Jim decided to go back to the countryside and start anew with a farming business. He gets a pretty good farm coverage in preparation for any catastrophe or future needs. He put his heart and soul into his farm and dreamt of making it self-sufficient one day. With the operation working as planned, he decided to make some more improvements to his business.
He heard of biogas methane production in farms, so he had some anaerobic digesters for filtering manure slurry installed on his farm as well. He thought it would really be a big help in improving the profitability of the farm and save on operational costs if they can produce enough for their own electricity and heating needs. Moving forward, he thought maybe they could also sell some of the surpluses to nearby homes and establishments.
Everything seemed to be going well until a “freak accident” happened on the farm one day. . One of the tanks had a leak. The smell was really bad and a few of the farmhands working on the digesters at that time experienced nausea and then collapsed. Just as he called 911, he heard an explosion, and fire broke. With too much on his plate already, Jim now worries if his coverage for the farm is enough to manage possible losses.
Going Back to the Basics
Jim did the right thing by getting coverage for his farm at the start of his operation since it is meant to provide protection both personally and commercially. Furthermore, farm insurance also extends to the farm owner’s machinery, equipment, feed, and livestock. Good farm insurance should provide adequate coverage from potentially catastrophic loss.
Coverage #1: Property
Good coverage can protect farm owners from potentially losing their business due to a damaged barn or similar structure.
Coverage #2: Products Liability Exposure
The threat of losing one’s business due to serious illness resulting from consuming produce from your farm is all too real. Adding an endorsement to modify the insurance policy can protect farm owners from these possible perils.
Coverage #3: Pollution
Improper application and storage of pesticides and fertilizers, poor placement or construction of storage tanks, and even poor drainage may all add to the pollution risk factor on a farm. It may be quite hard to manage it but still doable. Environmental insurance can cover bodily injuries and property damage resulting from a farm pollution incident.
Coverage #4: ATV/Utility Vehicles
Using an ATV or a Utility Vehicle makes it easier to get around the farm on its often rugged grounds. However, these vehicles are also known to increase the owner’s liability. Related injuries may be minimized or eliminated by good judgment and proper usage of protective gear such as helmets.
Coverage #5: Care, Custody, and Control
The care, control, and custody endorsement added to the farm insurance policy are a great way to protect farmers by offering services in caring for livestock owned by another person, as part of his operation. This endorsement covers not just the raising of the livestock. It also serves as a protection for a possible loss in case of death to some or all of the livestock, due to unfortunate circumstances such as diseases while in the farm’s care.
Coverage #6: Glass Coverage
When the farm operations are heavily reliant on its equipment like a tractor, harvester, combine among others, having one or all of it inaccessible for a period of time due to broken cab glass, spells lost business. The farm insurance should be able to cover repairs and other services related to this damage.
Coverage #7: Custom Farming / Business Activity
Custom farming is a growing trend with many farmers to date. Instead of leasing another farm to expand their operation, a farmer may opt to offer his services or the use of his machinery or equipment, draft animals, among others, in relation to any farming activity, for a fee. The fee could either be monetary, a share of the harvest, or anything of value as agreed..
This might be a lucrative practice since he will not have to spend on other essentials for the farm operation like the purchase of seeds, fertilizer, pesticides, livestock feeds, or vet services. This, however, does not exempt him from responsibilities related to his business activities. As a protection, the farmer may add an endorsement to the policy for custom farming.
Coverage #8: Foreign Object Ingestion Coverage
Modern farms are mostly equipment supported to manage their production better. These mechanical tools however useful they are, a possible breakdown also prove to have the highest risk in any farm operation. It could be from wear and tear, but sometimes it could also be a result of ingesting an obstruction like a rock causing the breakdown. If repairs of a simple machine could already cost an arm and a leg, imagine how much repairs for highly specialized farm machines like a combine or chopper will be? Good thing farmers have the option to include a Foreign Object Ingestion Coverage in a policy to address such needs.
Coverage #9: Coverage for Peak Season
This special coverage offers the farmer the maximum amount of coverage for the grains stored in his bins during harvest peak season until everything is sold. This coverage is also applicable to any crops aside from grains.
Coverage #10: Field Crops
Field crops may have the capacity to offer the highest yield on a farm, but it is also one of the most vulnerable being exposed to the elements and all. Adding multi-peril insurance to farm coverage can help the farmer face such uncontrollable circumstances in protecting his livelihood and investment.
Now in the case of Jim, knowing the scope of his coverage and benefits is already winning a part of the battle. But is he aware of his coverage’s exclusions?
Working Around the Exclusions
Getting insurance coverage for farm businesses shifts some of the risks from itself to the insurance company. It is actually a sound risk management strategy.
In general, there are 3 types of risk that can be covered by insurance. These are personal risk, property risk, and liability risk. Any risk that may compromise the health or safety of a person, like an illness or injury from an accident, is classified as Personal Risk. On the other hand, Property Risk is any possible financial loss arising from liability, legal issues, or partner problems caused by either a faulty or fraudulent real estate investment. Lastly, Liability Risk is about coverage for “weaknesses” that could pose potential loss for the business
However, not all risks are being covered by insurance companies. This provision is called “exclusion” for some risks. The insurers used this provision to narrow coverage for risks they are unwilling or could not insure.
These risks are categorized as “uninsurable” when the insurers are unable to calculate the probability of the risk, preventing them from coming up with a workable premium the business should pay. Given this information, it is sufficient to say that once there is enough data or statistics to calculate the probability of the risk, then there is still a chance that this “exclusion” will be recategorized as an “insurable risk”,
Farm Property Coverage Exclusions
In the case of the commercial farms which are owned and occupied by the insured, most insurers use checklists or forms to determine the scope of their coverage, therefore, easily identifying exclusions. Among the covered were the dwelling or main house, other private structures connected to it, household personal property, farm personal property on either a scheduled or unscheduled basis, barns, and other farm structures. This checklist is then added or attached to the specific conditions form and policy jacket to complete it.
Below are some of the coverage with exclusions:
It refers to the residence owned by the insured which includes the main house, attached structures excluding those attached only by a fence or anything similar to it; any materials which are intended for use in the construction or repair of the dwelling, and attached structures; building and outdoor equipment used within the site, even equipment temporarily away from the premises — unless with a separate coverage.
The provision does not include land, including where the dwelling is built on. Water, trees, shrubs, plants, or lawns (unless otherwise stipulated in the Extension of Coverage)
* Other Private Structures Attached to Dwelling
These structures may include unattached private garages, attached outdoor communication devices such as radio and TV antennas, and satellite dishes. It may also include other structures which are separated from the dwelling by a clear space or even attached only by a utility line or fence.
It excludes coverage of land, water, rented structures to non-tenants of the dwelling, and other structures used for farming requirements.
* Household Personal Property
It covers the personal property of the insured along with the members of the family as long as they are in the insured location. The coverage may also include at the owner’s request, others while they are in the same covered location as the insured.
The following are items excluded from this coverage: Items already covered by other insurance; aircraft and its parts; motor vehicles or land transportation, their equipment or accessories; trees, shrubs, plants, and lawns owned by a tenant unless included in the Extension of Coverage; other animals, birds or fish; business property unless covered by a Special Limits of Insurance; electronic data storage devices in all its forms; software programs; audio-visual equipment; farm personal property other than office fixtures, furniture and equipment within the office on the resident premises.
* Scheduled Farm Personal Property
The following property under this category are included with a special provision:
- Grains including threshed beans and seeds, manufactured and mixed feeds stored in sacks and similar containers, piled in wagons, trucks, or inside the building or similar structure.
- Grains left in piles in the open, in stack or any similar situation but only if lost or damaged due to a vehicle, theft, fire and lightning
- Straw, hay and fodder whether inside the building or similar structure, in stacks, windows or bundles on occasion of fire or lightning, windstorm or hail, vehicle or theft
- Farm materials, products, supplies and related packing materials and containers relative to farm operations but not any crops
- Poultry except turkeys, in the open or inside any building or coop intended for them
- Value of items stored or packed inside wooden containers, boxes or trays
- Office equipment and software used for farm management.
- Equipment whether usual or incidental to the farm operation including but not limited to vehicles, machines, supplies and tools
The following are not included under this category:
- Plants, trees, shrubs, lawns or any growing crops
- Household personal property
- Electronic recording devices
- Permanent fixtures whether attached or within a building
- Outdoor TV or radio wiring or related equipment; light poles and private power supplies
* Unscheduled Farm Personal Property
This provision covers all items under the personal property even away from the insured location except those enumerated in the “not covered” list.
- Farm machinery and equipment
- Farm tools, supplies and implements
- Grain, fertilizer, fodder, hay, straw manufactured and blended feed for livestock, ground feed, silage, threshed beans and seeds except during storage or while being processed in drying and manufacturing plants, seed houses, warehouses and public elevators.
- Livestock, except those already at the public stockyards, sales barns, packing plants or slaughterhouses, and while in transit by a contract or common carrier.
The following are not included under this category:
- Any electronic media recording devices
- Animals other than livestock
- Personal or household property inside the dwelling
- Fish, bees, worms and poultry
- Equine animals such as show horses, race horses or show ponies
- Trees, plants, shrubs or lawns
- Grains, threshed seeds and beans, straw, hay, silage, fodder, fertilizer, herbicides, ground feed, manufactured or blended livestock feed during storage or processing in manufacturing plants, warehouses, seedhouses, commercial drying plants or public elevators
- Crops in the open
- Contents of chicken broiler houses or fryer, laying houses, poultry brooder or duck or turkey houses
- Tobacco, cotton, root crops, vegetables, potatoes, fruit, bulbs or nursery stock
- Windmills, wind chargers or their towers, fences
- Equipment for outdoor radio or television
- Automobiles, trucks, motorized tricycles, bicycles, dirt bikes, snow mobiles, motorcycles, four-wheel ATV, mobile homes, house trailers, all vehicles for road use, watercraft, aircraft — including their parts,equipment and tires.
- Portable structures or buildings
- Equipment for irrigation usage
- Any permanent fixtures attached to a building or structures like bulk feed tanks or bins, pasteurizers or boilers and bulk milk tanks
- Cotton pickers and harvester-thresher combines
- Properties with other specific coverage
* Other (Farm) Structures
These are structures listed only due to the provision of a Limit on Insurance
- Farm buildings and structures other than dwellings, including sheds and permanent fixtures attached to them
- Portable structures and buildings
- Fences used other than for field or pasture, pens, corrals, feed racks and chutes
- Equipment used for outdoor and TV, antennas, masts and towers
- Silos whether or not attached to buildings or structures
- Supplies and building materials for use in constructing or repairing structures and farm buildings, stored inside or near the insured location
- Improvement and addition of fixtures or installations to the intended building. Coverage includes expenses incurred by the tenant for said improvement.
The following are not included under this category:
- Fences intended for field or pasture
- Land where property is located
- If below the ground, foundations of structures or buildings
- Piers, pilings, docks or wharves
- Cost incurred for excavations, grading, filling or back filling
* Other Exclusions
- Loss or damage to buildings or barn containing tobacco resulted from the use of open-fire for curing or drying it inside the structure
- Loss caused by frost or cold weather – either ice, snow or sleet, driven by the wind or not
- When livestock or poultry run towards streams, ponds or ditches, or even against fences or other objects, smothering them due either to shock or fright, blizzards or snowstorms
- Explosion of alcohol stills, steam pipes, engines, boilers or turbines which are either owned, leased or operated by the insured; electric arcing, rupture or bursting of pipes or other pressure relief devices resulting to damage in the building or structure
- Loss is not covered if the dwelling remained vacant for more than 30 days
- Theft due to unauthorized instructions to transfer the right to any person or place
- Theft from a building or structure under construction, including supplies and materials for the said activity, until it is finished and occupied.
- Loss due to theft within the premise rented by the insured to another person
- Loss discovered during inventory due to inaccurate conversion or possible embezzlement
- Sinkhole collapse
- Volcanic action
- Electronic devices used in transmitting recording, receiving or reproducing sounds or pictures powered by electrical system intended for use of motor vehicles, unless permanently installed
- Records, wires, tapes, discs or other medium used with devices stated above and used while in or on a motor vehicle or mobile agricultural vehicle
- Damage to farm machinery due to collision with another object or tripping itself
- Excluded also in the coverage are tires and tubes of a farm vehicle unless it coincides with other damages to the machine or implement. Example of this is damage incurred while towing a tractor and implement, during hitching or unhitching, foreign objects taken into the mechanical harvester or farm machine
- Death of covered livestock due to collision, except when the accident happened during transportation by a common or contract carrier, and if the death of the animal is caused by the vehicle which is also owned or operated by the insured
- Livestock loss due to earthquake and flood
* General Exclusions
The following exclusions apply to all forms of covered causes of loss.
- Building ordinances or law enforcement
- Earth movement
- Nuclear hazard
- Volcanic eruption, except for resulting fire or volcanic action due to airborne volcanic blasts or shockwaves, ash, dust or lava flow
- Destruction of property or seizure by order of government authority
- Power failure when the incident happened away from the insured location
- War and subsequent military action
- Intentional or planned loss
- Damage caused by water including flood, waves, tidal waves, overflow, liquification, water backing up from a sewer or drain; mudslide or mudflow
Insurance coverage has provisions for almost everything. However, every policyholder, whether he has coverage for personal or business use, should consider all risks to make sure he is adequately protected. Unfortunately, the five threats falling under the “uninsurable” or exclusion category are just as real: risk to reputation, regulatory risk, trade secret risk, political risk, and pandemic risk. However, instead of seeing these threats as gaps, the policyholder can use these as guides so he can better protect himself. In the case of Jim, the best he could do is to check his coverage and work over with his agent on adjustments as needed.
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