In a second case, the insured had blown chopped hay into his hay mow in a traditional two-story barn. He later discovered that the hay was getting very hot. The fire department responded and decided it was dangerously close to combusting.

As the firefighters were forking hay down, they observed many places where there were glowing embers and hay reduced to nothing but ash. As they tossed hay down, there were sparks and embers. (This is important.)

In both of these cases, coverage was denied. Although in the second case, the adjuster admitted that “glowing embers were observed in the bedding,” he concluded that it was debatable if a fire had been present. He said the hay already had been destroyed by the combustion process and had no value.

The AAIS Farm policy provides coverage for “direct physical loss to hay, straw, and haylage/silage in stacks, feed storage bags, windrows, or bales in the open caused only by the perils of fire or lightning, vehicles, vandalism, and theft.” The most available for loss to any one stack is $2,000.

This policy also provides up to $500 for emergency removal of hay from any building or barn when removal is necessary to prevent spontaneous combustion. There is no coverage for damage from smoke unless it is due to the faulty operation of any heating or cooking unit on the insureds' premises.

There is no question that hay was damaged in both cases. However, the policy will only pay for damage to hay caused by certain specified perils, fire among them. So we have to raise the obvious question, “What is a fire?”

… There's Fire

“Fire” is not defined in policy language. However, case law dating back to the early 19th century clarifies the issue. Fire, within the meaning of insurance contracts, involves combustion (burning) or other oxidation that is manifested in a flame or glow; and fire that is hostile.

The requirements of flame or glow make it clear that it does not apply to a gradual combination of oxygen with other substances (such as when metal rusts) or other chemical reactions. Although chemical reactions may produce heat, they are not “fire” in the traditional sense of the word.

As reasoned in Washington State Hop Producers v. Harbor Ins. Co., 660 P.2d 768 (Wash. App. 1983), a Washington court of appeals denied coverage for loss to hops by a process known as browning. The court ruled that “the mere showing of the emission of smoke, steam, or heat is not sufficient to establish the existence of a fire; there must be some visible indication of fire, such as flame, glow, or light.”

Actual observation of a glow is not necessary, but the process that would create a glow must have taken place. Heat generated by chemical oxidation may cause damage, but without a flame, glow, or light, the loss is not caused by fire.

On the other hand, a federal appeals court ruled that charring to soybeans was caused by “fire” in Oakley v. Farmland Mut. Ins. Co., 245 F.3d 1027 (8th Cir. 2001). Some stored soybeans were charred and blackened when unloaded from a storage bin. Several employees saw the beans “amidst heat, smoke, and steam.” They also witnessed hot spots that “glowed like charcoal and were orange.”

Smoke and a “soy sauce odor” were also present. However, no one saw flames. The court ruled that, according to the witnesses' accounts, “they observed fire; there was smoke, heat, and orange light.”

Final Analysis

So, in our first scenario, there is no question. At least two of the bales actually burst into flames, and the fire department reported that burning occurred. There was a fire.

In the second, just like in the Oakley case, glowing embers were observed. (Remember the hint?) There was a fire in both scenarios, and there should be coverage for the hay from the damage caused by fire, but not for damage caused by smoke. To the extent the policy language is ambiguous, coverage should be granted to the insured.

Susan L. Maloney, CPCU, is an assistant editor at FC&S with a background in compliance issues. She may be reached at [email protected].