(December 2022)
This endorsement is used with the Insurance Services Office (ISO) AG 00 01–Agricultural Capital Assets (Output Policy) Coverage Form and covers flood by specifically describing the types of water damage it covers and modifying the water exclusion. This analysis examines the changes in detail.
This analysis is of the 04 13 edition of this endorsement. Changes from the 09 07 edition are in bold print. This analysis does not address editorial or format changes that do not affect coverage.
This schedule is used with AG 10 04–Flood Coverage. It contains the following information:
This is a very important date because coverage doesn’t apply to any flood that starts within the 72 hours following the entered date.
However, this is subject to a limited
exception that applies to renewals. (04 13 addition)
The location(s) covered is/are entered and/or described in the space provided.
Property in the open is covered for flood only if described in the space provided.
The deductible amount that applies to loss or damage due to flood is entered in the space provided.
If the
policy is subject to coinsurance, this coverage is also subject to coinsurance.
The only exception is when coinsurance is waived by checking the box.
The insurance company's name and the policy number of any underlying flood insurance written that applies to the risk must be listed in the space provided.
Coverage the National Flood Insurance Plan (NFIP) provides is primary.
The Underlying Insurance Waiver box must be checked if there is no underlying flood coverage.
Note: This verifies that the insurance company has waived requiring that NFIP be primary.
If the waiver is to apply only to specified locations, those locations must be listed. If there are no locations listed, the waiver applies to all locations. (04 13 addition)
The annual aggregate limit for flood coverage is entered in the space provided.
This is the limit that applies in any one occurrence.
The coverage(s) that the flood blanket limit applies to must be selected. The options available are:
The entered limit is the total paid for all loss or damage to covered property/coverage at the locations scheduled. This is subject to the provisions that apply to the Limit of Insurance in this endorsement.
There may be a separate limit of insurance for a specific covered property/coverage in this section. Any item entered on this listing is not part of the blanket limit.
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Example: Michael’s Farm Implements consists of five locations. He is particularly concerned with location 1, so he specifically schedules it with a $2,500,000 limit. The other four locations are covered but under a $3,000,000 blanket limit. A flood occurs at location 1. The loss is in excess of $3,500,000. None of the other locations flooded so he requests that the blanket limit be extended to also apply to location 1. His request is denied because a specified location with its own limit cannot collect from the blanket limit. |
To fully understand the coverage provided, the water exclusion in the policy must be reviewed thoroughly and carefully. Here’s an excerpt of the analysis of that from the PF&M Agricultural Capital Assets Program Coverage Form Analysis:
g. Water
Loss or damage caused by action of water outside the building is
excluded. This exclusion breaks down into five separate sections to make it clearer. Each defines exactly what
water means.
(1) Flood surface water, tides, tidal water, and
waves. Waves include tidal waves and tsunami. Water is also the overflow of any
body of water. A body of water is a natural or man-made river, creek, ocean, or
lake. Water is also spray from any of the
above, wind-driven water, and storm surge.
(2) Mudslide and mudflow occur when a sudden
large volume of water mixes with unstable soil conditions.
(3) Water that discharges in any way from a
sewer, drain, sump, or sump pump. This includes discharge from related equipment.
Related equipment is not defined. Examples of discharge are back up and overflows,
but the term is not limited to just these.
(4) Water is water-saturated ground that creates
hydrostatic pressure against a building's surface or subsurface portions. Water
is any water that enters through foundations, walls, floors, paved surfaces,
basements, doors, windows, and other building openings.
(5) Water is also when any of the waters described in (1), (3), and (4)
above carry waterborne material. Water is also when material is moved or carried by mudslides or mudflow described in
(2) above.
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Example: A storm surge scoops
up Linda’s barn, transports it to Jared’s property, and deposits it on top of
Jared’s garage. The damage that Linda’s barn causes to the Jared’s garage is excluded as water
damage. |
ISO adds a paragraph that explains that this
entire exclusion applies whether any of the events are caused by an act of
nature or otherwise. In order to clarify the term "otherwise," ISO
provides an example that uses the terms “dam,” “seawall,"
"levee," "boundary" or "containment system" and
states that any of them failing to contain the water is an
"otherwise" type situation. However, it is important to note that
using this example format does not limit the exclusion to only those specific
items failing. The goal is to define the term "otherwise" as broadly
as possible.
Much
like other exclusions, if fire or explosion occurs because of any action
of water, coverage applies to the loss or damage the fire or explosion causes.
In addition, if a sprinkler leakage loss occurs due to these actions of water,
coverage applies to the loss or damage the sprinkler leakage causes. Sprinkler
leakage coverage applies only if the policy includes sprinkler leakage as a
covered cause of loss.
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Example: Continuing the previous example, Linda’s barn cuts Jared’s overhead power
lines, causing a spark to fly. The
sparks ignite the garage roof, and it burns down. This coverage responds to
the fire damage. |
Accounts receivable, computers, property on
exhibition, fine arts, mobile equipment, property in transit, salespersons
samples, or valuable papers and records are not subject to this exclusion.
This endorsement applies to only covered property and coverages for which a flood limit of insurance is entered on AG DS 03–Flood Coverage Schedule.
The Agricultural Capital Assets Water Exclusion analysis provided above is a reminder that this endorsement does not eliminate the Water Damage exclusion. Instead, specific coverage is granted. When the coverage granted and the exclusion conflict, the coverage granted overrides. Therefore, it is very important to compare the coverage provided by this endorsement with the Water exclusion. The coverage provided by this endorsement form addresses parts of items (1) and (2) but does not cover any of items (3), (4) or (5). In particular, note that the waterborne material item remains intact so that even if a water event is covered by this endorsement, damage due to waterborne material from that flood remains uncovered.
The endorsement defines the covered flood cause of loss as a general and temporary condition where normally dry areas are partially or totally submerged. This condition can be due to any of the following:
· Inland or tidal waters overflowing
· Surface waters accumulating, from any source, in an unusual or rapid manner
· Surface water runoff coming from any source
· Mudslides or mudflows but only when caused by either of the surface water items above.
The endorsement explains that a mudslide or mudflow must involve liquid and flowing mud. This mud must travel over land that is normally dry. A mudslide or mudflow is like a current of water carrying earth that it deposits along the path over which the current is moving.
Note: The definition of mudslide and mudflow in this endorsement is not the same as the definition of mudslide and mudflow in the water exclusion.
This endorsement uses the term single flood. It is defined as all flooding in a continuous or extended event. This is important because the limit of insurance applies only once for a single flood.
1. All exclusions and limitations in the policy apply to this endorsement's coverage except as paragraph 2. and paragraph 3. below state.
2. Any part of Exclusion 1. g. Water that conflicts with this endorsement's coverage does not apply.
3. The earthquake part of the earth movement exclusion does not apply to loss or damaged resulting from a tsunami caused by a tidal wave.
4. This endorsement adds the following six additional exclusions and limitations:
a. Coverage
does not apply if a flood begins within 72 hours after the time it is purchased.
This limitation does not apply when the
policy is a renewal of an existing policy with flood coverage as long as there
was no break in coverage between the expiring policy and the renewing policy.
(04 13 addition)
In
addition, any increase in limits made fewer than 72 hours prior to a flood
event does not apply to any flood loss or damage that particular flood event
caused. The only exception is an
increase in limits due to renewing the policy. (04 13 addition)
A flood event due to the overflow of inland waters begins when the water first breaks out of its banks.
Note: This exclusion prevents individuals who anticipate a flood event from purchasing flood coverage and then canceling it afterwards.
b. Coverage does not apply to loss or damage caused when water beneath the surface destabilizes the earth above it.
Note: This condition is not treated as flood.
c. Both the policy and the endorsement treat land as Property Not Covered. The costs of grading, excavating, filling, and backfilling are also not covered except when such grading, excavating, filling, or backfilling is required in order to repair or replace covered property.
This means that the cost to restore or remediate land that collapsed or sank because of flood is not covered except when such cost is needed to repair or replace covered property. Another exception is when covered buildings and/or business personal property are damaged because the land along the shore of a body of water collapses or sinks because of flood-related erosion.
Note: Land is still excluded. Only damage to the building and business personal is covered.
d. Loss or damage flood causes to business personal property in the open is excluded unless the flood coverage schedule or the declarations specifically lists it as covered.
e. These properties are considered Property Not Covered but only for Flood Coverage:
f. Loss
or damage caused by or that results when water
or waterborne material is discharged
from a sewer, drain, or sump is
excluded. However, coverage does apply when the discharge is due to flood, and the discharge takes place within 72 hours of
the flood receding. (04 13 change)
Note: This exclusion is becoming more
specific. The term discharged is used in place of sewer backup and overflow.
Water and waterborne material are the discharge, but there was no such
reference in the prior edition. The discharge must be from a sewer, drain, or
sump. However, the prior edition referred to only sewer back-up or overflow.
1. With
respect to Flood Coverage, Debris Removal Additional Coverage does not apply.
The following replaces it:
a. The costs to remove debris of covered property and other types of debris at a covered location are covered but only debris from the flood. There is no coverage for expenses to remove mud from the location’s grounds.
Note: Using “grounds” suggests that expenses to remove mud from inside buildings and structures are covered.
b. Expenses to remove covered property that floated away or that the flood swept away from the location are covered.
c. Debris
Removal Coverage does not increase the limit of insurance that applies to
flood.
Note: Cleanup is a major part of most flood losses and this coverage is very important. However, it does not provide additional limits. The debris removal is part of the flood limit of insurance. As a result, it is extremely important to have a sufficiently high limit to cover potential damage as well as cleanup and retrieval expenses.
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Example: Princely Poultry is located on Flintstone Freeway adjacent to the Rubble River. His Agricultural Capital Assets policy includes the AG 10 04–Flood Coverage endorsement with a $2,000,000 limit. The river overflows its banks during heavy spring rains. A boat dock from a property upriver comes to rest on Princely's property while one of its outbuildings and some mobile equipment float downstream and come to rest on Fred’s Furniture’s property. The main building is not damaged structurally but is filled with mud and leftover debris. All business personal property is damaged, but most can be cleaned and reused. The claim is as follows:
Coverage applies as outlined above, but payments end when the $2,000,000 limit is used up. |
2. This extension applies only if the AG 14
01–Scheduled Location is attached.
a. Flood coverage extends to apply to Newly Acquired or Constructed Property as described in that endorsement. However, coverage applies only if the building or structure is fully enclosed by walls and a roof.
b. The limits in the AG 14 01 do not apply to flood coverage. Instead, 10% of the total of all flood coverage limits this endorsement provides is available for loss or damage to the applicable newly acquired or constructed property. The provided coverage is part of the flood limit on the Flood Coverage Schedule, not an addition to it.
3. The
Flood Limit of Insurance is set. Even though additional coverages and extensions
in AG 00 01 may provide additional sublimits, they do not increase the
available flood limit. This item is
referring to only coverages and extensions that are not described in paragraphs
1. and 2. above.
Note: Paragraphs 1., 2., and 3. emphasize that the flood limit remains the maximum paid regardless of any coverage or extension sublimits that may be provided.
Note: It is important to remember that the
coinsurance condition in the coverage form applies to only business income and
extra expense coverage. The AG 14 01–Scheduled Location endorsement contains a
coinsurance condition that applies to direct damage loss, but this section does
not refer to that.
1. If a coinsurance condition is part of this policy it also applies to flood coverage unless the No-Coinsurance Option on the Flood Coverage Schedule is selected.
2. When the no coinsurance option is selected it applies to this endorsement's Additional Coverages or Coverage Extensions too.
1.
General Information
The Flood Limit of Insurance can be equal to or less than the limit of insurance for fire. If there is no flood limit, the limit is the same as the Fire Limit of Insurance.
2.
Application of Limit and Aggregate
This limit is the most the insurance company pays in a single flood event. The annual aggregate limit is the most the company pays for flood in any one policy period. If there is no annual aggregate limit, it is the same as the flood limit. If a flood event begins in one policy period and continues into a second, the only aggregate that applies is the aggregate from the first policy period.
Note: The annual aggregate is not required to be a particular amount or a multiple of the limit of insurance.
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Example: The blanket limit of insurance on Wilfred's Windmills policy declaration is $2,500,000. The Flood endorsement declarations has no limits entered, so the same $2,500,000 applies to the flood cause of loss. In January, an ice jam at a nearby dam caused severe flooding, and Wilfred sustained a $2,000,000 covered claim. Diligent work allows for rapid repair such that Wilfred resumes operations in April. The weather does not cooperate, though and torrential rains in May bring yet another flood event. Wilfred’s facility is again inundated, but only $500,000 remains in the annual aggregate to pay for the loss |
3. Ensuing Loss
A covered ensuing loss due to a covered flood event may occur. In that case, the most the insurance company pays is the limit of insurance that applies to fire, not the total of the fire and flood limits.
This section concludes with two examples of ensuing losses.
1. The flood deductible on the endorsement schedule or the declarations applies to the coverage this endorsement provides.
2. When this endorsement is excess over an NFIP policy, it cannot be used to satisfy any part of a deductible endorsement under the NFIP policy.
3. If both flood and another cause of loss that is the result of the flood cause damage and the damage is sustained at the same time, only the highest deductible applies.
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Example: The flood at Wilfred’s Windmill extinguishes the pilot light at his dwelling. The family had fled the flood, so the gas continued to flow. The gas was somehow ignited by a spark, and a fire started. Wilfred has both flood insurance and fire insurance. Flood coverage is subject to a $10,000 deductible, and fire coverage has a $5,000 deductible. When the flood and fire losses are settled, only the $10,000 flood deductible is applied because it is the higher of the two deductibles. |
This condition replaces the Other Insurance Condition in the coverage form.
1. If the NFIP provides flood coverage, or if the property is eligible for flood coverage under NFIP, this coverage is excess over the maximum limit available from NFIP.
Note: Some risks are at locations that would qualify for treatment in the NFIP, but it is not currently available for any of a number of reasons. The NFIP requirement is waived in those cases.
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Example: A controversy arises between the federal, state, and local governments regarding flood maps and requirements. The citizens of Little Flood are caught in the middle and lose their access to NFIP flood policies. Kelly was sure things would be resolved but contacted his insurance agent to add flood coverage to his Agricultural Capital Assets policy just in case things didn’t. He made the right decision before the floods came and before NFIP policies became available; he had full coverage because the NFIP requirement was waived due to NFIP not being available at the time of the loss. |
Note: An insurance company may agree to write the entire flood amount without requiring NFIP underlying coverage. If it does, an “X” must be placed in the box next to the Underlying Insurance Waiver statement on the Flood Coverage Schedule. The “X” in that box is vital, and it must be checked if the insurance company agrees to waive NFIP. If it is not checked, the insurance agent should contact the company immediately and receive confirmation of the waiver in writing and an endorsement that makes the change.
2. If there is any flood coverage available other than NFIP, this insurance pays only its proportional share but not more than the Flood Limit of Insurance.