1. Forms
2. AG
3. AG-04-07

Form AG 04 07 - Spoilage Coverage (Agricultural Capital Assets Output Policy)

1. What the form is

The AG 04 07 Spoilage Coverage endorsement is designed for agricultural businesses to protect against financial losses due to the spoilage of perishable property. This includes the named insured's own perishable goods as well as similar property belonging to others that is in the insured's care, custody, or control. The core function of this endorsement is to provide coverage for loss or damage resulting from specific perils such as breakdown or mechanical failure of refrigeration or cooling equipment, contamination (e.g., by a refrigerant), and power interruption. The specific limit of insurance, applicable deductible, and the precise causes of loss covered are detailed in the endorsement schedule.

2. Classes of business it applies to

This endorsement is crucial for a variety of agricultural enterprises that handle or store perishable goods which are susceptible to spoilage if temperature or controlled atmospheric conditions change. Real-world examples include:

• Dairy Farms: Protecting milk, cheese, and other dairy products that require constant refrigeration.
• Fruit and Vegetable Growers/Packers/Shippers: Covering harvested produce stored in cold storage facilities prior to sale or transport.
• Cold Storage Warehouses: Businesses that store perishable agricultural products for other entities.
• Wineries: Protecting grapes or wine during fermentation and storage processes that require temperature control.
• Commercial Growers of Specialty Crops: Such as floriculture or other temperature-sensitive plants.
• Meat and Poultry Processors: Ensuring that processed products remain at safe temperatures.
• Aquaculture Farms: For harvested fish or seafood requiring refrigeration.

3. Special considerations

Several important factors must be considered when utilizing the AG 04 07 endorsement:

• Scheduled Coverage: The endorsement schedule is paramount. It specifies the exact limit of insurance for spoilage, the deductible amount that applies to a spoilage loss, and which specific causes of loss (e.g., breakdown/contamination, power outage) are covered.
• Refrigeration Maintenance Contract: The schedule will indicate if coverage is contingent upon the insured having a refrigeration maintenance contract in place with a service provider. Failure to maintain such a contract, if required, could jeopardize coverage. These contracts typically involve regular inspection, servicing, and repair of refrigeration equipment.
• Refrigeration Back-Up System Warranty: Similarly, the schedule may note if coverage is subject to a warranty that a refrigeration back-up system (e.g., a generator) is maintained and operational. This is critical for mitigating risks from power outages.
• Covered Causes of Loss Specificity: "Breakdown or Contamination" typically refers to temperature/humidity changes from mechanical failure of cooling equipment or contamination by a refrigerant. "Power Outage" refers to temperature/humidity changes from an interruption of electrical power beyond the insured's control.
• Exclusions: Common exclusions can include spoilage due to the intentional disconnection of refrigeration systems, deactivation of power by manipulating switches (unless accidental), or inability of a utility to provide sufficient power due to lack of fuel or governmental order. Poor maintenance or normal wear and tear might also be excluded if not directly leading to a covered breakdown.
• Property Not Covered: The endorsement may specify that property located in the open, on buildings (e.g. rooftop units themselves, as opposed to the contents they cool), or in vehicles is not covered under this specific spoilage protection.

Real-world example: A dairy farm has AG 04 07 coverage. A severe storm causes a widespread power outage lasting two days. Their backup generator, required by their refrigeration back-up system warranty noted on the schedule, fails to start due to a lack of maintenance. The resulting spoilage of their milk might not be covered if the warranty conditions were breached. However, if the generator was properly maintained and failed due to a sudden mechanical issue, the loss would likely be covered under "Power Outage," assuming it was a scheduled cause of loss.

4. Key information for agents and underwriters

• Risk Assessment:
  • Thoroughly evaluate the type and value of perishable stock. Highly susceptible or high-value goods may require higher limits and more stringent underwriting.
  • Assess the age, condition, and maintenance schedule of refrigeration and cooling equipment. Request copies of any refrigeration maintenance contracts.
  • Inquire about and verify the existence and operational status of backup power systems (generators). Consider their capacity and fuel source.
  • Review the insured's loss history related to spoilage.
  • Understand the power reliability in the insured's geographic area.
• Pricing and Limits:
  • The limit of insurance should accurately reflect the maximum potential spoilage loss. This may fluctuate seasonally for some agricultural businesses (consider peak season endorsements if available or appropriate limits).
  • Deductibles should be set at a level appropriate for the insured's risk tolerance and financial capacity. The AG 04 07 will have its own deductible, which applies specifically to spoilage losses.
  • The presence and quality of maintenance contracts and backup systems can positively influence underwriting decisions and potentially pricing.
• Coverage Gaps:
  • Standard property policies often exclude or severely limit coverage for spoilage. The AG 04 07 is specifically designed to fill this critical gap for agricultural businesses.
  • Be clear about what constitutes a "breakdown" versus normal wear and tear. Equipment breakdown coverage (which may be separate or included elsewhere in the output policy) might interact with this endorsement.
  • Contamination coverage under this endorsement is typically tied to refrigerant leakage or similar direct contamination events, not necessarily broader product contamination or recall events, which may require separate, specialized coverage.
• Underwriting Guidelines:
  • Confirm that the "Agricultural Capital Assets (Output Policy)" is the appropriate underlying policy for the insured's operations.
  • Ensure the endorsement schedule is accurately completed, clearly indicating if a refrigeration maintenance agreement is in place and if coverage is subject to a refrigeration back-up system warranty.
  • Document the specifics of any maintenance agreements or backup systems.
  • Educate the insured on their duties in the event of a loss, including protecting property from further damage and providing necessary documentation.