The Original Family Business

By | February 18, 2019

Why family farms dance between the line of personal and commercial coverage

Nowhere is insurance more complicated than when you mix two exposures that don’t “traditionally” go together, like business and personal exposures.

The original family business is the family farm. This is the ultimate in mixing business and personal exposures. The family lives on the land that they work. The house isn’t just a house, it’s a farmhouse. The truck that takes the family from the house out to the field to plant or pick is the same truck that drives them to town to shop.

Special Policies

Farms need special insurance policies to cover all exposures. An ISO HO-3 won’t handle it. Besides that, when you tell the homeowners’ carrier that the house is on a working farm, they’ll tell you that it is uninsurable in their homeowners’ program. When you hear that, the next word that anyone says will be, “Why?” In this case, why is a simple question to answer.

  • Farms have more buildings than an ISO (or ISO- derived) HO-3 anticipates. Remember that an ISO HO-3 covers a dwelling (the house) and other structures, the limit for other structures is always a function of the dwelling limit. With all of the buildings and structures on a typical farm, the HO-3 Other Structures limit would be woefully low. Farms need special insurance policies to cover all exposures.
  • Farms have liability exposures that an ISO HO-3 doesn’t anticipate. The HO-3 anticipates that the insured will have a family living in the house, that there might be parties where guests come to the house, that there might be times when the family rents a pavilion at the park. It doesn’t anticipate large farm equipment that move around, doing farm work, and carrying with them the risks that are inherent with large mobile equipment.
  • Farms may have animals that the HO-3 doesn’t anticipate. Homeowners carriers think about dogs, cats, and snakes (and alligators in Florida). They don’t think about cows, horses, goats, chickens, and the clowder of cats that hang out in and around the barn.
  • Farms often have work shops that the HO-3 doesn’t anticipate. A home shop might have some power tools, maybe a table saw, or even a big band saw if someone is an aspiring woodworker. Farms have wood shops, metal shops, welding gear, and just about every lubricant a machine could want. You may not realize it butthe definition of farmer actually includes carpenter, vehicle mechanic, welder, crane operator, land management technician, water distribution expert and person who plants and tries to grow things.

Policy Review

In reading a farm policy, I came across this very interesting coverage (that couldn’t be written on a homeowners’ or personal auto policy). I’m reading from an AAIS FO-6. (Note: The copy of the form that I found is in use by a carrier but does have a copyright date of 1994 and is still being used.)

Coverage F – Scheduled Farm Personal Property

“We” cover the classes or items of farm personal property for which a “limit” is shown on the “declarations”. Coverage applies while property is on the “insured premises”.

Unless otherwise specified, coverage for property while away from the “insured premises” is limited to 10% of the applicable “limit” for such property. This does not increase the “limit”.

1. Described Machinery – “We” cover specifically scheduled items of mobile farm machinery and equipment for which a “limit” is shown on the “declarations”. The “limits” shown on the “declarations” apply to covered property while on or away from the “insured premises”.

There is already an interesting twist in this coverage. The form makes the blanket statement that unless specified, property off premises is limited to 10 percent of the applicable limit for that class of property. Then the next statement is that specifically described machinery does not fall under that limitation. Farmers can and will take their mobile equipment off premises. Sometimes, it’s because they have to transport from one parcel of land to another one that isn’t connected to the main farm lot.

Knowing that a farmer is also a mechanic, one might realize that they often try to keep their equipment working long after their effective life cycle. Haven’t you seen a tractor running down the road that looked like it rolled out of the Real McCoys?

That’s why there’s the next paragraph.

a. Replacement Items – “We” cover mobile farm machinery and equipment “you” acquire during the policy period to replace specific items that are scheduled on the “declarations”. “You” must provide “us” with a complete description of each replacement item and pay any additional premium within 30 days of acquisition. Any premium due will be charged from the date “you” acquire the property.

The most “we” will pay under this coverage is the smaller of the following:

  1. The “limit” shown on the “declarations” for the specific item replaced plus an additional amount up to $50,000 per occurrence; or
  2. The actual cash value of the item.

This coverage applies for 30 days after “you” acquire a replacement item or until “you” report it to “us”, whichever occurs first. This coverage does not extend past the end of the policy period.

If “you” do not report a replacement item to “us” within the 30-day period and pay the additional premium, the most that “we” will pay is the “limit” shown for the item replaced.

The ability to replace equipment without worrying about having a gap in insurance is a big deal for any business (or person for that matter). When the farmer finally decides that the 50-year old equipment just cannot be held together anymore, it’s a big decision to go out and buy newer equipment. This provision allows them to take their time to report that replacement equipment.

The policy recognizes that newer equipment may have a higher actual cash value (which this policy uses) so during the 30-day initial period, the policy allows for additional limit for this newer equipment. The problem only arises if the farmer neglects (forgets) to report the new equipment until after 30 days. Even if the newer equipment carries a higher actual cash value, the farmer will only receive the ACV of the old equipment. It then becomes critical that this be explained and explained again to the farmer because all busy business people forget things like this. The farmer just has longer office hours than most.

I’m not done reading the policy (of course, I’m reading the whole policy). When I am, I’m convinced already that it will dance between the areas of personal and commercial insurance, just like farmers have lived with a mix of family and family business for generations.

About Patrick Wraight

Patrick Wraight, CIC, CRM, AU, is director of Insurance Journal's Academy of Insurance. He can be reached at

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Insurance Journal West February 18, 2019
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