You can’t say it often enough.

The more agricultural enterprises incorporate features of commercial enterprises, the more apparent it is that the former have unique, enduring qualities that set them apart.

For decades, insurers had essentially two choices when it came to selecting forms and rating procedures for insuring farms and agribusinesses: Use “farmowners” forms and rating developed for family-owned and operated farms, or select components from commercial property and liability programs and modify them by endorsement to fit agricultural risks.

In 2001, AAIS took the first step to move its members beyond those constraints when it introduced its Agricultural Output Program (AgOP), the first standardized program developed for insuring property exposures of large farms and agribusinesses.

The AgOP provides an alternative to farm and commercial property forms that incorporates broad coverage for commercial and agricultural property exposures into its coverage parts.

Big step

AAIS takes another big step in 2008 with the countrywide filing of its Agricultural General Liability (AgGL) Program.

The immediate purpose of the AgGL will be to allow users of the AgOP to issue package policies with property and liability coverage.

But, since AgGL policies can also be issued on a monoline basis, the AgGL will become the first standardized general liability program specifically designed for farms and agribusinesses. As such, its forms and manual classifications may fundamentally remake the way liability coverage is structured for all types of agricultural enterprises.

Compared to standard farmowners programs, the AgGL provides broader coverage in its base forms with a wider range of endorsements for covering or excluding liability exposures.

For most classes, the AgGL’s rating information supplants traditional acreage-based rating with sales-based rating information that is more sensitive to inflation and better reflects the growing percentage of agricultural revenue from sources other than commodity sales.

Compared to standard CGL programs, the AAIS AgGL includes a number of standard farm exclusions in its base forms, as well as limited built-in coverage for third party property damage arising from the application of farm chemicals.

Also, the AgGL program manual includes more agricultural classifications than typically found in a CGL manual.

Farming

The AgGL’s flexible approach to covering agricultural liability is embodied in the choice of two base forms.

One form, entitled Farm Commercial Liability Coverage, is designed specifically for farming operations. To that end, the form limits coverage to liability arising out of farming, which is specifically defined to exclude any processing of agricultural products.

Under the form’s definition of “farming,” built-in coverage is generally limited to three types of activity:

• Planting, growing, and harvesting of crops;
• Breeding, raising, and feeding of livestock or other animals, including birds, fish, shellfish, and insects; and
• The management, operation, and maintenance of a farm enterprise.

Beyond that, the Farm Commercial Liability Coverage form covers liability arising out of operations required to prepare farm products for market—operations such as washing, sorting, grading, and field packing—as long as those operations do not alter the form of the products.

“Farming does not include mechanized processing,” says Sherry Taylor, AAIS manager of farm and agribusiness. “However, processing can be insured if described as a business activity on the declarations.”

Similarly, “farming” as defined does not include the use of any location for farm-related education, entertainment, and other purposes undertaken for compensation.

That effectively excludes coverage for “agritainment” and “agritourism,” two forms of non-farming activity that account for a growing percentage of farm revenue, unless those activities are described on the declarations (and, presumably, underwritten and priced).

Also, the farm commercial liability form limits coverage for roadside stands to those that are on the insured premises and used only to sell the insured’s products; no other retail activity is covered unless described on the declarations.

“Once the insured starts modifying the product or selling something that someone else makes or grows, the coverage goes away,” says Taylor.

Agribusiness

The Farm Commercial Liability Coverage also includes a built-in exclusion for any activities other than farming unless described on the declarations. This provision is designed to avoid exposure to activities that arise on a farm without notice given to underwriters.

With coverage under the form thus restricted, a series of endorsements is being filed to allow carriers to extend coverage under the policy to specific types of exposures, as well as for personal liability.
In this way, “the Farm Commercial Liability Coverage Form operates on a ‘build-up’ approach,” says Taylor. “Coverage is restricted to farming in the base form, and extended to other exposures by endorsement or by dec page entries that describe other operations.”

In contrast, the companion base form, entitled Agribusiness Commercial General Liability, functions much like a traditional CGL coverage part in that it automatically provides liability coverage for all operations of an insured, other than those explicitly excluded.

For example, the agribusiness base form has no restrictive definition of farming and no built-in exclusion for non-farming activities. Unless an activity is subject to one of the built-in exclusions (vehicles, intentional acts, nuclear energy, etc.) or an exclusion endorsement, it is generally covered.

As for those exclusions, the built-in lists of them provided in both AgGL forms include recently standardized exclusions, including those for liability arising from mold (with exceptions), silica, unsolicited transmissions, and other causes of action.

There are also built-in farm related exclusions that are unique to the AgGL that address liability arising from certain logging or lumbering operations, the Migrant and Seasonal Agricultural Worker Protection Act, and animal diseases (hoof and mouth and “TSE,” transmissible spongiform encephalopathies, aka “mad cow”).

“The Agribusiness Commercial General Liability form is a CGL policy designed to be used for farming and non-farming operations commonly seen in combination,” says Taylor.

“The agribusiness form is designed to cover liability arising from the processing of primary agricultural products and the manufacturing of secondary ones, but it is also possible to add coverage for personal liability exposures,” she says.

Chemical

Despite their different orientations, both AgGL forms have built-in Farm Chemical Limited Liability coverage.

This coverage is essentially a built-in form of chemical drift coverage that pays for legal liability for physical damage to property resulting from the release of farm chemicals into the air. (The coverage does not apply to chemicals released from aircraft, however.)

Under the agribusiness form, this coverage is limited to chemicals released on premises used for farming operations. Under the farm form, the coverage applies to “farm premises” generally. In both cases, the coverage applies up to a built-in limit; a higher limit can be indicated on the declarations.

The Farm Chemical Limited Liability coverage applies solely to the insured’s own farming operations, and is not applicable to custom farming done for others.

The farm and agribusinesses forms differ in their approach to insuring exposures related to custom farming, defined in the AgGL Farm Commercial Liability form as farming undertaken for compensation and conducted away from insured premises under the direction of someone other than an insured.

The farm commercial liability form effectively insures bodily injury and property damage arising from such arrangements as long as receipts from custom farming operations do not exceed the annual revenue threshold specified on the declarations.

The AgGL manual anticipates a custom farming threshold of $5,000 a year and provides rating information for higher thresholds.

To provide this coverage, the farm form provides a custom farming exception to the exclusion for property of others in the insured’s care, custody, or control, but only if custom farming receipts do not exceed the threshold established.

Under the agribusiness form, there is no definition or exclusion for custom farming; it is another insured activity unless explicitly excluded. However, an appropriate manual classification must be selected to remove the care, custody, and control exclusion for custom farming.

Choice

The AAIS Agricultural General Liability Program is designed to give insurers a choice betweentwo approaches, each of which can be tailored by endorsement to individual risks.

According to Taylor, three factors will be key to determining which form you choose.

First, what is the nature of the insured operation? Is it more of a farming or a commercial agricultural operation?

“The farm commercial form is well-suited to farming operations, and has the ability to pick up one or two commercial exposures,” Taylor says. “The agribusiness form is better suited to commercial ag operations with some farming included.”

“Secondly, how much control do you want over the exposure?” Taylor asks. “Are you worried that the insured may get involved in activities that you are not aware of, or familiar with? If so, the farm commercial form will limit your exposure.

“If not, the agribusiness form can provide the coverage while requiring that the activity be reported to you. Any change in the exposures can be picked up and rated for during a premium audit.”

Finally, what is the nature of your insurance operation? Experienced agricultural underwriters are essential, Taylor says.

“Your underwriters need to be able to identify exposures and coverage issues, and price to company standards,” she says. More importantly, the company needs to be committed to conducting thorough premium audits.

“That will be a decision driven by senior management’s appetite for risk and your reinsurance treaties,” Taylor says.