learning objectives - amazon s3pc/alpc_12.pdflearning objectives upon the completion of this...

163 Property & Casualty

Chapter Twelve

mIscellaneOus cOmmercIal pOlIcIes

LEARNING OBJECTIVESUpon the completion of this chapter, you will be able to:

1. Understand the Nationwide Marine definition2. Identify the 6 broad classes of property that may be insured under Inland Marine contracts3. Differentiate between controlled (filed) and uncontrolled (non-filed) lines of coverage forms4. Recognize the Commercial Inland Marine Coverage Forms and Floaters5. Identify the Transportation Coverages6. Differentiate between Umbrella and Excess Liability Insurance7. Define Professional Liability Insurance8. Compare and contrast Surety and Fidelity Bonds9. Identify the key components of Equipment Breakdown Protection Coverage Form10. Recognize the Selected Endorsements11. List the Farm Property Coverages12. List the Farm Liability Coverages

OverviewThis chapter will review a wide range of miscellaneous commercial policies. The Nationwide Marine Definition defines 6 broad classes of property that may be insured under marine contracts. Marine insurance addresses property that is portable in nature or at an unnamed location. Ocean Marine Insurance and Inland Marine Insurance provides such coverage for these properties.

Umbrella and Excess Liability Insurance provides an additional layer of insurance protection above and beyond the limits of liability. This chapter will also describe Special or Professional Liability Insurance that is available for businesses or professionals that have a higher than average exposure for being legally liable for damages other than bodily injury or property damage.

Additional miscellaneous coverages reviewed in this chapter include Bonds, Equipment Breakdown Coverage, Farm Property and Liability Coverages, Aviation Insurance, and Crop, Hail, and Windstorm Insurance.

12.1 Commercial Inland Marine Insurance

Initially, Ocean Marine insurers provided practically all of the transportation insurance needed in this country because most major cities were located on coasts or major rivers; and most goods were shipped either by ocean or inland waterways. The advent of first the railroad, followed by motor trucks and airplanes, created a new system of transportation and, with it, a demand for insurance to protect goods in transit over land.

Nationwide Marine DefinitionThe Nationwide Marine Definition is a guideline that was established in 1953 by the National Association of Insurance Commissioners (NAIC). It was revised in 1976 for the purpose of classifying inland marine, marine, and transportation exposures into categories of insurance. All property must contain an element of transportation to be eligible under inland marine coverage forms. Specifically, it must be in transit, be moveable, bear a relationship to transportation or communication, or be held in the possession of a bailee, who is someone other than the property owner.

164Property & Casualty

The Nationwide Marine Definition defines 6 broad classes of property that may be insured under marine contracts. The 6 classes are:

1. Imports, which may be insured at any location and must remain segregated from other property so it can be easily identified.

2. Exports, which may be insured at any location and acquires its character when being prepared for export and must retain that character unless diverted for domestic trade.

3. Domestic Shipments and Property in Transit, which involves shipments on consignment, for sale or distribution, for approval or auction, while in transit, while in the custody of others, and while being returned and DOESN’T include coverage while on premises owned, leased, or operated by the consignor.

4. Instrumentalities of Transportation or Communication, which DO cover items that are often at a fixed location because they play an important role in the transportation and communication industries. These items are NOT easily insured on traditional commercial property policies. They include the following types of property: bridges, tunnels, transmission towers, including radio and television transmitting equipment, piers, wharves, slips, docks, dry-docks, marine railways, pipe lines, outdoor cranes, loading bridges, and similar equipment.

5. Personal Property Floaters typically insure personal property on an open perils basis and, when covered on a floater, this type of property is excluded from coverage on the Homeowners and/or Dwelling policies. It involves property that is usually NOT located at the insured’s residence.

6. Commercial Property Floater Risks insure property pertaining to a business, profession, or occupation. Examples include:a. Physicians’ and Surgeons’ Equipment Floatersb. Pattern, Tool, and Die Floatersc. Theatrical Floatersd. Film Floaterse. Salesman’s Sample Floatersf. Tools and Equipment Floatersg. Builders’ Risk & Installation Floaters

Inland Marine Policies (Cargo Policies)1. Generally, the property insure y covered on land.2. The coverage is designed to protect against losses to property that is mobile in nature, primarily

while the property is away from the owner’s premises.3. Inland marine policies are designed primarily to cover property in transit, moveable property,

property particular to transportation and communication risks, and property in the possession of bailees.

4. The coverage is generally written on an open perils basis and contains few exclusions.5. The policies are not used to cover furniture and fixtures at fixed locations. The only inland marine

policies that insure property at fixed locations are those issued to insureds in the transportation and communications industries because such property cannot be insured on other property policies.

6. Typical exclusions on an inland marine policy include:a. Governmental actionb. War and nuclear hazardc. Consequential lossd. Dishonest and criminal acts of an insurede. Weather conditionsf. Acts and decisions

7. The exclusions of earthquake and water are usually found only in inland marine policies that insure buildings.

mIscellaneOus cOmmercIal pOlIcIes – chapter twelve


Commercial Inland Marine ClassesInland Marine Coverage Forms are divided into two lines of coverage: controlled (filed) and uncontrolled (non-filed).

1. Controlled lines of coverage, or filed lines, are those that use policy forms, endorsements, and rates that are filed by insurers with the departments of insurance in each of the states where they write insurance. These forms are governed by the rules contained in the commercial lines manual, or any other approved manual. The most common forms of coverage in the controlled lines are:• Accounts receivable• Commercial articles floater• Jewelers block coverage• Sign coverage• Valuable papers• Records coverage, and equipment dealers coverage

2. Uncontrolled lines of coverage, or unfiled lines, are those that use policy forms, endorsements, and rates that are not filed with or through any rating bureau or state department of insurance. They are developed by individual insurers for individual risks and, consequently, the forms and coverage differ from insurer to insurer. A majority of commercial inland marine insurance is uncontrolled, such as:• Builders risk coverage• Contractors equipment floaters• Electronic data processing (EDP) coverage• Installation floaters• Transportation floaters

Commercial Inland Marine Coverage Part to the Commercial Package Policy1. Common Policy Declarations2. Common Policy Conditions3. Commercial Inland Marine Declarations4. Commercial Inland Marine Conditions that apply in addition to the Common Policy Conditions:

a. Loss Conditions:1) Abandonment2) Assignment3) Duties in the Event of Loss4) Insurance Under Two or More Coverages5) Loss Payment6) Other Insurance7) Pair, Sets, or Parts – A loss settlement condition found in property insurance contracts

stating that when part of a set is damaged or destroyed, the insured will not be reimbursed for the value of the entire set. Various methods are used to determine the amount of reimbursement.Example #1: When the set is worth more than the sum of its parts, settlement is often based upon the loss to the set, not the value of the lost or destroyed piece. This is an example of when the market value of the individual item is disproportionate to the actual value of the entire set.Example #2: Set of 4 Value is $1,000. 1 item individually is worth $200. The Value of the set is worth more than the sum of all 4 individual parts, which would equal $800. Therefore, they would consider the set value of $1,000 /4 = $250. The loss settlement would be for $250, not $200. If the set is irreplaceable the valuation would then be $1,000—the value of the one item lost (1000-250) = $750. In either case; under the Pair, Sets, or Parts Clause, in no case would the amount of the loss equal the value of the entire set.



8) Privilege to Adjust with Owner9) Recoveries – The insurer is entitled to salvage when paying for a loss.10) Reinstatements After a Loss11) Transfer of Rights of Recovery Against Others to the Insurer

b. General Conditions:1) Concealment2) Legal Action Against the Insurer3) No Benefit to Bailee4) Policy Period5) Valuation

5. One or more Commercial Inland Marine Coverage Forms.6. Endorsements as needed.

1. The Nationwide Marine Definition includes all of the following classes of property, except:a. Importsb. Personal Property Floatersc. Instrumentalities of Transportationd. Umbrella

2. The Controlled Inland Marine Coverage forms provide insurance for which of the following?a. Builders riskb. Transportation floaterc. Signsd. Installation floater

12.2 Commercial Inland Marine Coverage Forms and Floaters

Bailees’ Customers FormA bailee is a person or organization that accepts into its temporary care property owned by others. Bailees typically accept personal property into their care for storage, repair, servicing, or safekeeping. Examples of bailees include a dry cleaner or an auto repair shop.

The Bailees Customers Form provides open perils coverage for covered personal property of others while it’s in the care, custody, or control of the insured. Covered property does NOT include certain types of property that are uninsurable or that must be insured on another policy or form of inland marine coverage, such as:

• Accounts, bills, records, documents, deeds• Animals, birds, or fish• Autos, trucks, trailers, aircraft, watercraft• Furs, jewelry, watches, precious or semi-precious stones• Property accepted by the insured for storage• Property shipped by mail• Contraband or property in the course of illegal transportation or trade• Property owned by the insured



Installation FloaterThe primary property insured under the installation floater is moveable property, such as electrical, plumbing, or heating equipment to be installed in a building. Property, such as carpeting, tile, glass, elevators, and machinery, can also be included in coverage. Insurance is provided during installation, and sometimes after installation, until construction has been completed and the property has been accepted by the owner OR when the interest of the insured ends, whichever occurs earliest.

Builders Risk CoverageBuilders risk coverage insures buildings and structures that are in the course of construction, along with machinery, equipment, supplies, and fixtures that will eventually become part of the insured buildings and structures. Scaffolding and temporary structures can also be included in coverage.

Eligible buildings can be commercial, residential, or farm. The coverage form is similar to the Building and Personal Property Coverage Form and provides insurance on an open perils basis. The perils of theft and vandalism often contain limits and/or specific conditions, such as for accidental loss, damage, or destruction of property in which the insured has an insurable interest.

Contractors Equipment FloaterContractors equipment coverage provides open perils coverage on the insured’s equipment, such as mobile tools, equipment, and machinery, including forklifts, compressors, generators, and small hand tools. Coverage is also provided for similar property of others in the insured’s care, custody, or control.

No coverage is provided for:

• Autos, trucks, aircraft, boats• Plans, blueprints, designs• Property loaned, leased, or rented to others• Contraband and personal property of employees

Coverage is typically written on an open peril basis, subject to specified exclusions. The method of valuation is actual cash value unless replacement cost is indicated on the schedule of coverage. Newly acquired equipment must be reported by the insured to the insurer within 60 days. The territorial limits of the policy are usually the United States of America and itsterritories and possessions, Canada, and Puerto Rico.

Exam Tip: mexico is never included in A policy’s territoriAl limits.

Electronic Data Processing Coverage (Computer Systems Coverage Form)This form insures computers, component parts, associated peripheral equipment including printers and faxes, and systems used exclusively in the insured’s computer operations, such as air conditioning, fire suppression, and electrical equipment. The form also insures data stored on software, tapes, discs, drums, or cells.

The form does NOT provide coverage for the following types of property:

• Property leased to others and located off-premises• Accounts, records, documents, etc.• Laptops and notebooks• Contraband• Stock in trade

Note: Extra Expense Coverage is available as an optional coverage.



Equipment Dealers FloaterEquipment dealers coverage provides insurance for property consisting primarily of mobile agricultural and construction equipment, including property of others in the dealer’s care, custody, or control, such as binders, reapers, harvesters, tractors, bulldozers, and road scrapers. The following types of property are excluded:

• Aircraft, watercraft, motor vehicles• Accounts, bills, currency, deeds• Property leased, rented, or sold. Coverage includes property owned by others in the dealer’s

care, custody, or control.

Commercial Articles Coverage FormCommercial articles coverage provides insurance for fine arts, cameras, musical instruments, and their related equipment when used for business or commercial purposes.

Jewelers Block CoverageBlock policies and floaters provide insurance for both business personal property and goods for sale during the normal course of the insured’s business. Coverage is typically written on an Open Perils basis with the usual exclusions: war; wear and tear; delay and loss of market; flood; and earthquake. Specific block or dealers policies have exclusions designed to meet the needs of that particular business and its exposures.

A Jeweler’s Block floater provides insurance for jewels, watches, gold, silver, platinum, pearls, and precious and semi-precious stones. Two optional coverages are available and, if not purchased, no coverage applies for:

1. Show Windows – Provides theft coverage for articles in a show window if the window is broken or smashed. Different limits apply when the business is open or closed and whether the window is protected by a security system.

2. Money – Provides coverage for theft of money from locked safes or vaults on the insured’s premises.

Accounts Receivable Coverage FormAccounts receivables coverage provides insurance when the insured’s business records are destroyed in a loss caused by a covered peril, and the business is unable to collect money it’s owed. The policy pays for the uncollected sums plus the expenses involved with reconstructing records, along with extra collection fees. Accounts receivables coverage also pays for interest on loans and other reasonable expenses. Typical exclusions include those involving dishonest acts of the insured, its employees and authorized persons; bookkeeping or accounting errors; bad debts; alteration or falsification of records; war; governmental action; and nuclear hazard.

Signs FloaterSigns coverage provides coverage insurance for neon signs, automatic or mechanical signs, and street clocks, as well as billboards, ordinary fixed or plastic-faced signs. Coverage is provided for property of the insured and similar property of others in the care, custody, or control of the insured.

Valuable Papers and Records FloaterValuable papers and records coverage provides insurance for the destruction of valuable papers and records by a covered cause of loss. Examples of covered property include maps, blueprints, manuscripts, films, illustrations, abstracts, deeds, books, mortgages, etc. Money and securities are NOT covered.



3. Which of the following is covered under the Electronic Data Processing Floater?a. Laptopsb. Printersc. Accounts and recordsd. Notebooks

12.3 Transportation Coverages

Common Carrier Cargo Liability – Motor Truck Cargo Coverage1. Motor truck cargo coverage is provided for loss or damage to property arising from the legal

liability of the carrier. It covers the interest of the trucker—not the shipper, owner, or consignee—when loss or damage to the cargo occurs. Coverage is written on one of two forms:a. Bill of lading form, which is written on an open perils basis.b. Named perils form, which varies by insurer.

2. When a common carrier accepts property to be transported, it issues a Bill of Lading, which serves as both a contract and a receipt for goods accepted into the carrier’s care. The type of Bill of Lading determines what party is liable for damage that might occur during the transportation of the property. The two types of Bill of Lading are:a. Straight – A straight bill of lading doesn’t contain a value limitation for the cargo being

shipped, meaning the carrier is legally responsible for the full value of transported goods while it is in the carrier’s care.

b. Released – A released bill of lading is issued when the carrier and shipper agree that the carrier’s responsibility is limited to the value stated on the bill of lading.

3. The cost for transporting a shipment via a released bill of lading is less expensive than shipping via a straight bill of lading.

Motor Truck Cargo Forms1. Trucker’s Form

a. This form insures public truckers for their legal liability arising out of loss or damage to cargo belonging to others in their possession.

b. Coverage applies only if the carrier is legally liable for the loss and the loss was caused by an insured peril.Note: This form is not to be confused with Truckers Coverage Form in Commercial Auto, Chapter 13.

2. Shipper’s Forma. This form uses the same basic policy as the Trucker’s Form; however, the coverage is

fundamentally different because it covers the shipper’s own goods.b. The form provides property coverage, protecting the owner of goods that have been shipped by

a trucker operating as a common or contract carrier, for loss of those goods.3. Owner’s Form

a. This form is designed to provide transportation coverage for a business firm that owns trucks with which it transports its own goods.

b. Owned trucks are scheduled on the form, as is a limit of for each truck. The form excludes losses arising out of dishonesty of the insured’s employees.

Exam Tip: the motor trucK cArgo policy (including All 3 cArgo forms) covers A cArrier for liAbility for loss to cArgo while it is being trAnsported in A trucK.



Transit Coverage FormsTransit coverage forms are used when the insured purchases inland marine insurance for shipments of goods via common or contract carriers.

1. Annual Transit Coverage Form – Covered property is the insured’s personal property or the property of others in the insured’s care, custody, or control. Property must be in transit when shipped by any type of carrier or vehicle, or in any land vehicle owned or operated by the insured. Coverage applies while covered property is in the custody of the carrier for hire until it’s either delivered to its destination or returned to the insured.

2. Trip Transit Coverage Form – This form is used by those who do not make regular shipments, but wish to insure a single shipment. Covered property is the property described in the Declarations and that isn’t otherwise excluded. Coverage applies while covered property is in the custody of the carrier for hire or in any vehicle owned or operated by the insured while in transit.

3. Both forms may be written on an open or named perils basis.

12.4 Commercial Ocean Marine Insurance1. Ocean Marine Coverage insures the transportation of property (goods and merchandise) by vessels

crossing domestic and foreign waters, including inland or aviation transit connected with the shipment. This is the oldest form of property insurance. It is not part of the Commercial Package Policy (CPP) and is written as a stand-alone policy.

2. There are no standard Ocean Marine policies and coverage is generally unregulated with respect to both forms and rates.Note: Ocean Marine Policies are not filed with insurance departments. Most Inland Marines policies are likewise not filed, they are manuscripted.

3. Property covered on an Ocean Marine policy must be insured to its full value in order for the loss to be fully covered. There is no formal coinsurance provision in an ocean marine policy, however, a penalty is assessed at the time of loss if property is underinsured. For example, if the insured purchases coverage in an amount equaling 50% of the full value of the property insured, the loss payment for partial loss will be 50% of the loss.

4. Ocean marine policies contain warranties, which are seldom found in other property policies. Warranties are promises made by the parties to the contract and the payment of losses is contingent upon those warranties. If the warranties are breached, losses aren’t paid. There are two types of warranties:a. Express warranties are written into the policy contract, such as the exclusion of coverage for

war, strike, riot, and civil commotion.b. Implied warranties aren’t always written into the contract but are generally understood by all

parties and binding upon them. Examples of implied warranties include the ship’s soundness for sailing, the professional qualifications of the captain and crew, and the legal purpose of the voyage.

5. Breach of an implied warranty will void the contract. These warranties include:a. Legality – All voyages must be made legally and for a legal purpose. Any loss that occurs as

the result of an illegal purpose will not be covered.b. Seaworthiness – The vessel must be seaworthy at the time insurance goes into effect and upon

the insurer’s subsequent inspections. The vessel must always be in the command of a qualified and experienced captain and crew. The vessel must comply with safety and operational requirements.

c. No Deviation in Voyage – The ship must sail the course that was filed with the insurer at the time the policy was underwritten. Exceptions that don’t void coverage in the event a loss include a deviation in voyage to avoid bad weather, make necessary repairs, save a human life, or obtain medical care.



6. Ocean Marine Insurance provides the following types of coverage:a. Hull Insurance – Covers physical damage to the vessel. Coverage may be written on a named

perils basis on one of two types of policies:1) A Voyage policy, which covers the vessel for a specific voyage, or2) A Time policy, which covers the vessel for a specific period of time (usually 12 months).

Named perils include perils of the sea, jettison, piracy, fire and explosion, and lightning.b. Cargo Insurance – Covers physical damage losses to merchandise while in transit. Cargo

insurance can be written on an open perils basis. Certain shipping considerations affect coverage:1) FOB (Free On Board) Point of Shipment – The seller assumes responsibility for loss or

damage to the transported property until it’s in the possession of the carrier and a bill of lading, or receipt, has been issued.

2) FOB Point of Destination – The seller is obligated to transport property and will be responsible for loss or damage to transported property until proper delivery has been made.

3) The difference in these two methods of shipping is, essentially, who is legally responsible for the cargo at the time of the loss. If cargo is shipped FOB Point of Shipment, the shipper is responsible for insuring cargo during shipment. If cargo is shipped FOB Destination, the seller is responsible for insuring cargo during shipment.Note: Hull and Cargo Insurance are typically written on a “valued basis.” The valuation of the cargo includes the stated value of the invoice, import duties, and freight charges.

c. Freight Insurance – Freight insurance, or freight revenue insurance, provides coverage when the prepayment of freight is lost due to a partial loss to cargo or a voyage that isn’t completed. Freight Revenue may be insured in a number of ways and depends upon the agreement between the shipper and carrier. If the shipper is required by agreement to pay the carrier’s freight bill without regard to delivery of the goods, the freight revenue is considered part of the cargo and is insured in the cargo’s limit of insurance. If the freight revenue depends upon the safe delivery of the goods, it’s insured as part of the hull value.

d. Protection and Indemnity Insurance (P & I Insurance) is liability insurance purchased by ship owners for virtually all types of maritime liability pertaining to the use of a vessel. Coverage includes:1) Cargo lost or damaged through the insured’s negligence.2) Damage to other property, including fixed objects, such as wharves, docks, and other

vessels, when not caused by collision.3) Damage to property on board the insured vessel when caused by collision.4) Injuries to seamen resulting from the vessel’s lack of seaworthiness, for other job-related

injuries, and general damages subject to the Jones Act caused by negligence.Example: Barratry – A violation of duty in marine insurance, such as acts of the master and crew of a ship that result in damage to the vessel including purposefully running it aground, diverting it from its true course of travel, stealing of its cargo, and abandoning the vessel. Considered to be one of the Perils of the Sea.

7. General Average – A partial loss sustained voluntarily, but done so to save a vessel or cargo from a total loss. An example of a general average loss is jettisoning part of the cargo (throwing it overboard) to prevent a vessel from sinking. When a general average loss occurs, the owners of the vessel and all cargo share proportionally in the loss.

8. Particular Average – A partial loss sustained by a specific vessel or cargo. The loss is NOT shared by anyone other than the party with insurable or financial interest in the loss.

9. The Running Down Clause – Part of a hull policy that provides coverage for legal liability of the shipper or carrier for claims arising out of collisions caused by the shipper or carrier. This clause covers the negligence of the shipper or carrier that results in damage to the property of others.



10. Inchmaree Clause – Covers direct damage caused by the bursting of boilers, breaking of propeller shafts, or loss due to faults or errors in navigation by the crew. When this clause is added to the policy, it broadens the types of losses that are covered for the hull.

Ocean Marine PerilsPerils are categorized by one of the following two definitions:

1. Perils of the Sea – These perils occur on the ocean only and are specific to the hazards that exist when shipping of cargo across the ocean.Examples: Heavy Weather, Stranding, Piracy, Collision, Jettison (cargo thrown overboard to save the ship or cargo) Barratry (willful sinking of a ship or cargo, which is illegal).

2. Perils on the Sea – These perils are those that occur on land or on the sea. They can apply to either portion of the policy:a. Land based portionb. The at sea portion

Examples: Fire, Lightning, Explosion, Wind, Hail, Volcanic Eruption, Smoke, Falling Objects, Earthquake

Note: Know the difference between these types of perils.

4. Under Ocean Marine Coverage, breach of each of the following implied warranties will void the contract, except:a. Expressb. Legalityc. Seaworthinessd. No deviation in voyage

5. Protection and Indemnity (P&I) Insurance is similar to which of the following coverages?a. Physical Damageb. Liabilityc. Uninsured Motoristd. Medical Payments

12.5 Umbrella and Excess Liability InsuranceThe primary intent of purchasing any form of excess coverage is to obtain an additional layer of insurance protection above and beyond the limits of liability provided by another liability insurance policy. Umbrella liability is a specific form of excess coverage designed to insure against catastrophic losses. One of the eligibility requirements for purchasing a commercial umbrella or excess liability policy is the existence of primary, underlying insurance.

1. Excess Liability Insurance – Insurance purchased for the purpose of extending the limits of liability on another policy.

2. Commercial Umbrella Insurance – Commercial Umbrella Insurance provides coverage against catastrophic losses, extends liability limits, drops down to provide coverage not included in underlying primary insurance, and provides more comprehensive coverage than that contained in underlying primary insurance.

3. Primary insurance responds to a loss before all other insurance that might be in place to coverage a particular loss. An example of primary insurance is a commercial auto policy.



4. Underlying insurance is specific insurance that insures the same risk insured by excess or umbrella policy AND that will respond before the excess or umbrella insurance responds. An umbrella or excess insurer requires other commercial liability insurance to be in place to insure against the risks faced by a business person or commercial enterprise. For example, underlying primary coverage MUST be in place on the following business risks before an insurer will issue a commercial umbrella or excess liability policy:a. Commercial General Liability – Provides liability insurance for the business’ premises,

operations, products, and completed operations—along with a few other exposures.b. Employer’s Liability – Provides liability insurance for the business in the event an employee

sues the business for injuries that fall outside Workers’ Compensation statute.c. Commercial Auto Liability – For exposures pertaining to vehicles owned, used, leased, or hired

by the business.d. Liquor Liability – For businesses that have this exposure.

5. NO excess or commercial umbrella policy is “standard.” Each policy contains its own insuring agreement, definitions, exclusions, conditions, and requirements for underlying primary insurance and limits.

6. Coverages include Bodily injury and property damage:a. Insured must be legally liable.b. Required underlying primary insurance must pay first.c. Sometimes personal injury is covered.d. Defense is provided, either inside or outside the limits of liability.e. Additional coverages are included.f. Standard limits range from $1 to $10 million; higher limits are available, usually up to $25 million

or $50 million. In most cases, if the umbrella insurer requires $1 million of underlying coverage to be in place and, at the time of a loss no underlying coverage was in place, the umbrella insurer will pay damages in excess of the first $1 million. In other words, if a judgment were rendered against the insured for $2 million, the umbrella carrier would only pay $1 million of the loss and the insured would be responsible for the first $1 million – even if no primary underlying policy were in effect at the time of the loss.

7. Because umbrella and excess policies are not standard, their exclusions may vary widely. Most contracts contain exclusions that mirror the exclusions in the underlying coverage, especially if the same insurer writes both the underlying and excess policies. Common exclusions found in commercial umbrella and excess liability policies include:a. Professional Services (i.e., exposures that are covered by E&O, D&O, Medical Malpractice)b. Employment Practices Liabilityc. Product Recalld. Workers’ Compensation and Employer’s Liabilitye. War and Terrorismf. Expected or Intentional Injuryg. Contractual Liability

8. Coverage is normally written on an occurrence basis and usually applies worldwide.9. Self Insured Retention – As with personal umbrella policies, a commercial umbrella policy has a

self-insured retention, which is a form of cost-sharing that applies when the policy drops down to act as primary coverage because the underlying primary policy doesn’t cover a loss.



6. All of the following underlying coverages must be purchased in order to qualify for the Umbrella and Excess Liability policy, except:a. CGLb. Employer’s Liabilityc. Liquor Liabilityd. Workers’ Compensation

12.6 Specialty or Professional Liability Insurance1. Some businesses and business persons possess unique characteristics that expose them to losses

that are specifically excluded under other liability policies. Examples of such losses include economic loss and indirect, or consequential, loss. Specialty liability insurance is available for those businesses and professionals that have a higher than average exposure for being legally liable for causing economic or indirect loss. This means that, with a few exceptions, they’re more likely to be legally liable for damages OTHER than bodily injury or property damage. These policies are written on non-standard forms with unique policy provisions and conditions.

2. Professional Liability Insurance is a generic term that refers to insurance that protects professionals from losses that arise out of their professional conduct. When professionals practice in special fields and hold themselves out to the general public as having greater than average expertise in particular areas, they are held to higher standards of care. Most losses resulting from the specialist’s failure to meet reasonable standards of care in his or her field are excluded on other liability policies. Professional liability insurance does NOT provide coverage for bodily injury or property damage.

3. The most common forms of professional liability insurance are Errors & Omissions (E&O) and Medical Malpractice.

4. Fiduciary Responsibilities – Directors and officers of corporations have many and varied fiduciary responsibilities. These include the duties of care and loyalty, in addition to exhibiting due diligence when handling the money and property of the corporation. Board members of non-profit institutions may have special fiduciary duties to advance the charitable goals of the institutions and protect their assets. Allegations of wrongful or tortuous conduct may require directors and officers to defend themselves personally from such claims, and to face substantial liability exposure. The most common forms of liability for insuring these fiduciary responsibilities are Directors & Officers (D&O) Liability and Fiduciary Liability.

5. Exposures – Professional liability policies insure against a wide range of perils, many of which are specifically excluded under other forms of liability coverage:a. Fraud or breach of contractb. Conflict of interestc. Malpractice or neglectd. Government investigatione. Errors and omissionsf. Cyber risks, such as:

1) Business-to-Business (B2B) exposures2) Business-to-Consumer (B2C) exposures3) Internet Service Providers (ISP), mobile, cellular exposures4) Internal technology infrastructure exposures5) Corporate “brochure” web site exposures

6. Who is an Insured – As with commercial general liability policies, the insureds are those named in the declarations and can include:a. Executive officers and directorsb. Stockholders and trusteesc. Volunteer workers and employees



7. Duty to Defend – Depending upon the type of coverage, the insurer may not have the duty to defend, as it has in most other insurance policies. Certain professional liability policies require the insurer to pay for defenses costs but do not require the insurer to actually handle defense. Because some professionals, such as doctors and attorneys, wish to have control over whether to settle a loss, it’s very important to understand fully how the defense provision works in a professional liability policy.

8. Policy Triggers – Professional liability policies are typically written on claims-made forms of coverage – either pure claims made or claims-made and reported. The pure claims-made form requires claims to be made during the policy period. Claims-made and reported forms require claims to be both made AND reported during the policy term.

Directors and Officers Liability (D&O)Directors and Officers Insurance is typically written to protect the directors and officers of a corporation or other legal entity for wrongful acts committed while acting in their capacity as directors and officers for the organization.

Medical Malpractice InsuranceMalpractice Insurance is typically written for medical professionals – such as doctors, surgeons, nurses, and dentists – whose negligent acts or omissions may injure or harm patients. Other professions covered by malpractice insurance include social workers and beauticians. This is the only type of professional liability that may include coverage for bodily injury.

Errors and Omissions (E&O) InsuranceErrors & Omissions Insurance is typically written for professionals who provide services, such as insurance agents, adjusters, real estate agents, architects, accountants, attorneys, surveyors, and appraisers, whose negligent acts or omissions may result in financial harm to a third party.

Employment Practices Liability Insurance (EPLI)EPLI provides businesses with liability coverage against claims made by employees, former employees, and potential employees alleging their legal rights were violated. Some insurance companies provide this coverage by endorsement to the BOP; other insurance companies provide coverage on standalone policies. EPLI provides coverage against various types of claims that are typically excluded on other liability policies, including:

1. Sexual harassment2. Discrimination3. Wrongful termination4. Breach of employment contract

Coverage includes defense and typically excludes punitive damages and civil/criminal fines assessed against the insured. Workers’ Compensation and Employer’s Liability are also excluded.

Fiduciary Liability InsuranceProvides errors and omissions insurance for businesses with respect to their administration of employee benefit plans, such as pensions, profit-sharing, and medical insurance. The Employee Retirement Income Security Act of 1974 (ERISA) increased the legal liabilities of fiduciaries that, in turn, increased many business’ exposures to fiduciary liability claims.

Liquor Liability InsuranceProvides legal liability coverage for businesses in the business of selling, distributing, manufacturing, and furnishing alcoholic beverages based on common law and statutory liability (dram shop laws).



7. Which of the following perils is not insured under a professional liability insurance policy?a. Government investigationb. Cyber risksc. Discriminationd. Fraud

12.7 BondsBonds are contracts that involve three parties:

1. Principal (Obligor) – The party owing the duty, performance, or honesty and is usually the party purchasing the bond. The Principal is also called the Obligor and is usually the insurance agent’s client or insured.

2. Surety (Guarantor) – The party guaranteeing the duty, performance, or honesty of the Principal. The Surety issues the bond, is also called the Guarantor, and is usually an insurance company.

3. Obligee – The party paid by the Surety if the Principal fails to perform (because this is the party harmed by the principal’s dereliction of duty). If the Principal fails to perform as agreed, the (Surety) must perform in lieu of the Principal because of the requirements of Suretyship. Suretyship is the assumption of liability for the obligations of another; in other words, a guarantee. The Surety has a legal right of action against the Principal in the event of default until the amount of the loss is recovered. The defaulting Principal MUST repay the Surety.

Note #1: When comparing an insurance contract to a bond, the insurer/insured relationship in insurance is similar to the surety/obligee relationship in a bond.

Note #2: Bonds differ from insurance policies because they are a contract between 3 parties. Although liability insurance provides third-party coverage, in that payment is to a third party, the contract is actually performed by 2 parties.

Exam Tip: Know thAt bonds Are AlwAys considered A 3 pArty contrAct.

Surety Bonds (Performance Bonds)Surety bonds guarantee that specific obligations will be fulfilled. If the principal defaults, the surety must perform the contract, duty, or obligation of the principal, or indemnify the obligee for actual loss. Consequently, before accepting a risk, the surety considers the principal’s ability to perform, financial capability, and previous contracts. Surety bonds are generally written for the duration of the contract, and they are written under the following categories:

1. Contract Bonds – Guarantee that contractors perform according to a construction contract. If a contractor fails to perform according to the contract, the Surety is responsible to the Principal for the bond limit, which usually equals the value of the completed contract. The following types of contract bonds may be required in connection with a contract:a. Bid Bond – A guarantee that the contractor making the bid will, upon acceptance of the bid

by the customer (the Obligor), proceed with the contract and replace the Bid Bond with a Performance Bond. Failure to do so results in default and the Surety will pay the customer/Obligor the difference between the contractor’s bid and the next highest bid.

b. Performance Bond – A guarantee that the contractor will perform, as agreed in the contract. If the contractor defaults, the Surety will pay the obligor the value of the bond, which is usually the value of the contract.

c. Labor and Materials Bond – A guarantee that bills for labor and materials called for in a construction contract will be paid when due. This bond can be written separately or as part of a Performance Bond.



d. Completion Bond (Lender’s Bond) – A bond guaranteeing that borrowed money will be used toward completion of a project.

e. Supply Bond – A bond whereby a supplier (Principal) guarantees to perform under a contract to supply goods or materials to the contractor (Obligee) in accordance with the terms of the contract.

Exam Tip: Know the different types of contrAct bonds.

2. Court Bonds (Judicial) – Required by the court to enforce certain behavior. There are two types of court bonds. The 2 basic forms are:a. Fiduciary Bond – A bond required when an individual, such as an executor, administrator, or a

guardian, is entrusted by the court to handle the property of others.Example: An Executors Bond.

b. Litigation Bond – A bond required when the individual bringing suit wishes to freeze the assets of another party, or restrain the other party from doing something.Example: Appeal, Injunction, or Attachment Bond.

3. License and Permit Bond – A bond required by municipalities or other public bodies as a condition for granting a license or permit to engage in a specified activity. The bond guarantees that the party seeking the license or permit will comply with applicable laws or regulations. Examples include:a. Contractor’s license bonds guarantee that a contractor complies with laws pertaining to his or

her trade.b. Tax bonds guarantee a business complies with laws pertaining to payment of taxes.c. Broker’s bonds, such as insurance, mortgage, or title agency bonds guarantee that the broker

performs according to law.d. Motor vehicle dealer bonds guarantee that the dealer performs according to law.

Fidelity Bonds (Honesty Bonds)1. Fidelity Bonds are designed to cover an employer from direct loss due to fraudulent and dishonest

acts (namely theft) by their employees. They are commonly referred to as “dishonesty insurance.”2. Several types of Fidelity Bonds are designed for the needs of employers.

a. An Individual Bond is used when an employer wishes to bond a single employee.b. A Name Schedule Bond is used when an employer wishes to bond several employees who are

all named in the bond.c. A Position Schedule Bond is available to employers that desire to bond a specific position,

regardless of who fills the position, or how often the person filling the position is replaced.d. A Blanket Bond is for an employer that desires to cover all existing employees of a firm

without exception, as well as any new employees. Includes the following 2 types:1) Commercial Blanket Bond – Covers all employees and is written with a Per Occurrence

Limit.2) Blanket Position Bond – Covers all employees in the named position and is written with a

Per Employee Limit.

8. Bonds are contracts that involve all of the following parties, except:a. Obligeeb. Directorc. Suretyd. Principal



9. Which of the following bonds is not a type of Fidelity Bond?a. Individualb. Name Schedulec. Blanketd. Court

12.8 Equipment Breakdown CoverageEquipment Breakdown Coverage, formerly known as Boiler & Machinery Coverage, is insurance for loss due to the equipment breakdown of most types of equipment, such as boilers, machinery, refrigeration systems, air conditioning systems, electrical equipment, etc. The resulting Business Income and Extra Expense loss is often covered, as well. Equipment Breakdown is excluded in most standard property insurance policies.

Coverage may be added by endorsement to a policy or written as a monoline policy. The primary form of coverage is the Equipment Breakdown Protection Coverage Form and, while individual policies and endorsements provide the same basic coverage, their forms vary among insurers.

Equipment Breakdown Protection Coverage Form (EB 00 20)1. Coverage – The Covered Cause of Loss is a “Breakdown” to “Covered Equipment”. Losses are

always paid at Replacement Cost unless the ACV endorsement is attached. The following coverages are provided if either a limit or the word INCLUDED is shown for that coverage on the Equipment Breakdown Declarations Page, and the loss or damage is a direct result of a Covered Cause of Loss (they must be named in the Declarations for coverage to apply). The following types of coverage are provided by the Equipment Breakdown Protection Coverage Form:a. Property Damage ( A Direct Loss of Coverage) – The form pays for direct damage to covered

property located at the premises described in the Declarations. Covered Equipment under the Equipment Breakdown Coverage Form includes:• Steam boilers• Pressure vessels• Turbines and engines• Air conditioning and refrigeration systems• Pumps and generators• Electrically powered office equipment, i.e. Computers, copiers, fax machines, telephone

systems, etc.• Electrical generating and transmitting equipment• Equipment owned by a utility that supplies services to the insured

b. Expediting Expenses – The form pays for the necessary extra costs the insured incurs to make temporary repairs, and to expedite the permanent repairs or replacement.

c. Business Income and Extra Expense – The form pays the actual loss of business income during the period of restoration, and the necessary extra expense the insured incurs, to operate the business during the period of restoration.

d. Spoilage Damage – The form will pay for spoilage damage to raw materials, property in process, or finished products (provided the spoilage damage is due to lack or excess of power, light, heat, steam or refrigeration, and certain other stipulated conditions are met).

e. Utility Interruption – If the insured purchases coverage listed in items c. and/or d. above, coverage item e. extends that coverage to include loss resulting from the interruption of utility services, provided the interruption lasts at least the consecutive period of time shown in the Declarations, and certain other stipulated conditions are met.



f. Newly Acquired Premises – This form provides automatic coverage to newly acquired premises.

g. Ordinance or Law Coverage – Provides coverage for loss in value of undamaged property due to enforcement of ordinances or laws concerning repair or replacement of damaged equipment.

h. Errors and Omissions – Coverage pays for loss or damage not otherwise payable due to an unintentional error or omission.

i. Brands and Labels – Provides coverage to allow the named insured to either stamp a brand of “salvage” or remove the label from damaged goods and re-label at the insurer’s expense.

2. Definitions – The following definitions apply to the Equipment Breakdown Protection Coverage Form:a. Breakdown – Failure of pressure or vacuum equipment; mechanical failure including rupture or

bursting caused by centrifugal force; or electrical failure including arcing that causes damage to covered equipment and necessitates its repair or replacement. “Breakdown” does not include:1) Malfunction, including but not limited to, adjustment, alignment, calibration, cleaning, or

modification.2) Defects, erasures, errors, limitations, or viruses in computer equipment and programs.3) Leakage at any valve, fitting, shaft seal, gland packing, joint, or connection.4) Damage to any vacuum tube, gas tube, or brush.5) Damage to any structure or foundation supporting the covered equipment or any of its parts.6) The functioning of any safety or protection device.7) The cracking of any part on an internal combustion gas turbine exposed to the products of

combustion.b. Business Income – Net income (net profit or loss before income taxes) that would have been

earned or incurred, and continuing normal operating expenses incurred, including payroll.c. Objects Covered – Equipment built to operate under internal pressure or vacuum; electrical

or mechanical equipment that is used in the generation, transmission or utilization of energy; communication equipment, and computer equipment; and equipment for any of the preceding that is owned by a public or private utility and used solely to supply utility services to the insured’s premises.

d. Covered Property – Property the insured owns, or property that is in the insured’s care, custody, or control and for which the insured is legally liable.

e. Extra Expense – The additional cost the insured incurs to operate their business, during the period of restoration, over and above the cost the insured would have incurred during the same period, had no “breakdown” occurred.

f. One Breakdown – If an initial “breakdown” causes other “breakdowns” all will be considered “one breakdown.” All “breakdowns” at any one premises that manifest at the same time and are the direct result of the same cause will be considered “one breakdown.”

g. Period of Restoration – The period of time that begins at the time of the “breakdown” or 24 hours after the insurer receives notice of the “breakdown,” whichever is later, and ends 5 consecutive days after the date when the damaged property is repaired or replaced with reasonable speed and similar quality.Exam Tip: equipment breAKdown coverAge provides protection AgAinst the internAl perils or An internAl breAKdown. commerciAl property coverAge provides coverAge for the externAl perils thAt cAn dAmAge mechAnicAl, electricAl or boiler And mAchinery equipment.

3. Exclusions – The insurer will not pay for loss or damage caused directly or indirectly by any of the following:a. Ordinance or Law – Other than coverage provided in item 1.g. above.b. Earth Movement – Including but not limited to earthquake, landslide, land subsidence, mine

subsidence, or volcanic action.



c. Water – Including flood, surface water, tidal waves; mudslide or mudflow; water damage caused by backup of sewer, drains, or drainage piping; or water damage caused by the discharge or leakage of a sprinkler system or domestic water piping.

d. Nuclear Hazarde. War or Military Actionf. An explosion, except direct loss caused by an explosion of a steam boiler, electric steam

generator, steam piping, steam turbine, steam engine, gas turbine, or moving or rotating machinery when such explosion is caused by centrifugal force or mechanical breakdown.

g. Fire or combustion explosion, including those that result in a “breakdown”; occur at the same time as a “breakdown”; or ensue from a “breakdown”.

h. Explosion within the furnace of a chemical recovery type boiler or within the passage from the furnace to the atmosphere.

i. Damage to covered equipment while undergoing a pressure or electrical test.j. Water or other means used to extinguish a fire, even when the attempt is unsuccessful. This

includes a fire extinguisher.k. Depletion, deterioration, erosion, or wear and tear. However, if a “breakdown” occurs, the

insurer will pay the resulting loss or damage.l. A “breakdown” caused by any of the following causes of loss, if coverage is provided for the

causes of loss by another policy of insurance, whether collectible or not: aircraft or vehicles; freezing caused by cold weather; lightning; sinkhole collapse; smoke; riot, civil commotion or vandalism; or weight of snow, ice, or sleet.

m. A “breakdown” caused by windstorm or hail.n. A delay in, or an interruption of, any business, manufacturing, or processing activity, except

as provided by the Business Income and Extra Expense, Extra Expense Only, and Utility Interruption coverages.

o. With respect to Business Income and Extra Expense, Extra Expense Only, and Utility Interruption coverages, the following additional exclusions shall apply: the business that would not or could not have been continued if the “breakdown” had not occurred; the insured’s failure to use due diligence and dispatch all reasonable means to operate their business as nearly normal as practicable at the premises shown in the Declarations; or the suspension, lapse, or cancellation of a contract following a “breakdown” extending beyond the time the business could have resumed if the contract had not lapsed, been suspended, or cancelled.

p. Lack or excess of power, light, heat, steam, or refrigeration, except as provided by the Business Income and Extra Expense, Extra Expense Only, Spoilage Damage, and Utility Interruption coverages.

q. With respect to Utility Interruption Coverage, any loss resulting from the following additional causes of loss, whether or not coverage for that cause of loss is provided in another policy the insured may have: acts of sabotage; collapse; deliberate acts of load shedding by the supplying utility; freezing caused by cold weather; impact of aircraft, missile, or vehicle; impact of objects falling from an aircraft or missile; lightning; riot, civil commotion, or vandalism; sinkhole collapse; smoke; or weight of snow, ice, or sleet.

r. Any indirect result of a “breakdown” to covered equipment, except as provided by the Business Income and Extra Expense, Extra Expense Only, Spoilage Damage, and Utility Interruption coverages.

s. Neglect by the insured to use all reasonable means to save and preserve covered property from further damage at and after the time of the loss.

Note: Many of the exclusions listed are not covered because they are covered in Commercial Property, such as water, smoke, wind, hail, fire, etc.



3. Limits of Insurance – In the event of a covered loss:a. The most the insurer will pay for any and all coverages for loss or damage from any “one

breakdown” is the applicable limit of insurance shown in the Declarations.b. Unless a higher limit or INCLUDED is shown in the Declarations, the most the insurer will pay

for direct damage as a direct result of a “breakdown” to covered equipment is $25,000 for each of the following, and the amount paid is not in addition to the limit of insurance for Property Damage or limit per “breakdown”:1) Ammonia Contamination – Spoilage to covered property contaminated by ammonia,

including any salvage expense.2) Consequential Loss – Reduction in the value of undamaged stock parts of product which

becomes unmarketable.3) Data and Media – The insured’s cost to research, replace, or restore damaged data or

media, including the cost of reprogram instructions used in any computer equipment.4) Hazardous Substance – Additional expenses incurred by the insured for the clean up,

repair, replacement, or disposal of covered property that is damaged, contaminated, or polluted by a hazardous substance.

5) Water Damage – Damage to covered property by water, including any salvage expenses, except no coverage applies to such damage resulting from leakage of a sprinkler system or domestic water piping.

6) Expediting Expenses – An indirect loss coverage that provides for the extra costs the insured incurs to make temporary repairs, and to expedite the permanent repairs or replace the damaged property as the result of direst damage to the covered property.

4. Deductibles – The insurer will pay the amount of a covered loss or damage, in excess of the deductible, up to the applicable limit of insurance as shown in the Declarations for each applicable coverage. Deductibles apply separately to each applicable coverage, except if more than 1 “covered equipment” is involved in “one breakdown”, then only one deductible, the highest, shall apply for each of the applicable coverages. The Standard Deductible is $250.

5. Equipment Breakdown Protection Conditions – The following conditions apply in addition to the Common Policy Conditions which were presented earlier in Chapter 4:a. Loss Conditions:

1) Abandonment.2) Appraisal.3) Defense.4) Duties in the Event of Loss or Damage.5) Insurance Under Two or More Coverages.6) Legal Action Against the Insurer.7) Loss Payable Clause.8) Other Insurance.9) Privilege to Adjust with Owner.10) Reducing the Insured’s Loss.11) Transfer of Rights of Recovery Against Others to Insurer.12) Valuation.13) The following additional conditions apply to the Business Income and Extra Expense

Coverage: Annual Reports, Adjustment of Premium, and Coinsurance.b. General Conditions

1) Additional Insured.2) Bankruptcy.3) Concealment, Misrepresentation, or Fraud.4) Liberalization.



5) Mortgageholder.6) No Benefit to Bailee.7) Policy Period, Coverage Territory.8) Premium and Adjustments.9) Suspension – The insurance company has the right to inspect covered boiler, mechanical

and electrical equipment that is covered in the policy. If any covered equipment is found to be unsafe, the insurance company can suspend coverage effective immediately on the unsafe equipment. The notice must be in writing and may be provided on site while being inspected by the inspector. Coverage may be reinstated upon making the necessary corrections to the problem, being re-inspected by the insurance company and issuing an endorsement.

c. Joint or Disputed Loss AgreementThis condition is intended to facilitate payment of insurance proceeds when both a Commercial Property Policy issued by 1 insurer, and a Boiler and Machinery Policy issued by another insurer are in force on the same risk, and upon a loss occurring there is disagreement between the insurers as to whether there is coverage, or as to the amount of the loss to be paid, if any, by each insurer under its own policy.

Selected Endorsements1. Actual Cash Value (BM 99 59) – This endorsement, when added to the Equipment Breakdown

Protection Coverage Form, changes the property damage method of valuation to state that the insurer will pay the lesser of:a. The cost to repair or replace the damaged property with property of the same kind, capacity,

size, or quality on the same site or another site, whichever is less costly.b. The actual cash value of the damaged property.

Note: The valuation of covered property will be as of the time of the“breakdown”, and the insurer will not pay for damaged property that is obsolete or useless to the insured.

2. Business Income - Report of Values (BM 15 31) – This endorsement is no longer widely used, but when it is used it is completed and signed by the named insured or its authorized representative and sent to the insurer in order to establish “actual” total net profits, fixed charges, and expenses for the immediate 12-month policy period that is expiring and to also “estimate” what the same values are expected to be for the upcoming 12-month policy period. The endorsement is used to determine the amount of the insurer’s payment to the insured in the event of a loss of income.

10. The Equipment Breakdown Protection Coverage Form does not provide which of the following types of coverage?a. Earth movement damageb. Property damagec. Spoilage damaged. Errors and omissions

11. Under the Equipment Breakdown Protection Coverage Form, the __________________ condition will apply if the covered equipment is subject to a dangerous exposure.a. Cancellationb. Period of Restorationc. Suspensiond. Covered Property



12.9 Farm (Ranch) InsuranceThe Farm Forms have evolved to keep pace with the changes in farming operations. Unlike the farms of the past, farms today often are large business operations. In addition to the exposure of a farm dwelling, most modern farms are characterized by a heavy investment in land, buildings, livestock, and farm equipment. Farm insurance includes Farm Property Coverage, and Farm Liability Coverage. Additional specialized forms include the Mobile Agricultural Machinery and Equipment Form and the Livestock Coverage Form.

Farm Property Coverage FormThe policy will pay for direct physical loss or damage to covered property at the insured location or elsewhere, as specifically provided, caused by, or resulting from, a covered cause of loss. For coverage to apply, there must be a limit shown in the Declarations.

Coverages include:

Coverage A Dwellings provides insurance for the residential dwellings owned and occupied by the insured. It includes attached structures.

Coverage BOther Private Structures provides insurance for detached private garages and other private structures. These structures must be used personally – and not for farm purposes.

Coverage C Household Personal Property provides insurance for household personal property owned by the insured and family members while on the premises.

Coverage D Loss of Use provides insurance for additional living expense and fair rental value.

Coverage E

Scheduled Farm Personal Property provides insurance for specific types of property if a designation appears on the Declarations for that type of property. This is an itemized list: hay, grain, vehicles, equipment, supplies, machinery, farm products, poultry, livestock, and in some instances will include: portable structures and/or buildings.

Coverage F

Unscheduled Farm Personal Property provides insurance for all items of farm personal property on the insured location except for those specifically excluded. Coverage is not provided for household or personal property usual to a dwelling (that type of property is insured under Coverage C). Off-premises coverage includes farm machinery, equipment and implements, tools, supplies, feed and livestock EXCEPT while in transport by a contract or common carrier or if located at a public stockyard or sale barn to present stock for sale.

Note: Coverage F covers farm machinery both on and away from the described premises. It also includes mules, swine, and sheep; but does not include racehorses, poultry, licensed motor vehicles, aircraft, watercraft, birds, or growing crops.

A single blanket limit on all Unscheduled Farm Personal Property applies.

Coverage G

Other Farm Structures provides insurance for described farm buildings and structures and their attached sheds and permanent fixtures including silos, portable buildings and structures; all fences, corrals, and pens (except field or pasture fences); outdoor radio and television equipment, antennas, masts, and towers.

1. Causes of Loss – The insured may choose either Basic, Broad, or Special Form causes of loss.a. Basic:

• Fire or Lightning• Windstorm or Hail• Explosion• Riot or Civil Commotion



• Aircraft• Vehicles• Smoke• Vandalism• Theft• Sinkhole Collapse• Volcanic Action• Collision (Coverages E & F only)• Earthquake Loss to Livestock• Flood Loss to Livestock

b. Broad – Includes the Basic Causes of Loss, plus the following:• Electrocution of Covered Livestock• Attacks on Covered Livestock by Dogs or Wild Animals• Accidental Shooting of Covered Livestock• Drowning of Covered Livestock From External Causes• Loading/Unloading Accidents• Breakage of Glass or Safety Glazing Material• Falling Objects• Weight of Ice, Snow, or Sleet• Sudden and Accidental Damage to Heating or Air Conditioning Systems• Accidental Discharge or Leakage of Water or Steam From a System or Appliance

Containing Water• Freezing of Plumbing, Heating, Air Conditioning, Fire Protective Systems, or Appliances• Sudden and Accidental Damage From Artificially Generated Electricity

c. Special – Provides open perils coverage for insured property other than livestock, poultry, other animals, bees, fish, worms, hay, and plants, trees or shrubs. The special form will not pay for dishonest or criminal acts committed by the insured or employee, and release or escape of pollutants or contaminants unless caused by a specified cause of loss.

2. Exclusions – The forms do not cover losses caused directly or indirectly by ordinance or law, earth movement (other than sinkhole collapse), government action, intentional loss, nuclear hazard, off-premises services, war and military action, or flood or surface water.

3. Additional Coveragesa. Coverages A, B, C, E, F, and G:

1) Debris Removal2) Reasonable Repairs3) Damage to Property Removed for Safekeeping4) Fire Department Service Charge

b. Coverages A, B, C, and D only:1) Removal of Fallen Trees – The policy will pay up to $500 for any 1 loss, regardless of the

number of fallen trees.2) Credit Cards and Fund Transfer Cards; Forgery; Counterfeit Currency – The policy

will pay up to $500 for any 1 loss.c. Coverages E and F only – Cost of Restoring Farm Operations Records.d. Coverages E, F, or G – Extra Expense.e. Collapse – Applies only when Broad or Special Covered Causes of Loss are specified in the

Declarations.f. Pollutant Clean Up and Removal – From land or water at the insured location if caused by or

resulting from a covered cause of loss.



4. Limits of Insurance – Applicable limits of insurance in the farm coverage forms are shown on the Declarations page for each class of property insured. If no designation appears on the Declarations, coverage is NOT provided.

5. Deductible – The standard deductible is $250.6. Farm Property Conditions: Loss Conditions

• Abandonment• Appraisal• Duties in the Event of Loss or Damage• Insurance Under Two or More Coverages• Legal Action Against the Insurer• Loss Payment• Pairs, Sets, or Parts• Other Insurance• Recovered Property• Transfer of Rights of Recovery Against Others to the Insurer• Unoccupancy and Vacancy

7. Definitionsa. Business Property – Property pertaining to any trade, profession, or occupation other than

farming.b. Dwelling – A building used for family residential purposes; includes mobile homes, modular

homes, and prefabricated homes.c. Farm Personal Property – Equipment, supplies, and products used in farming.d. Insured – The named insured and resident relatives, along with any other person under age 21

and in the care of the insured.e. Insured Location – Any location described in the Declarations.f. Livestock – Cattle, sheep, swine, goats, horses, mules, and donkeys.g. Money – Currency, coins, and bank notes in current use and having a face value.h. Pollutants – Any solid, liquid, gaseous, or thermal irritant or contaminant.i. Poultry – Fowl kept by the insured for use or sale.j. Securities – Negotiable and non-negotiable instruments or contracts presenting either money or

other property.

Farm Liability InsuranceThe Farm Liability Coverage Form may be written as a standalone policy or as part of a farm package policy. The Farm Liability Coverage Form contains three major coverages: H, I and J.

1. Coverage H (Bodily Injury and Property Damage Liability)a. Coverage H pays sums the insured becomes legally obligated to pay for losses arising from

bodily injury or property damage. Fire damage liability is included.b. Coverage includes products liability from the sale of farm products. The following are

exclusions applicable to Coverage H:• Bodily injury or property damage caused by or resulting from any substance discharged

from any aircraft.• Bodily injury or property damage arising from an uninsured location.• Liability arising out of the ownership, maintenance, or use of any aircraft, motor vehicle, or

motorized bicycle owned or operated by the insured.• Crop Dusters



2. Coverage I (Personal and Advertising Injury Liability)Coverage I provides for payment of sums the insured becomes legally obligated to pay for losses arising from personal or advertising injury, to which the insurance applies. An offense must be related to the farming business. For example, the insured unknowingly libels a neighbor’s farm products.

3. Coverage J (Medical Payments)a. Coverage J provides third-party payments for reasonable medical expenses arising out of an

accident, if the expenses are incurred and reported within 3 years of the accident date.b. The Medical Payments limit applies per person, and payment is made regardless of fault.

Additional Forms1. Mobile Agricultural Machinery and Equipment Coverage Form

a. The Mobile Agricultural Machinery and Equipment Form provides insurance for mobile devices used in the everyday operation of a farm, including accessories, tools and spare parts specifically designed and intended for such mobile devices. The insured chooses the specific causes of loss form to apply.

b. The following types of property are specifically excluded under this coverage form: aircraft, watercraft, automobiles, motorcycles, mobile homes, snowmobiles, trucks, vehicles licensed for use primarily on public roads, irrigation equipment, contraband, etc.

2. Livestock Coverage Forma. The Livestock Coverage Form provides insurance for livestock of a class shown on the

Declarations against loss by death or destruction. Limits can be shown on the Declarations with a limit per animal within a class OR with a limit per class with a sublimit for individual animals.

b. Livestock is defined as cattle, sheep, swine, goats, horses, mules, and donkeys; POULTRY is NOT livestock.

c. NO coverage is provided for livestock that is:1) In the custody of a common or contract carrier.2) In public stockyards, sales barns or yards, etc.3) In packing plants or slaughterhouses.

12. Which of the following is not a Coverage in covered under the Farm Property Coverage form?a. Coverage E – Scheduled Farm Personal Propertyb. Coverage F – Unscheduled Farm Personal Propertyc. Coverage G – Other Farm Structuresd. Coverage H – Livestock

13. The Farm Liability Insurance policy covers each of the following, except:a. Coverage H – Bodily Injury and Property Damageb. Coverage I – Personal and Advertising Injuryc. Coverage J – Medical Paymentsd. Coverage K – Non-farming Liability



12.10 Aviation InsuranceAviation insurance is a specialty coverage offered by select insurers. Two basic coverages are aircraft hull and aircraft liability.

1. Aircraft hull insurance provides insurance for physical damage to the airplane. Coverage is offered at 3 different levels, or causes of loss. The premium for each type of coverage increases as the number of perils covered increases.a. Ground only provides coverage when the hull is on the ground and not in motion; covered

losses would include fire, theft, vandalism, etc.b. Ground including taxi provides coverage when the hull is on the ground and not in motion

PLUS losses that occur during taxi; for example, a collision with another plane when taxiing on a runway.

c. All risk provides coverage when on the ground, during taxi, and in flight.2. Aircraft liability insurance provides coverage for the insured’s legal liability for bodily injury or

property damage that arises out of the ownership or use of an aircraft. A combined single limit of coverage is purchased and applies per occurrence. In addition, policyholders may also purchase a sublimit of coverage that limits loss payments to a single person or passenger. For example, an aircraft liability policy may have a $1 million per occurrence limit with a sublimit of $100,000. This means that if a loss occurs, the most the policy will pay is $1 million for all claims arising from the loss, and the most it will pay per person or passenger is $100,000.

Hangarkeepers’ Liability (Bailees Coverage for Aircraft)1. This liability endorsement provides coverage for liability arising out of damage to non-owned

aircraft in the care, custody, or control of the insured.2. This coverage operates very similarly to Garagekeepers’ Coverage.

14. Which of the following is not an Aviation Insurance Cause of Loss?a. Ground onlyb. Ground including taxic. Ground taxi onlyd. All Risk

12.11 Crop, Hail, and Windstorm InsuranceGrowing crops are excluded from coverage in the Farm Property Coverage form; therefore, a separate line of insurance is available. Crop insurance is a specialized policy that protects the insured against reduced yield because of a covered loss to crops before they are harvested.

Crop/Hail Insurance1. This is private insurance, not reinsured by the federal government. This policy provides named

perils coverage.2. Other perils that may be included in addition to hail are:

a. Fire, lightning, wind.b. Freezing, drought, insects and disease.

3. The rates for crop hail insurance are developed by the Crop Hail Insurance Actuarial Association (CHIAA). Crop-hail insurance is rated on an acreage basis and the insured can choose a wide variety of coverage options.

4. Typically, coverage begins at 12:01 a.m. following the date the application is signed, provided the crop is clearly visible above the ground. However, this will vary by insurer and state. Changes will be addressed in the state law chapter if applicable.



5. The policy is typically written with deductibles (normally a 5% yield reduction). Policies can be written to cover a percentage of expected yield, such as 50% or 100%. If a crop is expected to yield 10,000 bushels but yields only 5,000, the policy will cover the unrealized 5,000 bushels.

6. The coverage ceases when the crop is harvested (1 growing season).7. The payment of an insured loss reduces the total amount of available insurance.8. The policy includes a replanting provision designed to reduce both the insured’s and the insurer’s losses.

The insurer may reimburse the insured up to 20% of the amount of insurance. The reimbursement does not reduce the amount of insurance available for the crop.

9. Exclusions – These may vary by company but common exclusions include:a. Until normal visible (crop must be above ground)b. Failure to harvest a mature cropc. Non-owned property (share crop)d. Loss from injury to buds, blossoms or blooms, unless the crop is affectede. Injury to leaves, vines, etc unless crops are also damaged or affectedf. Injury to trees, bushes, fruit or nut crops

Multi-Peril Crop Insurance (MPCI)1. The coverage is written by private insurers and is reinsured by the Federal Crop Insurance

Corporation (FCIC).2. Coverage may be provided for approximately 200 different types of crops, but 5 major crops

account for 90% of the liability assumed (corn and maize, cereal grains, soybeans, tobacco, and cotton).

3. Covered causes of loss include: adverse weather conditions, fire, insects, plant disease, wildlife, earthquake, and volcanic eruption.

4. Definitionsa. Coarse Grains – Corn, grain sorghum and soybeans.b. Small Grains – Wheat, barley, oats, rye, and flax.c. Harvest – Combining or threshing an insured crop, or cutting for hay, silage, or fodder.d. Silage – A product that results from severing the plant from the land and chopping it for the

purpose of livestock feed.

Windstorm Insurance CoverageWindstorm damage is covered under the peril of wind in standard property insurance policies. In some states, exclusionary endorsements may be added to property policies to exclude coverage for the peril of wind or windstorm. These states are Alabama, Delaware, Florida, Georgia, Louisiana, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, South Carolina, and Texas. Because these states are at high risk for wind loss caused by hurricane, they have established wind and/or wind and hail associations that provide a marketplace of last resort for those who are unable to purchase insurance for the peril of wind on their primary property policies. In these and other states, some insurers require mandatory wind deductibles of a certain dollar amount, such as $2,500 or higher, based on the geographic location of property (such as within a certain distance of the sea coast) or prior wind losses.

15. Which peril is excluded on the Crop and Hail Insurance policy?a. Droughtb. Freezingc. Wildlifed. Insects and disease



chapter twelve — lIGhtnInG Facts

Commercial Inland Marine Insurance1. All eligible property for coverage on an Inland Marine Policy must be in transit, be moveable, bear

a relationship to transportation or communication, or be held in the possession of a bailee. 12.12. The Nationwide Marine Definition defines six broad classes of property: imports, exports,

domestic shipments, property in transit, instrumentalities of transportation or communication, personal property floaters, and commercial property floaters. 12.1

3. Written on an open perils basis, Inland Marine Policies protect property on land that is mobile in nature, primarily while the property is away from the owner’s premises. 12.1

4. Typical exclusions on an inland marine policy include governmental action, war and nuclear hazard, consequential loss, dishonest and criminal acts of an insured, weather conditions, and acts and decisions, and earthquake and water on a policy insuring buildings. 12.1

5. Controlled Inland Marine Coverage Forms are those that are filed with the Department of Insurance by insurers, governed by the rules contained in an approved manual. Controlled lines of coverage typically provide accounts receivable coverage, commercial articles floaters, jewelers block coverage, signs coverage, valuable papers and records coverage, and equipment dealers coverage. 12.1

6. Uncontrolled Inland Marine Coverage Forms are developed by individual commercial inland marine insurers are not filed with any department of insurance or rating bureau and differ from insurer to insurer. They typically provide builders risk coverage, contractors equipment floaters, electronic data processing coverage, installation floaters, and transportation floaters. 12.1

7. The accounts receivables floater provides coverage when the insured’s business records are destroyed in a loss caused by a covered peril and the business is unable to collect money it’s owed. 12.2

8. A bailee is a person or organization that accepts into its temporary care property owned by others for storage, repair, servicing, or safekeeping. 12.2

9. The Bailees Customers Form provides open perils coverage for covered personal property of others while it’s in the care, custody, or control of the insured. 12.2

10. The builders risk floater provides open perils coverage for buildings and structures in the course of construction, including scaffolding and temporary structures, machinery, equipment, supplies, and fixtures that will eventually become part of the buildings and structures. 12.2

11. The Commercial Articles Floater provides coverage for fine arts, cameras, musical instruments, and their related equipment when used for business or commercial purposes. 2.2

12. The Contractors Equipment Floater provides open perils coverage on the contractor’s equipment, such as mobile tools, equipment, and machinery, including forklifts, compressors, generators, and small hand tools. 12.2

13. Electronic Data Processing coverage (Computer Systems Coverage Form) insures computers, their component parts, associated peripheral equipment such as printers and faxes, and systems used exclusively in the insured’s computer operations, such as air conditioning, fire suppression, and electrical equipment. 12.2

14. Equipment Dealers coverage provides insurance for property consisting primarily of mobile agricultural and construction equipment, including property of others in the dealer’s care, custody, or control, such as binders, reapers, harvesters, tractors, bulldozers, and road scrapers. 12.2

15. The primary property insured under an installation floater is moveable property, such as electrical, plumbing, or heating equipment, carpeting, tile, glass, elevators, and machinery to be installed in a building. 12.2



16. Block policies and floaters provide insurance on an open perils basis for both business personal property and goods for sale during the normal course of the insured’s business. Coverage and exclusions are designed to meet the needs of that particular business and its unique exposures. 12.2

17. Jeweler’s block coverage provides insurance for jewels, watches, gold, silver, platinum, pearls, and precious and semi-precious stones with optional coverages for show windows and money. 12.2

18. A Signs Floater provides coverage for the property of the insured and similar property of others in the care, custody, or control of the insured for neon signs, automatic or mechanical signs, and street clocks, billboards, ordinary fixed or plastic–faced signs. 12.2

19. A Valuable Papers and Records Floater provides coverage for the destruction of valuable papers and records, excluding money and securities, by a covered cause of loss. 12.2

20. Common Carrier Cargo Liability - Motor Truck Cargo Coverage is provided for loss or damage to cargo arising from the legal liability of the carrier. It covers the interest of the trucker, not the shipper, owner, or consignee. 12.2

21. Motor Truck Cargo Coverage can be written on a Bill of Lading form, which serves as both a contract and a receipt for goods accepted into the carrier’s care and is insured on an open perils basis. 12.2

22. The Motor Truck Cargo Coverage can be written on a Named Perils form, under which the covered perils vary by insurer. 12.2

23. The Motor Truck Cargo Carrier’s Legal Liability Coverage Form provides property coverage for the insured’s cargo. If the property owned by others is covered property, the insured has issued a bill of lading or a shipping receipt, and the insured is legally liable for loss or damage to the cargo, coverage is provided. 12.2

24. The Motor Truck Cargo Owners Coverage Form provides open perils coverage for the insured’s covered cargo if it is owned by the insured and located in or on a land vehicle owned or operated by the insured and in transit at the time of loss. 12.2

25. The Annual Transit Coverage Form covers the insured’s property or property of others in the insured’s care, custody, or control while it is in transit and until it is delivered – so long as it was shipped by any type of carrier or vehicle, or in any land vehicle owned or operated by the insured. 12.2

26. The Trip Transit Coverage Form insures a single shipment described in the Declarations. Coverage applies while the covered property is in the custody of the carrier for hire or in any vehicle owned or operated by the insured while in transit. 12.2

Commercial Ocean Marine Insurance1. Ocean marine coverage insures the transportation of goods and merchandise by vessels crossing

domestic and foreign waters, including inland or aviation transit connected with the shipment. Property must be insured to its full value to avoid a penalty in the event of a partial loss. 12.3

2. Ocean marine insurance provides hull coverage that insures physical damage to the vessel and may be written on a named perils basis, which include perils of the sea, jettison, piracy, fire and explosion, and lightning. 12.3

3. Cargo Insurance covers physical damage losses to merchandise while in transit and can be written on an open perils basis. 12.3

4. Protection and Indemnity Insurance (P & I Insurance) covers cargo lost or damaged through the insured’s negligence, damage to other property not caused by collision, damage to property on board the insured vessel when caused by collision, and injuries to seamen resulting from the lack of the vessel’s seaworthiness. 12.3

5. A general average is a partial loss sustained voluntarily in order to save a vessel or cargo from a total loss, and the owners of the vessel and all the cargo share proportionally in the loss. 12.3

6. A particular average is a partial loss sustained by a specific vessel or cargo and the loss is not shared by anyone other than the party with insurable or financial interest in the loss. 12.3



7. The Running Down Clause is part of a hull policy that covers the negligence of the shipper or carrier that results in damage to the property of others. 12.3

8. The Inchmaree Clause broadens the types of losses that are covered for the hull and covers direct damage caused by the bursting of boilers, breaking of propeller shafts, or loss due to faults or errors in navigation by the crew. 12.3

Umbrella and Excess Liability Insurance1. Umbrella Liability Insurance is a form of excess coverage written on an occurrence basis and usually

applies worldwide. It is designed to insure against catastrophic losses. 12.42. Excess Liability Insurance is purchased for the purpose of extending the limits of liability on

another policy. 12.43. Commercial Umbrella liability insurance provides coverage against catastrophic losses, drops

down to act as primary insurance when underlying primary policies don’t cover losses, and provides broader coverage than underlying primary insurance. 12.4

4. Primary insurance responds to a loss before all other insurance that might be in place to cover a particular loss. 12.4

5. Underlying insurance is specific insurance that insures the same risk insured by excess coverage and will respond before the excess insurance responds. 12.4

6. Commercial general liability insurance provides coverage for the insured’s legal liability arising from its premises, operations, products, and completed operations. 12.4

7. Employer’s Liability provides liability insurance for the business in the event an employee sues the business for injuries that fall outside Workers’ Compensation law. 12.4

8. Commercial auto liability insurance provides coverage for exposures pertaining to vehicles owned, used, leased, or hired by the insured. 12.4

9. Typical exclusions found in umbrella and excess liability are professional services, employment practices liability, product recall, Workers’ Compensation and employer’s liability, war and terrorism, expected or intentional injury, contractual liability. 12.4

10. Commercial umbrella policies contain a Self-Insured Retention, which is the insured’s form of cost-sharing that applies when the policy drops down to pay losses as if it were a primary policy. 12.4

Specialty or Professional Liability Insurance1. Specialty Insurance is available on non-standard forms with unique policy provisions and

conditions for those professionals that have a higher than average exposure for being legally liable for causing economic or indirect loss. 12.5

2. Professional Liability Insurance is a generic term that refers to insurance that protects professionals from losses that arise out of their professional conduct where they are held to higher standards of care. 12.5

3. Directors and Officers (D&O) Liability Insurance is typically written to protect the directors and officers of a corporation or other legal entity for wrongful acts committed while acting in their capacity as directors and officers for the organization. 12.5

4. Medical malpractice insurance is written for medical professionals whose negligent acts or omissions may injure or harm patients. 12.5

5. Errors and Omissions (E&O) Insurance is typically written for professionals who provide services – such as insurance agents, adjusters, real estate agents, architects, accountants, attorneys, surveyors, and appraisers – whose negligent acts or omissions may result in financial harm to a third party. 12.5

6. Employment Practices Liability Insurance (EPLI) provides businesses with liability coverage, including defense costs, for claims made by employees, former employees, and potential employees alleging their legal rights were violated. Typical covered perils include harassment, discrimination, wrongful termination, and breach of employment contract. 12.5



7. Fiduciary Liability Insurance provides errors and omissions insurance for businesses with respect to their administration of employee benefit plans, such as pensions, profit-sharing, and medical insurance. 12.5

8. Liquor liability insurance provides coverage for businesses that manufacture, sell, distribute, or furnish alcoholic beverages. Coverage is based on common law and statutory liability (i.e., dram shop laws). 12.5

Bonds1. Bonds are contracts that involve three parties, the obligor, surety, and the obligee. 12.62. The Principal (obligor) is the party owing the duty, performance, or honesty and is usually the party

purchasing the bond (i.e., the insurance agent’s client). 12.63. The Surety (guarantor) is the party guaranteeing the duty, performance, or honesty. The Surety has

a legal right of action against the Principal in the event of default. The Surety is often an insurance company. 12.6

4. The Obligee is the party paid by the Surety if the Principal fails to perform. 12.65. Surety Bonds (Performance Bonds) guarantee that specific obligations will be fulfilled if the

principal defaults and the surety must perform the contract, duty, or obligation of the principal, or indemnify the obligee for actual loss. 12.6

6. A Contract Bonds guarantee that contractors perform according to a construction contract; and if a contractor fails to perform according to the contract, the Surety is responsible to the Principal for the bond limit, which usually equals the value of the completed contract. 12.6

7. A Performance Bond guarantees that the contractor will perform, as agreed in the contract. 12.68. Court bonds are required by the court to enforce certain behavior. 12.69. A Judicial Bond guarantees that certain parties fulfill their statutory obligations in connection with

court proceedings. 12.610. A Fiduciary Bond guarantees the honest and faithful performance of executors, trustees, and other

fiduciaries, and is often required by statute in order to protect the interests of those for whom the fiduciary acts. 12.6

11. Fidelity Bonds (Honesty Bonds) cover an employer from direct loss due to fraudulent and dishonest acts of their employees, such as from theft. They are commonly referred to as dishonesty insurance. 12.6

Equipment Breakdown Coverage1. Equipment Breakdown Coverage, formerly known as Boiler & Machinery Coverage, is insurance

for loss due to the mechanical breakdown of most types of equipment, such as boilers, machinery, refrigeration systems, air conditioning systems, and electrical equipment. 12.7

2. The Equipment Breakdown Protection Coverage Form covers property damage and expediting expenses, business income and extra expense, spoilage damage, newly acquired premises, ordinance or law, errors and omissions, and brands and labels. 12.7

3. “Breakdown” is the failure of pressure or vacuum equipment, mechanical failure including rupture or bursting caused by centrifugal force, or electrical failure including arcing that causes damage to covered equipment and necessitates its repair or replacement. 12.7

4. “Business Income” is net income, or the net profit or losses before income taxes, that would have been earned or incurred, and continuing normal operating expenses incurred, including payroll. 12.7

5. “Extra Expense” is the necessary additional cost the insured incurs to operate the business during the period of restoration, over and above the cost the insured would have incurred to operate the business during the same period, had no breakdown occurred. 12.7

6. If an initial breakdown causes other breakdowns, all will be considered “one breakdown.” 12.7



7. The Actual Cash Value Endorsement to the Equipment Breakdown Protection Coverage Form states that the method of valuation to determine what the insurer will pay the Insured in the event the loss is the lesser of the cost to repair or replace the damaged property or the actual cash value of the property, whichever is less. 12.7

Farm Insurance1. Farm insurance includes Farm Property Coverage, Farm Liability Coverage and additional

coverage forms such the Mobile Agricultural Machinery and Equipment Form and the Livestock Coverage Form. 12.8

2. The Farm Property Coverage Form will pay for direct physical loss or damage to covered property at the insured location or elsewhere, caused by, or resulting from a covered cause of loss. 12.8

3. Coverage A – Dwellings provides insurance for the residential dwellings on the farm that are owned and occupied by the insured, including attached structures. 12.8

4. Coverage B – Other Private Structures provides insurance for detached private garages and other private structures used personally and not for farm purposes. 12.8

5. Coverage C – Household Personal Property provides insurance for household personal property owned by the insured and family members while on the premises. 12.8

6. Coverage D – Loss of Use provides insurance for additional living expense and fair rental value. 12.8

7. Coverage E – Scheduled Farm Personal Property provides insurance for specific types of property listed on the Declarations, such as grain and hay, farm products, poultry and computers and related equipment used for farm management. 12.8

8. Coverage F – Unscheduled Farm Personal Property provides insurance for all items of farm personal property on the insured location except for those specifically excluded. 12.8

9. Coverage G – Other Farm Structures provides insurance for described farm buildings and structures and their attached sheds and permanent fixtures. 12.8

10. The insured may choose the Basic, Broad, or Special Causes of Loss Form. 12.811. Farm Insurance Exclusions include losses caused directly or indirectly by ordinance or law, earth

movement other than sinkhole collapse, government action, intentional loss, nuclear hazard, off-premises services, war and military action, or flood or surface water. 12.8

12. Under a farm policy, the applicable limits of insurance are shown on the Declarations page for each class of property insured, and if no designation appears on the Declarations, coverage is not provided. 12.8

13. The farm property loss conditions include abandonment, appraisal, duties in the event of loss or damage, insurance under two or more coverages, legal action against the insurer, loss payment, pairs, sets, or parts, other insurance, recovered property, transfer of rights of recovery against others to the insurer, and unoccupancy and vacancy. 12.8

14. “Livestock” is cattle, sheep, swine, goats, horses, mules, and donkeys. 12.815. “Poultry” is fowl kept by the insured for use or sale. 12.816. The Farm Liability Coverage Form may be written as a standalone policy or as part of a farm

package. It contains three major coverages: H, I and J. 12.817. Coverage H (Bodily Injury and Property Damage Liability) pays sums, that the insured becomes

legally obligated to pay, arising from bodily injury or property damage and includes product liability from the sale of farm products. 12.8

18. Coverage I (Personal and Advertising Injury Liability) provides for payment of sums, that the insured becomes legally obligated to pay, arising from personal or advertising injury, to which the insurance applies and related to the farming business. 12.8



19. Coverage J (Medical Payments) provides third-party payments to one person regardless of fault for reasonable medical expenses arising out of an accident, if the expenses are incurred and reported within three years of the accident date. 12.8

20. The Mobile Agricultural Machinery and Equipment Form provides insurance for mobile devices used in the everyday operation of a farm, including accessories, tools and spare parts specifically designed and intended for such mobile devices. 12.8

21. The Livestock Coverage Form provides insurance for livestock, such as cattle, sheep, swine, goats, horses, mules, and donkeys as shown on the Declarations per animal within a class or with a limit per class and sublimit per animal against loss by death or destruction. 12.8

Aviation Insurance1. Aviation insurance is specialty coverage for aircraft hull and aircraft liability insurance. 12.92. Aircraft hull insurance provides insurance for physical damage to the airplane. Three different

causes of loss are available: ground only, ground including taxi, and all risk coverage. 12.93. Aircraft liability insurance provides coverage for the insured’s legal liability for bodily injury or

property damage that arises out of the ownership or use of an aircraft. 12.9

Crop/Hail and Windstorm Insurance1. Crop/hail insurance is a specialized policy that protects the insured against reduced yield because

of a covered loss to crops before they are harvested. 12.102. Crop/Hail Insurance is private insurance and not reinsured by the federal government, and provides

named peril coverage including hail and fire, lightning, wind, freezing, drought, insects and disease. 12.10

3. The Crop/Hail Insurance policy term begins at 12:01 a.m. following the date the application is signed, provided the crop is clearly visible above the ground, and coverage ceases when the crop is harvested (1 growing season). 12.10

4. Multi-Peril Crop Insurance (MPCI) is written by private insurers and is reinsured by the Federal Crop Insurance Corporation (FCIC). Coverage may be provided for approximately 200 different types of crops, primarily corn and maize, cereal grains, soybeans, tobacco, and cotton. 12.10

5. MPCI covered causes of loss include adverse weather conditions, fire, insects, plant disease, wildlife, earthquake, and volcanic eruption. 12.10

6. Windstorm Insurance Coverage is excluded under the standard property insurance policies written in many states that are at high risk for wind loss caused by hurricane. Wind and/or wind and hail associations were developed to provide insurance as a last resort for those who are unable to purchase insurance for the peril of wind on their primary property policies. 12.10


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