AAIS FARMOWNERS PROGRAM: FO 0400–FARM INCOME COVERAGE

(October 2023)

INTRODUCTION

This endorsement is used to provide coverage when a covered peril damages or destroys covered property. The named insured can use either or both of two options:

Note: FO 0410–Farm Income Coverage-Schedule of Operations must be attached to indicate the option(s) selected along with other pertinent information. It lists and describes the covered location, farming operations, and covered property. The coverage option, the limit, and coinsurance percentage that apply must be entered in the spaces provided. If the named insured purchases the optional period of loss extension, the number of days must be entered in the space provided.

ADDITIONAL DEFINITIONS

This endorsement modifies coverage and has the following two defined terms:

Farm Earnings

This is net farm income plus payroll, interest earnings, and continuing expenses that would have been generated if there was no loss. In other words, it assumes normal operations. The final figure used is on a projected, annualized basis over either the 12 months following the policy’s inception date or its last annual renewal date, whichever date is later.

Restoration Period

This is the period of time it should take to re-start farming operations after a covered loss to the property described on FO 0410.

The period is not adjusted to reflect any increase in time needed to comply with ordinances or laws that relate to construction or to any increase in time due to any insured or others having to address the effects of pollutants in any way.

COVERAGE OPTIONS

Option 1–Farm Earnings and Extra Expense

This option is subject to a coinsurance requirement unless there is an entry on FO 0410–Farm Income Coverage–Schedule of Operations that waives it. This coverage option reimburses lost regular income from an interruption of business that results from a covered loss to buildings, machinery, equipment, or supplies.

 

Example: The Harmals’ dairy operation is closed for three months after a loss that seriously damages their milking equipment. Their calculations result in a $57,000 loss:

Scenario one: A fire caused damage to the equipment. Their loss is covered.

Scenario two: Flooding caused damage to the equipment. Their loss is not covered.

 

This option also provides some coverage to handle additional expenses to take action necessary to either resume operations or mitigate the loss. The loss must involve property that Coverages E, F, or G insures or that fall under the Farm Machinery endorsement when it is attached.

Coverage applies for the period of time usually and reasonably needed to resume operations. This time begins with the date of loss and ends at the time the property should have been rebuilt, repaired, or replaced.

Option 2–Farm Rents

This option pays for actual loss of the named insured’s income because its ability to rent out covered property is interrupted. As with option 1, coverage applies only when the interruption of rental income is due to loss of or damage to covered property that a covered peril causes.

 

Example: Ned turns in a claim for loss of rents. He carefully calculated that he lost almost $1,200 in rents due to the fire and collapse of one of his farm buildings. His insurance company denies the claim because it was an old silo that burned and collapsed, resulting in loss of access to the rental property. The silo was not insured.

 

Rental income means the amount an insured normally receives reduced by all non-continuing expenses. An example is utilities.

ADDITIONAL COVERAGES

This endorsement includes two additional coverages in addition to the limits of insurance it provides:

Interruption by Civil Authority

Coverage for farm earnings is broadened to respond to loss caused by civil authorities barring access to the insured operations because a neighboring, adjacent premises sustained direct damage by a peril that the named insured’s policy covers. Coverage applies for not more than two consecutive weeks from the date of the civil authority’s order. This policy’s expiration date does not limit or affect the two-week period.

Period of Loss Extension

This additional coverage automatically extends the period of time needed to resume normal operations up to a maximum of 30 additional days to allow the farm operation to return to the conditions that existed before the loss occurred. This period of loss extension can be extended for more than 30 days for an additional premium charge.

Note: The payment period is less than 30 days if it is determined that the named insured could have resumed operations sooner. In addition, this period is worded so that it conforms to the period of time that may be on a Schedule of Operations under “Period of Loss Extension.”

EXCLUSIONS

This endorsement’s coverage does not apply to loss or damage that involves the following:

LOSS SETTLEMENT PROVISONS

This provision states that settlements take certain items into account. These include the following:

·        Evaluating the operation’s normal earnings experience before the loss and what it would probably have been if a loss did not occur

·        Deducting the named insured’s normal expenses it incurs if there is no loss

·        Deducting the salvage value of property used temporarily while farming operations are being restored

·        The named insured failing to make reasonable efforts to resume part or all of normal operations. This includes using other property and locations to do so.

·        The named insured may not resume farming operations as soon as it can or at all. In either case, the insurance company pays only the amount it would have paid if the named insured had resumed farming operations as soon as possible.

HOW MUCH WE PAY FOR LOSS OR CLAIM

This provision replaces the same provision in the coverage form or policy that applies but for only losses that it covers.

1. Limit

The insurance company does not pay more than the limit on FO 0410–Farm Income Coverage-Schedule of Operations The limit for Option 1 is not two limits, one for earnings and another for extra expense. It is the most the company pays for the combination of both earnings and extra expense.

2. Coverage Option 1, Coinsurance

Unless there is an entry on FO 0410 that waives coinsurance, any loss of farm earnings under option 1 is subject to coinsurance. This provision includes the steps used to calculate coinsurance, as well as two illustrative calculations.

3. Coverage Option 2, Period of Indemnity

An indemnity period applies to Option 2. Coverage for lost rents is the amount of income lost up to a total of 120 days after the insured loss or the limit on the schedule, whichever is less.

4. Insurance Under More Than One Coverage

There may be two or more coverages in the policy that apply to a given loss. In that case, the insurance company pays only the actual amount of loss.

5. Insurance Under More Than One Policy

There may be other insurance that also applies to a given loss. In that case, the insurance company pays only its proportional share of the loss, based on its limit as a percentage of all limits that apply to the loss.

PAYMENT OF LOSS OR CLAIM

This provision replaces the same provision in the coverage form or policy but only with respect to the coverage it provides. The insurance company pays covered losses within 30 days after it receives a properly executed proof of loss where the amount of loss was established by either of the following:

OTHER CONDITIONS

This condition replaces the Appraisal condition in the coverage form or policy but only with respect to the coverage it provides. Appraisal also applies if the insurance company and the named insured cannot agree on the amount of loss this endorsement covers.