Equine, Livestock, and Exotic Animal Insurance—What Are the Unauthorized Medication and Proper Care Exclusions?

The world of property insurance covers a lot of specialty risks. Equine and livestock insurance is one of those special risks. A Liberty Mutual brochure describes these important coverages, and the equine risk is described in part as follows:

We concentrate on providing insurance solutions for specific equine disciplines such as dressage, hunters, jumpers, racing, and Western uses, and breeds such as Arabians, Morgans, Saddlebreds, Standardbreds, Thoroughbreds, and Warmbloods.

Insurance coverage can help protect you and your business from the financial loss associated with risk as a horse owner. There are many different types of insurance to consider when looking to protect your assets, and that is why Liberty Mutual is here to help you choose from our flexible options to customize the protection against risk and loss of your animals.

All Risks of Mortality is a type of insurance coverage that automatically covers all risks that the insurance contract does not explicitly exclude. The Liberty Mutual Equine Mortality policy provides that security and peace of mind when owning horses.

Our All Risks of Mortality policy is endorsed to be agreed value, which means that our company will pay the value of the animal that is stated on the policy provided there is coverage for the loss.

Specified Perils provides another option for your security against risk to owned horse(s). Specific causes of loss are outlined in the policy, so ask us how Specified Perils could be an alternative solution.

There is even an endorsement which will cover loss caused by “stallion infertility:”

Stallion infertility (accident, sickness, and disease) — This endorsement requires prior approval by underwriters. Whenever this endorsement attaches to an insured animal, coverage is subject to receipt and acceptance by underwriters of a satisfactory Veterinary Certificate with specific reference to genitalia.

The property insurance case of the day involves equine mortality insurance. 1 Based on the lengthy denial letter issued by the fine lawyers from Cozen & O’Connor, one stallion, Laoban, had simply worn himself out during breeding season and was not able to perform. Stud horses don’t have a version of Viagra. So, the veterinarian gave Laoban a vitamin injection called “Black Shot.” It killed Laoban. As explained in the denial letter, the insurer denied the $5 million claim based on the “Unauthorized Medication Exclusion and the “proper care” exclusion.

The Unauthorized Medication Exclusion is an important provision in equine insurance policies. It limits coverage for deaths or injuries resulting from the administration of certain medications or treatments. This exclusion limits coverage for adverse events or deaths caused by medications not explicitly authorized for use in horses. Insurers often argue that the exclusion encourages proper veterinary care and discourages the use of risky or unproven treatments.

While specific wording may vary between policies, the Unauthorized Medication Exclusion generally excludes coverage for deaths or injuries resulting from “administration of drugs or medication … unless done by or under the direction of a veterinarian and certified by him/her to have been of a preventative nature or necessitated by accident, sickness or disease of the horse.” It may apply to off-label use of medications, compounded drugs, or treatments not approved by regulatory bodies like the FDA. The language of some policies will expressly exclude coverage for experimental or homeopathic medications.

In the case of Laoban, the court found that two exclusions in the insurance policy applied, which justified NAS’s denial of coverage. First, the “Unauthorized Medication Exclusion” applied because “Black Shot” was considered a drug or medication under the ordinary meaning of those terms of the exclusion. The injection was not preventative or necessitated by accident, sickness, or disease but rather given to increase Laoban’s energy levels.

The court also determined that Dr. Wharton, who administered the shot, did not act with “proper care.” This conclusion was supported by testimony from another veterinarian and a settlement agreement between Dr. Wharton and the Kentucky Board of Veterinary Examiners that resulted in her license suspension.

The policy excluded coverage for loss resulting from “failure to provide proper care and attention for the horse.” The court rejected the insured’s narrow interpretation that “proper care” only referred to basic needs like food and shelter. Instead, the court used the ordinary dictionary definition of “proper care.” The court cited Black’s Law Dictionary’s definition of “proper care” as the “degree of care that a prudent and competent person engaged in the same line of business or endeavor would exercise under similar circumstances.”

In applying this standard, the court looked at whether the veterinarian who administered the “Black Shot” to Laoban acted with the same degree of prudence and competence as other veterinarians would have in that situation. The court found clear evidence that the veterinarian did not meet this standard of proper care.

I felt the court’s ruling on this “proper care” exclusion was expansive. In essence, the court broadly interpreted “proper care” to encompass prudent medical treatment, not just basic care and maintenance. By finding the veterinarian’s actions fell below the standard of care expected in the industry, the court determined the exclusion was triggered, allowing the insurer to deny coverage. This interpretation gives insurers significant latitude to deny claims over which the policyholder owner has no control.

Poor Laoban learned that too much of a good thing can be wonderful…. until it’s not.

Those in the farming and ranching business with significant risks of high valued horses, bulls and other animals should contact their specialty brokers and need to make certain that their insurer will not argue a broad and expansive exclusion about veterinary negligence and proper care like North American Specialty Insurance Company (NAS).

Equine owners, farmers, and ranchers should not insure with NAS. Brokers selling this line of insurance should not have their clients placed with NAS until NAS stops the expansive argument about the “proper care exclusion.”

Thought For The Day

Too much of anything is bad, but too much good whiskey is barely enough.
—Mark Twain

1 Cypress Creek Equine v. North American Specialty Ins. Co., No. 5:22-cv-00095 (E.D. Ky. Sept. 10, 2024).