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3. AG-10-04

Form AG 10 04: Flood Coverage Endorsement

The AG 10 04 Flood Coverage endorsement is designed to add flood as a covered cause of loss to an Agricultural Capital Assets (Output Policy). This is significant because standard property policies, including those for agricultural risks, typically exclude damage from flood. This endorsement works in conjunction with the AG DS 03 Flood Coverage Schedule, which is a mandatory attachment used to specify the locations and applicable limits of insurance for the flood coverage.

Classes of Business

This endorsement is specifically for businesses eligible for an Agricultural Capital Assets (Output Policy). This can include a wide range of agricultural operations such as:

• Farms and ranches
• Wholesale and retail agricultural businesses
• Service and other businesses related to agriculture

Real-world example: A large commercial farm with multiple buildings (barns, silos, storage facilities) and significant investments in machinery and equipment could utilize this endorsement to protect these capital assets from flood damage. Similarly, a dairy farm could use this to cover its milking parlors and other structures.

Special Considerations

There are several important factors to consider when using the AG 10 04 endorsement:

• Mandatory Schedule: This endorsement is only effective when used with the AG DS 03 Flood Coverage Schedule. This schedule must detail the specific locations covered and the limits of insurance that apply to each.
• National Flood Insurance Program (NFIP): While this endorsement provides private flood insurance, it's important to understand its relationship with the NFIP. The NFIP is a federal program that provides the majority of flood policies in the U.S. In some cases, particularly for properties in high-risk flood zones with federally-backed mortgages, NFIP coverage may be mandatory. The AG 10 04 can provide coverage in addition to or in place of NFIP coverage, potentially offering higher limits or broader coverage terms for agricultural capital assets.
• Definition of Flood: It's crucial to understand the policy's definition of "flood," as this will determine when coverage applies. The NFIP definition, for example, refers to a general and temporary condition of partial or complete inundation of normally dry land areas from overflow of inland or tidal waters, unusual and rapid accumulation or runoff of surface waters, or mudflow.
• Exclusions: Standard flood insurance policies, including those through the NFIP, often have exclusions for things like growing crops, livestock (though some specialty policies may cover livestock mortality due to drowning), and certain types of equipment unless specifically scheduled. It is important to review the specific terms of the AG 10 04 and the main policy to understand what is and isn't covered.
• One Building Per Policy (NFIP): Under NFIP rules, generally only one building can be insured per policy. Agricultural operations with multiple structures may need multiple NFIP policies or may find a commercial policy like the Agricultural Capital Assets (Output Policy) with the AG 10 04 endorsement a more streamlined solution, provided it meets their coverage needs.

Real-world example: A farm located in a designated Special Flood Hazard Area (SFHA) might be required by its lender to carry NFIP flood insurance. The farm owner might also purchase an Agricultural Capital Assets (Output Policy) with the AG 10 04 endorsement to obtain higher limits for their expensive specialized equipment and outbuildings than what is available or affordable through the NFIP alone.

Key Information for Agents and Underwriters

• Risk Assessment: Underwriting flood coverage requires careful assessment of the property's location, elevation, proximity to flood sources, flood history, and any flood mitigation measures in place. Flood maps, such as FEMA's Flood Insurance Rate Maps (FIRMs), are key tools in this process.
• Pricing: Pricing will be influenced by the flood risk associated with the scheduled locations. Factors like the flood zone, building construction, elevation, and desired limits and deductibles will play a significant role. Communities participating in the NFIP's Community Rating System (CRS) may receive premium discounts on NFIP policies due to proactive floodplain management. While this endorsement is for a private policy, similar risk assessment principles apply.
• Coverage Gaps: Agents should be aware of potential coverage gaps. For instance, the AG 10 04 primarily addresses direct physical loss or damage to covered capital assets. It may not automatically cover losses like business income or extra expenses unless specifically added by other endorsements or included in the base policy. Growing crops are typically insured under separate federal crop insurance programs.
• Limits and Deductibles: The AG DS 03 schedule will specify the limits of insurance for flood coverage. Agents must ensure these limits are adequate to cover the value of the insured property. Deductibles for flood coverage can be substantial and should be clearly communicated to the insured.
• Interaction with Output Policy: The AG 10 04 is part of an "output policy" program, which aims to provide broader coverage and flexibility for medium to large agricultural accounts. Understanding how this endorsement interacts with the other terms and conditions of the AG 00 01 Agricultural Capital Assets (Output Policy) Coverage Form is essential. For example, the main policy may have provisions for debris removal or limited coverage for fungi, wet or dry rot resulting from a covered flood.

Real-world example: An underwriter evaluating an application for an Agricultural Capital Assets (Output Policy) with the AG 10 04 for a large grain storage facility located near a river would meticulously review flood maps, historical loss data for the area, the elevation of the buildings, and any flood barriers the insured has constructed. They would then determine appropriate premium and deductible levels based on this risk profile and the limits requested on the AG DS 03 schedule.