15.1 Farm and Agricultural Coverage

Why a Farm Needs Its Own Policy

Farming is a business, and the unendorsed ISO Homeowners (HO-3) form systematically excludes business property and business liability. A farmer who relies on a homeowners policy has no coverage for the tractor in the field, the herd in the barn, the grain in the bin, or a lawsuit arising from selling produce at a roadside stand. The solution is a package contract built on the ISO Farm Program (the FP-00- series, current 09 17 / 12 19 editions) or an insurer's proprietary Farmowners-Ranchowners (FARO) form.

Quick Answer: A farm needs a specialized package because the very exposures that define agriculture - equipment, livestock, stored crops, and operations liability - are exactly what a homeowners form excludes.

When the farm dwelling is incidental to the operation, the package is sometimes written off a commercial base; when the residence is the focus with farming attached, the FARO form is used. Either way, the farm package qualifies the insured for a package modification credit, much like a Businessowners or CPP, because combining property and liability lowers expense loading.

Causes of Loss on the Farm Property Form

Farm structures and personal property can be written named-perils (basic or broad) or special (open-perils) form, paralleling the commercial property causes-of-loss forms. Special form covers all direct physical loss except what is excluded, shifting the burden of proof to the insurer.

Livestock is frequently restricted to named perils even when buildings are on special form, because mortality from disease or calving is hard to underwrite on an open-perils basis.

The Farm Package Structure

The ISO Farm policy is a true package: it bundles property (Farm Property Coverage Form FP 00 13) with liability (Farm Liability Coverage Form FL 00 20) the same way a Businessowners (BOP) bundles property and CGL. The property side is organized into coverages that mirror, but extend far beyond, a homeowners form.

Coverages A through D track the dwelling exposure; Coverages E, F, and G are the agricultural extensions that a homeowners form cannot supply.

Scheduled vs. Blanket Farm Personal Property

Farm personal property - machinery, livestock, harvested crops in storage, feed, seed, fertilizer, and supplies - can be insured two ways:

• Scheduled (Coverage E): Each high-value item is listed with its own limit. Best for a $180,000 combine or a registered bull. A loss is settled against that item's specific limit.
• Blanket / Unscheduled (Coverage F): One limit covers an entire class. Easier to maintain but the limit must be adequate for the whole class at once.

Livestock trap: Blanket livestock coverage usually carries a per-head sublimit (commonly the lesser of actual cash value or a stated cap such as $2,000 per animal for cattle/horses) so a single prize animal is not over-recovered out of a blanket limit. Always schedule animals worth more than the per-head cap.

Coinsurance and ACV - A Worked Example

Farm structures (Coverage G) are typically written with an 80% coinsurance clause on a replacement-cost or actual-cash-value basis. If the insured carries less than the required percentage of value, the penalty formula applies:

Recovery = (Carried Limit / Required Limit) x Loss - Deductible

Example: A barn is worth $200,000 (replacement cost). With 80% coinsurance the insured must carry $160,000. He carries only $120,000. A covered fire causes a $50,000 loss with a $1,000 deductible.

• Coinsurance factor = $120,000 / $160,000 = 0.75
• 0.75 x $50,000 = $37,500
• Less $1,000 deductible = $36,500 paid; the insured absorbs the $13,500 penalty plus the deductible.

If the structure is settled on ACV, depreciation comes off first: a 40%-depreciated barn loss of $50,000 RC value pays $30,000 ACV (before any coinsurance/deductible math).

Crops: Harvested vs. Growing

A critical exam distinction: a standard farm policy covers only HARVESTED crops in storage (grain in the bin, hay in the loft) against named perils such as fire and windstorm. It does not cover a growing crop in the field against drought, hail, flood, or pests.

Growing-crop risk is handled through the federal Multi-Peril Crop Insurance (MPCI) program, sold by private insurers but reinsured and premium-subsidized by the USDA Risk Management Agency (RMA) under the Federal Crop Insurance Corporation. A narrower Crop-Hail policy is available privately for the single peril of hail. Confusing harvested-in-storage coverage with field/growing coverage is one of the most common farm-section test traps.

Quick Answer: Stored, harvested crops = farm policy. Growing crops in the field = federal MPCI through the USDA RMA, not the farm policy.

Farm Liability (FL 00 20)

Farm liability extends a homeowners-style personal liability to the farm's business exposures:

Trap: Farm liability does not replace workers compensation where state law requires it, and it does not cover the auto exposure of licensed vehicles on public roads (that needs a Business Auto or farm-auto endorsement). Pollution from normal farming (manure/chemical runoff) is typically excluded and needs a separate buy-back.