Section 3 Lesson 7 Farm and Flood Insurance Principles and Coverage Forms

Unique Risk Profile: Farm insurance represents a specialized category of risk because a farmer’s business operations and personal residence are frequently situated on the identical piece of property.
Dual Coverage Requirement: These policies are designed to accommodate both personal and business exposures simultaneously.
Structural Components: A farm insurance policy must provide both property and liability coverages to be effective.
Standard Property Similarities: A typical farm property policy resembles a standard property policy by including several foundational coverages:
- Coverage A: Dwelling.
- Coverage B: Other Structures.
- Coverage C: Personal Property.
- Coverage D: Loss of Use.

Specialized Farm Coverages: In addition to basic property protections, farm policies include sections specific to agricultural operations:
- Scheduled Farm Coverage FNP: This coverage includes property and equipment incidental to the farming operations. Specific items covered include:
  - Machinery.
  - Vehicles and equipment.
  - Grain.
  - Farm produce.
  - Poultry.
  - Livestock.
- Coverage G: Farms, Outbuildings, and Other Farm Structures.
Unscheduled Farming Property: This is written as a blanket coverage and is intended for smaller farm personal property situated both on and off the insured premises.
Coverage G Components: This section covers farm buildings and structures other than the primary dwelling, such as:
- Barns.
- Silos.
- Fences.
- Outdoor radio equipment.

Basic Level Coverage: Perils covered at this level are similar to those found in the Commercial Property Basic form.
Broad Level Coverage: This level is similar to the Commercial Property Broad form and adds unique agricultural perils including:
- Electrocution of covered livestock.
- Drowning of covered livestock.
- Accidental shooting of covered livestock.
- Attacks on covered livestock by dogs or wild animals.
- Loading and unloading incidents.
Special Form (All Risk) Coverage: This provides open-peril coverage for all risks except those specifically excluded. Significant exclusions include:
- Dishonest or criminal acts.
- Pollutants or contaminants.
- Transfer of property due to unauthorized instructions.
- Voluntary partying with property.

Comprehensive Package: The Farm Liability Coverage form is often combined with the Farm Property form to create a unified insurance package.
Tailored Focus: While similar to homeowners and business owners liability policies, it is specifically customized for farming operations.
Primary Liability Coverages:
- Bodily injury liability arising from farming operations or personal activities.
- Property damage liability arising from farming operations or personal activities.
- Personal and advertising injury.
- Medical payments to others, such as guests.
Key Liability Exclusions:
- Liability stemming from motor vehicles, unless the vehicles are specifically described within the policy.
- Liability for pollutants and contamination.
- Damage resulting from aircraft spraying (this is considered an aircraft liability risk).
- Injury to farm employees (this is considered a workers compensation risk).

General Exclusion: The peril of flood is excluded from all standard property policies.
General Definition of Flood Factors: Flood is characterized as rising water originating from sources such as:
- Backed up or overflowing streets.
- Storm drains.
- Rivers or streams due to excessive rain.
- Wind-blown water from hurricanes.
- Tidal waves or excessive tidal activity.
Governmental Role: Flood risk is covered by the federal government via the National Flood Insurance Program (NFIP).
Write Your Own (WYO) Program: Private insurance carriers may offer flood insurance directly through a "write your own" program, but the NFIP backs the risk at $100\%$ .
Eligibility Constraints: Coverage is only available for eligible buildings and property located within eligible communities. Community and building eligibility requirements are essential topics for those seeking to be certified by the NFIP to adjust flood claims.

Legal Definition of a Flood: A general and temporary condition of partial or complete inundation of:
- $2$ or more acres of normally dry land, OR
- $2$ or more properties.
Causes of Inundation:
- Overflow of inland or tidal water.
- Unusual and rapid accumulation of runoff or surface waters from any source.
- Mudflow.
- Collapse or subsidence of land along the shore of a lake or similar body of water due to erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels which results in a flood.

Eligible Entities: Any owner of real or personal property in an NFIP-approved community, including:
- Residential and commercial building owners.
- Condominium associations.
- Builders risk exposures.
- Tenants.
Covered Damage: Physical damage to buildings and personal property caused directly by a flood.
Proximate Cause Example: Damaged caused by sewage backup is covered ONLY if the proximate cause of the backup is flooding; if the backup is caused by a faulty septic tank, the loss is not covered.
Indirect Loss Exclusion: The NFIP policy does NOT cover indirect losses, such as:
- Business income or business interruption.
- Additional living expenses.
- Lost rents.
Excluded Property Types:
- Outdoor swimming pools.
- Motor vehicles.
- Machinery or equipment left in the open.
- Livestock.
- Crops, shrubbery, or land.
- Wharves, piers, and bulkheads.
- Gas or liquid storage tanks.

Maximum Coverage Limits: Limits are authorized by Congress and were set as follows in July $2020$ :
- One to Four Family Residential Buildings: $250,000$ for the building and $100,000$ for the contents.
- Non-Condominium Residential Buildings ( $5$ or more units): $500,000$ for the building and $100,000$ for the contents.
- Non-Residential Businesses and Buildings: $500,000$ for the building and $500,000$ for the contents.
Loss Settlement Valuation:
- Single-Family Homes: Paid at Replacement Cost Value (RCV) if the home is the insured's principal place of residence (meaning the insured lives there at least $80\%$ of the time) and the home is insured for at least $80\%$ of the replacement cost.
- Residential Condominiums: Paid at Replacement Cost Value (RCV) as long as the policy's coinsurance clause is met.
- General Rule: All other flood losses are paid at Actual Cash Value (ACV).