Have you ever noticed how people react to dangerous or risky environments? How about those folks that are constantly around those same environments?
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 have them 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
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." Just to make certain that we all understand the definitions used in the coverage forms, let's revisit them here. The FP 00 90 04 16 defines "pollutants" (definition #10) as follows:
10. "Pollutants" means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed
This is the same exact language (definition) that is used in the Farm Liability Form, FL 00 20 04 16
For onsite pollution exposures (first-party coverage), we can find a minimal amount of solace in the Farm Property—Other Farm Provisions Form—Additional Coverages, Conditions, Definitions (FP 00 90 04 16). 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 on-site pollution coverage. It is limited to a whopping $10,000 as an annual aggregate limit "during each separate 12-month period of this Policy."
I like to say, "When the guys and gals show up in their white van, with their white protective gear on and respirators working, there goes your $10,000!" 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).
A deductible applies to the use of this endorsement. Further, what we are doing is increasing the aggregate limit to the amount shown in the schedule. In order to collect this additional aggregate amount, the loss must meet two criteria. The policy won't pay until the total of all such costs exceeds the following.
The $10,000 aggregate limit provided for in the additional coverage as stated in the FP 00 90, less any prior payments for the same policy year
The deductible that is shown in the schedule
Here is the example as shown in the endorsement.
The cost of "pollutants" cleanup and removal is
The remaining aggregate from the basic additional coverage (assuming that $4,000 has previously been paid for the same policy year) is
The deductible shown in the schedule is
The pollutant cleanup and removal additional aggregate limit of Insurance is
We will determine the most we will pay under this endorsement as follows.
The cost incurred
Less the sum of the remaining basic additional coverage aggregate
And the deductible
The most we will pay under this endorsement is
The remaining benefit under this endorsement for costs incurred for the policy year is
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 04 16) 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.
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
Leakage from fire extinguishing equipment
Weight of snow, ice, or sleet
Further, the FP 00 90 09 03 policy states that the 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, that payment responsibility is on the insured.
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 04 16) (the FL 00 20, 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 04 16) or the Limited Farm Pollution Liability Extension Endorsement (FL 04 30 09 03). They are not both to be used together; it is one or the other.
FL 04 30 09 03
The Limited Farm Pollution Liability Extension Coverage (FL 04 30), replaces in its entirety the pollution exclusion language (exclusion c. Pollution) in the FL 00 20. Either a limit of liability is shown on the endorsement or on the insured's declarations page. The limit shown is an aggregate limit that applies to bodily injury (BI) and/or property damage (PD) "arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants.'" It is the most that will be paid under the BI/PD portion of the contract, including medical payments (if any) regardless of the number of "insured's" claims or "suits."
It states that the insurance does not apply to pollution that causes BI or PD "arising '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 if the "premises, site or location … was at any time used by or for any "insured" or others for the handling, storage, disposal, processing, or treatment of waste."
Endorsement FP 04 30, in my experience, is the lesser used of the two.
FL 01 63 04 16 (and More Pollution Exclusion Language)
The Amendatory Endorsement (FL 01 63 04 16) 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.'" Those are both very limited coverage provisions.
It is at this point (c. Pollution exclusion, item (1) (a) (iii)) that the FL 01 63 takes part and adds coverage for BI or PD that is "caused by heat, smoke, or fumes" from 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 and usual agricultural practices and is not set in violation of a law or ordinance.
The FL 00 20's exclusionary language then continues with items (b), (c), (d) and (e).
(b) Says the insured has no coverage for "pollutants" from "any premises, site, or location which is or was used by any "insured" or others for the handling, storage, disposal, processing or treatment of waste.
(c) States that there is no coverage for "pollutants" "which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any 'insured' or any person or organization for which an insured may be legally responsible."
(d) Takes things further by precluding coverage from "any premises, site or location on which any 'insured' or any contractors or subcontractors working directly or indirectly on any 'insured's' behalf if the 'pollutants' are brought on or to the premises, site or location in connection with such operations by such 'insured' contractor or subcontractor."
It then gives back a modicum of coverage (three separate statements of such by saying that it (d) does not apply).
To BI or PD coming out of the escape of fuels, lubricants, or other operating fluids that are needed for the operation and performance of "mobile equipment" if they escape from the part of the "mobile equipment" intended to hold, store, or receive them. Intentional release of said items is not covered.
The exclusion (d) does not apply to BI or PD sustained within a building that is caused by the release of gases, fumes, or vapors from materials brought into that building in connection with operations being performed by the insured on the insured's behalf by a contractor or subcontractor.
Finally, (d) does not apply to BI or PD arising out of heat, smoke, or fumes from a "hostile fire." (Defined as "one which becomes uncontrollable or breaks out from where it was intended to be.")
(e) Excludes coverage at or from any site, location, or premises on which any "insured" or contractors or subcontractors of such working directly or indirectly on the insured's behalf are performing operations that are to test for, monitor, clean up, remove contain, treat, detoxify, or neutralize or in any way respond to or assess the effects of "pollutants."
But wait … there's more!
The pollution exclusion item (2) then further tells us that "any loss, cost or expense" arising out of any of the following is not covered!
Request, demand, order, or statutory or regulatory requirement that the insured or others—in any way, shape, or form—test for, monitor, clean up, remove, contain, treat, detoxify, or neutralize or in any way respond to or assess the effects of "pollutants," or
Claim or suit by or on behalf of a governmental authority for damages because of their needing to test for, clean up, monitor, remove, contain, treat, detoxify, or neutralize or in any way respond to effects of "pollutants"
Chemical Drift Liability and the FL 01 63 04 16
As many farm/ag risks apply a variety of chemicals (both synthetic and naturally occurring) 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.
The "discharge, release or escape into the air" needs to occur from an "insured location," cannot occur from an aircraft of any sort, and the chemicals, liquids, or gases must be used in normal and usual agricultural operations.
Coverage under the endorsement will not apply for the following.
The application of the products was in violation of an ordinance or law
The damage was expected or intended from the standpoint of the insured
Obligations assumed by an insured in a contract or agreement—unless, of course, it was an "insured contract" or the insured would have had liability in the absence of an agreement
An aggregate limit of $25,000 applies unless otherwise endorsed. This aggregate limit applies separately to each consecutive annual period and to any remaining period of less than 12 months. Many insurers will allow an insured to purchase up to $1 million for the chemical drift liability, and it is highly recommended that this limit of coverage be provided.
But What about 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 and regularly accepted practice. When insureds contract for the application of products for them by a "crop dusting, seeding, spraying, or fertilizing operations or service"—as long as the operation 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. The endorsement that provides coverage is very clear in this requirement.
This coverage is provided by the endorsement 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) (FL 04 44 04 16). 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" but only if the insured is legally obligated to pay.
There are seven exclusions that apply. They are the following.
Injury to crops or animals arising out of operations that are the following.
Performed by an unlicensed or improperly licensed contractor
Performed at a time or place prohibited by federal, state, or local authority
Operations involving the use of a substance prohibited by federal, state, or local authority
Occurrences in which the aircraft is the following.
Operated by any "insured" or employee of any "insured"
Owned by any "insured" or employee of any "insured"
Rented, leased, or loaned to any "insured" or employee of any "insured"
Injury to crops or animals that was expected or intended from the standpoint of the "insured"
Physical injury to crops or animals caused by the crash of the aircraft or by fire or spillage or leakage of fuel following a crash
Any loss cost or expense for the following.
Arising out of requests, demands, orders, or statutory or regulatory requirements that any "insured" or others test for, monitor, clean up, remove, contain, treat, detoxify, or neutralize or in any way respond to or assess the effects of "pollutants," or
Arising out of claims or "suits" brought by or on behalf of a governmental authority for the items as shown in the preceding paragraph
Physical injury to crops or animals for which the "insured" is obligated to pay for damages by reason of assumption of liability in a contract or agreement. This does not apply to the following.
Liability assumed in a contract or agreement that is an "insured contract" as long as the physical injury occurs after the execution of said contract, or
Liability that the insured would have enjoyed in the absence of such an agreement or contract
Physical injury to crops or animals the insured owns, rents, or borrows.
So, What's My Point, You Ask?
Simply put, are you aware of the limitations of the contracts your insureds are buying from you and the insurers that you represent? Do you realize how minimal the pollution coverage provided via an ISO farm 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?
How often do you offer them a pollution policy, also known as an "environmental impairment liability" policy?
Please, don't let them learn the hard way!
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