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AGRIBUSINESS AND FARMINSURANCE SPECIALIST

(AFIS®)

AFIS 4: Special Farm PropertyInsurance Lines

AFIS 4: SPECIAL FARM PROPERTY

INSURANCE LINES

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AFIS 4: Special Farm Property Insurance Lines

Contents

AFIS 4: Special Farm Property Insurance Lines.................................................................. i

Contents .................................................................................................................................... i

Introduction ............................................................................................................................. 3 Course Objectives .............................................................................................................................. 3

Chapter 1 Equipment Breakdown Insurance ...................................................................... 5 Chapter Objectives ............................................................................................................................. 5 Equipment Breakdown Exposures ..................................................................................................... 6

Who Needs Equipment Breakdown Insurance? ............................................................................ 7 Emerging Exposures ...................................................................................................................... 8

Equipment Breakdown Insurance ...................................................................................................... 9 Causes of Loss ............................................................................................................................... 9 Covered Property ......................................................................................................................... 10 Computers .................................................................................................................................... 11 Covered Accidents or Breakdowns .............................................................................................. 11 Suspension Clause ....................................................................................................................... 11 Joint Loss Agreement .................................................................................................................. 11 Property/Equipment Breakdown Package Policies ...................................................................... 12

Summary .......................................................................................................................................... 12 Chapter 1 Review Questions ............................................................................................................ 13

Chapter 2 Mobile Agricultural Machinery and Equipment Insurance ........................... 15 Chapter Objectives ........................................................................................................................... 15 MAMECF ........................................................................................................................................ 16

Insuring Agreement ..................................................................................................................... 16 Additional Coverages .................................................................................................................. 17 Coverage Extensions .................................................................................................................... 21 Exclusions .................................................................................................................................... 22 Limits of Insurance and Deductible ............................................................................................. 25 Policy Conditions ......................................................................................................................... 25


Chapter 3 Livestock Insurance ............................................................................................ 32 Chapter Objectives ........................................................................................................................... 32 LCF .................................................................................................................................................. 32

Insuring Agreement ..................................................................................................................... 32 Covered Causes of Loss ............................................................................................................... 33 Additional Coverage .................................................................................................................... 34 Coverage Extension ..................................................................................................................... 35 Exclusions .................................................................................................................................... 35 Limits of Insurance and Deductible ............................................................................................. 35

Special Farm Property Insurance Lines

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Conditions .................................................................................................................................... 35 Summary .......................................................................................................................................... 36 Chapter 3 Review Questions ............................................................................................................ 37

Chapter 4 Animal Mortality Insurance .............................................................................. 39 Chapter Objectives ........................................................................................................................... 39 Livestock Loss Exposures ................................................................................................................ 40 Animal Mortality Insurance ............................................................................................................. 41

Underwriting Considerations ....................................................................................................... 41 Coverage Options ........................................................................................................................ 42


Chapter 5 Crop Insurance ................................................................................................... 49 Chapter Objectives ........................................................................................................................... 49 Crop Insurance Background............................................................................................................. 50

Federal Crop Insurance Program ................................................................................................. 50 2014 Farm Bill ................................................................................................................................. 54

Conservation Compliance ............................................................................................................ 56 Crop Insurance Coverage ................................................................................................................. 56

Common Crop Insurance Policy (11-BR).................................................................................... 56 Types of Crop Insurance Coverage.............................................................................................. 59 Policy Endorsements.................................................................................................................... 61 Other Endorsements ..................................................................................................................... 62 Crop Insurance Terms and Conditions ........................................................................................ 62 Claims Procedures ....................................................................................................................... 63 Agent Obligations ........................................................................................................................ 63 Selecting a Crop Insurance Agent................................................................................................ 64


Glossary ................................................................................................................................. 67

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Introduction

This course—AFIS 4: Special Farm Property Insurance Lines—is one of the core curriculum courses

leading to the Agribusiness and Farm Insurance Specialist (AFIS) Certification. The AFIS program is

a specialized curriculum focusing on the insurance and risk management needs of farm and

agricultural accounts.

The course covers five property insurance topics not covered in other AFIS courses:

equipment breakdown insurance (Chapter 1),

mobile agricultural machinery and equipment insurance (Chapter 2),

livestock insurance (Chapter 3),

animal mortality insurance (Chapter 4), and

crop insurance (Chapter 5).

Course Objectives On completion of this course, you should be able to

1. recognize why many farmers need equipment breakdown insurance, mobile farm equipment

insurance, livestock insurance, animal mortality insurance, and crop insurance;

2. recognize the extent of coverage available on insurance policies covering equipment

breakdown, farm equipment, livestock and other animals, and crops;

3. identify the unique features and coverage provisions of insurance policies covering

equipment breakdown, farm equipment, livestock and other animals, and crops;

4. identify coverage options available under equipment breakdown, mobile farm equipment,

livestock, animal mortality, and crop insurance forms;

5. given relevant information, recognize how equipment breakdown, mobile farm equipment,

livestock, animal mortality, and crop insurance forms could be used to meet a farmer’s or

rancher’s coverage needs; and


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6. given relevant information, identify the extent to which a loss would be covered by

equipment breakdown, mobile farm equipment, livestock, animal mortality, and crop

insurance forms.

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Chapter 1 Equipment Breakdown Insurance

Standard commercial and farm property policies do not adequately address the insurance needs of

individuals and organizations that own, rent, borrow, or operate machinery or equipment that is under

pressure or subject to mechanical breakdown. Standard property policies contain exclusions that

eliminate coverage for explosion of boilers and other pressure vessels owned or operated by the

insured and for mechanical and electrical breakdown.

Equipment breakdown insurance is available to close these gaps in the property policy covering the

insured’s own facilities from the risks of loss due to equipment failure. Equipment breakdown

insurance is specifically designed to protect against a direct loss to insured objects, as well as any

subsequent loss of income or use that results from a direct physical loss.

Most states and many local governmental entities require regular inspection of pressurized equipment.

While a few require the inspections to be performed by state inspectors, most will accept inspections

performed by insurance company boiler inspectors. For this type of equipment, insurance is

sometimes purchased as much for the inspection service as for the insurance protection.

What is now usually called equipment breakdown insurance used to be called boiler and machinery

insurance. The “equipment breakdown insurance” name provides a better description of what is

covered. It also avoids giving the impression that only organizations with boilers and production

equipment should purchase the coverage. Equipment breakdown policies do cover loss resulting from

boiler explosions—but they also cover mechanical breakdown and electrical damage losses (such as

loss from electrical arcing) that can be suffered by almost any type of entity, regardless of the type of

equipment used. Mechanical breakdowns and electrical damage losses are relatively commonplace

occurrences that are not covered under standard commercial property policies.

Chapter Objectives Upon completion of this chapter, you should be able to

1. recognize the various exclusions and limitations in standard property insurance policies that

create the need for equipment breakdown coverage,

2. identify the equipment breakdown loss exposures in various agricultural operations,

3. recognize the importance of the declarations page in determining the coverage provided by an

equipment breakdown policy,

4. identify the covered causes of loss and those that are excluded by a typical equipment

breakdown coverage form,


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5. recognize the types of property covered and not covered under an equipment breakdown

policy, and

6. identify some of the unique policy provisions of an equipment breakdown policy and

recognize the effect of these provisions.

Until recently, the coverage we now refer to as equipment breakdown insurance was called boiler and

machinery insurance, and it was usually provided in traditional boiler and machinery policies that

granted coverage for “accidents” to insured “objects.” These policies contained lengthy, technical

definitions of insured “objects.” Nontraditional equipment breakdown policies using everyday terms

such as “breakdown” and “equipment” and granting coverage for breakdown of nearly all types of

equipment were in the minority. Today, however, the equipment breakdown policy approach has

become the norm and has largely replaced the boiler and machinery policy approach.

Equipment breakdown insurance is usually provided in one of the following ways.

Under a separate, monoline policy

By endorsement to a commercial property or package policy

A limited number of insurers provide the coverage, often functioning as both primary providers and

reinsurers. Equipment breakdown insurance forms have a variety of names, including equipment

breakdown protection, machinery breakdown, and specialty company names for their products.

Equipment Breakdown Exposures Equipment breakdown insurance fills the coverage gaps caused by exclusions, limitations, and a lack

of response to certain perils in standard property insurance policies, including the farm property

coverage form. The four major exposures to loss addressed by equipment breakdown insurance are

mechanical breakdown;

electrical breakdown;

steam explosion, including breakdown of steam and hot water vessels and their piping; and

spoilage of property that is temperature-sensitive.

Property insurance is issued on either a named perils or an open perils basis. When a policy is written

on the basis of named perils, the only causes of loss for which there is coverage under the policy must

be specifically listed in the coverage form. The list of named perils does not include equipment

breakdown, so the addition of equipment breakdown coverage provides an additional covered cause

of loss, breakdown of covered equipment. This expands the list of perils against which the insured is

protected.

Policies that are written on an open perils basis provide coverage for all causes of loss except those

that are specifically excluded. When equipment breakdown coverage is used to supplement an

insured’s property insurance program, it has the effect of “buying back” coverage for certain excluded

perils.

Typical exclusions under an open perils property policy include

mechanical breakdown, including rupture or bursting caused by centrifugal force;

artificially generated electrical current, including electrical arcing that disturbs electrical

devices, appliances, or wires;

Chapter 1—Equipment Breakdown Insurance

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loss caused by or resulting from explosion of steam boilers, steam pipes, or steam engines, if

you own, lease, or operate them;

conditions or events (other than explosions) inside hot water boilers or other heating

equipment, to the extent that they cause loss or damage to these boilers or equipment;

rupture, bursting, or operation of pressure relief devices; and

dampness or dryness of atmosphere, changes in temperature, or extremes of heat or cold,

including freezing.

Essentially, these exclusions eliminate coverage for mechanical breakdown, electrical injury to

electrical devices (other than damage from lightning), and explosion of steam and hot water

equipment. They also eliminate coverage for loss of income and extra expenses resulting from the

excluded direct damage losses. Fortunately, equipment breakdown insurance is available to close

these potentially important gaps in insurance coverage.

For example, dairies typically have large refrigeration systems that use ammonia as the refrigerant.

Property policies would not apply to the breakdown of the refrigeration equipment, spoilage of

insured property such as milk, or contamination of the property by leakage of the ammonia.

Equipment breakdown coverage is specifically designed to address these types of exposures.

Who Needs Equipment Breakdown Insurance?

Both large and small farms may have equipment breakdown exposures. Although the type, size, cost,

and complexity of equipment will vary, the basic need remains the same; breakdown of equipment

can result in a costly direct property loss and may involve loss of income or incurring extraordinary

expenses in order to continue normal operations. Whether the operation involves raising crops or

animals or processing farm products, equipment breakdown can represent a substantial loss.

Typical farm operations involve the use of pumps, including deep well pumps, electric generators,

pivot and other irrigation systems, grain dryers, and computers. Examples of the types of equipment

found in various agribusinesses are shown in Exhibit 1.1.


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Exhibit 1.1 Equipment Breakdown Exposures

Hobby and suburban farms: electrical equipment, heating and air circulation systems,

computers, security systems, pumps and irrigation equipment

Dairy farms and dairies: heating and air circulation systems, feeders, pressurized water

fountains, milking equipment, refrigeration equipment, grounding and bonding networks, chute

and gate systems, processing equipment, bulk storage vessels

Cattle, hog, and other livestock ranches: heating and air circulation systems, feeders and

pressurized water fountains, refrigeration equipment, chute and gate systems, weighing scales,

storage tanks and silos, tagging equipment, bailers and bale wrappers, GPS equipment, cold

storage for medicine and breeding supplies

Fruit processing and storage: cold storage; nitrogen injection systems to prevent aging or

spoiling; packing, labeling, and shipping equipment

Crop farms: grain elevators, irrigation systems, dryer systems, silos, packaging equipment

Poultry farms and hatcheries: air and water circulation systems, filtration equipment,

temperature control equipment, automatic feeders, conveyor systems, packaging equipment,

mechanized feed, waste and egg handling equipment

Cotton farms and ginning operations: irrigation systems, cotton gins, bailing equipment, crane

systems

Orchards, vineyards, and wineries: refrigeration systems, controlled environmental systems,

irrigation equipment, distillery equipment, packaging and labeling equipment

Plant nurseries and greenhouses: heating and air circulation systems, irrigation equipment,

compressors and applicators, packaging and labeling equipment

Emerging Exposures

Today’s farmers and ranchers are the most productive in history, yet they face increased pressure to

improve efficiency and output. Technology is an integral part of the agribusiness industry, with many

operations depending on complex equipment and computer systems that represent increased risks of

loss.

New technology being used in agribusiness operations includes wind turbines, solar energy, methane

digesters, hydrofracking equipment, and the like. There are financial incentives for the use of biofuels

and geothermal energy along with the more traditional large electrical generators and sophisticated

computer and data management systems. Use of mobile technology is on the rise with tablets and

smartphones running various ag-specific applications, wireless and cellular communications systems,

and high-resolution cameras. Nearly every piece of farm equipment now has onboard GPS and

computer systems that control its operation. Equipment breakdown coverage has become an

important component of a comprehensive insurance program for agricultural operations.


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Equipment Breakdown Insurance Equipment breakdown insurance is a “declarations-driven” type of policy. Although many coverages

are included in the policy form itself, they are only activated by an entry on the policy’s declarations

page. This approach to policy construction allows for the use of fewer endorsements and thus reduces

underwriting expenses.

Causes of Loss

Equipment breakdown insurance pays for the cost to repair or replace covered equipment that suffers

a covered breakdown or accident. If the breakdown or accident damages other property belonging to

the insured (and, in most policies, property of others that is in the insured’s care, custody, and control

and for which it is legally liable), the cost to repair or replace that other property is covered as well.

Therefore, the policy not only pays for damage to the equipment itself but also extends to buildings

and other business personal property of the insured.

Covered causes of loss include mechanical breakdown, artificial electrical disturbance, steam

explosion, breakdown of steam vessels and their piping, and breakdown of hot water vessels.

Like all property insurance policies, there is also a list of excluded causes of loss that may be insured

under separate policies or are generally considered uninsurable. Earth movement and flood, for

example, may be insured under a difference-in-conditions policy, a type of inland marine insurance,

and are excluded under the equipment breakdown policy. Depletion, deterioration, corrosion, erosion,

and wear and tear are also excluded, as they are not considered accidental or fortuitous losses.

Nearly all equipment breakdown policies also provide some coverage for “expediting expenses,”

which are generally defined as expenses that are incurred to speed up the repair or replacement of

damaged property, plus the cost of temporary repairs. Express shipping charges and overtime wages

are examples of expediting expenses. Most policies place a maximum (such as $25,000) on the

amount of coverage that is available to cover expediting expenses.

Some equipment breakdown policy forms include business income and extra expense coverage

automatically. Others contain business income and extra expense coverage options that the insured

may elect to purchase. Still other policy forms must be endorsed to add the appropriate coverage

provisions. Business income and extra expense coverage may be subject to separate limits of

insurance, a single limit that applies to both, or the overall policy limit. Business income coverage is

typically provided on an “actual loss sustained” basis but can also be on a valued daily indemnity

limit or “per diem,” which is usually a more costly form of coverage. Deductibles for business

income can be expressed as dollars, hours, days, or multiples of the valued daily indemnity limit.

Spoilage coverage is another “trigger option” under an equipment breakdown policy and is a key

element of protection for many agricultural risks. For example, a fruit farmer experienced a

breakdown to a compressor that served to refrigerate hundreds of pounds of produce. The direct loss

(repair of the compressor) was minimal; however, the spoilage loss to the produce was over $10,000.

Spoilage does not apply just to food products. This coverage can also extend to chemicals, molten

materials, medicine, semen, or any other product that is susceptible to damage from a change in

temperature or humidity. Limited coverage for spoilage is available under an endorsement to the farm

or commercial property policy as well.

Another important cause of loss that may be covered under an equipment breakdown policy is utility

interruption, which covers the loss of business income or extra expense that arises from a covered

accident to utility supply equipment. A separate deductible, usually in the form of a waiting period of


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24 to 72 hours, applies. The typical causes of loss are a line surge or a power outage. A loss of power

in a greenhouse or nursery operation, for example, can result in damage to the nursery stock (plants)

or in slower growth of plants that results in a loss of business income.

Most equipment breakdown policies provide only limited coverage for the following types of damage

that may result from an accident or breakdown.

Hazardous substances

Ammonia contamination

Water damage

Data and media

These types of damage usually are subject to a maximum, referred to as a sublimit. This sublimit is

part of, rather than in addition to, the direct damage coverage limit. The current standard equipment

breakdown coverage form specifies a $25,000 limit for each.

Additional coverages that may be triggered by the declarations page of the equipment breakdown

policy are listed in Exhibit 1.2.

Covered Property

Traditional boiler and machinery policies can be written to cover the breakdown of individually

described pieces of equipment (referred to in traditional boiler and machinery policies as “objects”) or

specific categories of equipment. However, most equipment breakdown policies use a very broad

definition of covered equipment so that nearly all equipment owned, leased, or operated by the

insured is covered automatically. Typical covered equipment includes equipment built to operate

under internal pressure or vacuum, electrical or mechanical equipment, communications equipment,

or equipment owned by a public or private utility that is used solely to provide utility services to the

insured’s premises. For farms, ranches, and agribusiness operations, refrigeration systems,

telecommunications systems, and computers used to operate covered equipment are commonly

insured items.

Exhibit 1.2 Equipment Breakdown Trigger Options

Ordinance or law: in the event there is damage to a building due to breakdown or accident

to covered equipment, this option will pay the additional cost to bring the building up to

current code

Errors or omissions: coverage applies to an inadvertent error or unintentional omission in

the description of covered property

Brand and labels: provides coverage for the costs associated with identifying salvage goods

and repackaging or otherwise labeling them as such

Contingent business income and extra expense: extends the business income and extra

expense coverage of the policy to declared locations that are not owned or operated by the

insured, such as a dairy processor (recipient location) or grower (contributor location)


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However, there are some exclusions. For example, no coverage is provided for structures and

foundations, irrigation systems (with some exceptions), combines, tractors and other vehicles,

growing crops, and alcohol stills. Coverage may be available by endorsement or in a separate policy

such as an auto or inland marine form.

For coverage to apply, the equipment must be located at premises that are designated in the policy as

covered locations. Most policies also grant temporary automatic coverage for equipment at newly

acquired locations for a specified number of days (typically 90 days) after the date of acquisition.

Computers

Most equipment breakdown policies include computers used to operate other covered equipment as

covered equipment. However, computers that are not used to operate other equipment may or may

not be included as covered equipment. It is important to realize that equipment breakdown policies

that provide full coverage on computer equipment may not provide coverage for equipment

breakdown due to a computer virus and may not provide coverage for loss to computer data. In some

cases, the insured might be better served by insuring this exposure under an electronic data

processing policy.

Covered Accidents or Breakdowns

Some policies use a traditional boiler and machinery policy accident definition, which simply says

that an accident is a sudden and accidental breakdown of the covered equipment. However, most

equipment breakdown policies define a covered breakdown or accident by specifically granting

coverage for each of the commercial property policy exclusions mentioned earlier.

Regardless of which approach is used, there are always some exclusions to a policy’s breakdown or

accident definition—some events or conditions that do not qualify as a covered accident or

breakdown. The exclusions to the breakdown definition vary somewhat from one policy form to

another. Their primary purpose is to clearly eliminate coverage for portions of the equipment that are

normally subject to periodic replacement and for the expenses of routine maintenance. Equipment

breakdown insurance is intended to pay for unexpected breakdowns of equipment. It is not a promise

to pay for any and all expenses that might be necessary to keep the equipment running well.

Suspension Clause

Equipment breakdown policies normally contain a suspension clause that permits the insurer to

immediately suspend coverage on any item of covered equipment if an inspection reveals that it is in

a dangerous condition. Although written notice to the insured is required, immediate suspension can

be accomplished by means of a handwritten notice delivered to the firm’s management at the time of

the inspection. Once the problem has been corrected, coverage can be reinstated by endorsement.

If a “jurisdictional object” (an item of equipment that must be regularly inspected to comply with

state or local law) is found to be in a dangerous condition, the insurer’s inspector, as a representative

of the governmental entity requiring inspection, has the authority to immediately prohibit its

continued operation.

Joint Loss Agreement

A joint loss or loss adjustment agreement is a provision or endorsement designed to prevent an

insured from suffering because its equipment breakdown insurer and its commercial property insurer

disagree as to which policy should respond to a particular loss and in what amounts. For example, a


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boiler explosion and ensuing fire at the insured’s premises would probably trigger coverage under

both the commercial property policy and its equipment breakdown policy. While the two insurers

determine the proper apportionment of the loss, the insured could be seriously inconvenienced by a

delayed settlement. When both the commercial property policy and the equipment breakdown policy

are properly endorsed with a joint loss agreement, each insurer pays one-half of the disputed amount

to the insured, pending resolution of the issue.

Property/Equipment Breakdown Package Policies

It is becoming increasingly common for a single insurer to provide both commercial property and

equipment breakdown coverage in the same policy. One advantage of this approach is that it makes a

joint loss agreement unnecessary.

Most insurers that write property/equipment breakdown package policies accomplish this by adding

an equipment breakdown coverage section or coverage form to a commercial property policy.

However, some insurers offer a combination property and equipment breakdown policy that can be

described as a commercial property policy with the equipment breakdown exclusions deleted. These

policies are often referred to as integrated or blended property/equipment breakdown policies.

Farming and ranching, as well as most other agricultural operations, are highly mechanized and

involve the use of complex and costly computers and equipment. While the exposures to loss vary

depending on the exact nature of the operation, even small farms can benefit from an equipment

breakdown policy. New and emerging exposures to loss from alternative energy sources, such as

wind and solar, and the increased usage of sophisticated computer systems and mobile computing

also represent significant loss potential.

Summary This chapter began by examining the various limitations and exclusions contained in standard

property insurance policies that create potential gaps in an insured’s insurance program. Although

equipment breakdown losses are not frequent, they can be costly in terms of damage to the equipment

itself, damage to surrounding property such as buildings and other personal property, and the

resulting loss of use or interruption of business income that may result.

The chapter then went on to describe equipment breakdown insurance, a specialty form of coverage

designed to fill gaps that are created by exclusions and limitations contained in standard farm and

commercial property policies. The typical equipment breakdown policy provides coverage for

“accidents” or “breakdown” to covered equipment, surrounding real and personal property, and

property of others. The self-contained equipment breakdown policy includes a number of coverage

options that are triggered by an entry on the policy’s declarations page.

The insuring agreement of the equipment breakdown policy is quite broad. In addition to insurance

protection, the insured often receives additional services such as inspection of the equipment and

compliance with certain jurisdictional requirements.

Coverage can be provided under a stand-alone policy, or as is now common, by a separate insuring

agreement attached to another form of property insurance.


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Chapter 1 Review Questions 1. Mae Daisy’s farm property is insured on an open perils basis. Buying equipment breakdown

coverage would

a. eliminate the need for Mae’s current property policy.

This answer is incorrect. Equipment breakdown insurance supplements Mae’s current

property policy.

b. expand Mae’s current policy to include an additional perils.

This answer is incorrect. Equipment breakdown insurance adds coverage for additional

perils that Mae’s current property policy does not cover.

c. restore coverage for some perils that are excluded by Mae’s other property insurance.

That’s correct! When equipment breakdown coverage is used to supplement an

insured’s property insurance program, it has the effect of “buying back” coverage for

certain excluded perils.

d. result in duplicate coverage and is therefore inadvisable.

This answer is incorrect. Equipment breakdown coverage does not duplicate the

coverage in Mae’s current property policy.

2. Which one of the following causes of losses that occurred at Honey Bear Farm would not be

covered by equipment breakdown insurance?

a. A burst steam pipe

This answer is incorrect. Covered causes of loss include breakdown of steam vessels

and their piping.

b. A fire that results from a powerful bolt of lightning

That’s correct! Fire and lightning are covered perils under a basic property policy, so

there is no need for them to be covered under an equipment breakdown policy.

c. An electrical brownout

This answer is incorrect. Covered causes of loss include artificial electrical disturbance.

d. Mechanical breakdown of a well pump

This answer is incorrect. Covered causes of loss include mechanical breakdown.

3. The refrigeration system at Barry’s Dairy Farm broke down, and Barry was unable to keep his

milk from spoiling until it was repaired. Rather than cry over the spoiled milk, Barry arranged

with his equipment breakdown insurer to have the necessary parts delivered by air freight, at

considerable expense, instead of shipping them by truck. The insurer will cover this extra cost

because Barry’s policy includes coverage for

a. business income.

This answer is incorrect. Business income coverage would apply to lost income during

the normal repair time.


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b. expediting expenses.

That’s correct! Expediting expenses are expenses incurred to speed up the repair or

replacement of damaged property.

c. extra expenses.

This answer is incorrect. Extra expense coverage would apply to expenses that might be

incurred in continuing operations despite the direct damage.

d. spoilage.

This answer is incorrect. Spoilage coverage would apply to the loss in value of milk that

has spoiled.

4. By examining her equipment breakdown policy’s declarations, Franny Farmer should be able

to tell whether one of the policy’s optional coverages has been triggered. Common options

include all the following except

a. brand and labels.

This answer is incorrect. Common options include brand and labels coverage.

b. contingent business income losses.

This answer is incorrect. Contingent business income is a common option.

c. naturally generated electrical current.

That’s correct! Lightning, the most common form of naturally generated electrical

current, is covered by a basic property policy.

d. ordinance or law.

This answer is incorrect. Common options include ordinance or law.

5. James Beam’s property insurance policies include an equipment breakdown policy. On

reading his policy, James might be surprised to discover that it does not cover his

a. alcohol still.

That’s correct! No coverage is provided for alcohol stills.

b. computers.

This answer is incorrect. Computers are commonly covered.

c. radio communications equipment.

This answer is incorrect. Equipment breakdown insurance can cover electronic

communications equipment.

d. vacuum-operated milking machine.

This answer is incorrect. Vacuum-operated machinery can be covered by equipment

breakdown insurance.

15

Chapter 2 Mobile Agricultural Machinery and Equipment Insurance

The “inventory” of a typical farmer includes various types of farm machinery, equipment, and

livestock. Although these items may be located on the insured’s property most of the time, they may

also be located off premises.

Basic farm property forms are primarily intended for property at fixed locations. However Farm

machinery and equipment may be leased or loaned to others, be transported between locations, or be

off premises for repair or service. Livestock may be transported to other locations for grazing,

breeding, feeding, or sale. Limitations and restrictions in the standard farm coverage forms require the

use of specialized coverage forms for these situations.

The farm program of the Insurance Services Office, Inc. (ISO), includes two primary coverage forms

that are specifically designed for these farm machinery and equipment and livestock exposures:

FP 00 30—mobile agricultural machinery and equipment coverage form (MAMECF); and

FP 00 40—livestock coverage form (LCF).

These additional coverage parts, when added to a farm package policy, provide protection specifically

designed for the unique needs of farmers and ranchers. This chapter will discuss the MAMECF. The

next chapter will examine the LCF.

Chapter Objectives Upon completing this chapter, you will be able to

identify the types of property covered and not covered under the MAMECF;

recognize the effect of the additional coverages and coverage extensions of the MAMECF

identify the purpose and effect of the exclusions contained in the MAMECF;

distinguish between the two methods of providing limits of insurance under the MAMECF;

identify the general and loss conditions of the MAMECF; and

given relevant information concerning a loss exposure or a claim, recognize whether and to

what extent the MAMECF’s coverage would apply.


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MAMECF Agricultural machinery and equipment includes items used for soil cultivation, seed planting,

fertilizing and pest control, irrigation, harvesting, and milking. The individual equipment within each

category varies based on the farm or ranch operation. Following is a description of the coverage

provided by the MAMECF.

Insuring Agreement

Coverage applies on an open perils (all risks) basis. The insurer agrees to pay for direct physical loss

of or damage to “covered property” from a covered cause of loss, subject to the exclusions in the

form.

Covered Property

Machinery and equipment can be covered under the MAMECF on one of two bases: (1) a single limit

applies to all property, or (2) covered items are specifically described and an individual limit of

insurance is shown in the declarations, including property in care, custody, or control that is borrowed

or rented, whether or not under a written contract, except while on the premises of its owner.

There are usually rate differences between scheduled and unscheduled equipment. A category of

“miscellaneous mobile agricultural machinery and equipment” is often added to the schedule with a

separate limit.

Mobile agricultural machinery and equipment means mobile devices used in the everyday operation

of the farm and includes accessories, whether or not attached, and tools and spare parts that are

specifically designed and intended for use in the maintenance and operation of the mobile devices.

Property Not Covered

There are several categories of property not covered by the MAMECF. They are listed in Exhibit 2.1.

In nearly every case, the excluded property can be covered by endorsement or in a separate policy.

Chapter 2—Mobile Agricultural Machinery and Equipment Insurance

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Exhibit 2.1 Property Not Covered under the MAMECF

Aircraft, watercraft, their equipment and parts;

Dealers’ demonstration equipment, machinery and vehicles;

Dirt bikes, house trailers, mobile homes, mopeds, motorcycles, motorized bicycles or tricycles, snowmobiles, trucks, vehicles primarily designed and licensed for road use (other than wagons and trailers designed for farming purposes and used principally on the insured location);

Barn cleaners, boilers, bulk feed tanks or bins, bulk milk tanks, pasteurizers or any permanent fixtures attached to or within a building;

Cotton pickers, harvester-thresher combines and four-wheel all-terrain vehicles not specifically declared and described in the declarations with a limit of insurance for each item;

Irrigation equipment; or

Contraband or property in the course of illegal transportation or trade.

Additional Coverages

There are six additional coverages provided under the MAMECF:

Collapse

Damage to property removed for safekeeping

Debris removal

Extra expense

Fire department service charge

Reasonable repairs

Many of these additional coverages are similar to those found in standard property insurance forms.

Collapse

Due to problems with policy interpretation, several years ago, ISO began to exclude collapse as a

covered cause of loss. Adverse court decisions had allowed insureds to collect for earthquake losses

that resulted in a collapse, without having purchased or paid a premium for earthquake coverage.

The current method used to provide coverage for collapse is to exclude it as a covered cause of loss

but provide coverage that is limited in scope as an “additional coverage.”

The MAMECF pays for direct physical loss or damage to covered property that is caused by collapse

of a building or any part of a building if the collapse is caused by:

the “specified causes of loss” (shown in Exhibit 2.2 below) or breakage of building glass;


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hidden decay, unless the presence of such decay is known to an insured prior to the collapse;

hidden insect or vermin damage, unless the presence of such damage is known to an insured

prior to the collapse;

weight of people or personal property;

weight of rain that collects on a roof; or

use of defective materials or methods in construction, remodeling, or renovation if the

collapse occurs during the course of construction, remodeling, or renovation.

As used in this policy provision, collapse means an abrupt falling down or caving in of a building or

any part of a building with the result that the building or part of the building cannot be occupied for

its intended purpose. There is virtually not a farm in the country that does not have a barn or other

outbuilding that appears to be in a state of partial collapse. However, the continued use of the

structure as a barn would not meet the policy definition of collapse because a building or part of a

building that is in danger of falling down or caving in is not considered to be in a state of collapse.

A part of a building that is standing is not considered to be in a state of collapse even if it has

separated from another part of the building. For example, if a porch breaks off from a building and it

is still standing, it has not collapsed but merely separated from the structure. Buildings are also not

considered to be in a state of collapse simply because they show evidence of cracking, bulging,

sagging, bending, leaning, settling, shrinkage, or expansion.

Exhibit 2.2 Specified Causes of Loss

“Specified Causes of Loss” means the following:

fire;

lightning;

explosion;

windstorm or hail;

smoke, including the emission or puffback of smoke, soot, fumes, or vapor from a boiler, furnace, or related equipment;

aircraft or vehicles;

riot or civil commotion;

vandalism;

leakage from fire extinguishing equipment;

sinkhole collapse;

volcanic action;

falling objects;

weight of snow, ice, or sleet; and

water damage.


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Sinkhole Collapse

Sinkhole collapse is a very specific term when used in a property insurance policy. It refers to the

sudden sinking or collapse of land into an underground empty space that is created by the action of

water on limestone or dolomite. Sinkhole collapse does not include the collapse of land into a

manmade underground cavity such as a tunnel or mine.

Falling Objects

Falling objects is described to not include loss or damage to personal property in the open; the interior

of a building or structure, or property inside a building or structure, unless the roof or an outside wall

of the building or structure is first damaged by a falling object; or the falling object itself.

Water Damage

Water damage is defined as accidental discharge or leakage of water or steam as the direct result of

the breaking or cracking of a plumbing, heating, air-conditioning, or other system or appliance (other

than a sump system and its related equipment) containing water or steam.

Damage to Property Removed for Safekeeping

The insurer agrees to pay for loss to covered property when damaged by any cause during or up to 30

days after it has been removed from a building that has been endangered by a covered cause of loss.

For example, an insured’s barn catches fire (a covered cause) and the farmer drives his tractors out of

the barn and leaves them outside. During the first 30 days following their removal, a blizzard causes

the engine block of the tractors to freeze, causing permanent damage. Under normal circumstances,

this loss would not be covered due to various exclusions in the policy, including changes in

temperature. However, the fact that the tractors were removed from the burning building means they

are covered for any cause of loss, without limitations or exclusions—true “all risks” property

coverage.

Debris Removal

One of the biggest expenses an insured incurs following a loss is the cost to remove debris. Under this

additional coverage, the insurer agrees to pay the expense to remove debris that is covered property.

The expense is paid only if the insured reports the expense to the insurance company within 180 days

of the direct physical loss. The most that will be paid is 25 percent of the amount of the direct

physical loss to covered property plus the amount of the deductible applicable to the loss. Exhibit 2.3

provides an example of a debris removal loss.


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The coverage form goes on to state that debris removal coverage does not apply to costs to extract

pollutants from land or water or to remove, restore, or replace polluted land or water.

If the total loss, including debris removal, exceeds the policy limit, the insurer will pay an additional

5 percent of the limit that applies to the damaged property. Exhibit 2.4 provides an example.

Exhibit 2.4 Debris Removal Example #2

Policy limit of $90,000 with a $500 deductible

Loss: $80,000

Debris removal cost: $30,000

Maximum amount of debris removal payable: 25% × $80,000 = $20,000 (but total loss

cannot be more than limit of $90,000)

Loss paid: $79,500 Loss minus $500 deductible

+ 10,500 Remainder of limit

$90,000 Limit

$4,500 additional debris removal amount (5% of $90,000)

Total of $15,000 debris removal paid, $5,000 uninsured

Exhibit 2.3 Debris Removal Example #1

Policy limit of $50,000 with a $500 deductible

Loss: $50,000

Debris removal cost: $10,000

Maximum amount of debris removal payable: 25% × $50,000 = $12,500

Loss paid: $49,500 Loss minus $500 deductible

+ 10,000 Debris removal expense

$59,500 Total paid


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Extra Expense

The extra expense additional coverage is “triggered” by the entry of a limit on the policy’s

declarations page. The insurance company will pay, up to that limit, for the actual and necessary

expenses the insured incurs to resume normal farming operations that have been interrupted as a

result of physical loss of or damage to covered property. If, for example, an insured’s harvester is

damaged due to a covered cause of loss, the insurer will pay the cost to rent a substitute harvester that

will allow the insured to resume its farming operations.

The coverage for extra expense is not limited by the expiration date of the policy, so a loss that takes

place late in the policy period would continue to pay covered extra expenses that are incurred in the

next policy period. No deductible applies to this coverage.

Fire Department Service Charge

Like most property insurance policies, the MAMECF includes coverage for charges incurred by the

insured under contract or agreement with a fire department that is called upon to save or protect

covered property from a covered cause of loss. Since most farms and ranches are located in very rural

areas, the insured may enter into an agreement with a private fire protection firm. That firm will

respond in the event of a fire but will subsequently send an invoice to the insured. The policy will pay

the amount of the invoice with no dollar limitation. Obviously, the insurance company has a vested

interest in the preservation of the insured property.

Nothing is payable under this additional coverage if the covered property is located within the limits

of a city, municipality, or protection district that furnishes fire department services that are paid by

tax dollars or assessments. No deductible applies to this coverage.

Reasonable Repairs

The policy will pay the reasonable costs incurred by the insured to make necessary repairs to protect

covered property from further damage after an insured loss has occurred. This additional coverage is

subject to the limit that applies to the property being repaired.

Coverage Extensions

The additional coverages discussed above generally provide an expanded level of coverage when a

covered loss has taken place. Most property insurance policies also include coverage extensions,

which are not related to a loss. The MAMECF includes three coverage extensions:

Additional acquired property—newly purchased

Additional acquired property—replacement

Thirty-day additional limit on borrowed or rented “mobile agricultural machinery and

equipment”

Additional Acquired Property—Newly Purchased

If the insured has purchased coverage on a scheduled basis, the policy will also provide up to

$100,000 for loss of or damage to mobile agricultural machinery and equipment that is purchased by

the insured during the policy period. Coverage applies for 30 days after the date of acquisition or until

the expiration of the policy, whichever comes first. The $100,000 limit is part of, not in addition to,

the applicable limit of insurance. When the item is added to the policy, premium is charged from the

date of purchase.


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Additional Acquired Property—Replacement

When the insured replaces a piece of machinery or equipment that is scheduled on the policy, this

coverage extension allows for an additional $75,000 of coverage, in addition to the amount scheduled,

for 30 days or until the policy expires, whichever comes first. Since older equipment is usually

replaced with newer and therefore more expensive items, this extension is important for most

insureds. When the replacement item is added to the policy, premium is charged from the date of

acquisition.

Thirty-Day Additional Limit on Borrowed or Rented “Mobile Agricultural Machinery and Equipment”

If coverage has been purchased on a scheduled basis, the insuring agreement extends coverage for

property in the insured’s care, custody, or control that has been borrowed by or rented to the insured,

whether or not there is a written agreement in place. This coverage extension allows for an additional

$10,000 of coverage for borrowed or rented equipment acquired after the beginning of the policy, for

30 days or until the policy expires, whichever comes first. If the borrowed or rented equipment is

valued at less than the amount stated in the policy, the additional $10,000 would not apply. If the

insured keeps the borrowed or rented equipment beyond the 30-day period, it should be added to the

policy schedule. Premium is charged from the 31st day after acquisition by the insured.

Exclusions

Many of the exclusions in the MAMECF are similar to those found in any property insurance policy.

Some exclusions exist because coverage is better provided under a different policy or by endorsement

for an additional premium. Other exclusions deal with situations that are considered “maintenance”

and not the result of a fortuitous loss.

Eight exclusions are contained in the form that eliminate coverage for loss or damage caused directly

or indirectly by any of the following causes of loss. Such loss or damage is excluded regardless of any

other cause or event that contributes concurrently or in any sequence to the loss. This reference to

“concurrent causation” was added to property insurance policies several years ago when claims were

paid that were caused by earthquakes and subsequently resulted in the collapse of a structure.

Earth Movement

Earth movement is a bigger term than earthquake. Under this exclusion, there is no coverage for

landslide (including earth sinking, rising, or shifting), mine subsidence, earth sinking (other than

sinkhole collapse, which would be covered), or volcanic eruption, explosion, or effusion. If, however,

earth movement results in fire or explosion, that loss or damage would be covered.

There is a specific exception to the earth movement exclusions, and therefore coverage is provided

for loss or damage to mobile agricultural machinery and equipment caused by earthquake.

Governmental Action

No coverage is provided for seizure or destruction of property by order of a governmental authority.

For example, if the insured’s property were seized by the government because of the belief the

insured had been involved in some type of illegal activity, that loss would not be covered.


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Intentional Loss

Because an insurance policy is designed to cover fortuitous or unplanned events, coverage is excluded

for loss or damage that arises out of any act committed by an insured. This includes a conspiracy to

commit a loss. No insured is entitled to coverage even if that individual did not commit or conspire to

commit the act that caused the loss.

Nuclear Hazard

Coverage is excluded for loss caused by nuclear reaction or radiation, or radioactive contamination,

however caused. However, if any of these excluded causes of loss results in a fire, the loss or damage

caused by that fire would be covered.

Utility Services

Coverage is excluded when a loss is caused by failure of power or other utility services supplied to

the insured premises that occurs away from the described location. Failure includes lack of sufficient

capacity and reduction in supply, such as a “brownout.” This off-premises services interruption

exclusion is common to most property policies, and coverage can be restored by endorsement.

Neglect

The insured must use all reasonable means to save and preserve property at and after the time of a

loss. Failure to do so will result in an uncovered loss. Note that the term “reasonable” is not defined in

the policy. It is unlikely an insurer would deny a claim for failure to remove heavy property from a

burning building, as that would seem to be an unreasonable assumption.

War and Military Action

No coverage is provided for war, including undeclared or civil war, or for warlike action of a military

force, government, sovereign, or other authority using military personnel or other agents. Coverage is

also excluded for insurrection, rebellion, revolution, usurped power, or action taken by governmental

authority in hindering or defending against any of these.

Water

Many people mistakenly assume that the water exclusion eliminates coverage for flood. Under an

inland marine policy, flood and earthquake coverage are typically provided. There are four separate

parts to the water exclusion under the MAMECF:

mudslide or mudflow (mudflow may be covered by a standard flood insurance policy);

water that backs up or overflows or is otherwise discharged from a sewer or drain (coverage

is usually available by endorsement);

water under the surface of the ground that presses on or flows or seeps through foundations,

walls, floors, paved surfaces, basements, doors, windows, or other openings; and

waterborne material carried or otherwise moved by any of the water referred to in the

paragraphs above.

These exclusions apply regardless of whether the loss is caused by an act of nature or other cause,

such as the failure of a boundary (e.g., levee) or containment system (e.g., dam or reservoir).


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Other Exclusions

The MAMECF contains 20 additional exclusions that are listed in Exhibit 2.5.

Exhibit 2.5 Other Exclusions

Collapse, except as provided in the additional coverage

Rain, snow, ice, or sleet to property in the open

Explosion of alcohol stills, steam boilers, steam pipes, or steam engines; rupture or bursting of pressure relief devices; or expansion of the contents of a building or structure (may be covered in an equipment breakdown policy)

Disappearance of any property unless there is evidence that the property was stolen

Unauthorized instructions to transfer property to any person or place

Voluntary parting with any property by the insured or anyone to whom the property has been entrusted if induced to do so by any fraudulent scheme, trick, device, or false pretense

Dishonest or criminal acts committed by the insured or its employees, directors, trustees, or other legal representatives (may be covered by an employee dishonesty policy)

Damage to tires not caused by an accident or damage caused by foreign objects being taken into covered machinery or equipment (may be covered by endorsement)

Artificially generated electric current, including electrical arcing (may be covered by an equipment breakdown policy)

Smoke, vapor, or gas from agricultural smudging or industrial operations

Wear and tear

Rust, corrosion, fungus, decay, deterioration, hidden or latent defect, or any quality in property that causes it to damage or destroy itself

Smog

Nesting or infestation, or discharge or release of waste products or secretions by birds, vermin, insects, or domestic animals

Mechanical breakdown, including rupture or bursting caused by centrifugal force (may be covered by an equipment breakdown policy)

Dampness or dryness of atmosphere


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Changes in temperature or extremes of heat or cold, including freezing (limited coverage may be provided by endorsement)

Marring or scratching

Theft or vandalism to sound reproduction or transmitting equipment or devices unless it is permanently mounted to covered property or theft or vandalism to tapes, discs, and various other media used with such devices

Pollution, unless caused by a “specified cause of loss”

The policy also contains specific “concurrent causation” exclusions. The policy will not pay for loss

or damage arising from causes shown in Exhibit 2.6, but if one of these excluded causes of loss

results in a covered cause of loss, the policy will pay for the loss or damage caused by that covered

cause of loss.

Exhibit 2.6 “Concurrent Causation” Exclusions

Weather conditions

Acts or decisions, including the failure to act or decide, of any person, group, organization, or governmental body

Faulty, inadequate, or defective

planning, zoning, development, surveying, citing;

design, specifications workmanship, repair, construction, renovation, remodeling, grading, compaction;

materials used in repair, construction, renovation, or remodeling; or

maintenance

of part or all of any property on or off premises.

Limits of Insurance and Deductible

The insured can purchase coverage in one of two ways on the MAMECF: (1) scheduling specific

items and setting forth a value for each or (2) providing a blanket limit for all covered property. If the

blanket limit option is chosen, there is a maximum amount of $3,000 applicable to any one item.

Because of this limitation, most insureds will select the scheduled option.

A deductible, chosen by the insured, applies to any one occurrence under the policy.

Policy Conditions

Two separate sets of conditions apply to the MAMECF.


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General Conditions

These conditions, similar to those found in all property insurance policies, are listed in Exhibit 2.7

shown below.

Exhibit 2.7 General Conditions

Coinsurance: if items are covered on a blanket, versus a scheduled, basis, an 80 percent coinsurance provisions applies. All covered property must be insured for at least 80 percent of its total value at the time of the loss or the insured will receive only partial payment.

Concealment, misrepresentation, or fraud: the policy is void if the insured commits fraud or a material concealment or misrepresentation.

Control of property: an act or neglect of another person is not imputed to the insured when determining coverage, as long as that person is not under the direction or control of the insured. In addition, a breach of a policy condition at one location will not affect coverage at another location.

Legal action against us: legal action cannot be brought against the insurer unless all policy conditions have been complied with and the action is taken within 2 years following the date of loss.

Liberalization: if the insurer adopts a broader version of the form within 45 days prior to or during the policy period, that broader coverage will automatically apply to this coverage form.

No benefit to bailee: the policy does not provide coverage to any person or organization that has custody of covered property.

Policy period, coverage territory: the policy only applies to loss or damage that takes place during the policy period and takes place in the United States, Puerto Rico, and Canada.

Loss Conditions

Ten loss conditions apply in addition to the general conditions shown above.

Abandonment

Appraisal

Duties in the event of loss

Insurance under two or more coverages

Loss payment

Other insurance and service agreement

Pair, sets, or parts


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Recovered property

Transfer of rights of recovery against others to us

Valuation

Abandonment

The insured cannot abandon damaged property to the insurer following a loss. If property has any

salvage value, that value belongs to the insured unless the insurer specifically purchases it as part of

the loss settlement.

Appraisal

In settling a property loss, the insured and insurer may disagree as to the amount of the loss. When

this occurs, each party will hire its own appraiser, and the two appraisers will select an umpire. When

two of the three agree as to the amount of the loss, it is binding. Each party pays the cost of its

appraiser, and they split the cost of the umpire.

Duties in the Event of Loss

Typical of any property loss, the insured agrees to notify the police if a law may have been broken;

provide prompt notice of the loss including where, when, and how it took place, along with a

description of damaged property; take reasonable steps to protect other property; and cooperate with

the insurer throughout the loss settlement process.

Insurance under Two or More Coverages

If coverage is provided under two or more coverage parts of the policy, the most the insurer will pay

is the amount of the actual loss or damage.

Loss Payment

The loss payment condition allows the insurer several options with regard to damaged property. The

insurer may

pay the value of lost or damaged property;

pay the cost of repairing or replacing the property;

take all or part of the property at an agreed or appraised value; or

repair, rebuild, or replace the property with other property of like kind and quality.

The insurance company will provide notice of its intentions to the insured within 30 days after it

receives a sworn proof of loss statement and will pay claims within 30 days after it reaches an

agreement with the insured. The most that will be paid is the insured’s financial interest in the

property. In the event of a loss to property of others, the insurer may elect to adjust that loss directly

with the property owner and may defend a suit arising out of such a claim.

Other Insurance and Service Agreement

The other insurance provision of the policy calls for two different sharing methods in the event the

insured has coverage under another policy for the same loss. If the other policy’s terms and conditions

are the same, the policy will pay a proportional share of the loss based on each policy’s limit and its


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relationship to the total of coverage. For example, if there is a limit of $100,000 under each policy

and the total loss is $20,000, this policy would pay 50 percent of the loss, or $10,000, since its limit is

half of the total amount of coverage of $200,000.

If the other policy has different terms and conditions, this policy applies as excess insurance. The

policy also provides excess coverage over the coverage provided under any type of warranty or

service agreement.

Pair, Sets, or Parts

In case of loss or damage to any part of a set or pair, the insurer may repair or replace any part to

restore the item to its value prior to the loss or pay the difference between the value of the pair or set

before and after the loss. Loss or damage to a part will result in payment only for the value of that

part.

Recovered Property

If either the insured or the insurer recovers property after a loss has been settled, the recovering party

must provide prompt notice to the other party. At the insured’s option, the property may be retained

by the insured as long as any loss payment is returned to the insurer.

Transfer of Rights of Recovery Against Others to Us

This subrogation provision allows the insurance company to pursue an action against a third party that

is a primary cause of the loss to the insured’s property. A waiver of subrogation is contained in this

condition that permits the insured to waive its rights prior to the loss or after the loss to certain

specific parties, such as a tenant.

Valuation

The valuation clause provides settlement on covered property at its actual cash value. If replacement

cost coverage is desired, the policy must be endorsed and an additional premium paid.

Summary This chapter has examined the coverage provided for mobile agricultural machinery and equipment

when arranged under an inland marine form of coverage. The insuring agreement, additional

coverages, extensions of coverage, exclusions, and conditions of the policy, while similar to many

provisions in other property insurance policies, are unique to the type of property being covered. The

insured may schedule individual items of property with a specific limit of insurance applicable to

each, or coverage may be provided on a blanket basis.


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Chapter 2 Review Questions 1. Archie is trying to sell his corn picker, so he lets Farmer Cobb use it for a day to see how well

it works. Farmer Cobb’s own equipment is specifically described in a MAMECF, with an

individual limit of insurance applicable to each item. While Archie’s corn picker is in Farmer

Cobb’s possession,

a. it is covered by Farmer Cobb’s MAMECF.

That’s correct! When property is scheduled, it includes items in the care, custody, or

control of the insured that are borrowed or rented with or without a written contract.

b. it is covered by Farmer Cobb’s MAMECF only for the peril of fire.

This answer is incorrect. Coverage is not limited to a single peril.

c. it is covered by Farmer Cobb’s MAMECF for the perils of fire and lightning only.

This answer is incorrect. Coverage is not limited to these two perils.

d. it is not covered by Farmer Cobb’s MAMECF.

This answer is incorrect. Coverage is available.

2. The collapse additional coverage of Edmund’s MAMECF would not cover machinery

damage resulting from a building collapse caused by a(n)

a. earthquake.

That’s correct! The specified causes of loss for collapse coverage do not include

earthquake.

b. explosion.

This answer is incorrect. Explosion is among the specified causes of loss for which

collapse is covered.

c. falling tree.

This answer is incorrect. Falling objects are among the specified causes of loss for

which collapse is covered.

d. windstorm.

This answer is incorrect. Windstorm is among the specified causes of loss for which

collapse is covered.

3. Reuben’s older tractor is insured for $175,000 under a MAMECF. Reuben traded in his old

tractor when he purchased a new four-wheel-drive tractor at a cost of $275,000. How much

automatic coverage, if any, does Reuben have if the new tractor is damaged by a covered

peril before he has a chance to add it to the policy?

a. None

This answer is incorrect. Reuben does have some coverage on his replacement tractor.

b. $175,000


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This answer is incorrect. Coverage is not limited to the amount of insurance on the old

tractor.

c. $250,000

That’s correct! When an insured replaces a scheduled piece of machinery, the additional

acquired property—replacement coverage extension allows for an additional $75,000 of

coverage, in addition to the amount scheduled, for 30 days or until the policy expires. The

old tractor was insured for $175,000, and $175,000 + $75,000 = $250,000.

d. $275,000

This answer is incorrect. The amount of coverage available on a replacement trailer is

limited.

4. As flood waters approached his farmstead, Morton had enough advance warning to move his

mobile equipment to higher ground. However, he left it where it was, hoping it would be

damaged so he could turn in an insurance claim and get the cash for a down payment on some

better equipment. The equipment is covered by a MAMECF, and Morton did make a claim.

After a thorough investigation, how will the insurer most likely respond?

a. The insurer will deny coverage because of the intentional loss exclusion.

This answer is incorrect. Morton did not cause the flood.

b. The insurer will deny coverage because of the neglect exclusion.

That’s correct! The policy obligates the insured to use all reasonable means to save and

preserve property at and after the time of a loss, and failure to do so results in an

uncovered loss. Under the described circumstances, it seems reasonable to expect Morton

to move his equipment out of harm’s way.

c. The insurer will deny coverage because flood is not a covered peril.

This answer is incorrect. Flood is a covered cause of loss.

d. The insurer will pay the claim because Morton’s inaction was not the same as

causing an intentional loss.

This answer is incorrect. Although the intentional loss exclusion does not apply, another

exclusion is applicable.

5. Because Monica’s mobile equipment is not all at the same place, it is unlikely to be damaged

in a single event. Therefore, she does not feel it necessary to carry blanket limits high enough

to cover her equipment’s full insurable value. However, Monica should be aware that the

MAMECF will provide only partial payment for a covered loss unless she carries insurance

for at least _______ of the covered property’s insurable value.

a. 50 percent

This answer is incorrect. The policy does not have a 50 percent coinsurance provision.

b. 60 percent


c. 80 percent


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That’s correct! An 80 percent coinsurance provision applies.

d. 100 percent


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Chapter 3 Livestock Insurance

When the inventory of the insured includes animals, a number of coverage options are available in the

farm program and as stand-alone policies. Expensive breeding stock, such as cattle or horses, may be

insured in an animal mortality policy, discussed in Chapter 4. Animal mortality policies provide

expansive coverage but typically also require veterinary certifications and special applications in

order to obtain the policy.

Many people prefer to insure their livestock on an inland marine form of coverage issued in

conjunction with a farm property insurance policy. Form FP 00 40 of ISO’s farm program is available

to cover death or destruction of covered livestock.


identify the types of property covered and not covered under the LCF;

recognize the effect of the additional coverages and coverage extensions of the LCF;

identify the purpose and effect of the exclusions contained in the LCF;

distinguish between the two methods of providing limits of insurance under the LCF;

identify the general and loss conditions of the LCF; and

given relevant information concerning a loss exposure or a claim, determine whether and to

what extent the LCF’s coverage would apply.

LCF Livestock includes cattle, sheep, swine, goats, horses, mules, and donkeys. The individual livestock

within each category varies based on the farm or ranch operation. Following is a description of the

coverage provided by the LCF.

Insuring Agreement

The form’s insuring agreement states that it will pay for loss of or damage to covered property from

any covered cause of loss. “Loss” is defined in the policy as death or destruction of covered livestock.

Covered Property

Covered property means the following when a limit of insurance has been entered on the policy’s

declarations page:

Chapter 3—Livestock Insurance

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livestock of a class shown in the declarations with a limit per animal or

livestock of a class shown in the declarations with a limit of insurance per class and a

sublimit allowed for individual animals.

Thus, the LCF functions much the same as the mobile agricultural machinery and equipment form in

that coverage can be provided on a scheduled or blanket basis.

There is no coverage for livestock while in the custody of a contract or common carrier.

Property Not Covered

Covered property does not include livestock while in public stockyards, sales barns, or sales yards, or

at packing plants or slaughterhouses.

Covered Causes of Loss

The LCF is a named or specified perils form. The covered causes of loss are listed in Exhibit 3.1.

Exhibit 3.1 Covered Causes of Loss

Fire or lightning

Windstorm or hail, with the following exceptions:

caused by or resulting from frost or cold weather;

caused by or resulting from ice (other than hail), snow, or sleet, whether driven by wind or not;

to livestock when caused by running into streams, ponds, or ditches, or against fences or other objects, or from smothering or fright; or

to livestock when caused by freezing or smothering in blizzards or snowstorms

Explosion, excluding the types of losses normally covered by an equipment breakdown policy

Riot or civil commotion, including acts of striking employees while occupying the described premises and looting occurring at the time and place of a riot or civil commotion

Aircraft, meaning loss caused by or resulting from contact of an aircraft, spacecraft, or self-propelled missile with the covered property or a structure that contains it or caused by objects falling from aircraft

Smoke causing sudden and accidental loss, including the emission or puffback of smoke, soot, fumes or vapors from a boiler, furnace, or related equipment. This does not include loss by smoke from agricultural smudging or industrial operations.

Theft, including attempted theft, and loss of property from a known location when it is


34

likely that the property has been stolen. Theft does not include

a loss discovered when taking inventory;

loss due to wrongful conversion or embezzlement;

disappearance of property unless there is evidence that it has been stolen;

acceptance of counterfeit money or other fraudulent securities; and

unauthorized instructions to transfer property to any person or place.

Sinkhole collapse, which means a loss caused by the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite. Sinkhole collapse does not include sinking or collapse into man-made underground cavities.

Volcanic action, meaning direct loss resulting from the eruption of a volcano and caused by airborne volcanic blast or shock waves; ash, dust, or particulate matter; or lava flow. Volcanic eruptions that occur within a single 168-hour period are considered one occurrence. Coverage does not apply to the cost to remove ash, dust, or particulate matter if there has been no direct physical loss to covered property.

Collision or overturn of a vehicle on which covered livestock are being transported or livestock running into or being struck by a vehicle while crossing, moving along, or standing by a public road. Coverage does not apply if the vehicle involved is owned or operated by an insured.

Vandalism, meaning willful or malicious damage to or destruction of livestock

Earthquake

Flood, surface water, waves (including tidal waves and tsunamis), tides, tidal water, overflow of any body of water, or spray from any of these, whether or not driven by wind (including storm surge)

Once again, you can see that an inland marine form of coverage typically includes both earthquake

and flood, as opposed to most property insurance policies that exclude both causes of loss.

Additional Coverage

There are four additional coverages provided in the LCF.

Damage to property removed for safekeeping

Debris removal

Extra expense

Fire department service charge


35

Each of these additional coverages is identical to those found in the MAMECF and are discussed in

the previous chapter.

Coverage Extension

A single coverage extension applies to the LCF. Coverage is extended to apply to livestock while in

the custody of a common or contract carrier, but only up to a total of $1,000. A higher limit can be

specified in the policy declarations with an appropriate additional premium.

Exclusions

The same eight general exclusions that apply to the MAMECF, examined in the previous chapter, are

also contained in the LCF. There is no need, however, for the lengthy list of “other exclusions” found

in the MAMECF since coverage on livestock is on a named cause of loss basis.

Limits of Insurance and Deductible

If coverage has been purchased on a scheduled basis, the insurer will pay up to the amount shown on

the declarations page for loss to specifically identified livestock.

If coverage is on a blanket basis, the most the insurer will pay for loss in any one occurrence to any

one animal is the least of

the actual cash value of the animal;

120 percent of the total of the limit on each class and type of livestock, divided by the number

of head of the class and type owned by the insured at the time of the loss (for this calculation,

each horse, mule, or head of cattle under 1 year of age is counted as half a head); or

$2,000.

For example, if the insured has indicated a limit of $100,000 on cattle as a class and type, the most the

policy would pay is the lowest of the actual cash value, $2,000 or $120,000 divided by the number of

head of cattle at the time of the loss. Assuming all cattle are over 1 year of age, an insured with 120

head at the time of the loss valued at $3,000 on an actual cash value basis would receive only $1,000

($120,000 divided by 120) for the covered loss of one animal, since that is the lowest amount.

The deductible shown in the declarations applies to loss, damage, or expense in any one occurrence.

Conditions

The loss and general conditions of the LCF are the same as those found in the MAMECF—

abandonment, appraisal, duties in the event of loss, insurance under two or more coverages, loss

payment, and other insurance—with one exception.

Additional Acquired Property

If the policy covers property specifically declared and described in the declarations or property with

separate limits per class, the policy will apply to livestock acquired during the policy period for up to

30 days. The most that will be paid for any loss to the newly acquired livestock is the lesser of (1) the

actual cash value of the property or (2) 25 percent of the total of the limit shown per scheduled item

or per class.


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Summary There are many similarities between the provisions of the MAMECF and the LCF. Apart from the

type of property covered, the biggest distinction is that while the MAMECF applies on an “open

perils” basis (subject to policy exclusions), the LCF is a named perils or specified causes of loss form.

It is a limited form of coverage for death or necessary destruction of covered livestock, which

includes cattle, sheep, swine, goats, horses, mules, and donkeys, for loss resulting from the named

perils.


37

Chapter 3 Review Questions 1. A variety of animals may be found on Old McDonald’s farm. For insurance purposes, which

one of the following is considered livestock?

a. Chickens

This answer is incorrect. The livestock definition does not include any kind of fowl.

b. Llamas

This answer is incorrect. Llamas are not included in the livestock definition.

c. Ostriches

This answer is incorrect. Ostriches are not included in the livestock definition.

d. Pigs

That’s correct! Swine are considered livestock.

2. The LCF (FP 00 40) can insure the horses on Navajo Ranch on a scheduled basis or a(n)

a. aggregate basis.

This answer is incorrect. The opposite of scheduled coverage is not aggregate coverage.

b. blanket basis.

That’s correct! Coverage can be provided on a scheduled or blanket basis.

c. class basis.

This answer is incorrect. Although there are certain classes of livestock, classification is

not the basis of insurance.

d. untimed basis.

This answer is incorrect. In this context, scheduling has nothing to do with timing.

3. The LCF (FP 00 40) does not cover losses caused by

a. collision.

This answer is incorrect. Collision is a covered cause of loss.

b. disease.

That’s correct! The LCF covers death or destruction of covered livestock from any

covered cause of loss; disease is not a covered cause of loss.

c. earthquake.

This answer is incorrect. Earthquake is a covered cause of loss.

d. flood.

This answer is incorrect. Flood is a covered cause of loss.

4. The LCF (FP 00 40) provides that livestock in the custody of a common or contract carrier


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a. are covered for up to $1,000 unless a higher limit is specified in the declarations.

That’s correct! A coverage extension applies to livestock while in the custody of a

common or contract carrier, but only up to a total of $1,000. However, a higher limit, for

which an appropriate premium is charged, can be specified in the declarations.

b. are not covered at all.

This answer is incorrect. A coverage extension applies to livestock in the custody of a

common or contract carrier.

c. are not covered for collision but are covered in full for loss by other covered causes.

This answer is incorrect. Collision is a covered cause of loss.

d. may not be covered for more than $1,000.

This answer is incorrect. Higher limits are available as an option.

5. Karen has 48 head of cattle. Karen’s herd is insured for $50,000 on a blanket basis under an

LCF (FP 00 40). Six weeks ago, Karen purchased some additional cattle for $10,000, so she

plans to increase her policy limits accordingly when the policy renews later this year. One of

her newly acquired animals, with an actual cash value of $2,500, has just been killed when it

wandered onto the highway and was struck by a Mack truck. Ignoring any applicable

deductible, how much will Karen’s insurer pay for this loss?

a. Nothing

That’s correct! Karen did not report her newly acquired livestock within 30 days.

b. $1,250

This answer is incorrect. Karen did not meet the conditions necessary for coverage to

apply.

c. $2,000

This answer is incorrect. The newly acquired animal is not covered for $2,000.

d. $2,500

This answer is incorrect. Karen would have had to meet additional conditions for

coverage to apply.

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Chapter 4 Animal Mortality Insurance

Many insurance buyers have made substantial investments in horses, cattle, and other livestock. Just

as crop insurance is an important component of a complete insurance program for a farmer, animal

mortality insurance is crucial for the rancher to ensure the investment is protected from loss due to

death, destruction, or disability of live animals.

Basic coverage for livestock can be included under a farm property or inland marine policy. However,

these “standard” policies typically do not provide the broad protection and customization available

under animal mortality specialty policies.


recognize the various causes of loss unique to livestock and those that can affect nearly any

type of property;

identify the types of livestock for which mortality coverage may be available;

recognize the underwriting considerations and process for writing animal mortality coverage;

recognize the types of animal mortality policies available and the effect of key endorsements;

and

identify specialty policies available for animals in certain situations, such as pastures and

feedlots, and how those policies apply.

There are many costs associated with animal ownership in order to keep them healthy and productive.

Veterinary care expenses continue to rise. Since livestock can represent a substantial monetary

investment for farmers and ranchers, an evaluation of these exposures is an important component of

any insurance program. Mortality insurance can protect against large dollar losses and provide some

calm in the event the animal dies or requires euthanasia.

Animal mortality insurance is usually issued by breed, so equine mortality is differently underwritten

from cattle, which is different from swine or sheep.

Although animal mortality coverage continues to expand in scope and varies based on the insurer,

most policies provide a type of life insurance for death of livestock caused by accident, injury,

sickness, or disease. Theft of livestock is also frequently covered. In addition, many policies will

include a form of disability or health insurance that reimburses the insured for necessary medical or

surgical expenses and transportation.


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If you have a basic understanding of life and health insurance, you can easily see how many of those

concepts can be applied to insurance on live animals such as cattle, horses, swine, sheep, and the like.

Many people, in fact, even purchase similar insurance products on their domestic pets such as dogs

and cats.

Livestock Loss Exposures Livestock are exposed to the same types of losses as any other property. Fire, flood, theft, and damage

caused by vehicles can affect animals in the same way they impact buildings and other forms of

business personal property. While coverage for some of these causes of loss may be obtained under

standard farm or commercial property insurance policies, the unique nature of the exposure often

requires equally unique insurance solutions.

Like people, animals can suffer from disease or sickness, become disabled, or die prematurely. Pretty

much any illness or disease that can befall a human can impact livestock, including cancer, arthritis,

and the common cold. In addition, because animals are often kept outdoors in inclement weather and

in confined spaces, they are also subject to accidental drowning or lightning strikes, smothering, or

foot-and-mouth disease.

Veterinary medical and surgical expenses to prevent illness or death can be substantial. If an animal

used for work, breeding, or showing is disabled or destroyed, the owner may suffer a loss of the

anticipated revenue that would have been generated from it in addition to the loss of value of the

animal.

Livestock located in feedlots, in pastures, or at auction houses, and those in transit between locations

may also suffer injury or destruction. Accidents in loading and unloading livestock to and from

vehicles are not uncommon.

With respect to animal mortality insurance, livestock is defined more broadly than it is in the LCF

The type of livestock that may be owned or used by an insured is as varied as the causes of loss. For

purposes of this coverage, livestock is broadly defined as a domesticated animal raised in an

agricultural environment for the purposes of providing food (dairy cows, beef cattle, and poultry),

fiber (alpacas and sheep), or labor (cutting horses). If it can be bred, shown, grown, used, or sold, it

presents a risk. Exhibit 4.1 provides a list of the types of animals that may be insured under animal

mortality policies.

Chapter 4—Animal Mortality Insurance

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Animals are increasingly being used for land management. In areas prone to wildfires, for example,

sheep and goats are moved from place to place to graze and control weeds and undergrowth.

Shepherds and goatherds are alive and well in the western United States and other drought-prone

areas of the world and provide a valuable service. A loss of the use of one or more of these grazing

animals may present a significant economic loss to its owner.

Animal Mortality Insurance Unlike other types of insurance discussed in the AFIS program, animal mortality is a true specialty

line of business with few insurers offering coverage. Every policy is unique and must be completely

understood before making a recommendation to a buyer. The underwriting of mortality coverage is

much more akin to human life and health insurance than to other forms of property and casualty

insurance. The subject of insurance often must undergo medical examinations and tests, and a

statement by a qualified veterinarian is typically required before attachment of coverage.

Underwriting Considerations

When proposing animal mortality coverage to an insured, the insurance professional must understand

the application process thoroughly in order to assist the buyer in matching his or her needs to the

policy ultimately put in place. During the underwriting review, the insurance company will set the

cost of insurance and determine the coverages and limits offered. Since every policy is unique, a close

examination of the policy terms and conditions is critical.

Some important considerations when underwriting animal mortality are

the age of the animal,

the type of breed and its breeding history,

Exhibit 4.1 Categories of Livestock and Their Use

Equine: work, breeding, show, racing, or pleasure horses

Cattle: beef and dairy cattle and those used for production of leather or for waste products

(manure)

Swine: pigs and hogs, primarily used for meat production

Lambs, sheep, and goats: used for dairy production, meat, and fiber (wool)

Poultry: egg-laying and meat birds such as chickens, turkeys, ostriches, and guinea hens and

those used for fiber production

Mules and donkeys: typically used for labor (may be included in the equine category)

Alpaca and llamas: predominantly used for fiber production

Bison and buffalo: meat production

Fish: farm-raised and used for food


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the intended use of the animal,

documentation of the animal’s value,

training records,

past illnesses or injuries,

a veterinary exam or certification, and

the owner’s past history and experience with the breed and animal.

Not all coverage forms require a veterinary certificate, but most applications are considered

“warranties,” and the statements made by the insured must be true at the time of application and

throughout the life of the insurance contract.

Coverage Options

Although we have used the term “animal mortality” throughout this chapter, it is important to

understand that coverage is not triggered under these policies only upon the death or destruction of

the animal for which coverage is provided. There are many different types of coverage that are similar

to disability and health insurance for humans. These coverage options may be provided by

endorsement to an animal mortality policy or as stand-alone coverages.

The primary types of coverage available under mortality policies are

major medical insurance;

surgical coverage;

trip transit;

accident, sickness, and disease;

loss of use;

equine mortality and surgery; and

other forms of coverage for specific situations.

The type of coverage offered is dependent on the breed of animal involved, and a variety of

endorsements are available to customize the policy to meet the needs of the buyer. For example,

coverage for horses is underwritten differently from that on cattle or swine.

Since policies are non-standard, it is important to clarify the following.

The locations where animals will be covered (e.g., scheduled versus unscheduled, on pastures

or grazing land owned by the insured or others, at auction yards, and in transit (by land or

air), including loading and unloading)

The coverage territory

Whether or not preapproval is required by the insurer before the animal is relocated

Major Medical

Major medical insurance pays reasonable and customary charges necessitated by accident, injury, or

illness of the animal. It also reimburses for veterinary fees for surgery, major illness, or disease.


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Preapproval is generally required prior to the rendering of medical services. Many policies will also

include loss or death as a result of theft or humane destruction.

Surgical

Coverage under a surgical policy is far more restrictive than major medical insurance. Coverage is

limited to surgery and anesthesia, and it pays for the usual and customary charges for surgical

treatment caused by an accident, injury, or illness. Some policies may cover a limited amount for

hospitalization, X-rays, medication, and lab tests required as a result of surgery.

Trip Transit

Trip transit policies typically cover animals in the course of transportation by land or air. The

coverage territory is the United States and Canada, but coverage may be extended to other countries

for a limited period of time. International transportation exposures may be covered with underwriting

approval, and most policies require preapproval before the animal is transferred.

Accident, Sickness, and Disease

An animal accident, sickness, and disease policy is a named peril policy that is usually written on

stallions only.

Loss of Use

Loss of use coverage is similar to a disability policy for a human. It reimburses the owner of the

animal if it becomes totally or permanently unable to function for its intended use. The animals to

which coverage applies must be specified in the policy, and coverage is triggered even if the animal is

not euthanized. There are two coverage options under loss of use.

Accidental loss of use: the animal is permanently unable to perform its function due to an

external injury that is visible and noticeable to the human eye (i.e., without an X-ray). This is

the least expense of the two options. The rule of thumb for insurance cost is 2.25 percent of

stated value.

Comprehensive coverage: more expensive than accidental loss of use, it also covers

accidents, injuries, and diseases such as founder, arthritis, or navicular. Loss payment

requires a veterinary X-ray. Prior existing conditions will be considered. The rule of thumb

for insurance cost is 3 percent of the stated value.

Equine Mortality and Surgery

Injuries and illnesses are common to horses and likely to occur at some point in their lives. Many can

be treated with medication and physical therapy or even a ride in the horse trailer. In the worst cases,

an injury requires euthanasia. Coverage is provided for medical treatment or death as a result of

injury, illness, or humane destruction. Most policies contain a coverage territory of the United States

and Canada only. Loss or death as a result of theft is normally included. Premiums are determined

based on the age, breed, and usage of the horse. Equine mortality policies may also contain the

following additional provisions.

Colic Surgery

Colic surgery coverage may be included with other forms of coverage for an additional premium. The

limit is usually capped at a specific dollar amount.


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Guaranteed Extension Coverage

Guaranteed extension coverage is similar to an extended reporting period under a claims-made

liability policy. When an animal’s injury or illness continues after the end of one policy, and renewal

of the coverage is being provided by another insurer, the expiring insurer may offer an additional 12

months of coverage to cover this potential gap. Preapproval is required, and there is an additional

premium. This applies to trip transit as well.

Surgical Coverage

This is usually set at a lower limit than the mortality portion of the policy but may be increased for an

additional premium. Coverage typically includes anesthesia, hospitalization, X-rays, medicine, and

lab tests. There are a variety of deductible options, such as per claim or per year to keep premiums

reasonable.

Major Medical Coverage

This is similar, but broader, coverage than provided under the surgical option. Policy terms and

conditions very significantly by insurer, so it is always important to understand what is and is not

covered by this option.

Other Coverage Forms

Other coverage forms available for specific circumstances include

livestock transit coverage—coverage for haulers transporting animals owned by others;

feedlot, pasture, and dairy cattle coverage—loss to cattle or other animals from weather and

related perils;

livestock auction or packer coverage—provides coverage for operators of auctions and

packing houses for animals on their premises and in their care, custody, or control;

poultry coverage—covers various birds in poultry operations such as egg laying, hatcheries,

and meat bird production;

confined swine coverage—loss due to fire, wind, power interruption, and other perils for pigs

and hogs in confined environments;

livestock ocean marine and import/export—transit coverage via air or water in international

transit;

aquaculture coverage—coverage for fish hatcheries and farming operations; and

frozen semen and frozen embryos—coverage for semen and embryos used in the breeding

process.

Some of these coverage forms are very restrictive. For example, a pasture policy may only apply in

fenced locations where grass or other harvested crops are being used as feed for grazing. Therefore,

coverage would not apply in free-range areas. In addition, coverage may only exist during certain

times of year (winter or summer), versus on an annual basis. These policies are usually issued on a

named cause of loss basis and include fire and lightning, drowning, attacks by wild dogs or animals,

electrocution by artificial means (i.e., not lightning), vandalism and malicious mischief (cow tipping),


45

theft and mysterious disappearance, animal collision, and smothering caused by blizzards and

snowstorms.

Feedlot insurance is similar to pasture policies, but there are exclusions for grazing, lagoons, or

other stagnant bodies of water, flood, contamination of feed or water (an endorsement is available to

provide limited coverage), and error in mixing feed. Most policies have a maximum limit per

occurrence or are written based on “current market value,” which is an average based on reporting by

the US Department of Agriculture (USDA).

Livestock auction and sales barn insurance protects the owner(s) of the livestock auction facility

and includes coverage for animals in their care, custody, or control as well as buildings, pens, and the

sales ring. There are three major coverage options available under this coverage form:

Yard—insures animals received on the premises and protects against loss to livestock while

kept in the yard for the specified perils of fire, windstorm, tornado, electrocution, hail, and

theft. Coverage is provided for a period of 10 days.

Accidental death and crippling—protects against crippling or death as a result of being

moved through alleys, pens, shed, chutes, and barns.

Mortgage and theft coverage—this insurance is for the sales barn and provides protection

from being held responsible for selling cattle that have a mortgage on them and are sold

through the market, but the lender never receives payment for its monetary interest in the

cattle.

Livestock transportation represents perhaps the most significant exposure to owners and those who

transport animals for a fee. The farm or commercial auto policy may provide some coverage for this

cargo, but it is always wise to check, as coverage is typically very limited. Endorsements may be

available from the auto insurer that will expand the transit and cargo coverage.

Transit limited coverage expands the auto policy to cover the perils of fire, lightning, collapse

of bridges or culverts, and collision or upset. Coverage may include roundup fees, purchase

of entire load, etc.

Transit/cargo insurance expands coverage to include the above perils, but it also covers killed

or crippled cattle. The coverage states that, “if loaded in good condition, it will be unloaded

in the same, like condition.” Thus, while the cost is high, it provides the most coverage.

Transportation coverage may only extend to the United States and Canada. Some policies are truly

only for mortality, and the single cause of loss is death.

Summary The types of accidents, illnesses, and diseases that can befall livestock are similar to those that affect

human beings. Animal mortality insurance is designed to pay medical expenses, reimburse owners for

the value of a lost animal, or provide compensation for the loss of use of certain types of livestock.

Livestock includes horses, cattle, sheep, swine, goats, poultry, and fish, to name but a few. Virtually

any animal of value that is kept for purposes of providing food, fiber, or labor can be insured under an

animal mortality policy.

Underwriting animal mortality insurance is similar to a life, health, or disability policy for a human

being. Premiums and coverages are based on the animal’s age, breed, use, value, and medical history.


46

In addition, the owner of the animal is underwritten for past history and experience with the breed and

individual animal.

There is a wide variety of coverage options available under the animal mortality category. Although

most are referred to as “mortality” coverage, many also include coverage for necessary veterinary

expenses, medicines and treatment, X-rays, and other costs incurred due to illness, accident, or injury.

Additional forms of coverage are available for livestock in transit, in pastures, and at feedlots,

auctions, or sales barns. Confinement operations, such as those used for pigs and hogs, have special

needs and unique coverages. Transportation of animal cargo, including loading and unloading, can

also be covered as endorsements to other policies or as stand-alone transit insurance.


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Chapter 4 Review Questions 1. Animal mortality insurance is

a. an optional coverage in an ISO farm package policy.

This answer is incorrect. ISO does not promulgate an animal mortality form.

b. available on standard American Association of Insurance Services (AAIS) forms, but

there is no comparable ISO form.

This answer is incorrect. AAIS does not promulgate an animal mortality form.

c. available from most insurers who provide farm insurance.

This answer is incorrect. Most insurers do not write animal mortality insurance.

d. written by only a few specialty insurers.

That’s correct! Animal mortality insurance is a specialty line of business with few

insurers offering the coverage.

2. Odysseus wants to purchase animal mortality insurance on his horse, Trojan. What will

probably happen before the insurer agrees to cover Trojan?

a. Odysseus and Trojan must both undergo medical examinations.

This answer is incorrect. It is not necessary for both parties to submit to a medical

examination.

b. Odysseus must undergo a medical examination.

This answer is incorrect. The horse owner’s health is not relevant..

c. Trojan must undergo a fertility test.

This answer is incorrect. Even if he provides stud service, Trojan’s fertility is not the

underwriter’s concern. However, there might be no need for Trojan’s services if he were

not fertile.

d. Trojan must undergo a medical examination.

That’s correct! The subject of insurance in an animal mortality policy—Trojan, in this

case—often must undergo medical examinations and tests.

3. A named-perils animal accident, sickness, and disease policy is usually available only on

a. geldings.

This answer is incorrect. Geldings are normally ineligible for this coverage.

b. mares.

This answer is incorrect. This coverage is not usually written on mares.

c. stallions.

That’s correct! An animal accident, sickness, and disease policy is a named peril policy

that is usually written on stallions only.


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d. unicorns.

This answer is incorrect. Unicorn insurance is available only through fictitious

insurance companies.

4. Like most other equine mortality policies, the policy on Andrea’s horse, Maula, covers injury

or illness

a. within the 48 contiguous states only.

This answer is incorrect. The coverage territory in most policies extends beyond the 48

contiguous states.

b. anywhere in the United States but not in other countries.

This answer is incorrect. Most policies provide some coverage beyond the United

States.

c. anywhere in the United States and Canada only.

That’s correct! Most policies contain a coverage territory of the United States and

Canada only.

d. anywhere in the world.

This answer is incorrect. Coverage is normally unavailable in many countries.

5. As compared with the mortality portion of an equine mortality and surgery policy, the

surgical coverage limit is generally

a. an annual aggregate.

This answer is incorrect. An animal only dies once; an aggregate limit on mortality

would be senseless. Multiple surgeries are possible, but the surgery limit is not expressed

as an aggregate limit

b. identical.

This answer is incorrect. There is usually a difference between the mortality limit and

the surgical limit.

c. higher.

This answer is incorrect. The surgical limit is not set higher than the mortality limit.

d. lower.

That’s correct! Although the limit may be increased for an additional premium, surgical

coverage is usually set at a lower limit than the mortality portion of the policy.

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Chapter 5 Crop Insurance

Insurance policies covering farm property have significant limitations relating to coverage for

growing crops. Most policies contain a list of “property not covered,” and this list almost always

includes crops. Some specialty policies provide coverage, but it is often limited in both the amount of

insurance and the covered causes of loss.

Insurance for loss of or damage to crops, much like flood insurance, is a difficult line of business for

commercial insurers to make a profit. For the farmer, however, reimbursement for losses due to

drought, excessive rain, or wind is critical in maintaining their ability to farm. One severe storm at the

worst possible time can wipe out an entire year’s harvest and, with it, the ability of the farmer to

survive the loss. Crop insurance payments allow farmers to continue to produce farm products that

are in high demand in the United States and abroad.

Because insurers believe they are unable to sustain a profit writing crop insurance, the federal

government has always taken the lead in making crop coverage available to the nation’s farmers. This

chapter provides a basic overview of the crop insurance provided through the Federal Crop Insurance

Corporation (FCIC), administered by the USDA and sold through private insurance companies and

their agents.

Chapter Objectives Upon completing this chapter, you should be able to

identify key milestones in the history of the federal crop insurance program;

recognize the role of the USDA and RMA in administering the federal crop insurance

program;

identify the crop exposures to loss faced by farmers;

list the basic purposes of crop insurance;

recognize the effect of the basic terms and conditions of the common crop insurance policy;

identify the covered causes of loss and exclusions contained in the common crop policy;

recognize the importance of the various program deadlines of the crop insurance program;

recognize the various types of coverage plans available to farmers;

given relevant information, calculate the indemnity amount payable under a crop insurance

policy;


50

recognize the claims procedures under crop insurance policies; and

identify the roles of the federal government, the insurer, and the agent in providing crop

insurance.

Crop Insurance Background Crop insurance is an important risk management tool for farmers and ranchers, particularly due to the

catastrophic nature of many crop-related perils. This insurance protects agricultural producers against

either the loss of their crops arising from natural disasters such as drought and hail or the loss of

revenue due to declines in the price of agricultural commodities. According to the USDA, drought is

the primary reason for crop failure in the United States. Excessive moisture and hail are respectively

the second and third most common reasons for crop failure.

When it comes to crops, farmers face five different major areas of risk:

1. Production risk—facing lower than anticipated yields due to weather or other causes

2. Marketing risk—inability to market and sell farm products that are time sensitive

3. Human resources risk—workforce availability and cost

4. Financial risk—lack of profitability from loss of or damage to crops

5. Legal risk—breach of contract suits or legal action for injuries or death from crops

The basic purposes of crop insurance are to protect against production and revenue losses, provide a

financial “safety net” for the farmer, and ensure the viability of the crop as collateral for a loan.

Although no one can control the weather, crop insurance helps farmers minimize the risks of loss due

to weather-related events.

There are two major types of crop insurance: (1) federal crop insurance, which is overseen and

subsidized by the federal government and marketed and serviced by private insurers and agents, and

(2) private crop-hail insurance, for which the private marketplace underwrites and provides coverage.

Note that hail insurance can also be provided under some policies offered by the federal government.

Farmers who procure the crop-hail coverage can drop the coverage for the hail peril under the federal

crop insurance for a premium credit.

Federal Crop Insurance Program

The US Congress first created the crop insurance program in the 1930s when the country’s farmers

were suffering from the impact of both the Great Depression and severe drought. The Federal Crop

Insurance Act was passed in 1938, and the FCIC was created to administer the program. In the early

days, crop insurance was available only for major crops such as wheat, corn, and soybeans and in

limited geographical areas.

In 1980, the Act was expanded to include a much wider variety of crops and regions. This expansion

was designed to replace the federal disaster coverage that had been created in the 1960s and 1970s

through passage of several farm bills. Although more farmers began to take part in the crop insurance

program after 1980, participation was still much lower than Congress had intended. When major

droughts or storms caused severe damage to crops, federal disaster assistance was still made

available, causing many farmers to opt out of the crop insurance program and take their chances with

federal aid following a loss. Dissatisfaction with the annual disaster relief bills that were competing

with the crop insurance program led to the enactment, in 1994, of the Federal Crop Insurance Reform

Act.

Chapter 5—Crop Insurance

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The 1994 Act made participation in the federal crop insurance program mandatory in order for

farmers to be eligible to receive other forms of federal assistance, such as price support programs and

loans. The Act also created catastrophic coverage (CAT), which compensated farmers for losses that

exceeded 50 percent of their average annual yield. Premiums for CAT coverage were totally

subsidized by the federal government.

In 1996, Congress repealed the mandatory participation requirement; however, farmers were still

required to purchase crop insurance in order to remain eligible for other types of disaster benefits.

These provisions remain in effect today. With passage of the act, private insurers became the sole

delivery method for federal crop insurance, and agents were certified to sell the coverage to farmers.

Also in 1996, the Risk Management Agency (RMA), an arm of the USDA, was created to administer

the crop insurance program and to provide risk management and education programs to support the

agriculture industry. Private-sector insurance companies and their agents issue and service crop

policies, but RMA is responsible for developing and approving the rates and premiums charged and

premium and expense subsidies, approving and supporting products, and functioning as a reinsurer to

the private insurers.

In 2000, Congress passed legislation that enabled the private sector to be involved in research and

development of new crop insurance products and features. In addition, there were substantial changes

to the functions and responsibilities of FCIC such as expanded pilot programs, including development

of new products for livestock and a new emphasis on service to traditionally underserved states,

crops, and producers. Premium subsidies were increased to encourage farmers to purchase higher

coverage levels and to make the program more attractive to prospective farmers. Currently, the RMA

provides 22 insurance plans on over 350 agricultural commodities in all 50 states and Puerto Rico.

Exhibit 5.1 provides additional information about RMA.


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Exhibit 5.1 About the RMA


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Source: www.rma.usda.gov.


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2014 Farm Bill The Farm Bill is the primary tool used by the federal government to set agricultural and food policies.

The first Farm Bill was created in 1933 by President Roosevelt as part of his New Deal. The primary

purpose of the original bill was to provide financial assistance to farmers during the Great

Depression.

Subsequent bills were passed to subsidize farmers for a number of farming practices that were

beneficial to the agricultural industry, such as payments for not growing crops in certain years in

order to keep prices above a certain level.

Farm Bills come before Congress approximately every 5 years, and in recent years, they have been

very controversial. The most recently enacted Farm Bill includes some provisions that will have a

major impact on the federal crop insurance program. Exhibit 5.2 contains a summary of these new

provisions.


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Exhibit 5.2 2014 New Farm Bill Provisions

Supplemental Coverage Option (SCO) SCO is a county-level revenue or yield-based optional endorsement that covers a portion of losses not

covered by the same crop’s underlying crop insurance policy. Indemnities will be payable once a 14

percent loss has occurred in the county, and individual payments will depend upon coverage levels selected

by producers. The Farm Bill requires SCO to be made available beginning with the 2015 crop year.

STAX STAX is a stand-alone/supplemental insurance policy for cotton only. STAX protects against county-wide

revenue losses and can supplement a producer’s underlying cotton policy or be purchased as a stand-alone

policy. Producers can elect coverage of up to 20 percent of expected county revenue, depending on the

coverage levels of their individual cotton insurance policies. STAX payments begin when county revenue

falls below 90 percent of its expected level. The premium subsidy for this coverage is 80 percent.

Whole Farm Policy RMA is developing a new whole-farm insurance product that combines Adjusted Gross Revenue (AGR)

and AGR-Lite with improvements to target the following types of farms: (1) highly diversified farms and

(2) farms selling 2–5 commodities to wholesale markets. The new product takes into consideration

direction provided in the Farm Bill. Whole-farm insurance covers all commodities on the farm including

specialty crops.

Beginning Farmer Provisions Beginning farmers will receive increased assistance, which will give them access to risk management tools

that are vitally important for beginning farmers. Changes will exempt beginning farmers from paying the

$300 administrative fee for catastrophic policies and provide them, in certain instances, the ability to use

the production history of entities where they were previously employed or helped to manage. It will also

increase the premium subsidy rates for beginning farmers by 10 percentage points during their first 5 years

of farming.

Coverage Level by Practice This change provides a producer that produces an agricultural commodity on both dry land and irrigated

land the option to elect a different coverage level for each production practice.

Change in T-Yield When a crop in a county suffers over a 50 percent yield loss, producers in that county and adjacent counties

may omit their yield for that year’s production. For this provision, the FCIC may make a separate

determination for irrigated and nonirrigated acreage.

Organic Expansion Previous to the passage of the Farm Bill, RMA had taken steps to improve coverage for organic producers.

The bill continues to strengthen these steps.

Peanut Revenue Policy RMA was directed to provide a revenue crop insurance policy for peanut producers. A private submitter

has been working on a policy, and if the submission is approved by the FCIC Board, it is possible to have

this available in the future.

Source: www.rma.usda.gov.


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Conservation Compliance

The 2014 Farm Bill also contained provisions aimed at environmental issues. In order to receive

premium assistance from the federal government for crop insurance, producers will have to comply

with highly erodible land and wetland conservation requirements that most already have to comply

with as a result of participating in Farm Service Agency and National Resources Conservation

Service programs. RMA will work to utilize the verification process in place to ensure that producers

are not overly burdened by this requirement.

The 2014 Farm Bill built on the conservation practices under way on farms and ranches by re-linking

conservation compliance with the premium subsidy provided under the crop insurance program.

Conservation compliance requires producers to have a conservation plan if they plant annually tilled

crops on highly erodible soil and prohibits producers from planting on or destroying wetlands for crop

production. Producers that do not comply with conservation compliance can still purchase crop

insurance; however, they will no longer be eligible to receive the government-paid premium subsidy.

Crop Insurance Coverage Unlike other types of insurance, the provisions of a crop insurance policy will vary by state, by

county, and by the type of crop. This information is subject to change on an annual basis. The only

way for a person to remain up-to-date on crop insurance policy provisions is to frequently visit the

RMA webpage at http://www.rma.usda.gov/policies/2014policy.html. This publication displays the

2014 and 2015 crop insurance provisions by type of crop. In addition, an actuarial information

browser is issued for each county and state and can be located at

http://webapp.rma.usda.gov/apps/ActuarialInformationBrowser/Default.aspx. This information shows

the insurable crops, sales closing date (SCD), final planting date (FPD), and special crop details.

Common Crop Insurance Policy (11-BR)

A crop insurance policy is “constructed” by starting with the common crop insurance policy (ll-BR)

and adding specific crop insurance provisions. For example, for a wheat grower, you would use the

common crop policy and attach the small grains crop provisions (11–0011).

In addition, various provisions can be added to the common policy:

commodity exchange price provisions (CEPP)—used for certain commodities such as barley,

wheat, sunflowers, and rice;

special provisions; and

CAT risk protection endorsement—modifies the terms and conditions of the common policy

when catastrophic risk protection coverage is elected.

If there is a conflict in policy provisions, the order of priority from highest to lowest is as follows:

1. catastrophic risk protection endorsement, if applicable;

2. special provisions;

3. commodity exchange price provisions, if applicable;

4. crop provisions; and

5. the common crop policy.

Causes of Loss

Insurance is provided only to protect against unavoidable events such as adverse weather conditions,

fire, wildlife, earthquake, volcanic eruption, or failure of irrigation water supply due to an


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unavoidable cause of loss during the policy period. Again, it is important to understand that each crop

has specific insuring agreements that may vary by location. It is critical to read each of the provisions

carefully.

As specific examples, assume the insured is farming soybeans. For that particular crop, the covered

causes of loss include:

insects, but not damage due to insufficient or improper application of pest control measures;

and

plant disease, but not damage due to insufficient or improper application of disease control

measures (e.g., soybean rust, which can be treated with fungicide).

For citrus crops, an added cause of loss is fire, but not if weeds and other forms of undergrowth have

not been controlled or pruning debris has not been removed from the citrus grove.

Exclusions

The common policy also contains a list of exclusions. These are described in Exhibit 5.3.

Exhibit 5.3 Common Crop Insurance Policy Exclusions

Any act by any person that affects the yield, quality, or price of the insured crop—for example, chemical drift, fire, or terrorism

Failure to follow recognized good farming practices for the insured crop

Water that is contained by or within structures that are designed to contain a specific amount of water, such as dams, locks, or reservoir projects on any acreage when such water stays within the designed limits. For example, if a dam is designed to contain water to an elevation of 1,200 feet but the insured plants a crop at 1,100 feet elevation, which is subsequently damaged when a storm causes the water behind the dam to rise to 1,200 feet elevation, that damage would not be covered. However, if the insured planted on acreage above 1,200 feet elevation, any damage caused by water that exceeded that elevation would be caused by an insurable cause of loss.

Failure or breakdown of the irrigation equipment or facilities, or the inability to prepare the land for irrigation using your established irrigation method (for example, furrow irrigation), unless the failure, breakdown, or inability is due to a cause of loss specified in the crop provisions

Failure to carry out a good irrigation practice for the insured crop

Any cause of loss that results in damage that is not evident during the insurance period

Important Program Deadlines

One of the biggest challenges in providing crop insurance to farmers is adherence to the various

deadlines contained in the federal crop insurance program. Each of these deadlines is discussed

below.


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SCD

SCDs are established for each insurable crop and published in the actuarial documents of the RMA. A

person must apply for insurance on or before the applicable SCD. After the SCD, new applications

for insurance for that crop year will not be accepted, unless a specific crop provision allows for

application after the SCD—for example, nursery crops, which tend to be year-round in most areas.

FPD

The FPD is the last day to plant the insured crop, unless the insured has filed and been approved for

late planting.

Acreage Reporting Date (ARD)

The ARD is the last day when the insured can report the acreage that has been planted. If not reported

by this date, insurance is not in effect.

Premium Billing Date

The premium billing date is the latest time the insured can make a payment for crop insurance without

being charged interest.

End of Insurance Period

Although crop insurance is a continuous policy, coverage applies to individual crops. The end of the

insurance period is the latest date for insurance coverage to apply to that crop, regardless of whether

the crop has been harvested or put to another use.

Replanting Payment

If allowed by the crop provisions, a replanting payment may be made on an insured crop that is

replanted with the insurer’s consent. The acreage replanted must be at least the lesser of 20 acres or

20 percent of the insured planted acreage, and it must be practical to replant. Certain other

stipulations apply to replanting payments.

Late Planting

The late planting endorsement provides coverage on an insured crop for acreage planted after the

FPD; however, the amount of insurance is reduced by 1 percent per day for each day after the FPD.

Premium charged is the same as if the acreage was planted prior to the FPD. Planting of such acreage

must have been prevented before the FPD (or during the late planting period) by an insurable cause of

loss.

Prevented Planting

If the insured is prevented from planting the insured crop on insurable acreage because an insured

cause of loss occurs on or after the SCD, coverage may apply under the common policy. The insured

must have a policy in effect before the insured cause of loss that prevents the planting of the crop

occurs. Failure to plant when other farmers in the area were planting will result in the denial of a

prevented planting claim.


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Types of Crop Insurance Coverage

Multi-peril crop insurance is available for most insured crops and provides protection against many

weather-related and natural causes of loss. Several different plans are available to an insured.

Actual Production History (APH)

Coverage issued on the APH plan insures against yield losses. Coverage is based on the insured’s past

yield history (minimum of 4 years, up to 10 years). The farmer selects a coverage level from CAT (50

percent) or from 50 percent up to 75 percent or 85 percent, depending on the area, in 5 percent

increments of the average farm yield. The selected percentage of coverage corresponds to a market

price published by the FCIC based on the market price of the previous year.

Yield Protection (YP)

Coverage issued on a YP basis protects against production loss for crops for which revenue protection

(discussed later) is available but was not selected. Coverage levels available are the same as for APH.

The value of the production guarantee per acre and the value of production to count are determined by

multiplying the FCIC issued projected price times the percentage of the projected price selected by

the insured. Once selected, the percentage of the projected price will continue to apply unless changed

on or before the applicable SCD. An example of payment under YP is shown in Exhibit 5.4 below.

Exhibit 5.4 YP Example

APH Yield

Chosen Coverage Level

180 bushels

75%

Yield Guarantee 135 bushels (180 × 75%)

Actual Yield

Projected Price

90 bushels

$3.50/bushel

Indemnity Payment under YP 45 bushels (135 – 90) × $3.50 = $157.50/acre

The YP plan replaced APH for most crops, such as wheat, barley, corn, and soybeans in the

northeastern states. The RMA state and county actuarial information and specific crop provisions

should be consulted.

Revenue Protection (RP)

RP establishes a dollar guarantee and protects against declines in both crop prices and yields. The

guarantee is based on market prices and the actual yield of the farm. Yield coverage is basically the

same under RP as traditional YP. The production portion of the revenue guarantee is based on APH,

an historic average of actual yields. The price portion of RP is based on the CEPP projected price.

To calculate a loss payment under RP, you would multiply the approved yield by the level of

coverage (65, 70, 75, 80 or 85 percent) and the projected price. There is a 200 percent price change

limit between projected and harvest prices, but there is no downward price limitation. Examples of

RP calculations are shown in Exhibit 5.5.


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Exhibit 5.5 RP Examples

Example 1: Lower price, lower yield

Projected Price

APH Yield


$4.00/bushel

160 bushels

75%

Revenue Guarantee $480 ($4.00 × 160 × 75%)

Price at Harvest

Actual Yield

Actual Revenue

$3.20/bushel

130 bushels

$416 ($3.20 × 130)

Indemnity Payment under RP $64 ($480 – $416)

Example 2: Lower price, normal yield

Projected Price

APH Yield


$4.00/bushel

160 bushels

75%

Revenue Guarantee $480 ($4.00 × 160 × 75%)

Price at Harvest

Actual Yield

Actual Revenue

$2.50/bushel

160 bushels

$400 ($2.50 × 160)

Indemnity Payment under RP $80 ($480 – $400)

Source: Iowa State University Extension.

The RP plan replaced crop revenue coverage for crops such as wheat, corn, and soybeans in

northeastern states. In other areas of the country, RP replaced revenue assurance, income protection,

and indexed income protection.

RP with Harvest Price Exclusion

RP policies can be written so that the level of the revenue guarantee is determined solely by the future

prices and does not increase even if the price rises by harvest. This type of policy typically has a

lower premium than the RP policy.


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Group Risk Plan (GRP)

A GRP uses a county index as a basis for determining a loss. When the county yield for an insured

crop, as determined by the National Agricultural Statistics Service, falls below the trigger level

chosen by the farmer, an indemnity payment is made. This coverage is not based on the individual

farmer’s records. Yield levels are available for up to 90 percent of the expected county yield.

Group risk income protection makes indemnity payments only when the average county revenue falls

below the revenue chosen by the farmer. Group plans are typically less expensive than other plans.

Dollar Plans

Dollar plans provide protection against declining value due to damage that causes a yield shortfall. A

loss occurs when the annual value of the crop is less than the amount of insurance. This plan is

currently available only for a limited number of crops and areas.

Livestock Plans

Livestock plans are a relatively new form of “crop” insurance and protect against a decline in

livestock market price alone. Coverage is determined using futures and options prices from the

Chicago Mercantile Exchange. Price insurance is available for swine, cattle, lambs, and milk.

Producers decide the number of head to insure and the length of the coverage period. There are two

types of plans available: livestock risk protection, which provides coverage against market price

decline. If the ending price is less than the producer-determined beginning price, indemnity is due.

Under livestock gross margin, coverage is provided for the difference between the commodity and

cost of feed inputs. If the producer-determined expected gross margin is greater than the actual gross

margin, an indemnity is due. Availability varies by state and county.

Pilot Programs

There are two federal programs being piloted by RMA at the current time: Adjusted Gross Revenue

(AGR) and AGR-Lite. AGR and AGR-Lite policies insure revenue of the entire farm rather than an

individual crop by guaranteeing a percentage of average gross farm revenue, including a small

amount of livestock revenue. The policies use information from a producers Schedule F tax forms and

current year expected farm revenue to calculate policy revenue guarantee. AGR-Lite is a variation

that does not include livestock. Both products are available on a very limited basis.

In addition, each state may add additional pilot programs. For example, in California, pilot programs

are in place for cherries, pistachios, olives, strawberries, and avocados.

Policy Endorsements

Like other types of insurance, crop insurance policies may be endorsed to eliminate or expand

coverage. Some endorsements are available on a standard basis, while others are being piloted by

RMA.

Catastrophic Risk Protection Endorsement (CAT)

Catastrophic risk protection is the minimum level of crop insurance available that meets the

requirements for a person to qualify for other USDA benefits and programs. When the CAT

endorsement is attached, the policy pays 55 percent of the maximum protection per acre as

established by FCIC. No premiums are paid by the farmer to purchase this protection, but there is an

annual administrative fee for each crop insured in each county.

http://www.rma.usda.gov/policies/agr-lite.html


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Organic Coverage

Under organic coverage, production records and APH must be kept separate from conventional crop

documents. Price elections are the same as for conventional crops.

Other Endorsements

Various additional endorsements are available to an insured, primarily applying to specific crops.

Most require that the coverage level purchased be higher than what is provided under the CAT.

Crop Insurance Terms and Conditions

Farmers have several choices for combining different pieces of land when purchasing crop insurance.

Each combination that is insured independently of other combinations is called a “unit.” A single

farming operation may have one unit or multiple units. Units can be designated as optional or basic.

The choice will affect the premiums paid each year, as well as the size and likelihood of any

indemnity payments received.

Unit

A “unit” in crop insurance is a parcel of land that is independent of other parcels. It is possible to have

a loss on one unit and receive a loss payment, while other units have normal yields.

Basic Unit

An owner receives one basic unit for all insurable acreage of the insured crop that is owned and/or

rented for cash in the county on the date coverage begins for the crop year. A crop share land owner

or tenant can also insure his or her own interest in the crop as a separate unit. Farmers can combine all

the land they own in different sections in the same crop into one basic insurance unit. All the acres of

each crop are considered together when establishing guarantees and payments. Basic units receive a

premium discount compared to optional units.As Exhibit 5.6 illustrates, if a crop is planted on land

rented under a cash rent lease with Land Owner A, a crop share lease with Land Owner B, and a crop

share lease with Land Owner C, and the remaining crop land is owned, the acreage would qualify as

three basic units—one basic unit with each crop share owner, and one basic unit for the cash rented

and owned land combined.

Exhibit 5.6 Corn Crop

One basic unit Farmer 1,875 acres Owned

Land Owner A 1,575 acres Cash rent lease

One basic unit Land Owner B 1,495 acres Crop share lease

One basic unit Land Owner C 1,365 acres Crop share lease


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Each different crop creates a separate unit, and tracts of land in different counties must be insured as

separate units. Each crop/county can have a different type of policy and level of coverage.

Optional Unit

Basic units may be divided into optional units. Farms that are owned or cash rented by the operator

and are located in different areas can be insured individually in optional units. The guarantees,

premiums, production, and potential indemnity payments are calculated separately for each optional

unit. Likewise, a separate production history is needed to establish the APH yield. Optional units give

the most protection against isolated weather losses such as hail or wind but also have the highest

premiums. Optional units can also be created when the same crop is being grown under distinctly

different farming practices, such as conventional and organic.

Claims Procedures

The farmer and insurer have certain duties and responsibilities following a loss. The insured agrees

to:

protect the crop from further damage and

provide prompt notice;

o for a planted crop, within 72 hours of initial discovery of damage or loss of

production, but not later than 15 days after the end of the insurance period;

o for RP, when there is no damage or loss, give notice not later than 45 days after the

latest date the harvest price is released for any crop in the unit where there is a

revenue loss;

losses must be confirmed in writing within 15 days.

If the insured wishes to destroy the crop, it must obtain consent from the insurer. If the crop has been

harvested, it must provide total production records. The insurance company crop adjuster will

determine whether or not the insured’s yield falls below the yield or dollar guarantee stated in the

policy.

Agent Obligations

Providing crop insurance to clients is an important part of handling the risk management needs of

farmers. However, it comes with some increased risk of errors and omissions (E&O) exposures to the

agent and his or her agency. In some cases, an agency’s E&O insurer will specially underwrite an

application for an organization that handles crop insurance and may charge additional premium for

the enhanced exposure.

Agents are responsible to adhere to the many policy deadlines discussed above, report acreage

accurately, pay premiums to insurers when due, and report losses immediately.

Of course, an agent should also be able to depend on the insurer to provide accurate answers to

questions on types of coverage and pricing, prompt processing and servicing of the insurance

contract, and timely payment for covered losses.

Deciding To Sell Crop Insurance

Crop insurance is a very different type of product from other types of property and casualty insurance.

The deadlines are intense, and the landscape is constantly changing. It is not prudent for any agent or

agency to “dabble” in crop insurance. Much of the agency’s expense is incurred in selling and writing


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crop policies, but commissions are not paid until premiums are paid by the insured, which is at the

end of the coverage period.

Selecting a Crop Insurance Agent

Due to the federal nature of the program, all agents sell the same products at the same rates. Selection

of a particular agent should be based on his or her understanding of the agriculture industry and the

products and options available to the insured.

Summary Due to limitations and restrictions in standard property insurance policies, crop insurance was created

to assist farmers who faced potentially catastrophic losses due to adverse weather conditions and

other natural disasters that might impact an entire year of farm revenue.

The federal crop insurance program was created in the 1930s but didn’t gain much traction in the

marketplace until the 1980s, when the government required its purchase in order to receive certain

disaster relief payments of other assistance. The program is administered by the RMA of the USDA.

Crop insurance is a highly variable product, determined by the location and specific type of crop

involved. Rules and updates are constantly issued by the RMA, and agents must be aware of these

changes in order to serve and advise their customers.

The common crop insurance policy is the foundation document used to insure the various crop

insurance plans that are available. The policy provides protection against unavoidable, naturally

occurring events such as adverse weather conditions. Various crops may have more or less coverage

granted by specific crop provisions contained in the policy. Program deadlines must be adhered to in

order to ensure coverage is in effect for any particular crop, since policies are issued on a continuous

basis.

Several options are available for farmers to choose the level of crop protection they wish to have and

from what type of loss. Some policies cover yield losses, others protect against production loss, and

others provide coverage in the event of a decline in either revenue or yield.

Coverage applies to “units” as selected by the insured. There are advantages and disadvantages to

utilizing more or fewer units for an individual insured. Claims handling procedures are very unique in

crop insurance, and the selection of an insurer or agent should be based on their familiarity with the

agriculture industry and the specifics of crop insurance.


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Chapter 5 Review Questions 1. Alfred Ferguson is a grain farmer in the Midwest. According to the USDA, if Alfred suffers a

crop failure in any given year, it is most likely to be caused by

a. drought.

That’s correct! According to the USDA, drought is the primary reason for crop failure in

the United States

b. excessive moisture.

This answer is incorrect. Excessive moisture is the second most common reason for

crop failure.

c. hail.

This answer is incorrect. Hail is the third most common reason for crop failure.

d. insect damage.

This answer is incorrect. According to the USDA, insect damage is not one of the top

three reasons for crop failure.

2. As a new farmer, Evangelina is eligible for increased assistance thanks to the 2014 farm bill’s

beginning farmer provisions. The benefits provided by these provisions do not include

a. exemption from paying a $300 administrative fee for catastrophic policies.

This answer is incorrect. Changes in the 2014 farm bill will exempt beginning farmers

from paying the $300 administrative fee for catastrophic policies.

b. federal income tax credits.

That’s correct! The bill does not introduce tax credits for beginning farmers.

c. increased premium subsidy rates.

This answer is incorrect. The 2014 bill increases the premium subsidy rates for

beginning farmers by 10 percentage points during their first 5 years of farming.

d. the ability to use the production history of Evangelina’s previous employer.

This answer is incorrect. The 2014 bill will, in certain instances, provide beginning

farmers with the ability to use the production history of entities where they were

previously employed.

3. Up-to-date information on crop insurance can best be obtained from

a. other farmers in the local pub.

This answer is incorrect. Although the local pub is a common source of information, the

information obtainable from this source is not necessarily reliable or current.

b. the county USDA office.

This answer is incorrect. The only way to remain up to date is to frequently check a

different source.


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c. the Internet.

That’s correct! The only way for a person to remain up to date on crop insurance policy

provisions is to frequently visit the RMA Web page.

d. the state USDA office.

This answer is incorrect. Current information is available online.

4. Dominique purchased crop coverage on an RP basis with a chosen coverage level of 60

percent. The APH yield for this crop is 150 bushels. Dominique’s actual yield is 80 bushels.

The revenue guarantee is $4.00 per bushel, and the price at harvest is $3.90 per bushel. What

indemnity payment per acre should Dominique receive?

a. $7

This answer is incorrect. Fortunately, Dominique will receive a higher payment per

acre.

b. $9

This answer is incorrect. At $3.90/bushel, the market price was $0.10/bushel below the

guaranteed price of $4.00/bushel; 60 percent of the APH yield of 150 bushels is 90

bushels, and 90 times $0.10 is $9.00. However, this calculation does not take into account

the difference between the guaranteed yield and the actual yield.

c. $36

This answer is incorrect. Dominique would have received $36 if her crop had actually

yielded $90/acre, which it didn’t.

d. $48

That’s correct! Dominique had a lower than expected price and a lower than expected

yield. She expected to receive at least $360 per acre, but she instead received $312 per

acre. The insurer will pay the $48/acre difference between these two figures.

5. Saunders farms 1,875 acres of owned land, 1,575 acres of land under a cash rent lease, 1,495

acres of land leased to Ava under a crop share lease, and 1,365 acres leased to Yong under a

crop share lease. How many basic units of farmland are involved?

a. One

This answer is incorrect. More than one basic unit is involved.

b. Two

This answer is incorrect. Each crop share lease counts as a separate unit.

c. Three

That’s correct! The owned and cash-rent lease properties together count as one basic

unit, and the two crop share leases each count as additional basic units.

d. Four

This answer is incorrect. An owner receives one basic unit for all insurable acreage of

the insured crop that is owned and/or rented for cash in the county on the date coverage

begins for the crop year.

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Glossary

2014 Farm Bill: Farm bills, the federal government’s primary tool for setting agricultural and food

policies, come before Congress approximately every 5 years. The Farm Bill enacted in 2014

includes some provisions that will have a major impact on the federal crop insurance program.

accident (in boiler and machinery insurance): In boiler and machinery (BM) insurance,

“accident” is defined within the policy to mean a sudden and accidental equipment breakdown that

causes damage to the equipment that necessitates repair or replacement. BM coverage applies to loss

or damage resulting from an accident to a covered object.

accident, sickness, and disease policy (in animal mortality insurance): A named peril policy

usually written on stallions only.

acreage reporting date (ARD): The last day when the insured can report the acreage that has been

planted; if not reported by this date, crop insurance is not in effect.

actual production history (APH): The APH yield is used to determine crop insurance guarantees.

The APH yield is based on a history of yields from a unit. It is determined by averaging at least four

consecutive yields from a unit, up to ten years.

actual yield (in crop insurance): The per acre yield produced by a “unit” of land, usually

determined at harvest.

AFIS™: See Agribusiness and Farm Insurance Specialist.

Agribusiness and Farm Insurance Specialist (AFIS™): A specialized curriculum focusing on the

insurance and risk management needs of agribusiness and farm operations. Those who complete the

program are entitled to display the AFIS certification to certify their knowledge of agribusiness and

farm insurance and risk management and dedication to the industry.

animal mortality insurance: A form of life insurance for livestock, zoological, and domesticated

animals. Normally covers death from any cause (with some exceptions), as well as voluntary

destruction for humane reasons. Also available on a named perils basis.

APH: See Actual production history.

aquaculture coverage: Coverage for fish hatcheries and fish farming operations.

ARD: See Acreage reporting date.

basic unit (in crop insurance): All farmland owned or cash rented in a county that is planted with

the same crop.

beginning farmer provisions: 2014 Farm Bill provisions providing increased assistance for

beginning farmers.


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boiler and machinery (BM) insurance: See Equipment breakdown insurance.

brand and labels endorsement: A property insurance endorsement that grants permission for the

insured to remove labels from damaged goods or mark the items as “salvage,” provided the goods

are not damaged in the process. Alleviates concern about potential injury to the insured’s business

reputation resulting from the sale of salvaged goods by the insurer.

business income coverage: Commercial property insurance covering loss of income suffered by a

business when damage to its premises by a covered cause of loss causes a slowdown or suspension

of its operations. Coverage applies to loss suffered during the time required to repair or replace the

damaged property. It may also be extended to apply to loss suffered after completion of repairs for a

specified number of days. There are two Insurance Services Office, Inc. (ISO), business income

coverage forms: the business income and extra expense coverage form (CP 00 30) and the business

income coverage form without extra expense (CP 00 32). Business income coverage is also referred

to as business interruption coverage.

CATA: See Catastrophic risk protection endorsement.

catastrophic risk protection endorsement (CAT): A crop insurance endorsement that modifies the

terms and conditions of the common policy when catastrophic risk protection coverage is elected.

When the CAT endorsement is attached, the policy pays 55 percent of the maximum protection per

acre as established by the FCIC.

CEPP: See Commodity exchange price provisions.

change in T-Yield: A 2014 Farm Bill provision. When a crop in a county suffers over a 50 percent

yield loss, producers in that county and adjacent counties may omit their yield for that year’s

production.

commodity exchange price provisions (CEPP): Provision that can be added to the common crop

insurance policy for certain commodities such as barley, wheat, sunflower, and rice.

common crop insurance policy: A crop insurance policy is constructed by starting with the

common crop insurance policy (11-BR) and adding specific crop insurance provisions.

contingent business income and extra expense: Time element property insurance that pays for the

loss of income or increase in expenses resulting from damage from a covered cause of loss to the

premises of another organization on which the insured depends, such as a key supplier or customer.

Also referred to as dependent properties coverage.

coverage by level of practice: A 2014 Farm Bill change that provides a producer that produces an

agricultural commodity on both dry land and irrigated land the option to elect a different coverage

level for each production practice.

coverage level: Coverage levels are elections made by farmers when purchasing revenue insurance

products. Coverage levels are used to calculate revenue guarantees.

crop insurance: See Federal crop insurance.

debris removal: Coverage for the cost of removal of debris of covered property damaged by an

insured peril. This coverage is included in most commercial property insurance policies.

declarations: The front page (or pages) of a policy that specifies the named insured, address, policy

period, location of premises, policy limits, and other key information that varies from insured to

insured. The declarations page is also known as the information page. Often informally referred to as

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the “dec” or “dec page.”

DIC: See Difference-in-conditions insurance.

difference-in-conditions (DIC) insurance: (1) A policy designed to broaden coverage by providing

additional limits of coverage for specific perils when standard markets won’t provide adequate limits

of coverage, providing coverage for perils that are excluded on standard coverage forms, or

supplementing international policies that are written by admitted insurers in the applicable foreign

countries. (2) An all risks property insurance policy that is purchased in addition to a commercial

property policy to obtain coverage for perils not insured against in the commercial property policy

(usually flood and earthquake). (3) An endorsement to a contractor’s blanket builders risk insurance

policy that fills the gaps between a policy provided by the project owner and the contractor’s policy

so that the contractor has insurance comparable to what it would have had if coverage had been

arranged under the contractor’s builders risk program. When a project owner elects to provide the

builders risk coverage for all parties with an insurable interest, the project is normally removed from

coverage under the contractor’s policy. A DIC endorsement typically states that, to the extent a loss

is not covered under the owner-provided policy but would be covered under the contractor’s policy,

coverage will apply on an excess basis. (4) An insurance policy that is designed to fill the gaps

between the coverage provided by a multinational organization’s master insurance policies (property

or liability) and coverage provided by policies purchased locally in accordance with each country’s

insurance requirements so that the organization has uniformity of coverage regardless of location.

This policy is referred to as a foreign DIC policy.

dollar plans: Crop insurance plans that provide protection against declining value due to damage

that causes a yield shortfall. A loss occurs when the annual value of the crop is less than the amount

of insurance.

end of insurance period: The latest date for crop insurance coverage to apply to that crop,

regardless of whether the crop has been harvested or put to another use.

equipment breakdown insurance: Coverage for loss due to mechanical or electrical breakdown of

nearly any type of equipment, including photocopiers and computers. Coverage applies to the cost to

repair or replace the equipment and any other property damaged by the equipment breakdown.

Resulting business income and extra expense loss is often covered as well. Equipment breakdown

insurance is increasingly replacing traditional boiler and machinery (BM) insurance, in part simply

because the title is more descriptive of the coverage provided. Also, today’s equipment breakdown

policies typically provide slightly broader coverage than traditional BM policies, and they usually do

not use the specialized terminology found in traditional BM policies.

equipment breakdown protection: Another name for equipment breakdown insurance.

errors or omissions (in equipment breakdown insurance): Coverage that applies to an

inadvertent error or unintentional omission in the description of covered property.

expediting expenses coverage: Coverage under a property or boiler and machinery (BM) policy for

expenses of temporary repairs and costs incurred to speed up the permanent repair or replacement of

covered property or equipment. On most extra expense forms, the recovery of expediting expenses is

limited to the extent that the expenses serve to reduce the loss. However, coverage can be arranged

to provide full reimbursement.


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extra expense coverage: Commercial property insurance that pays for additional costs in excess of

normal operating expenses that an organization incurs to continue operations while its property is

being repaired or replaced after having been damaged by a covered cause of loss. Extra expense

coverage can be purchased in addition to or instead of business income coverage, depending on the

needs of the organization.

Farm Bill: See 2014 Farm Bill.

FCIC price: The FCIC price is set each year. It is the maximum price that yield losses can be

insured at using an actual production history (APH) policy.

FCIC: See Federal Crop Insurance Corporation.

Federal Crop Insurance Act: Legislation passed in 1938 to carry out the federal crop insurance

program.

Federal Crop Insurance Corporation (FCIC): Government agency created to administer the

Federal Crop Insurance Act.

federal crop insurance: Coverage for farmers that is overseen and subsidized by the federal

government and marketed and serviced by private insurers and agents. Federal crop insurance offers

an array of insurance policies that cover loss of crop value arising from extremely hot weather,

drought, excessive moisture, flood, wildlife damage, earthquake, insects, and disease. These policies

protect a farmer against production or revenue losses when a particular insured crop does not meet a

preset production guarantee. The Risk Management Agency (RMA) of the US Department of

Agriculture (USDA) oversees the federal crop insurance program. RMA provides policies for more

than 100 crops, the majority of US crops, although coverage may not be available for some crops in

some areas. Federal crop insurance is also referred to as multi-peril crop insurance.

feedlot insurance: Animal mortality similar to pasture policies, but there are exclusions for grazing,

lagoons, or other stagnant bodies of water, flood, contamination of feed or water, and error in mixing

feed. Most policies have a maximum limit per occurrence or are written based on “current market

value.”

final planting date (FPD) (in crop insurance): The last day to plant the insured crop, unless the

insured has filed and been approved for late planting.

financial risk (in crop insurance): Lack of profitability from loss or damage to crops.

fire department service charge coverage: Coverage in a property insurance policy for charges

imposed by a fire department for their services in fighting a fire, usually subject to a separate limit of

insurance, such as $1,000.

FPD: See Final planting date.

group risk income protection: Crop insurance that makes indemnity payments only when the

average county revenue falls below the revenue chosen by the farmer.

group risk plan (GRP): Uses a county index as a basis for determining a loss.

GRP: See Group risk plan.

guaranteed extension coverage: Animal mortality insurance provision similar to an extended

reporting period (ERP) under a claims-made policy. When an animal’s injury or illness continues

after the end of one policy and renewal of the coverage is being provided by another insurer, the

Glossary

71

expiring insurer may offer an additional 12 months of coverage to cover this potential gap.

harvest price exclusion: See Revenue protection with harvest price exclusion.

human resources risk (in crop insurance): Workforce availability and cost.

indemnity or indemnity payment: Payment made by an insurance product. For yield insurance,

indemnity payments occur when yield is below a yield guarantee. For revenue insurance, indemnity

payments occur when revenue is below a revenue guarantee. Multiple peril crop insurance will also

pay indemnities in other cases such as prevented plantings.

joint loss agreement: A provision or endorsement designed to prevent an insured from suffering

because its equipment breakdown insurer and its commercial property insurer disagree as to which

policy should respond to a particular loss and in what amounts. When both the commercial property

policy and the equipment breakdown policy are properly endorsed with a joint loss agreement, each

insurer pays one-half of the disputed amount to the insured, pending resolution of the issue.

late planting endorsement: Crop insurance endorsement that provides coverage on an insured crop

for acreage planted after the final planting date (FPD).

legal risk (in crop insurance): Breach of contracts suits for legal action for injuries or death from

crops.

livestock (as defined in animal mortality insurance policies): A domesticated animal raised in an

agricultural environment for the purposes of providing food, fiber, or labor.

livestock (as defined in livestock coverage form): Cattle, sheep, swine, goats, horses, mules, and

donkeys.

livestock auction and sales barn insurance: Animal mortality insurance that protects the owner(s)

of the livestock auction facility and includes coverage for animals in its care, custody, or control as

well as buildings, pens, and the sales ring.

livestock coverage form (LCF): An inland marine coverage form used to provide on- and off-

premises coverage for death or destruction of cattle, sheep, swine, goats, horses, mules, and donkeys.

livestock plans: A relatively new form of “crop” insurance that protects against a decline in

livestock market prices alone.

machinery breakdown insurance: Another name for equipment breakdown insurance.

major medical coverage (in animal mortality insurance): Insurance that pays reasonable and

customary charges necessitated by accident, injury, or illness or the animal.

MAMECF: See Mobile agricultural machinery and equipment coverage form.

marketing risk (in crop insurance): Inability to market and sell farm products that are time

sensitive.

mobile agricultural machinery and equipment coverage form (MAMECF): An inland marine

form used to provide coverage for various farm equipment owned, leased, rented, or borrowed by an

insured.


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named perils coverage: A property insurance term referring to policies that provide coverage only

for loss caused by the perils specifically listed as covered. It contrasts with all risks coverage, which

applies to loss from all causes not specifically listed as excluded.

object: A boiler and machinery (BM) insurance term for equipment or machinery. BM coverage

applies to loss or damage resulting from an accident (such as a breakdown or explosion) to a covered

object.

open perils: Property insurance that insures against loss to covered property from all causes except

those that are specifically excluded. This method of identifying covered causes of loss in a property

policy has traditionally been referred to as “all risks” coverage. Many industry practitioners continue

to use the term “all risks” to describe this approach to defining covered causes of loss in a property

insurance policy. However, it is no longer used in insurance policies because of concern that the

word “all” suggests coverage that is broader than it actually is. Because of this concern, some

industry practitioners have begun to use the term “open perils” or “special perils” instead of “all

risks.”

optional unit (in crop insurance): Optional units are divisions of a basic unit. When farmland in a

basic unit is in different sections, the basic unit can be divided into optional units, with all farmland

in each section constituting a separate optional unit. Optional units also may be designated for crops

grown under different farming practices (e.g., irrigated and nonirrigated).

ordinance or law coverage: Coverage for loss caused by enforcement of ordinances or laws

regulating construction and repair of damaged buildings. Older structures that are damaged may

need upgraded electrical; heating, ventilating, and air-conditioning (HVAC); and plumbing units

based on city codes. Many communities have a building ordinance(s) requiring that a building that

has been damaged to a specified extent (typically 50 percent) must be demolished and rebuilt in

accordance with current building codes rather than simply repaired. Unendorsed, standard

commercial property insurance forms do not cover the loss of the undamaged portion of the

building, the cost of demolishing that undamaged portion of the building, or the increased cost of

rebuilding the entire structure in accordance with current building codes. However, coverage for

these loss exposures is widely available by endorsement. Standard homeowners policies include a

provision granting a limited amount of building ordinance coverage; this amount can be increased by

endorsement. Also referred to as building ordinance coverage.

pasture policy: Animal mortality insurance that may only apply in fenced locations where grass or

other harvested crops are being used as feed for grazing; coverage would not apply in free-range

areas.

peanut revenue policy: A 2014 Farm Bill provision directing the Risk Management Agency (RMA)

to provide a revenue crop insurance policy for peanut producers.

premium billing date: The latest time the insured can make a payment for crop insurance without

being charged interest.

prevented planning (in crop insurance): If the insured is prevented from planting the insured crop

on insurable acreage because an insured cause of loss occurs on or after the sales closing date (SCD),

coverage may apply under the common policy. The insured must have a policy in effect before the

insured cause of loss that prevents the planting of the crop occurs. Failure to plant when other

farmers in the area were planting will result in the denial of a prevented planting claim.

Glossary

73

private crop-hail insurance: The first type of crop insurance written in the United States, it

typically covers the single peril of hail. The perils of fire and wind can also be included in this

coverage but only for some crops and some locales. Private crop-hail insurance is usually purchased

for high-yielding crops in areas of the country susceptible to hail. Unlike federal crop insurance,

private insurers offer and underwrite this policy. It is sold by licensed insurance agents, and the

premiums depend, for a large part, on past loss experience. One advantage of private crop-hail

coverage (over hail coverage available through federal crop insurance) is the ability to get spot

coverage (coverage on an acre-by-acre basis).

production risk (in crop insurance): Facing lower than anticipated yields due to weather or other

causes.

protection level (in crop insurance): Used in determining indemnity payments. A higher protection

level results in a higher indemnity payment.

replanting payment (in crop insurance): If allowed by the crop provisions, may be made on an

insured crop that is replanted with the insurer’s consent. Stipulations apply.

revenue guarantee (in crop insurance): Determined for revenue products. Indemnity payments

occur when gross revenue is below the revenue guarantee.

revenue protection (RP) (in crop insurance): Establishes a dollar guarantee and protects against

declines in both crop prices and yields.

revenue protection with harvest price exclusion: Revenue protection (RP) policies written so that

the level of the revenue guarantee is determined solely by the future prices and does not increase

even if the price rises by harvest.

Risk Management Agency (RMA): An agency of the US Department of Agriculture (USDA) that

administers the federal crop insurance program.

RMA: See Risk Management Agency.

RP: See Revenue protection.

sales closing date (SCD): Acceptable date by which a person must apply for crop insurance. Sales

closing dates are established for each insurable crop and published in the actuarial documents of the

Risk Management Agency (RMA).

SCD: See Sales closing date.

SCO: See Supplemental coverage option

sinkhole collapse: Sudden sinking or collapse of land into underground empty spaces created by the

action of water on limestone or similar rock formations. Sinkhole collapse does not occur

everywhere but is common in Florida and Pennsylvania.

STAX: A stand-alone/supplemental insurance policy for cotton only. A 2014 Farm Bill provision.

supplemental coverage option (SCO) (in crop insurance): A county-level revenue or yield-based

optional endorsement that covers a portion of losses not covered by the same crop’s underlying crop

insurance policy. A 2014 Farm Bill provision.

suspension clause: A provision normally found in equipment breakdown policies that permits the

insurer to immediately suspend coverage on any item of covered equipment if an inspection reveals

that it is in a dangerous condition.


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trip transit (in animal mortality insurance): Policies that typically cover animals in the course of

transportation by land or air.

US Department of Agriculture (USDA): The US federal executive department responsible for

developing and executing federal government policy on farming, agriculture, forestry, and food.

unit (in crop insurance): A parcel of land that is independent of other parcels.

USDA: See US Department of Agriculture.

utility service interruption coverage: Coverage for loss due to lack of incoming electricity caused

by damage from a covered cause (such as a fire or windstorm) to property away from the insured’s

premises—usually the utility generating station. Also referred to as “off-premises power coverage.”

Not provided in a standard property insurance policy but available by endorsement. Utility service

interruption coverage endorsements vary widely as to what utility services are included, whether

both direct damage and time element loss are covered, and whether transmission lines are covered.

whole farm policy: An insurance product that combines Adjusted Gross Revenue (AGR) and AGR-

Lite with improvements to target highly diversified farms and farms selling 2–5 commodities to

wholesale markets. A 2014 Farm Bill provision.

yield guarantee (in crop insurance): A per-bushel figure that is a percentage of actual production

history (APH) yield. Indemnity payments occur when actual yield is below the yield guarantee.

yield protection (YP): Crop insurance coverage issued on a YP basis protects against production

loss for crops for which revenue protection (RP) is available but was not selected.

YP: See Yield protection.

http://en.wikipedia.org/wiki/Federal_government_of_the_United_States

Documents

AFIS 4: Special Farm Property Insurance Lines - kaia.com · PDF filemobile agricultural machinery and equipment insurance ... While a few require the inspections to be ... including