Common misconceptions about limiting liability through an incorporated entity
There are approximately 6,000 equine related businesses in Pennsylvania. The conventional wisdom is that you can protect your personal assets (like your home, savings, or retirement accounts) from business-related liability by forming a business entity. This might be a corporation or a limited liability company, commonly called an “LLC.” While business entities like LLCs do offer some liability protection in certain circumstances, your personal assets may still be vulnerable. The only way to effectively reduce your liability is to have clear and detailed documentation that incorporates the specific needs of your unique program.
When is an LLC not enough?
If you are a business professional, always remember this rule: an individual is always liable for their negligence, recklessness, or intentional acts. The only “protection” an LLC offers is that only the assets owned by the LLC are vulnerable if the LLC is found liable. However, if you acted negligently while in the course of business, both you and your entity may be liable.
Example: riding lesson liability in action
Consider the following scenario.
You own and operate a boarding facility and give riding lessons. You lease the stalls from the landlord who owns the farm, but you own the horses that you use for lessons. You formed an LLC to provide liability protection, and you are the sole owner and sole employee. When you formed the LLC, you transferred ownership of the equipment the business uses, including your horses and all the riding tack used in the lesson program. The LLC maintains an insurance policy, but the policy only covers up to $1,000,000.00 in liability coverage.
Your lessons are thirty minutes long. You groom and tack the horse yourself before the rider arrives. The tack you use is the same tack you use every lesson. You generally clean it all a few times a year, but you don’t maintain a record of how frequently you clean or inspect the tack.
While you are giving a lesson, the saddle’s girth strap breaks and the rider falls and is severely injured. Nearly two years have gone by when suddenly you receive a complaint against your business and you personally, seeking $3,000,000.00 in damages.
Who’s liable?
Unfortunately, it might be both the LLC and you personally.
Why both you and the LLC may be exposed
Explanation: As stated above, individuals are always liable for their personal acts of negligence. If you are found to have been personally negligent for failing to appropriately prepare the horse and maintain the equipment – in other words, you personally were negligent – you may be personally liable. Do you examine the girth before every lesson? Did you perform routine maintenance and inspection of the girth within a reasonable amount of time prior to the lesson? Did you keep a written record of maintenance? These facts, among others, may show whether you failed in your duty to maintain and inspect the equipment which resulted in the injury.
Additionally, the LLC may also be found to have been negligent for failing to provide appropriate equipment. If the LLC’s insurance does not cover the full amount of the liability, then you could also lose your horses, tack, and other equipment because the LLC owns those assets.
But doesn’t PA have a law that gives me immunity from liability for equine activities?
Yes, and no.
Understanding Pennsylvania’s Equine Activity Immunity Act
The Pennsylvania Equine Activity Immunity Act does help protect you from liability, but only if certain conditions are met and no exceptions apply to the protection. This act provides immunity from liability for “equine activities.” The act specifically states the immunity will only be applied when the participant voluntarily assumes the risk of injuries or death because of participating in equine activities. This means that the rider in the scenario above must have voluntarily assumed the risk of equipment failure, not just the risk of falling generally.
Additionally, the Act covers “equine related activities” of adults, but not children. Minors cannot waive their right to hold you liable, and parents cannot waive these rights on the child’s behalf.
If an LLC and the PA Equine Act provide only partial protection, what can you do?
The only way to effectively reduce your liability is to have clear and detailed documentation that incorporates the specific needs of your unique program.
Using documentation and waivers to reduce risk
The documentation generally includes a waiver that incorporates the PA Equine Activity Immunity Act, informs the participant of the specific risks they are assuming while riding at your facility, and clearly addresses the liability of minor participants. Parents cannot waive the right of the child to hold you liable, but they can waive their right to pursue a claim against you.
Working with an attorney who understands equine law can help you structure your LLC, insurance, and written waivers so they work together to protect you, your horses, and your business.
Talk with an attorney who understands equine businesses
If you’d like to speak to an attorney who can help you understand setting up an LLC for your equine business or need an attorney for business formation and planning, please contact us. One of our attorneys can help you review your LLC and waivers to help you reduce your risk before a claim arises.
If you want to better understand contracts, waivers, and risk management for your equine business or training program, explore our equine law services.
