(April 2020)
Crop hail insurance indemnifies owners of certain growing crops, or tenant farmers having an interest in such crops, for loss or damage to them by hail and any other causes of loss or perils provided in the policy. Policies are written for annual, three or five season terms. Coverage is effective during a crop’s growing season (until it is harvested) or until a specified policy termination date is reached.
Material
presented in this analysis is taken from applications, policies, and
endorsements used in various states and published by the National Crop
Insurance Service,
Crop Hail Insurance is a Federal Government program. Because of the importance of this program to farmers it is normally addressed in major farm bills. The 2018 Farm Act (aka 2018 Farm Bill) makes few major changes in agricultural and food policy. Much like the 2014 Farm Act, all major conservation programs will continue; however, some are modified in great detail. The 2018 bill does not appear to change the crop hail insurance discussed in this article, except for the addition of industrial hemp to the list of insurable commodities. https://www.ers.usda.gov/agriculture-improvement-act-of-2018-highlights-and-implications/crop-insurance/
Hail insurance on growing crops protects the insured's financial interest in such crops against direct loss or damage to the specified crops by hail and other optional named causes of loss or perils, usually consisting of fire, lightning, livestock, wind, aircraft and vehicles. An amount of insurance applies to each specified crop, subject to the desired limit of liability per acre. Different limits, rules, and regulations exist for various crops, including:
|
Alfalfa |
Cranberry |
Millet |
Pecans |
Rye |
|
Almond |
Fig |
Nursery |
Pepper |
Safflower |
|
Apple |
Flax |
Grapes |
Plum |
Sorghum |
|
Barley |
Forage seeds |
Oats |
Popcorn |
Stonefruit |
|
Bean |
Forage Production |
Onion |
Potato |
Sugar Beet |
|
Blueberry |
Grain |
Pasture |
Prune |
Sugarcane |
|
Canola |
Grapes |
Pea |
Popcorn |
Sunflower |
|
Citrus Fruits |
Hemp |
Peach |
Potato |
Tobacco |
|
Corn |
Hybrid Seeds |
Peanut |
Range land |
Tomato |
|
Cotton |
Macadamia |
Pear |
Rice |
Walnut |
Crop hail insurance policies are written subject to a standard application that must be completed by the applicant. Application forms are published by the National Crop Insurance Service and differ by state and by type of policy written or type of crop to be covered. Consult the Rates and Rules for each state.
The application must be signed by both the applicant and the agent, with the date and hour of actual signing indicated. The required information on the application includes the name and address of the applicant, a schedule of insurance with the exact location of each growing crop, and the applicant's percentage of interest in each crop. Other information required is the number of acres insured, the desired limit of insurance per acre, the total amount of insurance and the rate and premium for each kind of crop insured.
The applicant is required to make, essentially, warranties regarding the following:
· Crops for which insurance is desired have not been hailed on or damaged by any of the other perils named in the policy prior to the time of signing the application
· The name and exact location of the landowner and/or the tenant, if any
· That all crops of the same kind are insured. If not, the ones that are to be excluded must be shown.
· What other insurance is in effect against hail or any other optional named perils to any part or all of the crops to be insured
· The ”stand date,” if required
· Applicable loss payable clause information
Each standard application for a crop hail insurance policy contains a binder clause specifying that coverage will begin at 12:01 a.m. on the day immediately following the date the applicant and the company's agent sign the application, except as may be otherwise provided in the policy.
The binder clause further stipulates that, if any acreage of crops described in the schedule is damaged by a named peril during the waiting period, there is no coverage. If the applicant gives written notice of the damage to the company within 72 hours after the onset of the damage, he is entitled to return of premium for the insurance on any such damaged acreage. If the applicant fails to give notice within 72 hours, he forfeits his right to any return premium.
The insurance company may reject the application within 240 hours (10 days) after the effective date and hour of the binder. It must give at least five days written notice to the applicant at the address shown in the application stating the effective date and hour of such rejection and termination of coverage.
Copies of the application, any endorsements attached to the policy and the policy itself make up the insurance contract. The original copy of the application is retained by the insurance company.
The standard crop hail insurance policy, as drafted by the National Crop Insurance Service, contains a Standard Provisions section and a Special Provisions section. The contents of these sections vary according to the type of policy and state or regional area in which the policy is written. Coverage applies to the crops and locations specified in the applicable policy’s insurance schedule.
Certain standard provisions that apply to all standard crop hail insurance policies, as well as important special provisions, are described in this analysis. Close review of a standard crop hail insurance policy used in your area will provide the full detail of the provisions that apply in that area.
The standard crop hail insurance policy does not cover acreage of any crop insured until a normal stand of the crop is clearly visible above the ground or as otherwise provided for in the special provisions section.
This provision of the basic policy conditions modifies the language in the binder clause that is part of the application. Even if there was a hailstorm after the waiting period, the policy would not cover any hail damage to the crop unless there was visible evidence of a normal crop stand above the ground. Certain types of crops may require special provisions effecting the attachment of hail coverage.
There are other exclusions in the policy. The insurance company is not liable for any of the following:
· Loss from any cause of loss or peril not insured against, even though the loss may have occurred in conjunction with a cause of loss or peril insured against;
· Loss of any portion of a crop recoverable by harvesting equipment;
· Loss due to the insured's neglect or failure to harvest mature crops;
· Injury or damage to the vegetative or flowering portion of any plant, tree or shrub, except to the extent that the injury or damage results in a reduction of yield of that crop;
· Loss contributed to by nuclear reaction, radiation, or radioactive contamination.
Pro-rata liability clause stipulates that the insurance company is not liable for a greater proportion of any loss than the amount the insured bears to the whole insurance covering the insured's interest in the crop(s). This applies for the causes of loss or perils insured against and whether any other insurance is collectible or not. No Federal Crop Insurance Corporation policy may be prorated with the standard crop hail insurance policy.
Variations in acreage clause stipulates that when actual acreage of any crop insured by item in the schedule of insurance is more or less than the number of acres stated for such item, the insurance per acre must be revised to eliminate the discrepancy. The insurance per acre is obtained by dividing the limit of insurance shown for an item in the schedule by the actual acreage at the described location for the same item, except that the total insurance per acre on the insured's interest in such crop may not exceed its value. The company may make a survey of any insured crop or a portion of it at any reasonable time.
Expiration - Unless otherwise provided for in the policy, the insurance ceases on that portion of the insured crop that has been harvested or abandoned by the insured for any reason. However, the policy does not cover later than the expiration date for the particular crop as detailed in the special provisions of the policy.
Provision is made for necessary increases or decreases in limits in the schedule of insurance for any crop. Insurance changes become effective at 12:01 a.m. on the date of the revised schedule or as otherwise stipulated in the special provisions of the policy or in the special crop endorsement.
Cancellation of existing insurance coverage is effective at 12:01 a.m. on the date requested.
The insured must give written notice to the insurance company of any loss covered by the policy within ten days after the occurrence of a covered loss.
Proof of loss must then be submitted to the company by the insured within 60 days after the date of loss, unless the time period is extended in writing by the company. The proof of loss statement must be signed and sworn to by the insured. The information needed includes the policy number, the location and description of the damaged crop, the date and hour of loss, the interest of the insured and any others in the crop, disclosure of any other insurance covering the insured's interest in the crop and the estimated amount of loss. A detailed proof of loss statement is needed showing how the amount claimed was determined. Any previous damage to the crop from any cause must be disclosed, including the cause and the amount of loss, whether by an insured peril or not. If a previous loss was insured, the insured must state the name of the insurance company that provided coverage.
The company must pay the loss within 30 days after receipt of a satisfactory proof of loss. The amount of loss payable per acre because of covered loss or damage is the smallest of either of the following:
· The actual cash value of the reduction in the yield of the crop per acre, or
· The dollar amount determined by multiplying the dollar amount of insurance applying per acre on the date of loss by the verified percentage reduction in the yield of the crop per acre.
The loss per acre value is multiplied by the number of acres destroyed to determine the total amount of loss. This determination of amount payable applies to the commonly used percentage policy used in all states. In this type of policy, the proportion of insurance recovered by the insured is the same as the proportion of the crop destroyed. Insurance companies establish amounts per acre for which they will ordinarily insure a given crop. The farmer purchases his insurance for that crop up to the maximum limit available, as established by the company. When a covered loss occurs, damage is calculated on a percentage basis per acre and the loss is paid by applying that percentage to the amount of insurance per acre as established in the policy.
The
amount of insurance that applies to each acre of crop covered under the policy
is reduced by the gross percentage determined to apply for each and every loss
and is reduced in the same proportion as each acre of crop is harvested.
The company has the right to inspect the remainder of any crop acreage on which a loss has been paid. The insured must leave sufficient field samples of the remainder of the crop for examination and to expedite the completion of the claim adjustment process.
The insured is required to show the company inspector the remains of any crop on which loss has been claimed as often as reasonably necessary. He must submit to examination under oath and furnish complete harvesting and marketing records of any insured crop when requested to do so. Failure to comply with these requirements may result in a forfeiture of insurance on the acreage for which a claim is being made.
The second section of the standard crop hail insurance policy is the Special Provisions section that can vary from state to state and by type of policy. It contains any additional named perils or causes of loss coverage provided and special conditions that apply to certain types of insured crops. It also includes minimum loss percentages and provisions, loss notice and loss appraisal provisions and a schedule of expiration dates that apply to the various types of crops for hail and any other named perils coverages. Some of the more important provisions are:
· Fire insurance covers loss by fire to any insured acre of crop while outside of buildings and until unloaded at the first place of storage, whether temporary or permanent. If the policy is subject to an "Excess over Loss Endorsement" provision, that provision does not apply to any fire loss. In the "Excess Over Loss Endorsement," the insured assumes the first 10% or 20% of loss, much as with a deductible. With the use of such an endorsement, the premium might be reduced by as much as one third and the insured might be able to purchase a larger amount of insurance than he might otherwise for the same premium outlay.
This clause appears in the Special Provisions of a number of states. New forms in several states have also added transit coverage on harvested crop on an excess over loss basis.
· Catastrophic Loss Award provides that, whenever the insured loss exceeds 70% of the particular crop acreage, an additional award up to one-half of the percent of loss in excess of 70% is paid. The total payment per acre is not greater than the limit or amount of insurance. The extra harvesting allowance does not apply if the policy is subject to an "Excess over Loss" provision which does not disappear at or below the 70% loss threshold.
· Windrowed crops clause provides insurance against “shatter” loss by hail only to any insured crop acreage after the crop is cut and while in the bundle, shock, stack swath or windrow. “Shatter “means to break into pieces, smash or burst.
· Corn and sorghum clause provides that for corn grown for seed purposes, and for popcorn or sweet corn, the amount of loss is determined the same way as for ordinary field corn. For sorghum crops grown for seed purposes, the amount of loss is determined the same way as for ordinary field sorghum.
· Hay, forage and grass crops are harvested more than once each growing season. The limit of insurance per acre provided for each cutting or harvest is determined by dividing the total insurance per acre by the number of cuttings or harvests.
· Hay and grass crops grown for seed coverage applies only to the cutting to be harvested for seed and until the seed is set, subject to a maximum limit of 25% of the insurance per acre stated in the schedule.
· Vegetables grown for seed, grass, and hay grown for seed, mustard seed, rapeseed, onion seed, and onions losses are not covered until the reduction in yield per acre exceeds 10%. The percentage per acre then paid is the percent in excess of 10%.
· Sugar Beets clause states that insurance does not take effect until at least 12 leaves, in addition to the original two leaves, are clearly visible on at least 75% of the plants in the insured crop.
· Replanting destroyed crops has a provision that applies in a number of states. It states that for crops damaged by hail to the extent that replanting is required, the company may reimburse the insured for an amount not greater than the actual cost of replanting, whether the crop is replanted or not. This reimbursement reduces the insurance on each acre of crop replanted by the amount paid. Insurance remaining after the cost of replanting insures the replanted crop if it is the same kind. If it is not the same kind, the remaining limit is transferred to the substitute crop, for the appropriate premium charge, subject to approval by the company.
The language above is essentially that used in the special provisions forms of the various states. A percentage figure is frequently inserted in the clause to limit the insured's recovery for expense in replanting. In some states, if "Excess over Loss" provisions are used, the "Excess over Loss" provision does not apply to the replant award.
· Minimum loss provisions provide that the company is not liable for any loss under the policy to any insured acre of crop until the actual percentage of insured loss or losses equals 5% or more of the value of the crop. Similarly, the company is not liable for loss in addition to any paid loss until such additional loss equals 5% or more of the original crop value.
· Appraisal of loss clause states that in case the insured and the company fail to agree on the amount of loss, the matter is referred to two competent and disinterested appraisers. This appraisal clause is similar to the corresponding clause in property policies.
· A standard cancellation clause is included in the General Provisions section of the policy. If the insured cancels or reduces coverage before the insurance period, the insurer refunds the premium paid for the amount of insurance cancelled or reduced. If the insured cancels or reduces insurance during the insurance period, no premium is refunded.
The insurance company may cancel all or part of the insurance under the policy by giving the insured at least ten days notice of cancellation. The company returns the premium paid for the amount of insurance per acre on the portion cancelled.
The Special Provisions section contains cancellation provisions that supersede the cancellation provision in the General Provisions section in many states. These clauses usually provide for a period of from 60 to 90 days within which the company can cancel with reasons. A 10 or 15-day notice must be given. These provisions differ from state to state and the requirements for each state must be reviewed carefully.
Any policy in force for more than 60 or 90 days may not be cancelled by the company without the insured's written consent, except for:
o Nonpayment of premium;
o Material misrepresentation;
o Violation of one or more of the terms of the policy;
o Loss of facultative reinsurance or loss of/or substantial changes in applicable reinsurance; or
o Where continuation of the policy would be in violation of state laws.
A portion of the Special Provisions section of every standard crop hail insurance policy is devoted to a schedule of expiration dates for hail and fire coverage for specifically named types of crops. Review the policies used in your state because these dates vary from state to state depending on harvest times.
· Liberalization clause is contained in all standard crop hail insurance policies Special Provisions section. It is similar to the corresponding clause in property policies.
Any
legitimate farm operation that produces crops for sale in any section of the
The Crop Hail Manual lists the different types of crop hail forms that may be used in each state and to which crops each one applies. Several types of the standard Crop Hail policies that may be used are listed below.
· Annual Basic Form is the form used in most states and for most crops. It is a percentage form policy, meaning that recovery is based on the percentage reduction in the yield of the crop per acre due to loss by the peril or cause of loss insured against. Coverage is usually written for the growing season on an annual term basis.
· A special Named Perils Form for harvested and not harvested tobacco is available in tobacco growing states. Perils insured against for not harvested tobacco are hail, fire, lightning, and wind. For not harvested tobacco, when loss is caused by wind or hail, at least 5% of the crop must be destroyed before any loss payments are made. Wind loss means injury to the plant above the ground, only by breaking off stalks or destruction or removal of leaves or any portion of leaves by wind. There is no coverage if tobacco is blown down by wind or falls over for any reason.
The perils insured against for harvested tobacco are:
o Hail
o Fire
o Lightning
o Windstorm
o Smoke
o Explosion
o Vehicle damage
o Aircraft damage
o Civil disturbance and riots
· Valuation of tobacco clause stipulates that the actual cash value of leaf tobacco is determined by the greater of the current yearly United States Department of Agriculture (USDA) average support price or the weekly average sale price at the market nearest the farm at the time of the loss.
Insurance on tobacco expires at 12:01 a.m. on November 1 for not harvested tobacco, on December 31 for harvested fire-cured tobacco and February 15 of the year following the inception date for harvested dark-fired or burley tobacco.
In most areas several types of Deductible or Excess Over endorsements are available that may be attached to the standard crop hail insurance policy. The insured may receive a substantial reduction in rates by using Excess Over endorsements.
· Zero % Deductible endorsement stipulates that no deductible applies and coverage begins at the first dollar of loss.
· Excess Over 5% Loss endorsement stipulates that the company is not liable for loss to any acreage of the insured crop until the percentage of loss exceeds 5% and it remains at 5%.
· Excess Over 5% Loss–Disappearing at 25% endorsement stipulates that the company is not liable for loss to any acreage of the insured crop until the percentage of loss exceeds 5%. Once the loss exceeds 25%, the deductible does not apply at all.
· Excess Over 10% Loss–Increasing Payment endorsement stipulates that the company is not liable for loss to any acreage of the insured crop until the percentage of loss exceeds 10%. Whenever the determined percentage of loss exceeds 70%, the percentage of loss payable is increased an additional 1% for each percentage by which the percentage of loss exceeds 70%.
· Excess Over 10% Loss–Disappearing at 50% endorsement stipulates that the company is not liable for loss to any acreage of the insured crop until the percentage of loss exceeds 10%. The percentage per acre then payable is the percent in excess of 10% multiplied by 1.25. Once the percent of yield reduction equals or exceeds 50%, the provision does not apply at all.
· Excess Over 20% Loss–Increasing Payment endorsement stipulates that the company is not liable for loss to any acreage of the insured crop until the reduction in yield exceeds 20%. When the loss exceeds 20%, the percentage per acre payable would be the percentage in excess of 20% multiplied by 1.25.
· Excess Over 30% Loss–Increasing Payment endorsement stipulates that the company is not liable for loss to any acreage of the insured crop until the reduction in yield exceeds 30%. When the loss exceeds 30%, the percentage per acre payable would be the percentage in excess of 30% multiplied by 1.25.
For tobacco and other specialized crops mandatory minimum flat deductibles of 5% or 10% usually apply.
Different options are available for tailoring a program to address different needs via either a federal program or forms from private insurers, such as:
· Bean Windrow
· Companion Hail
· Escalator Deletion (for cotton crops)
· Grain Fire
· Grain Guard
· Open Boil
· Production Plan Potato Freeze
· Potato External and Tuber Quality (loss of crop value due to excessive cosmetic flaws)
· Reject Coverage – addresses loss caused by a processor or buyer rejecting or paying less for damaged crop.
· Replant Deletion Option (Soybeans)
· Sugar Beet Crusting, Freeze and Wind
· Tree Fruit
· Wind (Green Snap and Direct Ear Loss)
· Windshatter (Wheat and Barley)
Rates are published for the different types of crops and various types of policies and endorsements used in each state. Rates are filed by the National Crop Insurance Services organization on behalf of its members and subscribers or are filed independently by insurance companies.
A base rate is determined for each county or township in the state. The base rate is affected by the level of farmer participation in each area. These rates are then adjusted by other factors, such as the type of policy or endorsement used and the Crop Classification. A Table of Rates Per $100 Insurance is published in every Crop Hail Insurance Manual.
Base rates are usually adjusted by the rating organization or companies regularly, based on the loss experience from hail damage in the state. Counties or townships with worse hail loss experience than others get higher base rates. Crops that are more susceptible to hail damage have higher rates.
Minimum policy premiums vary by state.