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Dear Rebecca,
Recently there has been some
confusion about whether or not the RLI Personal Umbrella Liability
Policy covers Homeowners with small farms. Specifically, members AScKed for
clarification regarding question number 12 and a provision in the
exclusions section. The concern is that coverage may be easily denied
in many cases because of business use, i.e. farming.
12. How many acres of timberland and/or land that is
farmed, for which the liability coverage is provided by a Howmeowners,
Farmowners or Farm Comprehensive Personal Liability Policy do you or
any member of your household own or lease (including partial
ownership)? (Max. of 1280).
"Policy Provision PUP 320 (04/10) - Part IV - What
is Not Covered - Exclusions: This policy does not provide coverage for:
A. Injury caused by, resulting from, arising out of or in any way
connected with Business Pursuits or Business Property, unless arising
from an Insured Location and unless the Injury is covered by a valid
and collectible Basic Policy for the full Minimum Limits of Coverage
listed in the Declarations. However, this exclusion does not
apply to Injury arising from activities occurring on a farm or ranch
which are personal rather than Business in nature."
The first thing to remember is that
there is not one single answer that will cover all insureds, because
each situation is different, and the BASIC policy comes into play. The
RLI policy form definition reads:
Basic Policy or Policies means a policy or policies
listed in the Declarations (including renewals, temporary replacements
for non-owned Automobiles, or endorsements) which provides primary
liability coverage. A Basic Policy does not include a commercial or business
general liability policy or other non-personal premises liability
policy.
Moreover, question 2 on the
application explains residential properties that should not be included
in this policy:
2. How many residential properties are owned or rented by
you or any member of your household? 1-4 family units are eligible and
should be counted as one property. Do not include residential
properties that are covered under a Commercial General Liability Policy
or other non-personal Premises Liability Policy since they are excluded
from coverage.
If there are farm employees and
farm equipment then there is likely not the coverage the insured needs
as the Business pursuit exclusion would be enforced. For example,
if the homeowner has an 'employee' (paid non family member) who is
injured then RLI would see that as business pursuits.
There are many examples that can be
laid out with many variables, including the use of 1 acre to 1,280
acres on which the farming is conducted by the insured or someone else.
Even land that is tied into the Conservation Reserve Program (CRP),
where income is produced, would be excluded because income has been
derived.
When writing this policy it is
important to keep in mind that RLI's intent is to insure a personal
home, cars, and land, not business.In other words, the policy may
provide coverage for a gentleman farm, i.e. tomatoes in the backyard;
however, if there are working farm operations RLI's policy would not
provide sufficient coverage. Therefore, it is crucial that the agent and the insured
verify any potential business pursuits beforehand.
A follow-up article will be printed
in the May/June issue of KIA&B. If you have any questions, contact asck@kaia.com.
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