Insurance didn’t cover hog loss
The plaintiffs discovered the hard way the insurance coverage they purchased did not cover losses in their contract feeding operation in the event of an accidental death of the livestock under their care, custody and control. The plaintiffs were contract-feeding hogs for other parties.
Contracts with the hogs’ owners required the plaintiffs to feed, care for and manage the hogs supplied to them. They were required to maintain insurance on all the buildings and hogs, and to have coverage in the event of suffocation of the animals. While the plaintiffs were cleaning out the manure basins, 535 hogs suffocated to death in the plaintiffs’ building.
• Total of 535 hogs suffocated accidentally while in care of a contract feeder.
• The feeder of the hogs thought his insurance policy covered big death loss.
• Iowa Supreme Court: Insurance policy didn’t offer coverage for suffocation.
The plaintiffs had insurance for their operation. They filed a claim for the loss of the hogs, which was denied. The plaintiffs filed suit against the insurance company for breach of contract. The insurance company counter-claimed seeking a judgment that the policy did not provide coverage.
The district court granted summary judgment for the plaintiffs. In granting the motion, the court concluded the plaintiffs had reasonable expectations that the coverage would apply to their circumstances, and that they expected the endorsement was to cover all activities in their operation. The insurance company appealed. The Court of Appeals affirmed, but did not conduct any analysis under the reasonable expectation doctrine. The Iowa Supreme Court granted further review.
The insurance purchased was for protection against property damage. Two provisions of the contract were applicable to the matter. The first, Coverage A protected against liability to the public for property damage. It did not cover damage to property under the care, custody or control of the insureds. The second, Coverage A-1 protected against liability for property owned by others but in the care of the insureds. This provision, however, did not cover any losses arising out of a custom farming operation in which annual gross receipts are more than $2,000.
In addition to the exclusion expressed under Coverage A-1, there was a general custom-feeding exclusion (6(a)) applicable to all provisions of the policy that denied coverage for any incident arising out of a custom farming operation with gross receipts exceeding $2,000.
Because the plaintiffs’ contract-feeding operation was a custom-feeding operation as defined by the policy, they purchased a Custom Feeding Endorsement. The endorsement specifically altered the general custom farming exclusion (6(a)) to allow for liability for property damage arising from custom-feeding operation when gross receipts were not more than $150,000.
The Iowa Supreme Court held that the policy was unambiguous and did not cover the plaintiffs’ incident. The high court held the Custom Farming Endorsement was clear in its statement that it altered only the broad custom farming exclusion applicable to the entire policy (6(a)) because it clearly stated it did not alter or supersede any other exclusion.
Thus, under Coverage A, the property damage was excluded from coverage because the property was under the care, custody and control of the plaintiffs. The insurance policy provided limited coverage under Coverage A-1 for property damage that was within the plaintiffs’ care, custody and control, but not if it arose from the custom-feeding operation if the operation grossed more than $2,000.
Because the Custom Farming Endorsement purchased by the plaintiffs modified coverage on the broad exclusion by raising the threshold for coverage in exclusion 6(a) from $2,000 to $150,000 only, it had no effect upon the exclusion for coverage under Coverage A for damage to property under the care, custody or control of the plaintiffs. This interpretation was consistent with previous cases in state and federal courts.
Why didn’t the reasonable expectations doctrine apply in this case? The plaintiffs failed to provide proof to establish the reasonable expectation doctrine. In addition to the lack of evidence, the doctrine did not apply because the policy is not ambiguous.
Read your insurance policy
While the conclusion of the court may seem harsh, insurance contracts will be enforced as written in the absence of an ambiguity. The plaintiffs had a contractual obligation to ensure coverage for the hogs under their care, but they failed to buy a policy that covered the circumstances.
Farmers who have contract feeding operations should check their current insurance policy to ensure they aren’t mistakenly assuming a Custom Feeding Endorsement provides coverage for suffocation. At the very least, farm operators who find themselves in a similar situation should work to establish the prerequisites for invoking the reasonable expectations doctrine. This case is Boelman v. Grinnell Mutual Reinsurance Co., No. 11-0570, 2013 Iowa Sup. LEXIS 9; it was decided by the Iowa Supreme Court on Feb. 1.
Eckley is an attorney at the ISU Center for Ag Law and Taxation. Contact her at firstname.lastname@example.org or 515-294-6365.
This article published in the March, 2013 edition of WALLACES FARMER.
All rights reserved. Copyright Farm Progress Cos. 2013.