Farm Liability Issues

1. Farm Liability Issues Joseph S. Harrington, CPCU, director, corporate communications MICAI Farm and Rural Risk Conference Indianapolis March 10, 2004

2. Introduction • AAIS is a national advisory organization • Policy forms, manual rules, rating information • Used by 600+ companies • Filing, product development, other custom services • AAIS committed to ag insurance market • Path-breaking Farmowners Program • Farm Properties Program • First Farm Umbrella Program • Farm Personal Umbrella • Farm Commercial Umbrella with option to add personal umbrella • New Agricultural Output Program

3. Agenda • The segments of the farm market • Unique features of farm liability exposures • Developments in treatment of long-standing exposures • Developments in treatment of newly recognized exposures • Emerging exposures

4. “More Things to Fewer People” Sources: 1997 Economic Census, 1997 Census of Agriculture

5. “More Things to Fewer People,” cont. Source: 1997 Census of Agriculture

6. Farm Liability Exposures • Diverse range of personal and commercial exposures • Periodic exposure for pollution • Periodic exposure for workers comp, employers liability • Periodic exposure for random activities • Hay rides, apple picking, etc.

7. AAIS Cause of Loss Data, 1997-2001

8. Mold Limitations: The new standards • Limitation endorsements effective Jan. 1 • Generally exclude loss from “fungi, wet rot or dry rot, or bacteria” • Reinstate first-party coverage under sublimit • Collapse due to undetected decay covered to policy limits • Establish separate annual aggregate liability sublimit for BI/PD arising from “fungi . . . “

9. Mold Limitation Exceptions • Exceptions maintain coverage to full applicable limit • Exceptions to fungi limitation for • BI from fungi cultivated for human consumption • BI from bacteria that cause food poisoning • BI & PD from falls on slick, moldy surfaces • BI to covered farm employees

10. Applicable Limits for Mold Liability • FO GL-2, Farm Personal Liability • Annual aggregate mold sublimit • Does not extend to med pay (med pay not limited) • FO GL-610 Farm Commercial Liability • Mold annual aggregate subject to general and products/completed work annual aggregates • Mold annual aggregate extends to med pay • Home-Based Business Coverage Option • Extension of mold sublimit endorsed onto base policy • Subject to general and products/completed work annual aggregates

11. Vehicles: Emerging distinctions • “Motorized vehicles” • Self-propelled land or amphibious vehicles • Includes all vehicles except vehicles for handicapped not required to be licensed (powered wheelchairs) • Includes tractors • “Motor vehicles,” a subset of motorized vehicles • Motorized vehicles designed for public roads or subject to registration • Includes trailers, semi-trailers, and attached equipment • “Recreational motor vehicle,” separate subset • Includes vehicles, trailers, attachments designed for leisure, such as ATVs • Does not include “motor vehicles”

12. Vehicles: BI/PD coverage

13. Livestock Diseases: A growing concern • Foot and mouth (or “hoof and mouth”) • Affects cloven hoofed animals • Extremely virulent • No U.S. cases since 1929 • “Mad cow” (bovine spongiform encephalopathy) • “Scrapie” among sheep • “Wasting disease” among deer • Recently detected in Washington

14. Livestock Diseases: Property Damage • First-party coverage • Farmowners coverage for livestock and poultry typically limited to named perils • Animal mortality policies typically exclude losses arising from government slaughter • Coverage gap for breeder stock under USDA payments • Liability coverage • Infection covered if negligence established • Can the source of infection be identified? • Very difficult for hoof and mouth • “Mad cow” product liability exposure for feed producers

15. Livestock Diseases: Bodily Injury • “Mad cow” linked to vCJD in humans • variant Creutzfeldt-Jakob Disease • Takes years to manifest • Great potential for “pain and suffering” • Can it be traced? • Salmonella and E coli tied to food preparation • Little record of tracing food back to producer • McDonald’s recently asked that cattle be tagged and traced • Is it “communicable”? • BI from “communicable diseases” typically excluded • vCJD caused by a protein, not a life form

16. Genetically Modified Organisms (GMOs) • Major studies of insurance implications • Genetic Engineering—A Challenge for the Insurance Industry, published by Munich Re • Genetic Engineering: A Liability Perspective, published by American Re • Available by calling 609/243-5607 • Genetic engineering is . . . • “. . . the process of selectively modifying genetic information in a living organism.” • “. . . the process by which individual genes . . . Can be transferred from one organism to another.” • Compared to “cut and paste” in word processing

17. GMOs, cont. • Uses of biotechnology • Pharmaceutical sector, heavily regulated • Food and agriculture sectors, less regulated • Uses of GE in agriculture and food • Develop disease- and pest-resistant crops • Develop nutrient-enriched fruits and vegetables • Develop rapidly growing fish

18. GMOs: BI/PD exposure • Bodily injury exposure • Production of toxins and pathogens • Increase in allergic reactions • Increased resistance to antibiotics • Property/environmental damage exposure • Spawning of “super-weeds” and “super-pests” • Damage to ecosystems as beneficial organisms are eliminated with the pests • Threat to biodiversity as hearty “GMO” stocks crowd out natural species

19. GMOs: Property Damage liability • Questions about “tainting” • GMO food is restricted in some countries • Some American stores and consumers insist on “GE free” • Is accidental mixing “damage”? • Is accidental mixing “pollution”? • Who’s responsible for natural processes, like pollen drift? • Starlink recall • Genetically modified corn in range of consumer products • FDA approved for animal feed but not human consumption • Less than 1% of cropland; detected in 25% of seed suppliers • Railcars of seed rejected; bans in Japan and South Korea • More than 30 lawsuits

20. GMOs: Property Damage liability, cont. • Types of charges raised in StarLink case

21. Future questions • Joe Harrington, director of corporate communications • joeh@AAISonline.com • Rick Anderer, director of marketing • richarda@AAISonline.com • JoyceTignino, vice president of marketing and industry relations • joycet@AAISonline.com • 800/564-AAIS