Expert Commentary

Meet Me at the Corner of "Agriculture" and "Pollution"

Have you ever noticed how people react to dangerous or risky environments? How about those folks that are constantly around those same environments?

Agricultural Insurance
April 2016

Newcomers to dangerous or threatening situations often take baby steps to familiarize themselves with the area of threat, while veterans of such situations may often plunge headfirst into the same situation, knowing that their familiarity will get them through it with little or no consequence. One reacts with fear or trepidation, and the other reacts with assumed knowledge and a level of comfort.

This can be a problem when we are working with our farm/agriculture (farm/ag) insureds to recognize the danger of "pollution" (or pollutants) when it comes to all of the products they work with in the course of their regular day. Their familiarity may breed a level of confidence and knowledge that is not shared by their insurers.

A Daily Occurrence

On a daily basis, farm/ag accounts deal with all sorts of pollution exposures that the farm property and liability coverages provided by Insurance Services Office, Inc. (ISO), are not designed to cover. That is not to discredit their value; rather, it is to emphasize the need for greater coverage options.

Let's take a look at our "typical" farmer. Ordinary farmers have multiple "pollutants" that they work with on a regular basis, including the following.

  • Fuel and related operational fluids
  • Fertilizers
  • Other chemicals
  • Waste (animal and other)

Their regular handling of these items probably means that they may often forget about the dangers—to themselves and their environment—of mishandling and/or simple human error. It is easy to gain a comfort level in dealing with these items, as they are part of their day-to-day operations and (simply put) a part of their daily lives.

But what's the concern? After all, farmers have some pollution coverage in the ISO base farm forms, right?

Some Coverage, but Not Enough

Let's take a look at what the ISO farm liability policy has to say about "pollutants." I won't bother with the definition of "pollutants," as it is the one most readers have come to expect throughout their studies and readings … no more, no less.

Onsite Pollution

For onsite pollution exposures, we can find a minimal amount of solace in the Farm Property—Other Farm Provisions Form—Additional Coverages, Conditions, Definitions (FP 00 90 09 03). In that form, under Additional Coverages, number 6, we find "Pollutant Clean Up And Removal."

This addresses the insured's "expense to extract 'pollutants' from land or water at the 'insured location.'" This is solely first-party onsite pollution coverage. It is limited to a whopping $10,000 as an annual aggregate limit. While insurers will provide additional limits (all you have to do is ask), the amount can vary significantly from insurer to insurer. I've seen insurers willing to provide $100,000 while others will go to $1 million. The endorsement that ISO provides for this purpose is Pollutant Clean Up and Removal Additional Aggregate Limit of Insurance (FP 04 22 01 98).

The loss must be "caused by" or the result of a "covered cause of loss." The Causes of Loss Form—Farm Property (FP 10 60 02 09) then goes on to tell us that those covered causes of loss must be from those causes enumerated in the "specified causes of loss" section. This limits the loss to the following types/causes.

  • Fire
  • Lightning
  • Explosion
  • Windstorm or hail
  • Smoke, including the emission or puffback of smoke, soot, fumes, or vapors from a boiler, furnace, or related equipment
  • Aircraft or vehicles
  • Riot or civil commotion
  • Vandalism
  • Leakage from fire extinguishing equipment
  • Sinkhole collapse
  • Volcanic action
  • Falling objects
  • Weight of snow, ice, or sleet
  • Water damage

Further, the FP 00 90 09 03 policy will not respond to "test for, monitor, or assess the existence, concentration, or effects of 'pollutants'" except for that "testing which is performed in the course of extracting the 'pollutants' from the land or water." In other words, once we have cleaned it up, up to our limit of liability, we are done. If the insured is required to provide testing in the future to monitor further potential effects, the payment responsibility is on the insured.

Liability Coverages

But what if your insureds aren't concerned with cleaning up "pollutants" on their farmland, but they are concerned when it (the pollutant) interferes with another's property and your insureds are potentially held liable for the loss? Doesn't the Farm Liability Coverage Form (FL 00 20 10 06) (FL 00 02, as I will refer to it) provide some coverage? Some? Yes. What they probably need? No!

The pollution language in the FL 00 20 is required to be either replaced or modified with one of two separate and distinct endorsements—the Amendatory Endorsement (FL 01 63 09 03) or the Limited Farm Pollution Liability Extension Endorsement (FL 04 30 09 03). They are not both to be used; it is one or the other.

FL 04 30 09 03

The Limited Farm Pollution Liability Extension Coverage (FL 04 30, as I will refer to it) replaces in its entirety the pollution exclusion in the FL 00 20. Either a limit of liability is shown on the endorsement or on the insured's declarations page.

It states that the insurance does not apply to pollution that causes bodily injury (BI) or property damage (PD) "out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of 'pollutants'" from storage tanks, containers, their piping, or ducts, which at any time have been below ground or water, whether or not they are now currently exposed by any means. This applies if, at any time, the insured "owned, occupied, rented, or loaned to another" the premises, site, or location from where the polluting event commenced.

It then goes on to provide coverage for BI or PD that is caused by a "hostile fire" or the smoke, fumes, or heat from such fire.

Endorsement FP 04 30, in my experience, is the lesser used of the two.

FL 01 63 09 03

The Amendatory Endorsement (FL 01 63, as I will refer to it) amends the FL 00 20's pollution exclusion. The FL 00 20 provides coverage for BI "sustained within a building" that is "caused by smoke, fumes, vapor, or soot produced by or originating from equipment that is used to heat, cool, or dehumidify the building" or "equipment that is used to heat water for personal use…." It also provides coverage for BI or PD that arises out of the "heat, smoke, or fumes of a 'hostile fire.'"

At that point, the FL 01 63 takes part and adds coverage for BI or PD that is "caused by heat, smoke, or fumes" of a fire that was set on the insured's location by the insured "for the purpose of burning off crop stubble or other vegetation," as long as said burning is consistent with normal agricultural practices and is not set in violation of a law or ordinance.

Chemical Drift Liability

As many farm/ag risks apply a variety chemicals to their fields and crops, the FL 01 63 goes further by providing coverage for what is referred to as "chemical drift liability." Beware, however, that this applies only to damages "for physical injury to crops or animals" of others. There is no BI coverage provided. Further, if the chemical drift emanates from an aircraft (or drone), there is no coverage provided. It also does not provide coverage for loss of market or loss of use of soil or crops.

An aggregate limit of $25,000 applies unless otherwise endorsed. Many insurers will allow an insured to purchase up to $1 million for the chemical drift liability. There is the usual group of exclusions that could come into play, so take a look at the form to make certain you have a full understanding of it.

Crop Dusting

Finally, in many geographic areas, due to weather, past farming experience, normal practices for particular crops, and the like, the application of chemicals and other products from aircraft is a proven process. When insureds undertake the application of operations for "crop dusting, seeding, spraying, or fertilizing operations" from an aircraft that is provided to the insured by a third party, the need arises for additional liability coverage. To be clear, I am not saying that they have coverage for their application—it has to be done by a third-party independent contractor.

This coverage is provided by the endorsement FL 04 44 09 03, Coverage for Physical Injury To Crops and Animals Due to Certain Crop Dusting Operations Performed by Licensed Independent Contractor by Aircraft (Limited Crop Dusting Coverage). And yes, that is just the title of the endorsement!

There is a cost per $1,000 of the contract price. A limit of liability is also selected, as the endorsement provides a mere $25,000 in coverage. Limits to $1 million seem to be readily available in the marketplace. This is an aggregate annual limit. The endorsement is also subject to audit.

No coverage is provided for BI. This is just like the FL 01 63 in that it provides for damages to "physical injury to crops or animals" only for which the insured becomes liable. There are seven exclusions that range from injury expected or intended from the standpoint of the insured to injury or damage of the insured's own crops or animals. Again, a reading of the form is in order for a full description of its limitations.

My Point, You Ask?

Simply put, are you aware of the limitations of the contracts your insured's are buying? Do you realize how minimal the pollution coverage provided via an ISO policy is? How often do you have detailed discussions with your prospects/insureds about their use of "pollutants" and the subsequent losses for which they could be held liable?

Please, don't let them learn the hard way!

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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