FP 15 01–DISRUPTION OF FARMING OPERATIONS

(April 2020)

This endorsement provides loss of income and extra expense coverage for farming operations, including farm building rental income.

It can be used with:

· FP 0014–Farm Property–Barns, Outbuildings, and Other Farm Structures Coverage Form

· FP 00 13–Farm Property–Farm Personal Property Coverage Form; or

· FP 00 30–Mobile Agricultural Machinery and Equipment Coverage Form.

ISO Farm Program Property Coverage Forms Analysis

ISO Farm Program Policy Available Endorsements and Their Uses

This endorsement was updated in 04 16 and changes are highlighted in bold.

SCHEDULE

The schedule describing the coverages is the first part of the endorsement. The first required entry is the Insured Location or the location number from the declarations of the insured location. The Description of Farming Operations area requires entry of the precise operations that take place at each location. The Description of Property column should briefly explain the operations or work conducted at the location. If the covered building is a rental, the word rental must be entered in the Description of Property column. The Limit of Insurance column reflects the total amount of coverage to apply to a loss of income or extra expense situation at the particular insured location.

The Percent of Exposure column is adjacent to the Limit of Insurance column. The insured can select any percentage desired, but a premium surcharge applies if the percentage selected is less than 80%. The Covered Causes of Loss column is not required to be the same causes of loss as the covered Causes of Loss form that applies to direct damage. In addition, it can differ between locations and property covered at those locations. All Causes of Loss (Basic, Broad, or Special) are available for use with this form. The schedule’s final column extends the policy’s 30-day extended period of indemnity. This period can be lengthened to 60, 90, 120, 150, 180, 270 and 360 or more days, if desired, for an additional premium charge.

COVERAGE

The coverage that applies is essentially for income lost because of loss or damage to covered property by a covered cause of loss that halts normal operations. The named insured is responsible for resuming operations as quickly as possible after a loss.

Note: Coverage applies only to loss caused by interruptions to operations described in this endorsement’s schedule.

Coverage provided includes reimbursement for items such as reduced net profits (or increase in net loss), operation expenses that continue during a covered disruption, expenses directly related to getting operations re-started and expenses related to reducing the financial impact of disruptions.

Example: Minnie’s dairy farm suffered a fire and an industrial homogenizer is destroyed. She can wait a month to have a new machine built and shipped to her or, within a week, she can buy a gently used machine from another dairy located several counties away. However, she would have to arrange and pay for shipping. Her insurer says that her policy will cover the transportation costs, as it will get her up and running much sooner.

The period of restoration is based on the amount of time the insured should take to resume operations, whether the operations are resumed or not. Coverage does not apply to, and there are no available coverage extensions when the enforcement of ordinance or laws relating to construction, land use, or pollution impede or slow down resumption of operations. The time needed for compliance of such laws or ordinances is also not covered.

The limit of insurance in the schedule is the most paid for any single period of restoration.

Related Court Case: Business Interruption Loss Justified

ADDITIONAL COVERAGES

· Loss And Expense Due To Emergency Prohibition Against Occupancy

Coverage applies if government officials declare an emergency due to a covered cause of loss and prohibit access to the insured’s location. Coverage applies for a period of up to three weeks.

· Extended Income Loss Coverage

Coverage extends for up to 30 days after the date restoration is complete and normal operations resume. This reflects the fact that most operations do not function at a normal level immediately after the restoration period ends and operations resume. This coverage gives the insured coverage for an additional period of time in which to get operations back to normal.

LIMIT OF INSURANCE

The insurance company pays no more than the limit shown in the schedule for a disruption resulting from loss or damage to covered property and caused by a covered cause of loss. The limit is the most paid in a single occurrence. The Additional Coverages above are part of, not an addition to, the limit of insurance.

EXCLUSIONS

The exclusions in the causes of loss form apply to this endorsement. In addition, coverage does not apply to loss or expense due to a terminated contract or lease or for the financial consequences of contamination by disease of any building, equipment, machinery, or supplies. All references to loss or damage in the applicable causes of loss forms also apply to expense.

LOSS DETERMINATION

The reduction in adjusted receipts is determined based on the net income from the farming operations immediately before the loss or damage and the likely net income if the loss did not occur.

The operating expense include any applicable payroll expense and is the amount determined based on what is needed to bring the farming operation to the same level of efficiency it experienced before the loss.

If partial resumption of operations is possible, the loss is reduced to the extent that resumed operations reduce the loss, by using any available property at either the insured location or elsewhere.

Actual and necessary expenses paid are those that exceed the expense level associated with the named insured’s normal operations. If physical property is purchased to assist during the restoration period, the salvage value of that property is deducted from the expenses paid.

In order to determine the exact amount to be paid, the insured must allow the insurance company to inspect financial records, bills, invoices, deeds, liens and contracts. These documents and other information are used to determine the exact amount of losses and expenses. If the named insured decides not to resume operations, or delays resuming operations, loss payment is based on the time necessary to have resumed normal operations, if the named insured had chosen to do so.

VALUATION

The form contains explicit loss adjustment procedures and examples showing both adequate and inadequate limits and amounts of insurance. The form includes a coinsurance clause and coinsurance penalties are possible if the limits are inadequate. The percentage shown on the schedule is multiplied by the total of all operating expenses, including payroll, plus the net income that would have occurred over the 12 months following the inception date had no loss occurred. The Limit of Insurance is then divided by the computed amount to develop a percentage. If the percentage is higher than 100%, the total loss is paid up to the limit of insurance. If the percentage is lower than 100%, the loss amount is multiplied by the percentage.

Example: On January 1, Hank purchased a $100,000 limit on income coverage at 80% of exposure covered. He based that figure on the average of the previous three years expenses and income. In July, a fire occurred that halted most of his operations. It took more than four months to resume normal operations. The insurance company reviewed his records and current operations and determined that Hank was having a very good year. The year was so good that his 12-month net income (1/1-1/1) would have been $200,000 and he should have carried $160,000 (80% of $200,000) in insurance. The loss for the four months was $100,000. Instead of receiving the entire $100,000, he received only $62,500. This represented his loss multiplied by a factor of .625. That factor was the amount of insurance carried ($100,000) divided by the minimum amount of insurance ($160,000) Hank should have carried.

DEDUCTIBLE

No deductibles apply to coverage provided by this form.

OPTIONAL COVERAGE–EXTENDED PERIOD OF INDEMNITY

The coverage form schedule has a space to increase the number of days desired for the extended period of indemnity option. Any increment of 30 days placed in that space that exceeds 30 replaces the basic 30-day period Extended Income Loss Period automatically provided by the form.