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Agricultural Equipment Breakdown

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Agricultural Equipment BreakdownSponsored By:

Hartford Steam Boiler and Inspection Company

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DisclaimerInsurance forms and endorsements vary based on insurance

company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional

materials provided by Insight is intended as a general guideline and any interpretations provided by the

instructor or the creator(s) of this material do not modify or revise insurance policy language. In providing these

materials, the authors assume neither liability nor responsibility to any person or business with respect to

any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided.

Copyright 2010 – 2013 All Rights Reservedwww.insurancecommunitycenter.com

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http://www.insurancecommunitycenter.com/


Your Instructor Today

Laurie Infantino, CIC, AFIS, CISC, ACSR, CISC, CRISPresident and Co-Founder of

The Insurance Community Center


Agricultural Equipment Breakdown

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What this class will coverEquipment Breakdown Insurance is essential for most business risk including the Agricultural Industry. This course will cover such issues as:1. Understanding the limitations in the

Commercial Property Form that require the addition of Equipment Breakdown Insurance

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What this class will cover2. Why Equipment Breakdown is

necessary for the Agricultural Risk and methods of writing Equipment Breakdown

3. Review of Agricultural Equipment Breakdown Form(s)

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#1--Understanding the limitations in the Commercial Property Form that require the addition of Equipment Breakdown Insurance

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Background Previously Boiler & Machinery Currently referred to Equipment Breakdown

which is a much more generic and all encompassing term

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Polling Question #1

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Air Conditioning Unit

• Your insured has an air conditioning unit on the top of their processing building that malfunctioned causing damage to the unit and resultant power loss that resulted in a business income claim. How is this loss covered?

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Why is Equipment Breakdown Coverage Necessary (MES)

• It is all about the “perils” that cause the loss

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Electrical

MechanicalDirect

Damage Spoilage

Boilers

Business Income


Also Excluded (S)Spoilage (Not Specifically Excluded• Dampness or dryness of atmosphere• Changes in temperature or extremes of

heat or cold, including freezing– Example - Dairies or Refrigerated

lockers particular have very large refrigeration systems that are often ammonia based. If the system malfunctions; ammonia could leak with the result of spoilage and ammonia contamination—the loss would NOT be covered on the property form. This would be covered on an EB Form with Spoilage.

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http://www.btinternet.com/~fireballxl5/food/fruitveg/pics/cherrytomato0752.jpg


Polling Question #2

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Loss of Farm Medication and Vaccines• The insured had a power outage that

lasted 8 hours due to excessive heat and lack of generating capacity. All of the refrigerated farm medications were destroyed for a replacement value of $10,000. How would this loss be covered?

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Property vs EB Considerations

• There are some important considerations as to whether to write certain coverages on EB or on a different form:– Spoilage (in the Property Series)– Computers (Inland Marine)

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Spoilage

• A VERY important coverage for the agricultural risk– Spoilage to Product– Spoilage to Medicines– Spoilage to Semen

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Definition (Spoilage)

"Perishable stock" means personal property: (IMPORTANT DEFINITION)

a. Maintained under controlled conditions for its preservation; and b. Susceptible to loss or damage if the controlled conditions change

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Definition CP & EB

• “Stock” means merchandise held in storage or for sale, raw materials, property in process or finished products including supplies used in their packing or shipping.

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Insurance Community University www.InsuranceCommunityUniversity.com29

• EB Spoilage • Breakdown/Accident• On Premises (can extend)• RC/Selling Price• Sub-limited on Dec Page

•Spoilage on Property Insurance•Perils Beyond your Control•On or Off the Premises•Selling Price•Full Limit


EDP

• Property• Equipment Breakdown• EDP

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Property Form

ONLY Property Perils

No or Limited Data

Equipment Breakdown

Requires Breakdown

Perils Limitation

Limited data coverage

EDP Inland Marine

Broadest Peril Definition

Broadest Property

Definition Includes data


Objective #2Why Equipment Breakdown is necessary for the Agricultural Risk and methods of writing Equipment Breakdown

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Equipment Breakdown and the Farm Risk• Equipment is essential to keep farms

producing and INCOME earned• Most equipment now contains highly

sensitive technology that can easily be damaged by a power surge or other cause

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Equipment Breakdown and the Farm Risk• Replacement cost of equipment can be

costly• Equipment may become obsolete and

cost to replace may be prohibitive• Repair costs of equipment increases—

level of expertise required may not be readily available

• Increased exposure to lengthy closures resulting in a loss of income

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Emerging Coverage Issues

• Toxic Mold caused by damage to covered equipment: Example: a machine that controls atmospheric temperature and humidity controls failed causing mold

• Terrorism (Agro-Terrorism)

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Polling Question #3

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Horse Ranch

• Your insured lives on a ranch and raises horses and does some breeding. In his home he has installed extra refrigerators to store the medicines and supplements for the horses. Can he get equipment breakdown insurance on his home that would cover any loss to the refrigerator and contents.

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Every type of risk has their own unique exposures

• Home• Farm• Ranch• Crop

• Cattle• Dairy• Hogs • Poultry

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EB and HOME Risk

• Many farm operations have their “home” on the farm property

• Written on a Farm Property Form (Similar to a Homeowners Policy)

• Homeowners Policy (Farm Property) do not have coverage for equipment breakdown

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EB and HOME Risk

• Equipment that provides heating, cooling and electricity .

• More sophisticated and complex, breakdowns are more costly.

• Many hobby farms or smaller farms may store medicine, semen or other perishable property on their premises.

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Important Questions for the Farm Operation. What if……• …The main circuit breaker failed

and there was no electricity to the farm

• …The refrigeration system failed due to mechanical breakdown and expensive medications were spoiled

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Important Questions for the Farm Operation. What if……• …a power surge damaged the electrical

equipment and computers and shorted out a grain dryer or ventilating fan. Could you:– Continue your operation– Replace the wet grain in process or storage

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Do You?

• …Have enough value on your equipment such as your milking carousels, grain handling equipment, pivot irrigation

• …Have a method of utilizing other equipment if yours is damaged

• …Have a budget in place for repair and replacement of equipment

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Examples of Farm Equipment

• Electrical distribution systems • Boilers and pressure vessels • Healing and cooling systems • Refrigeration systems • Deep well pumps and motors

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• Pivot irrigation equipment • Emergency generators • Grain dryers • Milking machines

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• Ventilation fans • Mechanized feed, waste and egg

handling equipment • GPS Equipment• Refrigerated Vessels—Cold Storage• Vessels for nitrogen used to prevent

aging

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• Computers/Computerized Equipment• Cow Identification Systems• Electronic Timers and Clock• Controllers (example ventilation fans)

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Polling Question #4

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How to write EB

• How is Equipment Breakdown Coverage written?

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Ways to write Equipment Breakdown

•With the same carrier as the Property company (Farm Property Company

Coverage PART

•Adding EB coverages by endorsement to the Commercial Property (Farm Property)•Eliminating the major exclusions under the property form

Endorsement

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Ways to write Equipment Breakdown

•With the same carrier as the property (Farm Property)

Written as a Separate

Policy

•With a different carrier

Written as a Separate

Policy

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Objective #3Review of Agricultural

Equipment Breakdown Form(s)

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The BASIC Intent of all the forms is the same


Polling Question #5

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Off Premises• There was a truck off premises that ran

into a main power poll. The electricity was off for a full day and the insured was not able to operate their machinery. They suffered a loss to product in process as a result of no electricity. How would this loss be covered?

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Breakdown to Covered EquipmentTrigger

Damage to Equipment

Damage to Property

Damage to Property of others

Business Income Spoilage Off Premises

OTHER COVERAGES

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Commercial Property Off Premises

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Truck ran into power polls

Wind is a “Cause of Loss” on a Commercial Property Form. Covered on Utility Interruption Endorsement to a CPP

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Equipment Breakdown Off Premises

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Transformer Overloads causing damage

Covered on Utility Interruption on an Equipment Breakdown Form


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Polling Question #6

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Writing Coverage

• In general which approach provides the broadest coverage for Equipment Breakdown?

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Why Equipment Breakdown Is Written• Mechanical, Electrical or Steam

Equipment on Premises• Inspection Service - the insured also has

the advantage of using an inspection service provided for certain types of equipment that can assist in preventing serious losses. Typically an insurance company will provide this service as part of the premium charged.


Inspections

• The various state and municipalities are principally responsible for the inspections and maintenance of the log for boilers and unfired pressure vessels that are subject to inspection by the state jurisdiction.

• In most jurisdictions, insurance company inspections are acceptable in lieu of inspections made by a state inspector.


Form SeriesAAIS

• Farm Form– Named Perils

• Not Named– Optional Perils

• Not Named

– AAIS AgOP• Open Perils• Excluded

ISO Three Form Options

• Basic Form– Not named

• Broad Form– Not Named

• Special Form– Excluded

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Policies in Review

• AAIS• ISO• Equipment Breakdown Protection

– FP 0660 10 06• Equipment Breakdown Protection

Coverage Form– EB 00 10 01 13

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AAIS• Equipment Breakdown FO 04 20

– Added when writing the AAIS Farm Property Form

– Begins with Definitions– “We” insure against direct physical damage

to covered property that is the direct result of an “accident”.

• Equipment Breakdown AG 0130– Added when the AgOP is written

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AAIS Format• Agreement• Definitions• Property Not Covered• Incidental Property Coverages

– Expediting Expense– Spoilage– Computers in the Dwelling– Data Restoration– Utility Service Interruption

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AAIS Format• Farm Income• Perils• General Exclusions• How much we pay for loss or claim• Other Equipment Breakdown Conditions

– Suspension– Environmental, Safety and Efficiency

Improvements– Coinsurance

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ISO

Equipment Breakdown Protection Coverage FP 06 60 10 06

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Equipment Breakdown Protection• An “Endorsement” to the

– Cause of Loss Farm Property– Farm Property—Barns, Outbuildings and

Other Farm Structures Coverage Form– Farm Property—Farm Personal Property

Coverage Form– Farm Property—Other Farm Provisions

Form—Additional Coverages, Conditions, Definitions

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Limited Coverages ProvidedEquipment Breakdown Protection Limit Of Insurance:

$

Spoilage Damage Limit Of Insurance:

$

Utility Interruption Is: Covered Not Covered

Utility Interruption Waiting Period:

Equipment Breakdown Protection/Spoilage Damage Deductible:

$

(If no amount is shown, the Deductible shown in the Declarations will apply.)

Information required to complete this Schedule, if not shown above, will be shown in the Declarations.

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Coverage

A. Equipment Breakdown ProtectionWe will pay up to the Equipment Breakdown Protection Limit Of Insurance shown in the Schedule for the direct physical loss of or damage to Covered Property caused by or resulting from a "breakdown" to "covered equipment".

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Coverage

B. (1) Spoilage Damage/Contamination Resulting From A Breakdown At An Insured Location

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Coverage

B. (2) Spoilage Damage Resulting From A Utility Interruption

– The interruption is the direct result of a "breakdown" to "covered equipment" owned, operated or controlled by the local private or public utility distributor that directly generates, transmits, distributes or provides utility services which you receive

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Coverage

C. Farming Operations Income And/Or Extra Expense

1. As a result of a "breakdown" to "covered equipment" we will pay

2. If "media" is damaged or "data" is lost or corrupted, we will pay the lesser of your actual loss of "farming operations income" and/or "extra expense" up to 30 days after the "period of restoration" or $25,000

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Coverage

3. The most we will pay for any one Farming Operations Income And/Or Extra Expense loss is an amount equal to 25% of the Equipment Breakdown Protection Limit of Insurance. The limit for Farming Operations Income And/Or Extra Expense is in addition to the Equipment Breakdown Protection Limit of Insurance.

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“Covered Equipment”

(1) Equipment built to operate under internal pressure or vacuum other than weight of contents;(2) Electrical or mechanical equipment that is used in the generation, transmission or utilization of energy; (3) Communication equipment, and "computer equipment"; and(4) Equipment in Paragraphs (1), (2) and (3) that is owned by a public or private utility and used solely to supply utility services to your location

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ISO

Equipment Breakdown Protection Coverage Form

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Policy Overview

• It is its own form and not simply an endorsement to a property form

• These are activated by inserting a limit, number of days, or the word “INCLUDED” on the Declarations Page.


“Breakdown”

• Means the following direct physical loss, that causes damage to "Covered Equipment" and necessitates its repair or replacement:

• NOTE: Used to say “sudden and accidental”.

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“Breakdown”

(1)Failure of pressure or vacuum equipment;(2)Mechanical failure including rupture or bursting caused by centrifugal force; or(3)Electrical failure including arcing;unless such loss or damage is otherwise excluded within this Coverage Form

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“Breakdown” Exclusions Examples• Malfunction—Calibration, etc• Defects, erasures, errors, limitations or

viruses in computer equipment and programs

• Leakage at any valve, fitting, shaft seal, gland packing, joint or connection

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Equipment built to operate under internal pressure or vacuum other than weight of contents;(2)Electrical or mechanical equipment that is used in the generation, transmission or utilization of energy;(3) Communication equipment, and "Computer Equipment"; and

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(4) Equipment in Paragraphs (1), (2) and (3) that is owned by a public or private

utility and used solely to supply utility services to your premises. CAUTION: there is always a HOWEVER after these paragraphs that lists what they do NOT intend to cover.

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“Covered Property”

a. You own; orb. Is in your care, custody or control

and for which you are legally liable.

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Coverages Available IF on Dec or says INCLUDEDa. Property Damageb. Expediting Expensesc. Business Income and Extra Expense OR

Extra Expense Onlyd. Spoilage Damagee. Utility Interruptionf. Newly Acquired Premises

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Coverages Available IF on Dec or says INCLUDEDg. Ordinance Or Law Coverageh. Errors And Omissionsi. Brands And Labelsj. Contingent Business Income And Extra

Expense Or Extra Expense Only Coverage

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Equipment Breakdown ProtectionBuilt in Coverages

Errors and Omissionsa. Protects the insured for an oversight on

premises that should have been insured in the policy

b. Does not extend to errors or unintentional omissions committed by insured in the reporting of values or requesting coverage


Equipment Breakdown ProtectionBuilt in Coverages

Brand and Labelsa. Extends property damage coverage to

allow insured to stamp the word SALVAGE on or remove the label from damaged merchandise at the insurer’s expense

b. Not to exceed the limit of insurance on such property


Exclusions

• Ordinance Or Law• Earth Movement• Water• Nuclear Hazard• War or Military Action

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Exclusions

• Fungus, wet Rot and Dry Rot• Any virus, bacterium or other

microorganism that induces or is capable of inducing physical distress, illness or disease– NOTE: Some states have forms for this

coverage– Some limited coverage is provided

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Exclusions

• Depletion, deterioration, corrosion, erosion, or wear and tear. However, if a "Breakdown" occurs, we will pay the resulting loss or damage

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Polling Question #7

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Ammonia Leaked

• Your insured packages ice cream and there is an ammonia leakage from the refrigeration piping. All of the ice cream is destroyed. Is there automatic coverage on the ISO Equipment Breakdown Protection Coverage Form?

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Equipment Breakdown Sub-Limits ($25,000)

Ammonia Contamination

Hazardous Substance

ConsequentialData & Media

Water damage

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Valuationa. Replacement Cost in most casesb. Up to an additional 25% of the property

damage loss to “Covered Property” for repairing equipment in a manner that does not harm the environment, increases its efficiency or enhances its safety


Valuation

c. Provides for the loss in value of an extended warranty

d.“Covered Property” may be valued at its selling price

e.“Data” and “Media” have limitation on replacement and valuation


Valuation

• Underwriters often restrict coverage on older boilers and machines. Some firms agree to exclude certain kinds of equipment or insure at ACV and/or have high deductibles on categories.

• Actual Cash Value Endorsement


Deductibles

• Dollar Deductible• Time Deductible• Percentage of Loss

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