Tenn., has an emphasis on cutting horses and show horses of the stock horse breeds; and Richard Grossman of Continental Bloodstock Agency Limited, of Lexington, Ky., insures mostly Thoroughbreds.

But, you immediately ask, isn't a horse a horse, and isn't insurance insurance?

Not really.

Dietrich explains that this is a very specialized field. "When you're seeking an agent, try to find one who is an expert in your field," she says. "I don't know anything about reining horses and their values, for example, but I do know about sport horses and their values."

Dietrich emphasizes that the agents' knowing about specific horse breeds and disciplines and their values is very important. She believes most horse owners are unaware that an insurance company that has written a full mortality policy will only pay off on the fair market value of a horse in the case of its demise. In other words, you might have decided to insure your horse for $125,000 when its fair market value is only $50,000. If the horse dies, the company might only pay off on the $50,000 if it is determined that $50,000 represents the fair market value.

This emphasizes the need for dealing with an insurance agent who understands the type of horse being insured and is able to assist in determining fair market value. The fair market value can be in the hundreds of dollars, or it can be in the hundreds of thousands--or even millions--of dollars depending on the horse and its potential.

Perhaps the most celebrated equine insurance case involved the great racehorse Alydar. There are few, if any, in the Thoroughbred world who do not instantly recognize the name of that great stallion. When he was three years of age, the entire nation watched as he battled his arch-rival, Affirmed, in the Kentucky Derby, Preakness, and Belmont.

In all three races in 1978, Affirmed prevailed. Eventually, both horses were retired to the breeding shed, but it appeared that Alydar finally had gained the upper hand.

Standing at famed Calumet Farm, with its signature white board fences, and put to some of the top mares in the industry, the gritty Alydar began to sire top horses.

Alydar's owners bought an expensive insurance policy on the famed Thoroughbred. The horse was insured for $36 million through Lloyd's of London.

Later came the dark days for Calumet. Improper management and bungled financial deals created clouds of financial doom that hung like shrouds over the famed stable.

Then, the unthinkable happened. Alydar suffered a broken leg in his stall and had to be euthanized. Dark rumors swirled through the Kentucky Thoroughbred community and reverberated across the entire racing world. Calumet's financial problems were no longer secret. What had really happened to Alydar? Had he been made a sacrificial lamb to help bail the farm out of at least some of its debt? Everyone had an opinion, but no one knew.

No proof of wrongdoing ever surfaced, and Lloyd's of London paid off on the policy.

Ultimately, some of the principals involved in Calumet's demise were charged with criminal offenses and found guilty. Today, of course, the Calumet ship has been righted by new ownership and once again sails tall and serene in the world of Thoroughbred breeding and racing.

The Alydar story produces more questions than answers when discussing equine insurance, but it also makes a strong point--the reputation and financial condition of the person or stable owning the horse can have a bearing on insurability.

Then there is the matter of value. Was Alydar really worth $36 million? Many insurance agents will admit that the case has brought about closer scrutiny of true value.

"I insure people, not horses," says Richard (Dick) Grossman, a master of the one-liner. "Horses are going to die, but I want to make sure it doesn't happen before the Maker decides it should happen."

He, too, warns against insuring a horse for more than it is actually worth. The insurance company will accept a premium for a higher value, he said, but it will only pay off on what the horse is worth at the time of its death.

He gives this example. Suppose you buy a racehorse for $50,000 and insure it for that amount. However, after you have owned the horse for a time, you find that it can't win the big races. You decide to run it in a $25,000 claiming race.

By so doing, Grossman says, you have declared the horse to be worth $25,000 instead of $50,000. "What you have said, in effect, by running the horse as a $25,000 claimer, is that you are willing to sell the horse for $25,000. That would then become its market value."

Thus, if the horse should die, the insurance company would likely offer you $25,000 instead of $50,000 as a payoff even though you may have continued to pay a premium on the $50,000 policy.

Communication and honesty between client and agent and between agent and underwriter are the keys in preventing such problems from occurring, says Dietrich. In this scenario, the person holding the $50,000 policy should immediately inform his or her agent if the horse is to be devalued by running it in a lesser race. The policy could be rewritten to reflect the new value and the amount charged as a premium would drop.

Grossman says the horse's value can also rise, but unless the owner has raised the value with a resulting higher premium, the underwriter will never pay off on more than what is listed on the policy.

For example, suppose you buy a promising race filly for $10,000 and insure her for that amount. She goes into training and gets to her first start. She wins that race and the next two in rapid-fire succession. Your $10,000 filly might now be worth $50,000 or more. However, unless you raise the amount for which she is insured, you will only be paid $10,000 by the underwriter in case of the filly's demise.

"Have an honest and ongoing dialogue with your agent," Dietrich advises. "The agent is there to serve you and also to serve the (underwriting) company."

Cassell has clients whose horses' values range from $1,500 to $475,000 (for a cutting horse stallion). She said one way in which an agent and insurance company can be of real service to a new owner is to provide binding mortality insurance on the horse even before it has been examined by a veterinarian.

Thus, she explains, the owner is covered immediately in case something should happen to the horse, providing that it is not the result of a pre-existing condition.

In other words, if the horse in question was found to have been suffering from a massive cancerous growth at the time of purchase that caused its death before undergoing an insurance examination by a veterinarian, the insurance company likely would not pay. However, if the horse slipped while disembarking from the trailer and fractured a healthy limb, causing it to be euthanized, the insurance company would very likely pay the claim even though the horse had not yet been examined by a veterinarian. The binding coverage would have been in effect.

While mortality insurance is the most common type of equine insurance purchased, it is, by no means, the only type that is available for horses. We'll take a look at all of them after first examining full mortality insurance.

Mortality Insurance

"The livestock mortality policy is a life insurance policy for your horse, with the insured as a beneficiary," says Grossman. "It is an 'all-risk' policy which will cover death from any cause, subject to certain exclusions which are stated in the policy. We will also pay you if your horse is stolen." However, check with the agent you are dealing with. Not all insurance companies cover theft.

"We will pay the actual value of the horse at the time of the accident or illness causing its death, not exceeding the value specified in the schedule. If your horse is sick or injured before the policy expires and you've reported this to us, we will extend your coverage 90 days and pay your claim should the horse die within that time from the same cause.

"We will issue a livestock mortality policy provided the insured horse is in sound health at the inception of the policy. We also assume you will provide proper care and attention for the horse, and that you will employ a veterinarian at your expense if the horse suffers any illness, disease, lameness, injury, accident, or physical disability. Also, if your horse dies, you are required to arrange and pay for an autopsy."

The first step in purchasing mortality insurance is to fill out an application form. Usually this form will begin with questions about the applicant, such as name, address, phone number, occupation, and Social Security number.

Next will come questions about the horse involved, such as name and registration number as well as the tattoo if there is one. You also will be asked to identify the animal's breed, sex, date of birth, expected use, the date the animal was acquired, the name of the previous owner and his or her address, the purchase price, and the amount for which the horse is to be insured.

More questions will follow. The company will want to know if you are the sole owner of the horse. If other owners are involved, they must be identified. It also will want to know exactly what the transaction involved--cash payment, lease, financing, etc.

Here are more questions that might very well be included on the application form:

  • Where is the horse kept kept--barn, track, pasture?

  • Name, address, telephone number of trainer or farm manager.

  • Are the animals to be insured healthy and capable of performing the intended use?

  • Has the animal ever been treated for an accident, illness, or lameness? If the answer to that question is yes, you will be expected to provide details.

  • How frequently was the animal wormed during the past year, and what was the method used?

There also will be questions concerning what vaccinations have been administered. Still another question might seek information concerning the deaths of horses you have owned during the past three years. Again, if there has been a death, or deaths, you will be asked to provide details.

The application will inquire as to whether you have been refused insurance coverage on your animals and whether you are also insuring through another company.

Once the application has met with the company's approval, it is time for a veterinarian to examine the horse.

It is not an in-depth examination, such as might be made during a pre-purchase exam, says Dietrich. In a prepurchase examination, for example, joints are often radiographed. In an insurance exam, that would be unusual unless there were indications that radiographs were needed.

The questions for the veterinarian to answer are aimed at providing an overview of the animal's general health. The veterinarian will be asked to note the horse's temperature, pulse, and respiration rate. Following that basic information on the normal examination form are a series of questions which the veterinarian can answer one of three ways--yes, no, or not to my knowledge.

Here are some of the possible questions:

  • Eyes clinically normal?

  • Heart and lungs auscultated (listened to)?

  • Is the horse a bleeder (suffers from exercise-induced pulmonary hemorrhage, otherwise known as EIPH)?

  • If male, are both testicles palpable?

  • Has the horse been castrated? If so, when?

  • If surgery has been performed, has the horse clinically recovered?

  • In your opinion, is there any clinical evidence of lameness, significant conformational defects, or other pathological conditions? (If the answer to that question is in the affirmative, the examining veterinarian will be asked to explain.)

  • Does this horse manifest clinical evidence of contagious or infectious disease? (Again, if the answer is yes an explanation will be needed.)

  • Any history or clinical evidence of other surgery?

  • Any colic within the last six months?

  • If mare, is she reported to be pregnant? The veterinarian also will be asked to list the date of the last pregnancy examination.

  • Any knowledge or clinical evidence of contagious or infectious disease on the premises within the last 60 days?

  • Any evidence of objectionable vices or habits? (Again, an explanation will be required if the answer is yes.)

Premium Rates

Once the horse has been examined and the forms filled out, it is time for another key determination--the cost of the policy.

Normally, the cost is computed by multiplying a percentage rate against the value sought on the policy. There are some key considerations that involve breed, sex, age, and, most important of all, intended use, that can influence premium amount.

Generally speaking, says Cassell, the age factor does not weigh heavily until the horse reaches 15 years. From that point on, the owner can expect to pay a higher premium rate.

Cutting horses, with premiums at 3% of the animal's value, are among those with the lowest rate, says Cassell, even dropping below the percentage normally charged for Quarter Horses shown at halter. The halter horse by comparison might be at 3.8%.

There is a basic reason for this, says Cassell. The cutting horse is an athlete that must be kept in top condition in order to perform. This means that cardiovascular, respiratory, and digestive systems are likely to be operating at their optimum. The halter horse is the proverbial equine "couch potato." Its work is rarely strenuous, and it might not be exercised for more than 20 minutes per day.

In the eyes of the insurance company, this type of horse is more likely to fall victim to such maladies as colic and laminitis than the horse in top athletic condition.

The number of horses being insured and their total value can figure into premium determination, says Cassell. It's sort of like dealing in volume in the retail and wholesale world. A wholesaler dealing in potatoes, for example, would likely lower the per pound price on potatoes if the grocery store were to purchase 1,000 pounds, rather than 100 pounds. It's the same with insurance--an agent might be able to quote a lower price if 100 horses were being insured rather than one or two. It's the same with value. In other words, the more volume involved, the more likelihood for a lower premium in relation to that value.

On the higher end of the premium scale are racing Thoroughbreds. The highest category, says Cassell, quoting from company guidelines, is for racing geldings at 6.3%. And, she added, the geldings do not qualify for major medical coverage. (More about major medical later.) The next highest category is for racing colts at 4.75%, she says, followed by racing fillies at 4.5%.

The highest rate of all, says Grossman, is for chariot race horses at 8-9%. The reason is fairly obvious to anyone who has seen a chariot race. The chariots are pulled by teams of horses that usually carry a good deal of Thoroughbred blood in their veins. Two to three teams line up side-by-side in a starting chute. At the signal to start, they blast off down a straightaway toward the finish line a quarter of a mile or so away. In one or two jumps, the teams are running side-by-side at full speed with the chariot bouncing along behind them. It takes only a small mistake or a slight drifting in or out by one of the teams to cause a major wreck.

The premium for insuring a Tennessee Walking Horse used to be the highest of all, says Cassell, because of the way in which some of those horses were treated by a few unscrupulous owners and trainers.

In recent years, Cassell says, many of the practices that caused serious damage to Tennessee Walking Horses are no longer employed, and that is now reflected in the lower premiums. Figuring strongly into the premium structure, says Cassell, is claim experience. Fewer claims often translate into lower rates. Today, she says, one normally can insure a Tennessee Walking horse for a 4.5% premium.

Dietrich says one of the higher cost categories in the sport horse field is the jumper, which can draw premiums of 3.7% compared to the dressage horse at 3-3.5%.

The theory, says Dietrich, is that jumpers are more at risk from catastrophic fracture injuries than the dressage horse. However, she takes issue somewhat with that perception.

"Colic is the number one killer," she says, "and often, in show horses, colic is the result of stress."

One can assume that the dressage horse is under as much or more stress than the jumper.

The second-highest cause of death or serious injury in sport horses, she says, is bone fracture. However, she adds that more injuries occur in the training paddock than in competition, and a dressage horse might be as apt to sustain a paddock injury as a jumper. However, she quickly adds, she doesn't make the rules and must abide by what underwriters decree in the way of premium structure.

The sport horse world, says Dietrich, generally operates at three levels--the upper echelon with very expensive horses, the medium range as far as horse value is concerned, and the lower range.

The highest range, consisting of elite and very expensive jumpers, eventers, and dressage horses, often eschews insurance coverage, she says. "These are people who are involved in horses as a hobby, and they can afford to be involved at that level. If they lose an expensive horse, it will likely have little impact on their lifestyle."

Individuals in the medium and lower ranges are much more apt to insure their sport horses, she says, because while the insurance money perhaps would not replace the horse, it would allow the owner to at least buy a young horse and begin anew with its training and development.

How Much Coverage?

How much to insure for and even whether one should insure are individual considerations. Cassell's advice for many horse owners is to insure the horse at least for the amount of investment.

"You can be insurance poor," she says. "The purpose of insurance is to recover your investment if something happens to the horse, not to make a profit."

Being "insurance poor" means that the horse owner has insured his or her horses to the point that total premiums have cut so deeply into the individual's budget that other important items suffer because needed funds are not available. To prevent this, the owner would assume some of the risk by not insuring for maximum value, but only to recover investment. The owner would, in insurance terms, "self-insure" anything beyond the investment amount.

What about Thoroughbred breeders who might have 100-200 mares in their pastures? Should they insure each and every one?

"You have to self-insure to a certain point," says Grossman.

To insure every horse on the place could become cost prohibitive. An owner with 100 broodmares, says Grossman, might decide which ones to insure based on their value. For example, he or she might decide to self-insure all mares under $50,000 in value and to buy insurance for those worth more than $50,000.

Or, the owner might buy a policy with a large deductible. The policy might carry a provision that the first $100,000 lost in the form of death among the band of broodmares for the year would be deductible, but that the company would pay 100% on subsequent losses.

The deductible also can be in per-centage form. When a claim is made, the percentage deduc-tible comes into play by being multiplied against the total coverage.

Here's how the deductible would work. You own five horses and the combined value is $500,000. In an effort to cut expenses, you agree to a 2% deductible. The value of each of the five horses is itemized. For sake of discussion, let's say that one of them is valued at $200,000, another is valued at $150,000, a third is valued at $100,000 and two are valued at $25,000 each for a grand total of $500,000. Because you opted for the deductible, the insurance company lowers your premium, to 2% or perhaps even 1.5%. For discussion purposes, let's say the premium is set at 2%, the same percentage as the deductible. At 2%, the premium on the five horses is $10,000. If the horse valued at $200,000 should die, your deductible, at 2%, would be $4,000, making you eligible for an insurance payment of $196,000, If one of the horses valued at $25,000 should die, the 2% deductible would be $500 and you would be eligible for an insurance payment of $24,500. The deductible would come into play for each claim filed.

Paying Claims

Do insurance companies automatically write you a check when a claim is filed?

The answer to that question is not clear-cut. It depends on a number of factors, some of which already have been discussed.

If the owner has been less than honest with the agent concerning the horse's true market value, for example, some red flags might go up. We already mentioned the example of the horse insured for $50,000 which runs in a $25,000 claiming race.

The first thing the company wants to see is an autopsy report from a qualified veterinarian. Next comes the "threshold of value." If the horse has been insured for $50,000, for example, its death often will not be scrutinized as closely as one that has been insured for $500,000.

What is, and has been, happening within a particular breed also can influence how an insurance company evaluates and scrutinizes a claim, says Dietrich. Back in the 1980s, for example, elite Arabian horses were selling for millions of dollars. In many cases, Dietrich explains, those were grossly inflated values. One person might purchase a horse for $1 million from another individual and, at the same time, sell that individual another horse for $1 million. No money changed hands. Everything was on paper, and the values were inflated.

When a loss claim was filed for such a horse, the insurance company would make an effort to determine the true market value of the horse in question, regardless of what the owner said had been paid for the animal. In the case of Arabian horses in those Alice In Wonderland days, the true market value might be far less than the advertised value. The insurance company would seek to make a payoff based only on true market value.

To determine that value, some companies employ their own adjustors, while others hire free-lancers. In some cases, the services of several adjustors might be enlisted in an effort to establish true market value.

All of this brings one back to Dietrich's earlier advice for open and honest communication between owner and agent and agent and company. If a true market value has been established at the outset, she indicates, and nothing has happened during the life of the policy to change that horse's value, there is little reason for an insurance company to do anything except pay the appropriate settlement in case of loss. That scenario is a winning situation for everyone.

"If there is a problem," Dietrich says, "it usually will be a nightmare."

Owner will be pitted against agent and, perhaps, agent against company. It is a no-win scenario for everyone involved. Far better, she repeats, that there be honest dialogue in the beginning between owner and agent so that the agent can, in good conscience, carry the client's case before the company if that becomes necessary.

Major Medical And Surgical Coverage

As mentioned earlier, full mortality is the most common insurance sought by horse owners. However, there have been changes in the equine community on the insurance front. Receiving more and more attention of late are endorsements for major medical coverage and for surgical coverage.

The change in attitude and approach in equine insurance has followed in the wake of sophisticated advances in surgery and treatment of horses for a variety of ailments. Some of the sophisticated techniques are highly successful, but very expensive. This can mean that an owner is faced with a serious dilemma. Yes, she or he truly loves that jumper, cutter, or roping horse, but when faced with a surgery that might cost upwards of $5,000, emotion sometimes is trumped by economic feasibility.

Enter major medical insurance. In the last few years, says Dietrich, many of her clients whose horses fit into that medium and lower range category of value are turning to major medical coverage.

There are a couple of reasons for the growing popularity of major medical insurance for horses, she says. First, it is relatively cheap. Often, one can buy a major medical policy with a $5,000 limit for as little as $150. The higher the limit, of course, the higher the premium.

The policy does not cover routine ailments, but does kick in when something major occurs, such as laminitis, a serious bone fracture, or colic surgery.

Grossman describes his company's approach to major medical insurance coverage. "This insurance reimburses you for veterinarian's fees for surgery, major illnesses, and disease," he says. "We will pay reasonable and customary charges necessitated by accident, injury, or illness for your insured horse. There is a $250 deductible for each claim, and a $7,500 limit per animal per year."

The type of major medical coverage available, as well as cost and coverage, can vary.

Also available from most companies is a surgical endorsement. Grossman explains how it works with his company. "Should your insured horse require surgery, this endorsement will cover the costs. We will pay reasonable and customary charges for surgical treatment, including anesthesia necessitated by accident, injury, or illness. In addition to the surgery, we will pay up to 35% of the surgical fee for the horse's hospitalization, X rays, medication, and lab tests that are necessitated as a result of the surgery. There is a $50 deductible for each claim, and a $5,000 limit per animal per year. Certain exclusions apply, including racing and castration."

Loss of Use Insurance

But, we now ask, what if that great jumper or cutting horse sustains an injury that renders it incapable of performing? Can we insure against that potentiality? The answer is yes, but it is a field where not all agents are in agreement.

Here is Grossman's approach to loss of use insurance, "If your horse becomes permanently incapable of fulfilling the functions for which it is used as stated on your policy, but its condition does not necessitate destruction for humane reasons, you may suffer a financial loss. If you purchase the loss of use extension, we will pay you 75% of the insured value of the disabled horse. We have the option of letting it be destroyed or taking possession and title of the horse. If you want to keep the horse, we will pay you 50% of the horse's insured value."

An example concerning loss of use, says Cassell, might be a roping horse. "That horse is the roper's partner, and if it is injured, the roper is going to lose income."

The same can be true of an elite jumper, says Grossman. The horse might sustain an injury that renders it unusable as a jumper, but the injury is not so serious that it must be destroyed for humane reasons. It is at that point that the policy would kick in and the owner would become eligible for payoff consideration.

Dietrich, however, plays the role of devil's advocate when it comes to loss of use insurance. "I really don't believe in it," she says, "and as a result, I write almost none of it."

The problem arises, she believes, when two veterinarians are asked to deduce whether the injury suffered is of such a severe nature that the horse can never perform again. This, she feels, delves into subjective analysis where it might be hard to find agreement among any two veterinarians.

Normally, she says, if an injury is so severe that the horse can never perform again, it means that the horse must be euthanized.

There is another factor. This coverage can be expensive.

Reproductive Insurance

There is a variety of insurance coverage dealing with stallions, pregnant mares, and unborn foals. There is, for example, an AS&D (accident, sickness, and disease) policy for stallions. Basically, the policy warrants against a stallion becoming infertile. It is relatively inexpensive, with premiums running from 0.5% to 0.9%.

Insurance also is available for the mare owner that protects against something happening to the stallion to which she is booked, or the mare not being covered during the breeding season by the stallion. This insurance, says Grossman, warrants that the stallion will be alive and able to cover the mare during the contracted breeding season. The maximum value of the policy can be no more than the cost of the breeding fee.

In this age of the shrinking globe, there is also specific insurance available for shuttle stallions and horses which compete in foreign lands, says Grossman. Such a policy would provide coverage in case, for example, a stallion were shipped to Australia from the United States and while there contracted a disease that prevented it from returning to the United States. The same could be true for racehorses and sport horses competing in worldwide competitions.

Broodmares are not left out of this scenario.

Coverage is available, says Grossman, that will warrant that a mare which has been properly vet-checked will become pregnant if covered in two consecutive cycles. If she doesn't get pregnant or aborts, the insured will be eligible to collect. If the mare does become pregnant, the owner then can convert the policy to live foal coverage, which warrants that the mare will deliver a live foal which will stand and nurse. There can be variations of the foal survivability clause that takes mortality out to seven days, 30 days, or even one year.

However, this type of insurance can be expensive. It can run as high as 10-15%, depending on the specifics of the coverage.

Final Notes

The most basic insurance of all is specified perils, which covers the horse in case it is killed in a fire, struck by lightning, or killed in a transportation accident. The premiums usually will range between 1-1.25%, says Cassell.

Is there any final advice for the horse owner? Do as the three agents have indicated. Insure to cover investment, and deal only with a reputable agent who has a positive track record in the business and is a specialist in your particular field of interest.

About the Author

Les Sellnow

Les Sellnow is a free-lance writer based near Riverton, Wyo. He specializes in articles on equine research, and operates a ranch where he raises horses and livestock. He has authored several fiction and non-fiction books, including Understanding Equine Lameness and Understanding The Young Horse, published by Eclipse Press and available at www.exclusivelyequine.com or by calling 800/582-5604.

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