Analysis

The current form makes three changes from the old form. Because this form no longer constitutes the entire policy, it is now referred to as a “coverage form” instead of a “policy.” The second change clarifies the drafter's intent to cover a resident spouse as a named insured.

The third change refers the reader to a new form, Farm Property – Other Farm Provisions Form – Additional Coverages, Conditions, Definitions, FP 00 90 01 98. That is where many of the previous form's provisions are consolidated. On the old form they were often repeated. In the current program, they are written once and refer to all coverages.

Analysis

“Dwelling” is included in the definitions on form FP 00 90. Essentially, it refers to any dwelling described in the declarations so long as it is a structure (including a mobile home) “used principally for family residential purposes.” Any number of dwellings may be insured as long as a limit of insurance is provided in the declarations for each of them. This is quite unlike homeowners and the earlier farm and farmowners-ranchowners policies, which describe coverage in terms of only one dwelling on the residence premises.

The insured dwelling must be owned by the named insured. A tenant farmer, required under a rental agreement to provide insurance on the farm property on the owner's behalf, will not meet the ownership requirement; this provision has to be modified to fit such a rental agreement. A dwelling may be located on or away from the insured location.

In addition to coverage for the dwellings shown on the farm property declarations, coverage A also applies to the following:

·     structures attached in a significant way to covered dwellings;

·     materials on the insured location intended for use in building, altering, or repairing the insured dwellings or attached structures; and

·     if not otherwise insured in the policy, equipment of any sort used indoors or out principally for servicing the covered dwelling, grounds, or appurtenant structures. Any equipment that qualifies under this broad agreement is covered even while temporarily away from the premises.

The extension of dwelling coverage to structures attached to the dwelling applies only to additions that physically abut the dwelling. Just as in homeowners forms, the extension does not apply to structures that are “attached” by way of a fence, utility line or similar connection. Coverage B applies to appurtenant structures, including those with only tenuous ties to the insured dwelling.

The coverage for servicing equipment applies only if such is not otherwise insured in the farm package policy. Other insurance from another policy on the same property does not disqualify it for coverage here.

The coverage form goes on to describe three items of property not included under the dwelling coverage:

·     land, of course, including land on which the dwelling is located;

·     water, also of course, but as a renewable, depletable resource capable of being treated like personal property, the exclusion is appropriate if coverage is not intended; and

·     trees, shrubs, plants, and lawns (but coverage is provided on form FP 00 90)

Insuring agreement three describes limited coverage for outdoor radio and TV antennas and satellite dishes attached to insured dwellings. The special limit—part of the Coverage A limit—is $250, but a higher limit may be purchased. A similar arrangement is provided in coverage B for property of this sort that is a structure in its own right, not attached to a covered dwelling. Note that this coverage is “first dollar.” The language making it subject to the policy deductible was removed in the current form.

As mentioned before, the previous farm property form was complex and convoluted. One of the confusing aspects was the way that policy conditions were presented. Each coverage agreement (A, B, C, D, E, F, and G) contained its own conditions. In addition, form IL 00 17 11 98 contains six conditions that apply to the entire policy—cancellation, changes, examination of books and records, inspections and surveys, premiums, and transfer of rights and duties. Comprehending and understanding all the details required a great deal of flipping back and forth. While each coverage still has its own conditions, there are now only four coverages on this form, instead of seven.

The first condition establishes the method of valuation of property insured under coverage A in case of loss. The provision is similar to that used for homeowners dwelling coverage—loss is payable for replacement cost up to the limit of insurance if the limit of insurance carried for coverage A is at least 80 percent of the replacement cost of the dwelling.

The policy does not exclude the following items from the coverage. Rather, it just specifies that their value does not count when figuring the amount of insurance needed to permit recovery of full replacement cost:

·     excavations;

·     foundations;

·     piers and other supports underground inside the foundation walls or under the lowest basement floor; and

·     underground flues, pipes, wiring, and drains.

If applicable, replacement cost is paid at once if the loss is no more than either $1,000 or five percent of the limit of insurance. Otherwise, the property must actually have been repaired or replaced. The insured can make a claim for actual cash value of the loss before repair or replacement. He or she has up to 180 days from the occurrence of the loss to declare intent to replace. Upon completion of the restoration, the insured may recover the difference between actual cash value already paid and cost of repair or replacement.

New with this coverage form is the addition of the “increased cost of construction” wording. Any loss settlement is exclusive of additional cost due to the enforcement of any building laws. Such laws regulate the “construction, use, or repair” of property. For example: a farm dwelling, wired with the old style “knob and tube” wiring suffers an extensive fire loss. This policy would not pay any additional costs to upgrade the wiring to current standards.

When the limit of insurance for the dwelling is less than 80 percent of the dwelling's replacement cost, recovery is limited to the higher of: (1) actual cash value of the loss or (2) that portion of the replacement cost that the limit of insurance bears to the 80 percent figure required. For example: a building with a replacement cost of $200,000 requires $160,000 of insurance to meet the coinsurance requirement. If the insured carries only $120,000 (75 percent of $160,000), he or she will collect only 75 percent of the amount of replacement cost for that partial loss, or 100 percent of actual cash value if that IS MORE.

In the matter of the 180 day time limit on recovery of replacement cost after initially claiming recovery of actual cash value, the question of whether replacement must be completed within 180 days, an ambiguity in the homeowners language, is clarified in the farm form language. Under the farm form, notice of intent to replace must be given the insurer within 180 days, but no time limit is placed on actual replacement.

The second item of the Coverage A valuation condition relates to glass replacement. The policy agrees to replace broken or damaged glass with safety glazing material, if required by law.

Analysis

Coverage B—other private structures appurtenant to dwellings—is similar to coverage B of the Insurance Services Office homeowners policies.

In order for a structure to qualify for this coverage, it must meet one of the following criteria: it must either be separated from the dwelling by a clear space; or attached to the dwelling only by a fence, utility line, or similar connection. Like homeowners coverage B, the basic limit applicable to other private structures is 10 percent of coverage A.

Private structures that serve residential needs, a tool shed where home maintenance equipment, lawn furniture and the like may be stored, for example, must be specifically described and a limit needs to be shown on the declarations page. Farm structures may not be scheduled for coverage here. They are a feature of coverage G protection.

Use of the word “appurtenant” by ISO in the farm policy is interesting. “Appurtenant private structure” was once a catch phrase describing coverage B of the homeowners forms but it was deleted in the 1976 policy simplification process. “Appurtenant,” when applied to structures on the residence premises is generally interpreted as meaning only those structures that are affixed to the land and pass with the title to the realty. The provision is thus subject to more narrow interpretation than a reference, simply, to “other structures.”  Such structures as a portable storage shed or a children's swing set are not likely to qualify as “appurtenant” though they surely do qualify as “other structures” on the premises. Their insurance protection in the farm form is by way of coverage C, unscheduled personal property.

Conversely, the earlier farm and farmowners-ranchowners forms did not have a reference to appurtenant structures. To cover buildings appurtenant to the dwelling under these as well as (except for a private garage) under the current form, it is necessary to provide specific scheduled building coverage, the same as with farm buildings.

Four types of property are singled out as not included for protection under coverage B:

·     land, including land on which the other structures are located;

·     water;

·     structures, other than private garages that the insured holds for rental to anyone other than a tenant of the insured's dwelling;

·     structures, other than private garages, that are used principally for farming purposes.

In case anyone should believe that the capacity of farm land to produce economic wealth provides the owner with an insurable interest and a right to call on the farm insurer for recovery after loss, the first exclusion clarifies intent. The specific exclusion of water serves the same end.

Private garages may be rented to anyone and still be insurable under coverage B. An appurtenant structure that is rented for any other purpose may be insured only if it is rented to tenants of the residence premises (who may then put it to any legitimate use except for farming purposes).

The fourth item bars farm buildings from coverage B because they are now covered by form FP 00 14 01 98. In this context, it might be advisable to probe the particular underwriter on the risk or contemplating taking it on as to his or her view of the expression “used principally for.” At what point is a storage building, used, for example, to store lawn mowing and gardening equipment and some farm implements “principally” used for farming purposes? And suppose the balance changes after the policy is written? Of course, the benefit of any doubt then goes to the insured.

Agreement three imposes a special limit of $250 to recovery of outdoor radio and TV antennas and towers and satellite dishes insured under coverage B. The limit is the same and the items are the same as under coverage A. In both cases, the insurance recovery comes as part of the coverage A or coverage B amount and not as additional insurance. Whether the equipment is mounted on a structure eligible for coverage B appears to be immaterial. The special limit is grounded in coverage B's 10 percent extension from the insured dwelling regardless of the existence of any other legitimate call on coverage B. The insured may purchase more coverage on these items, as needed. Note that the language imposing a deductible on these items has been removed, as under coverage A.

The valuation loss condition has it that buildings insured under coverage B are subject to the same condition as described in coverage A. Replacement cost recovery is thus available on other private structures the same as on the dwelling. Under the previous form, since the coverage B reference was simply to the valuation loss condition described under coverage A, it was not clear if the 80 percent relationship of amount of insurance to cost of replacement applies to the dwelling or to the other structure. The new arrangement clearly shows the co-insurance requirement applying to all of provision B.

Analysis

While Insurance Services Office homeowners coverage C covers “all personal property except that listed as property not covered,” the farm policy applies only to “household personal property.” Thus, the policy emphasizes that this section covers only that property used for family purposes. It cannot refer to all personal property in the same way as the homeowners, because it needs to distinguish between business and nonbusiness property.

Covered property is indicated by a limit of insurance for coverage C on the farm property declarations. The farm property form provides insurance on household personal property as follows:

1.     Household property that the named insured or family owns or uses. The policy covers this property located on the “insured location.” The coverage extensions broaden the territory for such property to anywhere in the world.

2.     Household personal property of others. The named insured must request coverage and it applies while in the insured's dwelling or while on the appurtenant grounds. The “request” for coverage need not come prior to a loss. Also note that a renter has coverage for others' property only while it is in part of the dwelling occupied by the tenant. The policy specifies that the grounds must be owned by the named insured for coverage of others' property to apply there.

Form FP 00 12 also specifies certain items as “property not covered.” These include:

1.     Any articles that are separately described and more specifically covered—whether in this policy or another. Scheduled articles cannot obtain excess coverage here, for example.

2.     Aircraft and aircraft parts. New to this edition of farm property coverage is a specific exception for model or hobby aircraft comparable to the current ISO homeowners provision. The homeowners exception followed a surprising interpretation from a high court that expanded the effect of the exclusion to include models. Even though no such interpretation of the farm form provision has been noted, the drafters pre-empted any problems by adding this language.

3.     Trees, shrubs, plants, and lawns belonging to a tenant (except as provided by extension). A renter covered by homeowners form HO 00 04 10 00 has coverage for plants, etc. up to 10 percent of his contents limit (maximum, $500 per plant). The HO 00 04 only excludes plants held or grown for business purposes. A similar exclusion is found in the coverage extensions of form FP 00 12.

4.     Animals, birds, and fish.

5.     Business property. The policy does give back some business property coverage as a special sublimit (see below).

6.     Departing from the essence of this list, ISO inserts not an exclusion, but a limitation on the value of magnetic recording or storage media for data processing. Such equipment includes cells, discs, drums, film, or tape. The policy limits payment for these items to the lesser of the cost to replace them as prepackaged software programs or as blank media.

7.     Video and audio devices that are “designed to be operated solely” by power from the electrical system of a vehicle. By changing the wording, ISO has cleared up some confusion around these devices. Though it might seem that the previous exclusion applied under any circumstances, it is important to recognize that it was stated in the present tense. Not covered was the device “that is operated”—not that “was” or “might be” operated as when the device is out of the vehicle and in the farmhouse. Thus, the exclusion affected only such devices as were in the vehicle at the time of loss. The current wording makes it clear that such property is not covered, if it is “designed” to be operated off a vehicle's electrical system. Also excluded while in or upon a motor vehicle are accessories and antennas, and tapes, wires, records, discs, or other media for use with such equipment. Specific equipment may be covered by listing it in the declarations.

8.     Farm personal property, except for office fixtures, furniture, and office equipment. Some business property coverage is given back under special limits of coverage C (below).

9.     Motor vehicles, equipment, and accessories. Like the homeowners policy, the farm property form makes an exception for two classes of vehicles not licensed for road use: those used to service insured's dwelling and those designed and used for assisting the handicapped.

     Note that the coverage for equipment used for servicing the residencies not as broad as under the homeowners policy. Under that policy, any unlicensed vehicle used to service the residence is covered, regardless of other use as well. But farm form FP 00 12 requires that the vehicle be used only for servicing the insured's dwelling.

     Unlike the similar homeowners property exclusion, form FP 00 12 does not specifically limit the motor vehicle equipment and accessories exclusion to those items “in or upon the vehicle.”  Thus, the question may arise whether such property, not specifically assignable to a particular vehicle, is subject to this property exclusion. The word “its” suggests a closer connection than “was once used with.” The insured is owed the benefit of the doubt left here by the forms drafter.

Certain categories of household personal property are subject to special limits of insurance. These special limits are a part of, not in addition to, the limit of insurance for coverage C. Previously, they applied in excess of any deductible that applied to such property alone. However, that language has been removed, making coverage for these items “first dollar.” With only minor differences, the special limits of the farm form are the same as those of the current homeowners policy, although the language and arrangement are considerably different. These special limits are as follows:

1.     $200 on money. Money includes gold, platinum, and silver (including bullion but not goldware and silverware). Medals are not limited in the farm form.

2.     $1,500 on securities. Other items subject to this limit are: letters of credit, manuscripts, and passports.

3.     $1,500 on watercraft, their equipment, furnishings, outboard motors, and trailers.

4.     $1,500 on trailers not used with watercraft and not used for farming operations. Farm trailers are excluded as farm personal property.

5.     $1,000 on grave markers (Note: this limit has been removed from the current edition of the homeowners policy.).

6.     $2,500 on business property on the insured location, and $250 on business property off the insured location. The language of this item is similar to that of the current homeowners. This coverage is broader than in the 1987 farm property form, because the $2500 applies to business property anywhere on the insured location and not just at the residence premises. The off-premises limit does not apply to “adaptable electronic equipment.”

7.     $1,500 on electronic apparatus “equipped to be operated by power from the electrical system” of a motor vehicle. Two different limits are shown. The first applies to such apparatus that are used personally; the second to those apparatus used in connection with the farm or a business.

The following limits apply to loss by theft only, with the full coverage C limit applicable to any other covered cause of loss:

1.     $1,500 on furs, jewelry, precious and semiprecious stones, and watches.

2.     $2,500 on goldware, silverware, gold- or silver-plated ware, and pewterware; including platedware, flatware, hollowware, tea sets, trophies, and the like, and other utilitarian items made of or containing gold, silver, or pewter.

3.     $2,500 on firearms.

These theft limits are the same as those of the homeowners form.

Coverage C conditions, refers to the farm property conditions, as found on form FP 00 90; and to the common policy conditions of form IL 00 17 as applying to coverage C.

In addition, a loss condition relating to valuation is added, applying only to coverage C. It stipulates an actual cash value settlement for any covered personal property loss. Like the homeowners, the farm property form limits the settlement to an amount not more than is necessary for repair or replacement.

     If a Covered Cause of Loss renders uninhabitable any portion of:

Analysis

Like the homeowners policy, the farm property form agrees to cover the insured's additional living expense, if forced to vacate the home after a covered loss. The coverage is intended to allow the insured to maintain his or her normal standard of living. Again, like the homeowners, the farm property policy extends this coverage when the insured is kept out of his house by order of a civil authority. The deductible does not apply to coverage D. However, unlike the homeowners policy, fair rental value is collectable only when part of home is rented to others.

If a covered cause of loss renders the insured's principal living quarters uninhabitable, the insurer will pay any necessary increase in living expense. The policy limits payment to the amount necessary for the insured household to maintain its normal standard of living. Payment is for the shortest of either of these:

1.     the time to repair or replace the damaged property; or

2.     if the insured relocates after the loss, the time to settle elsewhere.

This coverage is similar to additional living expense coverage provided under coverage D of ISO homeowners forms, and the intent is essentially the same, but there are some differences in language that call for interpretation.

The trigger for coverage under form FP 00 12 is that the premises be rendered uninhabitable. Under ISO homeowners policies, the trigger is that the residence premises be made not fit to live in, while for the earlier farm and farmowners-ranchowners forms the trigger was untenantability. While these three terms all suggest a similar condition—damage to the extent that continued occupancy is undesirable—the terms are all somewhat subjective. Consequently no exact meaning can ever be had; untenantability or uninhabitability, like beauty, is in the eye of the beholder.

Can a dwelling be not fit to live in and still not be untenantable or uninhabitable? What if there is damage to only a part of the house? For example the kitchen or the bathroom is damaged, but the rest of the house can be used. The insured family, however, must eat their meals out or use the neighbors' bathroom facilities. Does this situation trigger coverage? Does a strong smoke odor in an otherwise undamaged residence trigger coverage?

The adjuster's job is to negotiate a reasonable solution, recognizing that the bedrock provision is that the household must be able to maintain its normal standard of living. Since the form drafters wisely did not try to lay down precise guidelines, the insured's “reasonable expectations” have to be considered.

The insured, on the other hand, is well advised to secure agreement from the adjuster before undertaking any significant additional living expenses. (Insurers may recognize this coverage as an opportunity to create good will and are fairly “easy” when it comes to paying claims for additional living expense.)

The insured may rent (or hold for rental) the dwelling or private garage insured under coverage B. If a covered cause of loss causes any part of either of these to be rendered uninhabitable, the insurer pays the fair rental value of the loss the insured sustains. Expenses that do not continue following the loss are deducted. Payment is for the shortest time required to repair or replace the damage.

Note that payment is for fair rental value—the amount for which the property either is currently rented or can be expected to rent if not presently rented. This offers payment to reimburse the insured for loss of rents that would have been collected or that might have been collected. (However, most insurers in adjusting a loss to a dwelling not presently rented can be expected to resist rental value payment unless there is at least some likelihood that rental would have occurred but for the loss.)

Unlike the homeowners, the farm property form does not give the insured the option of selecting payment under either additional living expense or fair rental value. When a homeowners insured is forced out of his home, he may choose to collect either his additional living expense or the fair rental value of the home. This ability to choose is important to the person who moves in with relatives after a loss. He may not be able to document additional living expense, but equity dictates that this insured's private advantage does not inure to the insurance company. This option does not exist in the farm form, because it specifies fair rental value coverage is available only if the dwelling or a portion of it is rented to others.

When a neighboring premises suffers damage from a covered cause of loss, a civil authority may order the insured out of his home. Coverage D will pay the resulting additional living expense or loss of fair rental value of the house and private garage for up to two weeks following the order of civil authority. The language is vague as to what two weeks are covered. It reads: “[The insurer] will not pay parts of such loss or expense that are incurred . . . after a period of two weeks has elapsed. . . .” The period of two weeks begins at the time of the order.

The policy specifically excludes any loss resulting from cancellation of any lease or agreement due to the interruption.

The limitation of this coverage to loss arising from damage to neighboring premises is the same as that of the ISO homeowners and earlier farm forms. It may not appear to be as broad as the similar coverage of the ISO commercial business income forms which applies when there is “direct physical loss or damage to property, other than at the described premises.” However, the neighboring premises to a farm can be easily as distant (and thus as inclusive) as any damaged “other premises” affecting urban business.

As with homeowners forms, the protection under coverage D is not limited by expiration of the policy. Only the coverage trigger, uninhabitability of the residence premises due to a covered cause of loss or insured order of civil authority, must take place within the policy period.

The deductible clause applicable to other items of farm property form FP 00 10 09 94 does not apply to coverage D.

All other farm property conditions and common policy conditions do apply to coverage D.