Focus on Forms: Farmowner Endorsements
By Sherry Taylor, Manager of Product Development and Support
FO 360 01 17
You may not have realized this, but the Farm Machinery endorsement, FO 0360, was updated in 2017. This updated version adds a couple of options that were not previously available in the AAIS Farmowners program.
The first new option is Foreign Objects. By listing machinery units and checking the box for “foreign objects,” coverage for intake or ingestion applies to these scheduled items. The endorsement overrides the exclusion in that same endorsement that applies to “foreign objects that are picked up and taken into mobile farm machinery.”
From an underwriting perspective, anyone who wants to write this coverage should consider the type of terrain where the piece of scheduled machinery will be used. If the terrain is extremely rocky, providing this coverage is not advisable.
The second new option is Replacement Cost. When this option is selected (also by checking the box), losses are adjusted on a replacement cost basis, with no depreciation applied, to the scheduled item. The terms of the endorsement do require that the item be insured to 80% of its replacement cost. Otherwise, settlement will be on an actual cash value basis or with coinsurance applied, whichever is larger.
From an underwriting perspective, our recommendation is that this coverage be offered only on mobile farm machinery units that are five years old or newer. Replacement cost is not meant to cover older units or all insured machinery on a widespread scale. The benefit of the coverage is to prevent insureds with newer units from being “upside down” on loan to value when a claim occurs. Companies may also consider a value minimum (i.e. units $100,000 and over). Please note that offering this coverage will require keeping up with aging units so they can be removed from the schedule.
State law may require you to file rates for either of the above optional coverages. And, if your association (or company) does not subscribe to an “on behalf of” form filing arrangement with AAIS, you will also need to file the form.
FO 340 Ed. 1.0
One less common endorsement is FO 340, Limited Perils – Coverages E, F, and G. By scheduling a piece (or a group) of farm machinery or a building with an associated limit, the insured perils can be specified.
Four peril groupings can be selected for each individual entry:
- Peril No. 1 includes only fire and lightning.
- Peril No. 2 includes only windstorm and hail.
- Peril No. 3-7 include Extended Coverage.
- Peril No. 8 includes only Vandalism.
The Peril Groups can be mixed based on the risk exposures.
For example, a single building could be insured for Peril No. 1 (fire or lightning), even though the rest of coverage E is written with Broad Perils. The same could be done for a bin or piece of equipment.
One issue to note is that in order to use this limiting endorsement, a company must have a rate filing that would permit only the designated limited perils to apply.
As always, if you have any questions on the endorsements discussed above, please contact Mutual Assistance.