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WHEATON, Ill., Sept. 22, 2004--Two insurance
organizations have collaborated to develop standardized endorsements for
adding equipment breakdown coverage to farmowners policies.
The American Association of Insurance Services
(AAIS) is filing endorsements under its Farmowners
and Farm Properties Programs
that will allow insurers to cover physical damage and income losses due
to breakdown of equipment. AAIS is a national advisory organization that
develops policy forms and rating information used by more than 600
property/casualty insurers throughout the U.S.
The new coverage option was developed in conjunction with
The Hartford Steam Boiler Inspection and Insurance Company (HSB), a
premier reinsurer of equipment breakdown exposures. Use of the option is not restricted exclusively to
business reinsured by HSB, however.
As is customary for equipment breakdown coverage,
the AAIS endorsements provide coverage for damage to property caused by
an "accident" to machinery or equipment. "Accidents"
are defined to include, among other things, explosion of steam boilers,
rupturing of moving parts, and arcing or electrical currents (other than
lightning).
The endorsements, which have a proposed effective
date of Jan. 1, 2005, provide coverage under farm building or personal
property limits for losses to some common types of farm property,
including pumps and motors, as well as equipment that generates,
transmits, or utilizes electricity. The endorsements provide that the
insurer will pay additional costs (up to a specified percentage) to
replace damaged equipment with equipment that is safer, more efficient,
or better for the environment.
The endorsements also provide incidental coverages
under separate sublimits for physical losses due to spoilage of
perishable items, contamination by refrigerants, and utility
interruption, as well as for added costs needed to expedite repairs,
remove pollutants, and restore lost data.
Live animals and growing crops, and accidents to
farm mobile equipment, are not covered under the new equipment breakdown
option, however. Livestock and crops are typically insured
separately, and equipment breakdown in farm mobile equipment is
considered a matter for maintenance agreements and warranties.
Like farm insurance in general, the new AAIS
endorsements address a combination of personal and commercial exposures
by providing coverage for accidents to computers, related equipment, and
specified software and media that are located in the dwelling but used,
even partially, for the farm operation.
"Equipment breakdown exposures have evolved for
farming operations," says Deborah Summerlin, AAIS vice president of
insurance lines. "The use of computer-controlled equipment is now
common and information technology is playing an important role in
production."
"Just about every farm relies on some type of
pump, and electrical equipment is critical to farm operations,"
adds Mark MacGougan, HSB assistant vice president for product
development. "And, when things are computer-controlled and have
elements of high technology, it's less likely a farmer can fix something
using his own tools."
For information on the AAIS Farmowners Program,
contact Rick Maka at rickm@AAISonline.com
or by calling 800/564-AAIS, ext. 222.
To contact HSB regarding equipment breakdown
coverage in agriculture, contact Paul Henault, vice president, at paul_henault@hsb.com
or by calling 800/243-5882, ext. 5254.
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