Summary: Insuring a farm presents a unique set of challenges for the agent. Since the typical farm incorporates complex personal and commercial property and liability exposures, the agent must be sure that they are all covered properly. Insurance Services Office's farm property and farm liability forms not only contain the coverages needed by most farmers, they also make for a handy “risk assessment questionnaire.” By following the coverages in the forms, the agent can know, with a good degree of certainty, that he or she has asked the right questions.

This treatment presents a standard method for evaluating farm exposures and suggesting appropriate coverages.

Topics covered General Property exposures Property insurance Causes of loss Liability exposures Liability insurance Endorsements AAIS farm program

General

Certain farming operations are ineligible for the ISO farm combination coverage (property and liability). If the agent is unfamiliar with farm exposures, he or she should learn more about the operation of a farm before proceeding with the insurance on it. Although many of the coverages and provisions in the farm policy are found in commercial and homeowners forms, the agent must be aware of exposures presented by different aspects of the farming operation. For example, is all acreage contained at one location, or (as is often the case), does the farmer lease or own acreage elsewhere so that the location must be shown on the declarations page? Learning more about general farming operations can be accomplished by talking to farmers or by contacting the state agents' association. Most associations—especially those in large farm states—have independent committees dealing with farm insurance. Other good sources of information are the marketing departments of insurers who write farm business.

The first thing an agent must know is the exact location of the farm. Since many farms are isolated and may be difficult to find, an agent should keep a map in the file showing the location of the farm. The insurance company will also need to know the location, and may even request a copy of the map. The huntinggpsmaps.com website has maps of several states for sale the designate private property boundaries, parks, open spaces, public lands, landowner names and other information. The Clarkson Map Company publishes detailed maps of each county in several states. They can be found at clarksonmap.com. Likewise maps-eureka can provide city and street maps of many areas. They can be found at http://www.maps-eureka.com/regional-maps.html.

Several general areas need to be considered, since coverage is based upon limits of insurance shown in the declarations for certain types of property.

1.      Who operates the farm (owner, manager, or tenant) and does this person live on the premises? (This is important, since some coverages in the policy pertain according to whether the named insured is the owner or a tenant.)

2.     Type of farm—certified seed, truck, dairy, grain, livestock, poultry, etc. Is additional coverage necessary?

3.     Total acreage and acreage under cultivation. Is there any “custom farming?”

4.     Acreage owned by the applicant? Is the applicant a tenant?

5.     Type and number of livestock.

6.     Major crops.

7.     Annual receipts from any custom farming.

8.     Any off-premises exposures?

9.     Is seed raised for sale to others? Should the insured carry an E&O policy?

10.     What is the number of employees, including how many full-time and how many part-time? Find out from the state industrial commission if agricultural employees are subject to the workers compensation laws.

11.     What farm equipment—tractors, combines, etc., should be insured?

Property Exposures

The agent should survey the farm to discover the number, size, and type of buildings, and the farm machinery and animals to be insured.

There are various underwriting considerations to be taken into account. Although most farms are located in protection class 9 or 10, some companies offer credits for a source of water on the premises. Also, if the farm is served by a fire department within a reasonable distance (usually 5 road miles or less), a premium credit may be available. The year-round condition of the roads leading to the farm may be of concern. Some companies stipulate that roads leading to the property must be at least hard-packed gravel. An underwriter may need to know if the farmer owns any fire-fighting equipment.

Many farm dwellings are of older construction, so, when insuring them, many of the same questions need to be asked as when insuring a home in the city. If built prior to World War II, be sure that the plumbing, heating, wiring, and roof have been updated. (Underwriting requirements regarding updates vary by company, so be sure to check.) Is there a supplemental heat device? Note the general condition of the home, the housekeeping, and the existence of lightning protection. Take note of any unusual liability hazards. Finally, check for protective devices such as alarms and deadbolt locks.

Remember that the farm property form covers farm dwellings for replacement cost. In order to properly protect the farmer, do a replacement cost survey and insure to at least 80 percent of that figure. However, if the dwelling does not qualify for replacement cost coverage, an endorsement is available to change the loss settlement on dwellings to actual cash value.

In surveying the other farm structures, the agent should examine their general condition, maintenance, housekeeping, etc. Important considerations are the existence of fire and lightning protection, insulation, and whether or not the building is heated. If heated, the system should be in good working order and serviced on an annual basis. If wired for electricity, the wiring should be adequate for current appliances and equipment without over fusing and without the use of extension cords.

Property Insurance

Sections A, B, C, and D of the farm property form (FP 00 10 09 94) are similar to a homeowners policy—dwellings, private structures appurtenant to dwellings, household personal property, and loss of use. There are additional coverages similar to those found in the homeowners forms, but some have distinct application to farming—for example, the cost of restoring farm records.

Sections E, F, and G are where “farm” property is insured. Section E covers scheduled farm personal property. Farm personal property is defined as “equipment, supplies and products of farming or ranching operations, including but not limited to feed, seed, fertilizer, livestock, other animals, poultry, grain, bees, fish, worms, produce and agricultural machinery, vehicles, and equipment.” Some items, such as tractors, are not included under this category. (The definitions are found in the last section of the form). It is important to note that one category excluded is growing crops. This coverage (crop hail and drought) can be found in the specialty products markets.

Section F covers unscheduled farm personal property. Covering the same items as defined in Section E, this coverage is subject to an 80 percent coinsurance clause.

Section G insures farm structures. These include: buildings other than dwellings; silos; portable buildings; all fences, corrals, pens, chutes, and feed racks; outdoor radio and TV equipment; improvements and betterments; and building materials and supplies.

Loss adjustment provisions vary for each type of covered property. Dwellings and structures appurtenant to dwellings (A & B) are settled on a replacement cost basis, subject to an 80 percent coinsurance requirement. Household personal property losses (C) are covered for actual cash value. Replacement cost for household personal property is available for an additional premium. Losses to scheduled farm personal property (E) are adjusted on an actual cash value basis. Unscheduled farm personal property is also on an actual cash value basis, but subject to 80 percent coinsurance. For coverage G—other farm structures—the insured may choose either replacement cost (subject to 80 percent coinsurance) or actual cash value.

Causes of Loss

Unique to the farm form is the ability to pick and choose which set of perils will apply to each coverage. The agent may choose among basic, broad, or special causes of loss. See Farm Property Covered Causes of Loss for a discussion of the various causes of loss.

Liability Exposures

In addition to the liability created by the farm exposure itself, many farmers hold second jobs or offer services other than farming. If the farmer is involved with a business besides just farming, he or she needs the commercial general liability policy with the appropriate liability endorsements. For a more comprehensive discussion, see Farm Liability Coverage Form. The following is a suggested (although not all-inclusive) list of possible activities that will create additional liability exposures for the farmer:

1.     snowmobiles or all-terrain vehicles allowed on the property;

2.     hunting permitted on the property;

3.     motorbike tracks on the property;

4.     members of the general public allowed on the property to pick fruits and vegetables;

5.     horse boarding or riding on the property;

6.     dude ranching;

7.     mining;

8.     oil drilling;

9.     fishing;

10.     storage of others' property;

11.     welding or mechanical work performed for others;

12.     snowplowing in town;

13.     sale of products such as Amway, Tupperware, and Avon;

14.     roadside produce stand;

15.     airstrip on the property.

The other large liability exposure for the farmer is pollution. Farming, by its very nature, involves pollution because of the use of pesticides, fertilizers, and herbicides, with the resulting run-off of these chemicals into the aquifer. The agent should check for manure pits within twenty-five feet of the property line, wells, lakes, or streams; and the existence of underground tanks. The tanks should be surveyed to check their condition, and they should not expose lakes, streams, or rivers to pollution.

Other areas to examine for potential liability exposures are:

1.     use and storage of: flammable or combustible liquids; fertilizers, pesticides, and herbicides; and anhydrous ammonia;

2.     crop dusting;

3.     welding;

4.     fencing;

5.     storage of animal waste;

6.     irrigation systems and wind generators;

7.     hay storage;

8.     open burning.

The farm liability form contains extremely limited pollution coverage and must be endorsed. The CGL form, when endorsed with the broad farm premises form (FL 04 13 10 88), covers pollution liability, albeit on a limited basis.

Liability Insurance

Liability coverage for a farm may be provided with either the farm liability coverage form or by adding the broad farm premises liability endorsement to the commercial general liability policy. The first method is used only for those farmers who do nothing but operate a farm. However, it appears that many farmers do engage in other enterprises to supplement their income. This group of farmers would be likely to need a commercial general liability policy, with the broad farm premises liability endorsement.

As mentioned earlier, a major concern for the farmer is the exposure to liability from the release or discharge of pollutants. The farm liability coverage form excludes most pollution liability. This coverage may be added by endorsing the CGL form with the broad farm premises liability, FL 04 13. If the farm liability is provided in this manner, there is coverage for pollution resulting from “normal and usual” farm smoke, chemicals or liquids. An important aspect of the pollution coverage is that there is no requirement for the pollution to be sudden and accidental.

For a discussion of the available liability endorsements, see Farm Liability Endorsements.

Endorsements

The following are common endorsements:

1.     Pollution Liability (FL 04 30 09 03, if using the farm liability coverage form);

2.     Coverage for Borrowed Equipment (if using a non-ISO form that does not contain this coverage);

3.     Spoilage Coverage for Perishable Farm Personal Property (FP 04 24 09 03);

4.     Blanket Coverage for Farm Structures (FP 04 28 09 03);

5.     Actual Cash Value for Dwellings (FP 12 10 01 98, for older farms where the replacement cost of the dwelling greatly exceeds the market value);

6.     Machinery and Livestock floaters (FP 00 30 02 09; FP 00 40 02 09).

AAIS Farm Program

For a discussion of the Readable Farmowners Policy of the American Association of Insurance Services, see The Farm Program of the American Association of Insurance Services.