AAIS FARMOWNERS PROGRAM: FO 0670 AND FO 0671–LIMITED FUNGI, WET OR DRY ROT, OR BACTERIA COVERAGE

(October 2023)

INTRODUCTION

The limited coverage these endorsements provide is not additional coverage. They are actually exclusions that grant a small amount of coverage. They apply to both the property and liability coverage forms that make up the American Association of Insurance Services (AAIS) Farmowners policy. FO 0670 is used when GL-2 provides liability coverage. FO 0671 is used when GL-610 provides that coverage.

It can be argued (and has been) that wet rot, dry rot, bacteria, fungi, and protists are excluded due to the wear and tear exclusions under the property coverage form and the pollution exclusion under liability coverage. However, various courts have ruled that coverage exists despite those exclusions. As a result, and to clarify coverage intent, AAIS developed these endorsements. Many insurance companies make these endorsements mandatory.

SCHEDULE

The first entry in both endorsements is the same. An aggregate limit for Incidental Property Coverage for Fungi, Wet or Dry Rot, or Bacteria must be entered in the space provided.

Note: This is usually a nominal amount, such as $25,000.

The second entry in these endorsements is different, as follows:

FO 0670–LIMITED FUNGI, WET OR DRY ROT, OR BACTERIA COVERAGE ENDORSEMENT

1. Fungi

This section adds the definition of this term to the definitions sections of both the property and liability coverage forms. Fungi means all types of fungus, including mildew and mold, as well as any chemical, matter, or compound that fungus produces. This term also includes spores, toxins, fragments, and metabolites.

2. Property

This section adds the Exclusion for Fungi, Wet or Dry Rot, or Bacteria to FO-20and F0 0005. It excludes any loss, cost, or expense related to any Fungus, Wet or Dry Rot, or Bacteria.

However, this exclusion/limitation does not apply to wet or dry rot, bacterium, or fungi damage that results from fire, lightning, collapse (if covered), or Incidental Property Coverage for Emergency Removal. It also does not apply to coverage that Incidental Property Coverage provides, as stated below.

3. Wear and Tear Exclusion

This section revises the Wear and Tear exclusion in FO-20 or FO 0005 to eliminate the terms wet or dry rot from the exclusion. This prevents confusion in the policy.

4. Fungi, Wet or Dry Rot, or Bacteria

This section adds the Fungi, Wet or Dry Rot, or Bacteria Incidental Property Coverage, subject to the terms of Coverages A, B, C, E, F, and G. It states that the most the insurance company pays for any loss that this endorsement covers is the aggregate limit on the endorsement schedule. The limit is an annual aggregate limit, not an occurrence limit, and it does not increase any limit of insurance in the policy.

This annual aggregate limit applies to the loss and any clean-up, removal, or testing. It also applies to certain efforts related to the cost to gain access to damaged areas, including costs to investigate the possibility that damage may exist, such as testing an area of drywall or flooring for mold or rot.

This coverage applies, but only if it results from a covered peril that occurs during the policy period. It applies to covered property and then only if the named insured takes reasonable steps after the loss to prevent further damage. It is important to note that this coverage applies to only the increased amount of a covered loss due to the wet or dry rot, bacteria, or fungus.

 

Example: Mary’s policy period is 01/01/2022 to 01/01/2023. A pipe bursts on 12/28/2022 while Mary was away. She returned home on 01/05/2023 to discover a mess that included growing mold. The pipe that burst is covered, but the mold, etc., that started after the policy’s expiration date is excluded. In addition, Mary’s renewal policy does not provide coverage because the underlying loss occurred before the renewal policy’s inception date.

5. Restoration of Limits

This endorsement’s limit of insurance is an aggregate limit, not an occurrence limit. As a result, the Restoration of Limits section of the property coverage is revised. Payments the insurance company makes during the policy period (except for the Incidental Property Coverage for Fungi, Wet or Dry Rot, or Bacteria) do not reduce the limits available.

6. Definition of Restoration Period addition

This section adds a provision under the definition of Restoration Period. Except as Additional Coverages provides, the Restoration Period does not include any increase in time that Fungi, Wet or Dry Rot, or Bacteria causes.

7. Interruption by Fungi, Wet or Dry Rot, or Bacteria

The property coverage form may provide Loss of Income coverage. If it does, this endorsement extends to it. It provides a maximum of 30 days coverage but only if the fungi, wet or dry rot, or bacteria result from a covered peril.

8. Liability

The Annual Aggregate Sub-limit on the endorsement schedule is the most the insurance company pays for any bodily injury or property damage caused by any possible contact or contamination related to fungi, wet or dry rot, or bacteria. It applies regardless of the number of claims, the number of insureds, or the number of persons who make claims or bring suits.

Four covered situations are not subject to this sub-limit.

·         Fungi intended for human consumption

 

Examples: Mushrooms and truffles.

 

·         Bacteria that foods and/or beverages carry that cause illness. An example is food poisoning.

·         Bodily injury to farm employees to the extent that the policy provides such coverage

·         Slips and falls due to surfaces that fungi, wet or dry rot, or bacteria make slippery

9. Personal Injury Liability Coverage

The policy may include GL-81 or GL 0081, which provides personal injury liability coverage. In that case, there is no coverage for any personal injury related in any way to fungi, wet or dry rot, or bacteria.

Related Court Case: “Insurer Held a Broader Responsibility to Investigate Possible Collapse”

FO 0671–LIMITED FUNGI, WET OR DRY ROT, OR BACTERIA COVERAGE ENDORSEMENT

This endorsement is identical to FO 0670 in items 1 through 7. Item 8 is different because the liability coverage forms are different. The intent is the same, but references are provided for the various coverages provided and the aggregate implications. FO 0671 has the following sections that are not in FO 0670.

10. How Much We Pay

The limit of insurance under Coverage M. Medical Expenses is the most the insurance company pays for all medical expenses because of bodily injury that any person sustains. This is subject to the Each Occurrence Limit, the Fungi, Wet or Dry Rot, or Bacteria Liability Coverage Aggregate Limit, and the General Aggregate Limit.

11. GL-81 of GL 0081

The policy may include either GL-81 or GL 0081. If it does, this provision states that the insurance company does not pay for any personal injury that results directly or indirectly in any way due to fungi, wet or dry rot, or bacteria.

12. GL-904 or GL 0904

The policy may include either GL-904 or GL 0904. If it does, this provision states that the insurance company does not pay for any personal injury or advertising injury that results directly or indirectly in any way due to fungi, wet or dry rot, or bacteria.