Summary: American Association of Insurance Services (AAIS) provides a flexible farm program for owner-occupants, owner-nonoccupants, certain incorporated farming ventures, and tenant farmers. The policy may be issued covering household/personal exposures as well as farm exposures, or farm exposures only. Additional endorsements are required to provide personal and farm liability coverage.
For owner-occupied farms, one of three forms covers the insured's dwelling and personal property: FO-1, FO-2, or FO-3. Tenant-occupied farms are covered by form FO-4. This treatment examines in depth the FO-3 (analogous to homeowners, form 3).
Forms FO-1 and 4 provide for loss settlement on an actual cash value (ACV) basis. If the insured chooses form FO-2 or 3, he or she may also choose replacement cost or ACV loss settlement. AAIS provides endorsements for this purpose.
Form FO-1 covers the insured's dwelling and contents for the following perils: fire, lightning, and extended coverage, along with sinkhole collapse, volcanic action, vandalism, and theft. Forms 2 and 4 cover fire, lightning, and extended coverage, along with the broad form perils and theft. Form 3 covers the residence for “risks of direct physical loss” with certain exclusions, and contents for the same perils as form 2.
Covered properties include the residence, related private structures, personal property, additional living costs, and loss of rent. This treatment discusses the first four of the “personal” coverages of the AAIS program.
Topics covered:
Introduction
Insuring agreement and definitions
Principal property coverages
Coverage A—Residence
Coverage B—Related Private Structures
Coverage C—Personal Property
Coverage D—Additional Living Costs and Loss of Rent
Introduction
The AAIS farm program specifies that the main residence must be used exclusively for residential purposes and contain no more than four families. The rules allow certain incidental business occupancies and up to two roomers or boarders per family.
The residence may be occupied by any of the following:
1. the farmowner;
2. a tenant if the owner directly manages the farm or if the there is a management contract;
3. the farm's co-owner, if the co-owner has an equal or controlling interest in the farm.
Mobile homes occupied by owners or tenants, if situated on a farm and used for private residential purposes may also be written. Up to two families may occupy a mobile home, with no more than two roomers or boarders per family.
The following should be submitted to the company:
1. Farms where business pursuits other than farming are conducted.
2. Farms where horses are raised, boarded, or maintained.
3. Vacant or unoccupied farms.
4. Farms that supply agricultural commodities for manufacturing or processing by the insured for sale to others. For example: a farm that grows wheat to be sent to a mill owned by the owner of the farm.
5. Farms that sell products at retail or permit the picking of fruits and vegetables by the public.
6. Incorporated farms.
The insurer may request the agent to submit photographs of each building to be covered. If so, the photos must be dated and submitted within ninety days of the date taken. The insurer may also require a diagram or plat of the entire farm.
Insuring Agreement and Definitions
In return for “your” payment of the required premium, “we” provide the coverages described herein subject to all the “terms”.
DEFINITIONS
1. The words “you” and “your” mean the person or persons named as the insured on the “declarations”. This includes “your” spouse if a resident of “your” household.
2. The words “we”, “us”, and “our” mean the company providing this Dwelling Coverage.
3. ”Business” means a trade, a profession, or an occupation including farming, all whether full or part time. This includes the rental of property to others. It does not include the occasional rental for residential purposes of the part of the “insured premises” normally occupied solely by “your” household.
”Business” also includes services regularly provided by an “insured” for the care of others and for which an “insured” is compensated. A mutual exchange of like services is not considered compensation.
4. ”Declarations” are all pages labeled Declarations, Supplemental Declarations, or Schedules which pertain to this Dwelling Coverage.
5. ”Insured” means:
a. ”you”;
b. ”your” relatives if residents of “your” household; and
c. persons under the age of twenty-one in “your” care or in the care of “your” resident relatives.
6. ”Insured Premises” means the location shown on the “declarations”.
7. ”Limit” means the amount of coverage that applies.
8. ”Motorized Vehicle” means a self-propelled land or amphibious vehicle regardless of method of surface contact.
This does not include vehicles that are designed and used to assist the handicapped and are not required to be licensed for road use.
9. ”Pollutant” means:
a. any solid, liquid, gaseous, thermal, or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials to be recycled, reclaimed, or reconditioned, as well as disposed of.
b. electrical or magnetic emissions, whether visible or invisible, and sound emissions.
10. ”Residence” means a one- to four-family house or a one- or two-family mobile home used mainly for family residential purposes.
11. ”Terms” means all provisions, limitations, exclusions, conditions, and definitions that apply to this Dwelling Coverage.
Analysis
Unlike the farm property form of Insurance Services Office (ISO), the AAIS form places the defined terms at the front instead of the back. This arrangement makes for an easier reading of the policy. The definition of business specifically includes farming. (As opposed to the ISO definition that excludes farming from the definition of business). Thus, it is clear that this policy covers only the insured's residence and personal property.
Note that the definition of motorized vehicle only includes one exception: those vehicles designed to assist the handicapped. The policy does not provide coverage for motor vehicles used to service the residence.
The AAIS form makes an important addition to the definition of pollutant. It specifies that a “radioactive irritant or contaminant” is also a pollutant.
Another place the AAIS form is clearer is in the definition of residence. There the form specifies that the dwelling may contain no more than four families. The ISO policy is silent on the matter and the restriction must be found in the rules.
Principal Property Coverages
PRINCIPAL PROPERTY COVERAGES
Each Principal Property Coverage applies only if a “limit” is shown on the “declarations”.
Analysis
AAIS divides its form into “principal” and “incidental” property coverages. A limit of liability must be shown in order for a principal property coverage to apply.
Coverage A—Residence
Coverage A – Residence
“We” cover the “residence” on the “insured premises”. This includes additions and built-in components and fixtures and building materials and supplies located on the “insured premises” for use in construction of or to the “residence”.
“We” do not cover land, including the land on which covered property is located, underground water, or surface water.
“We” do not cover trees, plants, shrubs, or lawns; private power, light, or electric poles; wells or well pumps; irrigation systems; or outdoor antennas, except as provided under Incidental Property Coverages.
Analysis
Rather than insuring a “dwelling,” the AAIS form insures a “residence,” thus allowing for a mobile home as well as a standard home. The residence coverage includes built-in components and fixtures (such as built-in appliances). The form also covers, as part of the residence portion, building materials on the premises that the insured may intend for use on the residence.
The policy specifies the following items as not covered under coverage A:
1. Land and water.
2. Trees, shrubs, or plants; power poles; wells; irrigation systems; or outdoor antennas, other than as provided under “incidental property coverages.”
Coverage B—Related Private Structures
Coverage B – Related Private Structures
“We” cover related private structures on the “insured premises” which are not attached to “your” “residence”. Structures that are connected to “your” “residence” by only a fence, a utility line, or a similar connection are not considered attached.
“We” cover fences, driveways, sidewalks, and other permanently installed outdoor fixtures that are within 250 feet of the “residence” covered under Coverage A.
“We” cover building materials and supplies located on the “insured premises” for use in construction of or to a related private structure covered under Coverage B.
“We” do not cover land, including the land on which covered property is located, underground water, or surface water.
“We” do not cover barns or other structures designed or used for farming.
“We” do not cover other structures designed or used for “business” purposes other than farming. However, this does not apply to structures:
1. rented to a tenant of the “residence” on the “insured premises” and not used for “business”; or
2. used solely for private garage purposes.
“We” do not cover trees, plants, shrubs, or lawns; private power, light, or electric poles; wells or well pumps; irrigation systems; or outdoor antennas, except as provided under Incidental Property Coverages.
Analysis
AAIS makes it clear that this coverage is for structures that are related to the dwelling and are not used in any way for any business purpose, including farming. By limiting coverage to those structures within 250 feet of the residence, the form eliminates coverage for structures located anywhere on the premises and might be used for farming. The intent is to cover only personal/family use structures. The policy makes an exception for structures rented to a tenant (for nonbusiness purposes) or structures used solely as private garages.
Coverage C—Personal Property
Coverage C – Personal Property
1. ”We” cover personal property owned by or in the care of an “insured”. Coverage for personal property usually on residential premises of an “insured” other than the “insured premises” is limited to 10 percent of the Coverage C “limit”.
2. ”We” cover personal property in a newly acquired principal place of residence. The full Coverage C “limit” applies for thirty days from the date “you” begin to move. After that, coverage for personal property in a newly acquired principal place of residence is limited to 10 percent of the Coverage C “limit”. This coverage does not extend past the date on which the policy expires or the date on which the policy is terminated.
3. At “your” option, personal property owned by a guest or domestic employee is covered while it is in that part of residential premises occupied by an “insured”.
4. Limitations on Certain Property – The special “limits” shown below do not increase the Coverage C “limit”. The “limit” for each class is the total “limit” per occurrence for all items in that class.
a. $250 on money, bank notes, bullion, gold other than goldware and gold-plated ware, silver other than silverware and silver-plated ware, platinum, and numismatic property.
b. $1,500 on securities, stamps, philatelic property, bills, letters of credit, notes other than bank notes, tickets, accounts, deeds, evidence of debt, passports, and manuscripts.
c. $1,500 on electronic devices, accessories, and antennas that can be operated from the electrical system of a “motorized vehicle”, farm equipment, or watercraft and by other sources of power. This includes films, tapes, wires, discs, records, or other media for use with such devices. The special “limit” applies only while the property described in this paragraph is in or on a “motorized vehicle”, farm equipment, or watercraft.
d. $1,500 on watercraft including their trailers, furnishings, equipment, and motors.
e. $1,500 on trailers not otherwise provided for.
f. For loss by theft:
1) $2,500 on jewelry, watches, precious and semi-precious stones, gems, and furs;
2) $2,500 on silverware, goldware, pewterware, and items plated with gold or silver; and
3) $2,500 on guns and items related to guns.
g. $2,500 on “motorized vehicles” used to service the “insured premises” and not designed or licensed for use on public roads.
h. $2,500 on “business” property, other than farm personal property.
5. Personal Property Not Covered – “We” do not cover:
a. animals, birds, fish, or insects;
b. ”motorized vehicles”, other than those subject to Limitations on Certain Property, including parts, equipment, and accessories while in or on a “motorized vehicle”;
c. aircraft, including their parts and equipment;
d. property of roomers and boarders who are not “insureds”;
e. trees, plants, shrubs, or lawns, except as provided under Incidental Property Coverages;
f. electronic devices, accessories, or antennas that may be operated only from the electrical system of a “motorized vehicle”, farm equipment, or watercraft while in or on the “motorized vehicle”, farm equipment, or watercraft. This includes films, tapes, wires, discs, records, or other media for use with such devices;
g. loss that results from credit or debit cards, except as provided under Incidental Property Coverages;
h. farm personal property;
i. private power, light, or electric poles; wells or well pumps; irrigation systems; or outdoor antennas, except as provided under Incidental Property Coverages; or
j. land, including the land on which covered property is located, underground water, or surface water.
Analysis
Coverage C covers the insured's personal property anywhere in the world. Coverage is limited to 10 percent of the limit for property at a secondary residence. The policy also provides coverage for the property of guests or domestic employees, while on the residence premises.
The AAIS policy places sublimits on certain types of personal property: money; securities; adaptable electronic equipment (operated from the electrical system of a motor vehicle); watercraft; trailers (other than farm trailers); motorized vehicles used to service the residence premises; and business property other than farm personal property. The following types of property have sublimits for the peril of theft only: furs, jewelry, precious and semiprecious stones, and watches; goldware, silverware, gold- or silver-plated ware, and pewterware; and firearms.
Coverage D—Additional Living Costs and Loss of Rent
Coverage D – Additional Living Costs and Loss of Rent
“We” pay the necessary and reasonable increase in living costs “you” incur to maintain the normal standard of living of “your” household if a part of the “insured premises” is made unfit for use by an insured loss. “We” pay only for the period of time reasonably required to make the “insured premises” fit for use or until “your” household is permanently relocated, whichever is less. This period of time is not limited by the policy period.
“We” pay for the rent “you” lose or the fair rental value if the part of the “residence” rented or held for rental to others is made unfit for use by an insured loss. “We” only pay for the period of time reasonably required to make the “residence” fit for use or until “your” household is permanently relocated, whichever is less. Loss of rent is the amount “you” would have received less the charges and expenses that do not continue while the “residence” is unfit for use. This period of time is not limited by the policy period.
“We” pay “your” additional living costs and loss of rent or fair rental value for up to two weeks if a premises neighboring the “insured premises” is damaged from a peril insured against by this policy and “you” may not, by order of civil authority, use the “insured premises”. This is not limited by the policy period.
“We” do not pay for loss of rent or costs due to the cancellation of a lease or an agreement.
Analysis
Coverage D provides the insured with additional living expenses should the insured residence be made uninhabitable by a covered peril. Payment is limited to the shorter of the time for repairs or the time for the insured to permanently locate elsewhere. Also covered is the insured's loss of rents, if that part of the residence rented to others suffers a loss.
Finally, the AAIS policy will pay additional living expense should the insured be forced out of his or her home by order of a civil authority. The order must be necessitated by damage to a neighboring premise.
The concept of “neighboring premise” is broader than one might think. During the massive fires in central Florida in 1998, many people were ordered out of their homes by the authorities. Even though the fire may not have been at the neighbor's house, insurers still paid these claims for additional living expense.
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