The shipping of farm products is getting a lot of attention these days.
A prime indication of that was the nation’s first “summit” on agricultural and food truck transport, held in April 2007 near Washington, D.C.
Mike Johanns, then U.S. Secretary of Agriculture, led off a series of public officials and industry experts at the event who addressed the growing challenge of shipping agricultural cargo in an era of rising fuel prices, driver shortages, and increased concern for security.
“The agricultural sector is the largest user of freight services in the country,” Johanns told the gathering, and “trucks handle about 90% of all food shipments and nearly half of all grain movements” in the U.S.
While the “summit” addressed transportation issues that are national, even global, in scope, agricultural shipping interests have been negotiating with Congress and federal agencies over issues that directly impact local shipments of farm commodities.
In August 2007, the U.S. Department of Transportation (DOT) announced funding for a study of the methods used to secure cargoes of agricultural commodities, such as fruits and vegetables, that are shipped in tubs and bins.
That study was prompted by the reaction of agricultural shippers to the imposition of new cargo securement regulations promulgated by DOT to help secure the nation’s food supply against sabotage by terrorists or criminals.
Those rules drew protests from shippers and motor carriers when they were applied to intra-state agricultural shipments in California. The shippers and carriers claim the regulations, as currently drafted, would drive up the cost of farm cargo shipments unnecessarily.
In the meantime, agricultural shipping interests lobbied Congress to include a provision in the 2007 farm bill that would limit the application of restrictions on the hours of
service drivers could put in.
Previously, those restrictions did not apply to agricultural shipments within a radius of 100 miles during planting and harvest time; ag shippers sought to increase the radius to 150 miles.
With so much attention being paid to farm shipments, farm agents and underwriters may wonder whether, or how, their insureds are covered for risk of loss to commodities as they are transported locally for sale, processing, or transshipment to other regions.
If you can’t answer that for your insureds, you’re probably not alone.
Transit exposures have long been a secondary concern of farmers compared to “production risks,” such as bad weather, according to Rudy Radke, an agriculture specialist with North Dakota State University Extension who advises the Upper Great Plains Transportation Institute.
“There isn’t a lot of loss in transit,” he says. “The transportation problem is pretty thin.”
“For the short period of time farmers are transporting commodities to the distributor, they either accept the risk or buy some cargo coverage,” says Sherry Taylor, AAIS manager of farm and agribusiness who previously worked as a farm insurance underwriter and manager for several insurance companies.
According to Taylor, liability concerns outweigh concerns about transit exposures from a company perspective.
“When underwriting fresh pack, my concern was whether the farmer was packing under his own label or someone else’s,” she says. “I wanted to know whether problems could be traced back to our farmer. Cargo exposures are far easier to calculate than the damages for a potential products claim.”
Perhaps as a reflection of that, and of the long history of informal risk management on farms, coverage for first-party transit losses has generally been found in limited form under disparate provisions of standardized farm policies.
AAIS has taken some steps to introduce transit coverage in farm and agribusiness policies, but it remains to be seen whether a more comprehensive mechanism is needed.
That will depend, in part, on whether the growing desire among consumers for locally grown produce is enduring or a fleeting fad. For now, at least, “the local food movement is coming on pretty strong,” says Radke.
First-party coverage for farm property in transit is addressed in several ways under the AAIS Farmowners Program.
First, under the AAIS FO-6 (the farm property coverage part), there is coverage with limitations for both scheduled and unscheduled farm personal property away from the insured premises.
Named perils coverage for scheduled farm personal property (AAIS Coverage F) applies to scheduled property away from the insured premises, up to 10% of the applicable limit for that property.
In contrast, named perils coverage for unscheduled farm personal property (AAIS Coverage G) is applied up to a limit indicated in the declarations. However, coverage for unscheduled property off premises is limited to livestock, farm machinery and equipment, and certain specified commodities.
The FO-6 has other provisions addressing key transit exposures, however:
- There is no coverage for insured property being stored or processed at warehouses, elevators or other facilities; and
- There is no coverage for property in the custody of a common or contract carrier, except as provided under a separate incidental coverage.
That incidental coverage for “Property in the Custody of a Common or Contract Carrier” extends to property insured under coverages F and G that suffers a loss due to one of the named perils insured against under the FO-6. Covered losses are paid up to a built-in limit or $1,500 unless a higher limit is indicated in the declarations.
Additional coverage related to transit is provided through specified livestock perils. Subject to various limiting provisions, death of covered livestock due to the collision or overturn of a vehicle transporting them, or due to accidents during loading or unloading, is covered up to the applicable livestock limit.
The AAIS Farmowners Program allows insurers to provide additional transit coverage under the program’s “Property in Transit” endorsement.
That endorsement covers losses to property insured under coverages F and G while in transit, up to a $5,000 limit or the limit on the covered property, whichever is less. There is no coverage, however, for losses to property being transported by or in the custody of a common or contract carrier.
“I have seen carriers include the $5,000 cargo coverage as part of the property freebies,” says Taylor.
As written, the endorsement seeks to define an appropriate transit exposure under a farmowners policy.
First off, by excluding coverage for property in the custody of common or contract carriers, the endorsement effectively limits coverage to property shipped on a farmer’s own vehicles or, depending on circumstances, through informal arrangements.
Also, the endorsement is written to limit coverage to fortuitous causes of loss and avoid exposure to transportation hazards outside the scope of farming.
For example, the endorsement excludes coverage for, among other things, “loss or damage caused by shifting of load, poor packing or rough handling, or unexplained shortage . . . ,” unless these are caused by fire, lightning, windstorm, flood, explosion, collision, or overturn of the vehicle transporting the property.
By what it covers and what it doesn’t, the Property in Transit coverage endorsement seeks to cover a farm’s incidental transit exposures, not a trucking operation.
AAIS has taken a different approach in addressing transit exposure under its Agricultural Output Program (AgOP), a program designed for insuring disparate property exposures of agribusiness operations.
The AgOP’s building and personal property form effectively excludes commodities being shipped from coverage as property away from a covered location.
The provision that provides coverage for personal property temporarily off-premises states that “this coverage does not apply to property in or on a vehicle, a rail car, an aircraft, or other conveyance . . .”
Rather, the form includes a separate, built-in “Property in Transit” coverage, with a limit indicated on the declarations, for covered property while in transit “regardless if the loss involves one or more vehicles, conveyances, containers, trailers . . .”
In addition, the AgOP property form includes another distinct coverage, with its own limit indicated on the declarations, for “Carrier Liability.”
This coverage insures the policyholder for its legal liability for loss to property of others that the insured becomes legally obligated to pay as a common or contract carrier. In this way, the AgOP anticipates the expanded coverage needs of an agribusiness that may also be in the business of transporting commodities from suppliers for processing and/or transshipment.
Yet, even the relatively broad transit coverage provided in the AgOP may not be suitable for agricultural risks with large transit exposures or transit exposures that could pose a large threat to a farming operation at a critical time.
Cargo insurance is traditionally an inland marine coverage, and the AAIS Inland Marine Guide provides three policy forms that can be used to cover property being shipped on the owner’s vehicles or by a common or contract carrier.
The forms are:
- Owner’s Cargo Coverage, typically used to insure multiple shipments of the insured’s property on the insured’s trucks;
- Trip Transit Coverage, typically used to insure a single shipment of the insured’s property; and
- Transportation Coverage, typically used to insure single or multiple shipments that use a variety of modes of transportation (truck, rail, air, etc.).
Under all three inland marine forms, coverage automatically extends to property at warehouses and other facilities when they are part of the “ordinary, reasonable, and necessary stops, interruptions, delays or transfers incidental to the route and method of shipment.”
In contrast, there is no coverage under a farmowners policy for property at warehouses, elevators, and other facilities away from insured premises.
Under the AgOP, a loss to property at a warehouse might be covered as “property away from a covered location” or as “property in transit,” depending on the circumstances of a loss.
However, inland marine coverage for property at stops incidental to transit usually does not extend to locations where commodities are processed before transshipment elsewhere.
Also, inland marine transit forms provide no liability coverage for property of others transported by an insured.
One potentially critical coverage offered under inland marine cargo forms is pollutant clean-up, provided as a supplemental coverage up to $10,000 under the transit forms, but limited to insured premises/covered locations under the Farmowners and AgOP programs.
Farm underwriters are well-advised to understand how the provisions of inland marine cargo policies differ from cargo provisions in farm forms, and to evaluate their farm clients’ need for transit coverage accordingly.
Insuring Farm Cargo 
