Sherry Taylor worked many years in farm insurance sales and underwriting before becoming AAIS’s manager of farm and agribusiness in 2007.
From her unique perspective, she knows that farmers may find themselves underinsured or, more rarely, over-insured for their farm personal property.
That’s because agents and underwriters sometimes have misconceptions about the provisions of standard farm property forms, and commit oversights or take shortcuts in the heat of competition that can come back to haunt them at the time of a loss.
Many of the misconceptions, she says, are rooted in the casual and misleading use of the term “blanket” to describe the coverage provided under a standard farm property form, particularly as it applies to unscheduled farm personal property.
“The idea of a blanket is often misunderstood,” she says. “The insured may think that all personal property is covered, but several items of property are excluded under a farm personal property form.”
Generally speaking, the term “blanket” comes from commercial insurance, and refers to coverage for one type of property in multiple locations, or multiple types of property in one or more locations. Blanket coverage contrasts with “specific” insurance, coverage for one type of property at one location.
In fact, the word “blanket” is rarely used in standard farm property forms, and not at all in AAIS forms.
While “blanket” may serve as convenient shorthand for describing the variety of property covered under a farm property form, those forms are more properly understood as a combination of blanket and specific coverage, with several particular restrictions added.
(For those not familiar with farm coverage, standard farm property forms typically cover scheduled barns and other structures at described insured locations, plus scheduled and unscheduled personal property at insured locations, with limited coverage for personal property away from insured locations.)
Confusion about the “blanket” nature of farm property coverage leads to common errors in writing coverage, according to Taylor.
Problems start when agents and underwriters fail to scrutinize “inventories” of unscheduled property for items that are excluded or ineligible for coverage.
Inventories are commonly used lists of farm personal property and values, but they are not standardized. Unlike schedules of certain types of insured property, inventories are not part of a policy.
For example, an inventory submitted by a farmer and his/her agent may include the value of harvested fruits and vegetables stored in an outbuilding, but fruits and vegetables are excluded from standard coverage for unscheduled farm personal property.
Other types of ineligible property include irrigation equipment, non-farm vehicles (such as all-terrain vehicles), and animals other than livestock (such as exotic animals like alpacas, llamas, and elk).
“If an item of property is shown on the inventory, but is not eligible for coverage, who is responsible, the agent or the underwriter?” Taylor asks.
As a practical matter, the underwriter could be the one on the hook, if the carrier decides not to risk the ill will and regulatory sanction that could result from balking at paying a claim for which premium was collected (even if it offers to refund the premium).
To the extent that claims for ineligible property are paid, a company’s loss cost
information is distorted.
“Assuming that the loss is paid because the premium is paid,” Taylor says, “that loss goes against the company’s future loss cost calculations.”
Taylor’s advice: Don’t simply assume that the total at the bottom of a farm property inventory is an appropriate valuation of the insured property. Examine the inventory for eligible and ineligible property.
One would think that including ineligible property in insured values would at least avoid coinsurance penalties, but that’s not always the case.
(Standard coverage for unscheduled farm personal property carries an 80% coinsurance requirement. There is typically no coinsurance requirement for coverage of specifically scheduled items of farm property.)
According to Taylor, farmers commonly purchase a limit for unscheduled farm personal property coverage equal to 80% of the value indicated on an inventory. After that, however, the actual cash value of the insured property is generally not valued until the time of a loss.
“Total insured values are generally not questioned until the time of a loss, unless an inspection is done,” she says. “As a result, two things happen.
“First, the limit will come into question at the worst time--when the farmer has a large, debilitating loss.
“If the valuation of insured items is too low, then the limit is generally 80% of too low a value. In that case, the farmer may be assessed a coinsurance penalty.
“Secondly, over time, your unscheduled farm personal property loss costs can increase more than they should because the premium being collected is not a true reflection of the value insured.”
There is another commonly overlooked condition that can leave a farmer vulnerable to a coinsurance penalty.
If the insured does not want to insure certain items of unscheduled property that are eligible for coverage, they must be explicitly excluded on the policy declarations. Otherwise, they are included in the coinsurance calculations.
“Standard farm property policies typically have a provision under the ‘property not covered’ section allowing for the exclusion of otherwise covered property, but the exclusion must be shown on the declarations,” she notes.
One thing working in the farmer’s favor, is that the value of farm property recently acquired (within the previous 30 days) is not included in the determination of insured values for coinsurance requirements provided the property is not acquired in replacement of insured property.
However, the acquisition of new equipment does not, in itself, increase the overall limit for unscheduled personal property. In the event of a large loss, the acquired property will tend to dilute the limit.
Another potential underwriting pitfall is the handling of mid-term endorsements.
“Often, in the haste to keep processing times to a minimum, changes to the unscheduled farm personal property limits are not closely reviewed,” says Taylor. “In fact, endorsement requests often just ask for an increase or decrease without indicating why a change is being made.
“Again, the only time the total limit comes into question is at the time of loss, but is that really when one wants to be asking what’s included in the running limit--especially if the item damaged is a category of farm property not previously shown on the inventory list?”
Beyond that, there are other conditions that could result in a farmer being unpleasantly surprised by his recovery for farm personal property following a loss.
By and large, says Taylor, agents and underwriters need to be more aware of additional policy limitations and restrictions, among them:
- Coverage for livestock is subject to the lesser of a series of sublimits.
- The 10% coverage extension for crops in the open falls within, not in addition to, the overall limit for unscheduled personal property. Also, this coverage extension does not apply to all types of crops.
- The following are not eligible for coverage as unscheduled farm personal property:
- Race horses, show horses, and show ponies;
- Certain types of building contents, such as heated chicken fryer or broiler houses; and
- Portable building or structures.
Then, of course, there can be shortcomings in the coverage for scheduled farm personal property, if the items on the scheduled are not adequately valued at time of renewal.
In all, a farm personal property form is a complex document reflecting the unique challenge of insuring diverse risks on a standardized basis.
The measure of a farm insurance professional will be how well he or she understands the complexities, explains them to agents and insureds, and avoids unpleasant surprises at claim time.
Over-Under 
