Analysis

The AAIS farm dwelling form covers the dwelling and related private structures for open perils, subject to the usual exclusions:

1.     Freezing, Discharge, Leakage, or Overflow — if the dwelling is vacant, unoccupied, or unoccupied and under construction, the insured must assure that he/she either maintains the heat in the building; or that he/she drains the water from things such as plumbing, heating, and air conditioning. If he/she does not meet this obligation, the policy does not cover losses caused by these perils.

     Note that one of the barriers to coverage is if the building is under construction and unoccupied. In order for that barrier to apply while the building is under construction, it must also be unoccupied. Thus, if the insured is living in the building while it is being constructed, the exclusion does not apply. The farm property form of Insurance Services Office (ISO), on the other hand, excludes coverage when the building is under construction.

2.     Freezing Thawing, Pressure, or Weight of Ice or Water — if these perils cause loss to any of the following structures, there is no coverage: swimming pools, fences, patios, paved areas; retaining walls, bulkheads, foundations; wharves, docks, or piers. The exclusion applies even if the water is wind driven. The ISO exclusion reads similarly.

3.     Theft — there is no coverage for the theft (or attempted theft) of building materials and supplies used for the construction of a residence until the residence is occupied for its “intended use.” Thus, if an insured is building his/her own dwelling and living there while it is under construction, there is no coverage for theft of these items. The dwelling is not yet “occupied for its intended use.” ISO only stipulates that the building must be “completed and occupied”; it does not add the stipulation that the building must be put to “its intended use.”

4.     Vandalism or Glass Breakage — the policy does not cover vandalism to a residence if the residence has been vacant for more than thirty days at the time of the vandalism. This provision also eliminates coverage for glass breakage — however caused — under the same circumstances.

5.     Seepage or Leakage — the AAIS policy does not cover loss caused by repeated or continuous seepage or leakage of liquids or steam from within a plumbing, heating, air-conditioning, or automatic sprinkler system; water heater; or domestic appliance. This language may be somewhat vague, in that “repeated or continuous seepage of leakage” is not defined by any time period.

     The AAIS form does give back coverage for damage done by the accidental discharge of liquids or steam from these items. When the damage is covered, the policy only excludes the appliance itself.

6.     Settling, Cracking, Shrinking, Bulging, or Expanding — buildings, mobile homes, pavements, patios, and other outdoor structures are not covered for damage from these event. The similar exclusion in the ISO form is more restrictive. It eliminates coverage for “any building, structure, or personal property” done by these perils.

7.     Birds, Vermin, Rodents, Insects, or Domestic Animals: the policy does not cover most damage done by these. However, it does give back some coverage in the “Incidental Property Coverages.” Specifically, there is coverage for collapse of a building caused by hidden insect or vermin damage.

8.     Smoke — there is no coverage if the dwelling is damaged by smoke from industrial or agricultural smudging operations. Most farms are out in the country and far from any industrial operations. However, many farmers use “smudge pots” to provide warmth for their crops in the spring months. If such “smudging” results in damage to the dwelling, the policy does not cover it.

9     Collapse — the policy provides no coverage for collapse, other than as described in the “additional coverages.”

10.     Pollution — there is no coverage for damage from the “release, discharge, or dispersal of “pollutants”. Note that ISO gives back coverage for such release, if it is caused by one of the specified perils. The AAIS form does not require the release, dispersal, etc. to be caused by a specified peril. Rather, it agrees to cover any subsequent loss that is not excluded.

11.     General Exclusions — finally, there is no coverage for things already excluded under “general exclusions.” These are found on form FO-20, discussed later in this section.

Analysis

The AAIS farm dwelling form covers household personal property for the following named perils:

1.     Fire or Lightning.

2.     Windstorm or Hail — if personal property inside a structure suffers damage from dust, rain, sand, sleet, snow, or water, the policy only provides coverage if these items entered the structure through an opening created by wind or hail.

     Boats, their trailers, and equipment must be inside a fully enclosed building or there is no coverage for damage from wind or hail. The AAIS policy does provide coverage for canoes and rowboats that the insured keeps on the “insured premises”.

3.     Explosion; Riot or Civil Commotion; Aircraft; or Vehicles — note that the AAIS policy does not define or limit these perils in any way. ISO, however, adds wording that describes or limits these perils.

     ISO expands the definition of “explosion” to include “the explosion of gases or fuel” in a “fired vessel” or its “flues or passages.”

     While AAIS does not define “riot or civil commotion,” ISO clarifies the definition with the inclusion of the acts of strikers and looting.

     ISO limits the aircraft and vehicle perils to contact with the aircraft/vehicle or objects dropped from the aircraft or thrown up by the vehicle.

4.     Sudden and Accidental Damage from Smoke — as with the dwelling coverage, there is no coverage for damage to personal property from these perils if the smoke is from industrial or agricultural smudging operations.

5.     Sinkhole Collapse — the policy covers personal property lost in a sinkhole collapse. AAIS is very specific in that it defines a sinkhole as a “subterranean void created by the action of water on a limestone or similar rock formation.” Just because the ground collapses under the dwelling, the insured has not suffered a “sinkhole collapse” unless it was caused by water acting on limestone or other “similar” rock formations. ISO only defines a sinkhole as involving the action of water on limestone or dolomite.

     While both AAIS and ISO do not cover the cost of filling the sinkhole, ISO also specifies that it excludes collapse into a hole that is man-made.

6.     Volcanic Action — again, AAIS specifically defines what it means by “volcanic action”: the airborne volcanic blast and shock waves; ash, dust, or particulate matter that comes out of the volcano; and lava flow. The policy does not cover the removal of “ash, dust, or particulate matter” if those items do not cause direct physical loss to covered property.

7.     Vandalism — there is no coverage for vandalism to personal property at a residence that has been vacant for more than 30 consecutive days prior to the loss. The policy does say, however, that a residence under construction is not vacant.

8.     Theft — includes attempted theft and loss of property from a known place when it is likely that theft occurred. AAIS excludes the following from the peril of theft:

a.     Theft committed by an “insured” (note: the AAIS policy excludes theft by any insured, not just by the named insured).

b.     Theft in or to a “residence” (not just any building, but a residence) being built. The policy also excludes theft of building materials being used in the construction of that “residence”, until the insured occupies the “residence” and is putting it to its intended use. Thus, if the insured is building the residence himself and is staying there while he is building it, the exclusion could still possibly apply.

c.     Loss of a precious or semiprecious stone from its setting. Note that the word “loss” has been substituted for the word “theft.”

d.     Loss that results from the theft of a credit or debit card, except as provided under Incidental Property Coverages.

e.     Theft from a part of the “residence” while it is rented to others.

f.     Theft of the following types of property, if the theft occurs away from the “insured premises”:

1)     property while on another residential premises which an “insured” owns, rents, or occupies, while the insured is not at that other residential premises.

     The policy does cover the property of an “insured” who is a full-time student while the property is in the living quarters occupied by the student at school. However, it raises the question of where the student must be living in order to be covered. Must he/she be living on-campus in a dormitory; or does the policy cover if the student has his/her own off-campus apartment?

     There is also no coverage for theft of the following if the theft occurs away from the “insured premises”: trailers and their equipment; campers or camper bodies; or watercraft and their furnishings, equipment, and motors.

9.     Falling Objects — the policy does not cover personal property inside a structure unless the falling object first damages an outside wall or roof. Also, there is no coverage for damage to the falling object itself. ISO also excludes loss to personal property in the open from falling objects. The AAIS policy contains no such limitation.

10.     Weight of Ice, Snow, or Sleet — there is coverage for damage to a structure or the property inside a structure. Any loss to a swimming pool caused by these perils is not covered.

11.     Sudden and Accidental Tearing Apart, Cracking, Burning, or Bulging — the policy covers personal property from loss caused by these perils. There is no coverage for personal property from loss by freezing, other than as described under the peril of “freezing.”

12.     Accidental Discharge or Overflow of Liquids or Steam — from a plumbing, heating, air-conditioning, or automatic sprinkling system; water heater; or domestic appliance. This peril does not include any loss:

a.     caused by continuous or repeated seepage or leakage;

b.     caused by freezing, except as provided under the peril of Freezing;

c.     on the “insured premises” caused by accidental discharge or overflow which comes from off the “insured premises”;

d.     if the “residence” has been vacant for more than thirty days in a row just before the loss. A “residence” being built is not vacant; or

e.     to the system, heater, or appliance from which the liquid or steam escapes. (The policy does cover the “reasonable cost” to remove and replace the parts of the structure needed to repair the system, heater, or appliance.)

Note: This peril specifically excludes a sump, sump pump, and related equipment from the definition of “plumbing”. Thus, AAIS has narrowed the traditional definition of a plumbing system, which has included sumps and sump pumps.

13.     Freezing — of a plumbing, heating, air-conditioning, or automatic sprinkling system; water heater; or domestic appliance. The policy does not cover freezing losses if the residence is vacant or unoccupied (or under construction and unoccupied), unless the insured has done the following:

a.     maintained heat in the building or mobile home; or

b.     shut off the liquid supply and drained the system, domestic appliance, or heater.

     Note that one of the barriers to coverage is if the building is under construction and unoccupied. In order for that barrier to apply while the building is under construction, it must also be unoccupied. Thus, if the insured is living in the building while it is being constructed, the peril would apply.

14.     Sudden and Accidental Damage from Artificially Generated Electrical Currents — the AAIS policy covers damage done by electrical currents, but not damage to tubes, transistors, and similar electronic components.

Personal property is also subject to other provisions contained on form FO-20, “Additional Policy Conditions and Property Coverage Terms,” discussed later in this section.

Analysis

The AAIS farm dwelling form covers the dwelling and related private structures on a replacement cost basis. It emphasizes that such buildings must have a roof and a permanent foundation. Note that, although mobile homes are eligible for this program, they are not eligible for replacement cost coverage. Other items not eligible for replacement cost coverage include: window air-conditioners; awnings and canopies; appliances; carpets; and window coverings.

When calculating the replacement cost of the farm dwelling, the cost of the following items are not counted towards the final figure: excavations; brick, stone, or concrete foundations; piers and other supports which are below the surface of the ground inside the foundation walls; and underground flues, pipes, wiring, and drains. If a claim is less than $2,500 or 5 percent ($1,000 or 5 percent in the ISO policy) of the limit applying to the dwelling, replacement cost coverage is automatic. For larger losses, the insured will first be paid the ACV of the loss. Then, he/she must make the repairs and turn in receipts to receive the balance of the replacement cost adjustment. The insured has six months from the date of the loss to make such a claim.

If the amount of insurance on the dwelling is not equal to at least 80 percent of the dwelling's replacement cost, the insurer only owes the larger of the following amounts: the ACV at the time of the loss; or that part of the replacement cost of the damaged part which the limit of liability on the building bears to 80 percent of the full current replacement cost of the building.

For example: if the dwelling has a replacement cost of $200,000, the insured must carry at least $160,000 of coverage A. When a tornado rips off the roof, resulting in a $20,000 loss, he/she will be fully indemnified if coverage A is $160,000. However, if coverage A is only $100,000 (62.5 percent of the required amount), the insured will receive only $12,500 towards the roof (62.5 percent of $20,000).

The above example would be different if the ACV of the loss were $15,000. In that case, the insured would receive $15,000.

If the insured does carry insurance equal to at least 80 percent of the building's replacement cost, he/she will receive $20,000 for the roof loss.

All other property, such as contents and structures that are not buildings, is covered on an actual cash value (ACV) basis. As with other property policies, this one settles losses based on the smaller of either the cost to repair or replace the damaged property or the property's ACV at the time of the loss.

However, AAIS adds a third ACV option for mobile homes: the difference in the ACV of the mobile home prior to and after the loss.