Your insurance policy may not cover what you think it does. A Jan. 11 opinion from the Iowa Court of Appeals again raises this important warning, specifically with respect to those involved with a livestock custom-feeding operation.

In Schulz Farm Enterprises Inc. v. IMT Insurance, the court found that a custom-feeding endorsement in a contract growers’ insurance policy did not provide him coverage for the loss of 837 hogs caused by an electrical breaker malfunction in the hog building. This ruling extended the application of a 2013 case from the Iowa Supreme Court, Boelman v. Grinnell Mut. Reinsurance Co. Specifically, the 2017 case found that the custom-feeding endorsement protected the grower only from damages caused by the hogs, not damage to the hogs.

The facts in the case were typical. A New Hampton, Iowa, farming company contracted with a grower to custom-feed its hogs. The grower contacted his insurance agent to secure additional coverage to protect this new operation. The insurance agent recommended that the grower purchase a farmer’s personal liability coverage policy with a custom-feeding endorsement for an additional $118 per year.

Excluded coverage
The basic liability policy excluded coverage for property damage arising out of a “custom feeding” operation. It also excluded coverage for damage to any property that must be replaced because “your work” was incorrectly performed and for damage to property “in the care of” the insured, unless caused by fire, smoke or explosion. The custom-feeding endorsement stated that the liability policy was extended to apply to “custom feeding” operations performed by the insured. It specifically stated that it acted to delete “the exclusions [under the liability policy] pertaining to custom feeding.”

After the hogs died, the grower attempted to collect under the insurance policy, but the insurer denied the claim. The grower assigned his rights under the policy to the farming company that had owned the hogs, and the farming company sued the insurance company.

Trial court rules against farmer
The trial court granted summary judgment to the insurance company, and the Iowa Court of Appeals upheld that judgment. The court found that the custom-feeding endorsement did not remove the policy exclusions for damage to property “in the care of” the insured or for damage stemming from the insured’s work. The farming company argued that because the custom-feeding endorsement stated that it deleted “exclusions pertaining to custom feeding,” any exclusions relating to the custom-feeding operation were deleted.

The appellate court disagreed with that argument. The court concluded that such an interpretation would be a “strained analysis” that would stretch the endorsement terms beyond the bounds of reasonability. Rather, the custom-feeding endorsement, the court ruled, applied only to protect the farmer from damage caused by the hogs, not to the hogs. In other words, had one of the hogs bitten a neighbor, the farmer would presumably have been covered.

Decision based on prior case
The court rested its decision on the 2013 Boelman case decided by the Iowa Supreme Court. In that case, Iowa’s highest court ruled that a custom-feeding endorsement did not apply to grant coverage to a custom feeder for the death of 535 hogs due to suffocation. In that policy, the custom-feeding endorsement specifically and clearly deleted only the provision of the liability policy excluding coverage for property damage and bodily injury caused by a custom-feeding operation. Other exclusions remained in the policy. Unlike the endorsement in the 2017 case, the endorsement in Boelman did not apply more broadly to delete exclusions “pertaining to” custom feeding.

Nonetheless, the Iowa Court of Appeals said the meaning was clear. Only the exclusion clause specifically using the words “custom feeding” was deleted. The other provisions denying coverage for property loss stemming from damage to property in the care of the farmer or stemming from the farmer’s “work” still applied to bar coverage in this case. The farming company also argued that the grower had a “reasonable expectation” that the hogs would be covered when he purchased the policy. The court disagreed, finding that the additional $118-a-year premium did not correspond with the additional risk of insuring the health of the hogs. The court also found that, given the grower’s experience with other operations, it was unlikely that he reasonably believed the hogs were covered.

This case again reminds custom growers, owners of livestock and lenders that an insurance policy may not always cover what it seems. Because of the holdings of these Iowa cases, those purchasing custom-feeding endorsements must ensure that they specifically cover damages arising from the negligent death or destruction of the livestock at issue. Anything else may leave the grower, the owner, or the lender bearing the full cost of any such loss.

We’ll watch for a possible appeal of the Jan.11 ruling by the Iowa Court of Appeals in this Schulz Farm Enterprises Inc. v. IMT Insurance case.

Tidgren is staff attorney and assistant director for the Center for Ag Law and Taxation at Iowa State University. Email [email protected].