AG 10 01–EARTHQUAKE–VOLCANIC ERUPTION

(December 2022)

INTRODUCTION

This endorsement covers earthquake and volcanic eruption and amends the Earth Movement exclusion in AG 00 01–Agricultural Capital Assets (Output Policy) Coverage Part. The coverage is provided by supplying exceptions and deviations from the coverage form. This analysis examines each of them.

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.

AG DS 04–EARTHQUAKE–VOLCANIC ERUPTION COVERAGE SCHEDULE ANALYSIS

This schedule is used only with AG 10 01–Earthquake–Volcanic Eruption. It provides the following information:

• Description of Scheduled Location(s)

The location(s) covered is/are entered and/or described in the space provided.

• Including Masonry Veneer Option

The masonry veneer coverage option must be accepted or rejected by checking the yes or no box.

• Property Damage Deductible

The percentage deductible that applies is entered in the space provided.

Note: The Property Damage Deductible in this analysis explains how the deductible is applied.

This deductible does not apply if Earthquake Sprinkler Leakage is the only coverage. (04 13 change)

• Earthquake–Sprinkler Leakage Only

Checking the box means that coverage applies to only Earthquake–Sprinkler Leakage.

Note: Paragraph B. 2. in this analysis explains this limited coverage.

• Earthquake–Volcanic Eruption Limit(s) of Insurance

The limit or limits of insurance in this section are annual aggregate limits. The Limit of Insurance section in this analysis explains how they apply.

• A. Blanket Limit

This limit applies to all locations on the endorsement schedule. If a separate blanket limit applies to other locations, a separate schedule is used to state the blanket limit for them and the locations involved. The blanket limit can apply to buildings, business personal property, business income, and extra expense/dwelling loss of use, or specified other.

Note: The blanket limit does not apply separately to listed or scheduled locations, covered property, or coverages. It is the most the insurance company pays for all loss or damage to the covered property/coverage at the listed scheduled locations. This is subject to the provisions in the Limits of Insurance Section in this endorsement.

• B. Separate Limits

If a separate limit of insurance for a specific covered property/coverage appears in this section, the blanket limit does not apply to that covered property/coverage.

• Including Annual Aggregate Limit Option

This section gives the option to select an increased annual aggregate limit. The Limit of Insurance section in this endorsement explains this option.

AG 10 01–EARTHQUAKE–VOLCANIC ERUPTION ANALYSIS

A. Application

This endorsement applies to only covered property described and coverages selected on the AG DS 04–Earthquake–Volcanic Eruption Coverage Schedule or on the declarations.

B. Additional Covered Causes of Loss

To fully understand the coverage provided, the earth movement exclusion in the policy must be reviewed thoroughly and carefully. Here’s an excerpt of the earth movement exclusion analysis from the PF&M Agricultural Capital Assets Program Coverage Form Analysis:

a. Earth Movement (04 13 change)

There is no coverage for loss or damage caused by or that results from earthquake. Aftershocks and tremors of an earthquake are also excluded. Landslide, mine subsidence, and earth sinking are also excluded. However, sinkhole collapse is not. When if any of these excluded losses cause fire or explosion, the loss or damage from the ensuing fire or explosion is covered. (04 13 addition)

Coverage also does not apply to volcanic eruption, explosion, or effusion. However, if any of these cause fire, breakage of building glass, or volcanic action, the insurance company pays for the loss or damage from the ensuing fire, breakage of building glass, or volcanic action. Volcanic action includes loss or damage from airborne volcanic blast or airborne shockwaves, particulate matter, ash or dust, and lava flow but does not include the expense to remove them from undamaged property. All volcanic action eruptions that occur within any 168-hour period are considered a single occurrence.

The cause of the earth movement is irrelevant. The underlying cause may or may not be an act of nature. Earth movement as this exclusion describes is excluded, regardless of the underlying cause. (04 13 addition)

Related article: AG 00 01–Agricultural Capital Assets (Output Policy) Coverage Form Analysis

It is very important to remember that this endorsement addresses ONLY earthquake and volcanic eruption. This means that landslide, mine subsidence, and earth sinking remain excluded.

One of the following two causes of loss can be selected.

Note: Item 1 includes the cause of loss in item 2. As a result, selecting item 2 is not necessary when item 1 is selected.

1. This section adds earthquake and volcanic eruption as covered causes of loss. Volcanic eruption is defined as eruption, explosion, or effusion of a volcano. All covered events that take place within any 168-hour period are considered a single occurrence and are not affected by the expiration date.

Example: Dave's Donkeys' earthquake-volcanic eruption coverage has a $5,000,000 limit that applies to the building, business personal property, and business income and extra expense/dwelling loss of use. It is subject to a 5% property damage deductible. A June 1 earthquake knocks some masonry off the building and inventory off the shelves. Aftershocks on June 2 and 3, respectively, cause the support walls to collapse followed by the building as well. Despite the multiple events, all damage is combined and subject to a single limit of insurance because all damage was sustained during the 168-hour period. Dave is relieved when informed that he is responsible for only one deductible.

2. This section limits coverage to only leakage damage that results when earthquake and volcanic eruption damage a sprinkler system causing it to leak. Volcanic eruption is defined as an eruption, explosion, or effusion of a volcano. All covered events that take place within any 168-hour period are considered a single occurrence and are not affected by the expiration date.

Example: After rebuilding, Dave takes the chance that the new building can withstand an earthquake but worries about the sprinkler system doing so. Dave decides to purchase sprinkler leakage only earthquake coverage.

C. Exclusions, Limitations, and Related Provisions

1. All exclusions and limitations in the coverage form apply to this endorsement except as paragraph 2. and paragraph 3. below state.

2. The Earth Movement exclusion in the coverage form does not apply if it is in conflict with this endorsement.

3. The Collapse exclusion in the coverage form does not apply to collapse that is caused by or that results from earthquake or volcanic eruption.

4. Additional Coverage–Collapse in the coverage form does not apply to collapse that is caused by the earthquake and volcanic eruption coverage this endorsement provides.

5. Loss or damage caused directly or indirectly by or resulting from tidal wave or tsunami is excluded, even if it is due to an earthquake or volcanic eruption.

6. There is no coverage for loss or damage due to any earthquake or volcanic eruption event that begins before this coverage’s effective date.

Note: This can be modified through the use of AG 10 02–Earthquake Inception Extension. It provides earthquake coverage for loss or damage that happens after the policy inception date even if the series of an earthquake or volcanic eruptions that caused the damage started up to 72 hours prior to the policy inception date.

Example: Quantum Farms’ producer convinces it to purchase earthquake coverage on its 10/1/2022 renewal. An earthquake hits on 9/30/2022. The aftershocks and tremors continue for five days, and the damage is extensive. Quantum Farms turns in claims for all damage starting on 10/1/22 and is very disappointed to have all losses denied.

Note: If Quantum had purchased AG 10 02, coverage would have been available for the 10/1/2022 and after damage.

7. There is no coverage for loss or damage by earthquake or volcanic eruption to exterior masonry veneer that is attached to wood frame walls unless one of the following applies:

• The endorsement schedule states that coverage for masonry veneer is provided
• The masonry veneer covers less than 10% of the outside wall area
• The masonry veneer material is stucco

Note: When masonry veneer is excluded, its value is not included in the building value or considered when determining the deductible.

8. The coverage form does not cover land, costs to backfill, fill, grade, or excavate except to repair or replace covered property. In the same fashion, this endorsement does not cover the cost to restore or remediate land unless the repairing of or replacement of covered property requires it.

D. No Coinsurance

Any coinsurance condition in the coverage form or in any endorsement attached to it does not apply to this endorsement's coverage.

E. Limit of Insurance

1. General Information

Limit of Insurance in this endorsement refers to the limit of insurance on AG DS 04–Earthquake–Volcanic Eruption Coverage Schedule or the limit of insurance for Earthquake–Volcanic Eruption on the declarations.

2. Annual Aggregate Limit

The limit of insurance is an annual aggregate limit. It is the most the insurance company pays for the total of all loss or damage caused by or that results from an earthquake or volcanic eruption within a 12-month period. When the Annual Aggregate Limit is used up, nothing remains for any other losses for the rest of the policy term.

Note: An occurrence may begin in one policy term and continue into the next. In that case, only the aggregate limit for the first policy term applies.

Example: Tom's Tobacco has earthquake coverage with a $1,000,000 annual aggregate limit. An earthquake event at the beginning of the policy term causes $250,000 in damage. The insurance company pays $250,000 to repair the damage. Another earthquake occurs on the last day of the year. The aftershocks continue into the next policy term. The entire building and its contents are destroyed. Tom expects the insurance company to pay $1,000,000, but the $250,000 previously paid must be subtracted. Tom asks if the aggregate limits in the next policy term can be used. The insurance company denies the request because the event began in the previous term.

3. Increased Annual Aggregate Limit Option

The named insured may be concerned that the annual aggregate is not sufficient. In that case, it can purchase an additional annual aggregate by selecting the Including Annual Aggregate Limit option on AG DS 04. This does not increase the limit for each occurrence, but it does double the annual aggregate limit.

Example: Gordon's Grain Elevator is worried about earthquake and purchases this coverage with a $500,000 limit. Gordon’s agent convinces him that purchasing the Increased Annual Aggregate Limit would be worthwhile. An earthquake event damages property early in the policy term, and the insurance company pays the $500,000 limit. Another earthquake event towards the end of the policy period causes $100,000 in damage. The second loss is covered because Gordon purchased the Increased Annual Aggregate Limit.

Note: An earthquake event that begins in one policy period but ends in other is considered a single loss and only the limits and coverage available in the first policy period apply. The limit for the second policy period does not cover the shortfall if its annual aggregate is inadequate to cover the entire loss and is exhausted.

4. Additional Coverages and Coverage Extensions

Amounts payable under any additional coverage or coverage extension do not increase the limit of insurance.

5. Limitation

Loss payments are limited in two ways. In the first, the blanket insurance limit on AG DS 04 is the most the insurance company pays. However, that amount may be further limited by the values scheduled on the declarations or listed on the statement of values on file for causes of loss other than Earthquake–Volcanic Eruption.

Example: Willie's Wheat Processors purchases blanket earthquake coverage on its buildings and business personal property at three locations for a $15,000,000 limit. The statement of values indicates limits of $1,500,000 for each building and $2,000,000 for business personal property at each location. An earthquake destroys one of the locations. The adjusted loss is $2,500,000 on the building and $3,000,000 on business personal property. Willie thinks the entire loss is covered because of the blanket limit. However, the insurance company pays only $3,500,000 because that is the amount on the statement of values.

6. Ensuing Loss

This is another limitation. If earthquake or volcanic eruption is excluded and an earthquake or volcanic eruption event causes a covered cause of loss to occur, coverage applies to the damage from the covered cause of loss. This provision provides coverage under both of the other causes of loss forms and the earthquake or volcanic eruption cause of loss. However, the limit of insurance that applies to the other cause of loss is the most the insurance company pays.

Example: Peter's Poultry insures one of its buildings for $150,000 and has a $300,000 blanket earthquake limit that applies to all its buildings. The main building is destroyed when an earthquake ruptures gas pipes, and a spark ignites a fire that spreads throughout the building. Coverage applies under both the coverage form and this endorsement, but $150,000 is the most the insurance company pays.

This section concludes with two examples that involve ensuing loss.

F. Property Damage Deductible

1. Property Damage Deductible

The provisions in item 3. below apply to all coverages except Business Income and Extra Expense/Dwelling Loss of Use.

2. Earthquake–Sprinkler Leakage Only (04 13 addition)

This property damage deductible section does not apply to losses when only Earthquake-Sprinkler Leakage coverage is provided. The deductible that applies to fire coverage applies instead. (04 13 addition)

3. Revised Deductible Provision

This deductible provision replaces any other deductible provision in the coverage form.

a. General Information

• The deductible is not an aggregate. It applies to each earthquake-volcanic eruption.
• Deductibles are calculated separately and apply to each item that sustains damage.
• The insurance company does not pay anything until the amount of loss or damage is more than the deductible amount. It then pays only the amount that exceeds the deductible.
• Property may be covered under Newly Acquired or Constructed Property. In that case, the amount paid for loss or damage is reduced by an amount equal to the percentage of the deductible of the property's value at the time of loss. The percentage that applies to Newly Acquired or Constructed Property is the highest percentage on the earthquake schedule or on the declarations for any scheduled location.
• An earthquake or volcanic eruption may cause loss or damage and another covered cause of loss included as an exception to the Earth Movement exclusion may also cause loss or damage. In that case, this endorsement’s deductible provisions apply to the loss.

Note: This means only the Earthquake Property Damage Deductible applies.

b. Calculation of the Deductible–Specific Insurance Other Than Builders Risk

• For property that is not subject to value reporting forms, any amount paid is reduced by an amount equal to the percentage deductible that applies multiplied by the value of the damaged property on the latest filed statement of values.
• For property that is subject to value reporting forms, any amount paid is reduced by an amount equal to the percentage deductible that applies multiplied by the value of the damaged property on the latest filed report of values.

This property is subject to an additional condition. The latest report of values may have a value less than the actual value that should have been reported. In that case, the deductible amount is the percentage multiplied by the value that should have been reported. In addition, if the required first report is not submitted before the date of loss or damage, the deductible amount is the percentage multiplied by the value for that item on the latest filed statement of values.

c. Calculation of the Deducible–Blanket Insurance Other Than Builders Risk

• For property not subject to value reporting forms, any amount paid is reduced by an amount equal to the percentage deductible that applies multiplied by the value of the damaged property on the latest filed statement of values.
• For property that is subject to value reporting forms, any amount paid is reduced by an amount equal to the percentage deductible that applies multiplied by the value of the property at the time of loss.

d. Calculation of the Deductible–Builders Risk Insurance

• For builders risks written on other than reporting forms, any amount paid is reduced by an amount equal to the percentage deductible multiplied by the replacement cost of that property when the loss occurs.
• For builders risks written on reporting forms, any amount paid is reduced by an amount equal to the deductible percentage multiplied by the replacement cost value of the property that was damaged based on the latest filed report of values.

This property is subject to an additional condition. The latest report of values may have a value less than the replacement cost value of the property on the date of the report. In that case, the deductible amount is the percentage multiplied by the replacement cost value as of that date. In addition, if the required first report is not submitted before the date of loss or damage, the deductible amount is the percentage multiplied by the replacement cost value of the property on the date of loss.

G. Example

This section of the endorsement has an example that applies a deductible for specific or blanket insurance other than builders risk and is not subject to value reporting forms.

H. Business Income and Extra Expense Period of Restoration

The definition of the period of restoration is revised slightly to confirm that the 168-hour rule applies to the beginning of the period of restoration. Because of this, the 24-hour deductible is applied only once and not each time an aftershock occurs.