1. Forms
2. FP
3. FP-12-11

What the form is

The FP 12 11 Loss Payable Provisions endorsement is an essential part of a farm insurance policy when a third party, such as a lender or lienholder, has a financial stake in the insured property. Its primary purpose is to clearly define these third parties (loss payees) and specify their respective interests. The form outlines the procedures for how claim payments will be made to these loss payees in conjunction with, or sometimes in precedence to, the named insured if a covered loss occurs. It ensures that the interests of creditors are protected according to the terms of the policy and the specific provision selected on the endorsement.

Classes of business it applies to

This endorsement is specifically designed for use with farm and agricultural insurance policies. It applies whenever farm property, whether real property like dwellings and barns, or personal property like machinery, equipment, and livestock, has a lien or loan against it.

• Example 1: A farmer finances a new tractor. The bank providing the loan would be listed as a loss payee on this endorsement for the policy covering the tractor (e.g., using FP 00 30 Mobile Agricultural Machinery And Equipment Coverage Form). If the tractor is damaged by a covered peril, the claim payment would be made considering the bank's outstanding loan amount.
• Example 2: A farm has a mortgage on its main dwelling (covered under FP 00 12). The mortgage lender would be named as a loss payee to protect their financial interest in the dwelling.
• Example 3: Livestock (covered under FP 00 40) purchased via a loan may require the lender to be named as a loss payee.

Special considerations

The FP 12 11 endorsement typically offers several types of loss payable provisions, and the correct one must be selected based on the nature of the loss payee's interest:

• Loss Payable: Under this provision, the loss payment is generally made jointly to the named insured and the loss payee, as their interests may appear at the time of loss.
• Lender's Loss Payable: This provision offers stronger protection to a lender. The lender's right to receive payment is often protected even if the insured does something that would normally void coverage (like a breach of policy conditions). This is used when a standard mortgage clause isn't applicable and the lender's interest is documented (e.g., by warehouse receipts).
• Contract of Sale: This is used when property is in the process of being sold, and both the seller and buyer have an insurable interest in the property.

It is crucial to accurately list the full legal name of the loss payee and describe their specific interest in the scheduled property. Failure to do so can lead to complications during a claim settlement.

Key information for agents and underwriters

• Agents: Agents must diligently identify all parties with a financial interest in the insured farm property. This includes asking clients about loans, liens, or mortgages on dwellings, structures, machinery, equipment, or livestock. Properly completing and attaching the FP 12 11 is critical to avoid errors and omissions (E&O) exposure. Agents should explain the implications of the selected loss payable provision to the insured.
• Underwriters: Underwriters need to assess the nature and extent of the loss payee's interest. The presence of multiple loss payees or complex financial arrangements might warrant closer scrutiny. While this endorsement itself typically does not have a direct premium charge , the overall risk profile of the insured property and the obligations to loss payees are part of the underwriting consideration. They should ensure the underlying coverage forms (e.g., FP 00 12, FP 00 13, FP 00 14, FP 00 30, FP 00 40) are appropriate for the property in question.
• The endorsement clarifies that the insurance company will notify the loss payee if the policy is canceled or non-renewed, providing a certain notice period.