Is There First-Party Coverage for Cows Lost to Stray Voltage? – Claims Magazine

Issue:

The insured dairy farmer noticed that his dairy cattle were suffering from a number of health problems and were producing less milk than usual. The insured had read about the problem of stray voltage on dairy farms, so he had his farm tested. Testing revealed that there were significant levels of stray voltage in the dairy barn area. The local electrical service provider installed a "blocker" which ended the stray voltage problems on the farm.

The Insured has a Farm Package Policy which covers named perils. Among the covered perils for livestock are Electrocution of Livestock and Sudden and Accidental Damage from Artificially Generated Electrical Current. The insured made a claim for property damage to his cattle caused by stray voltage. Should this claim be covered?

Analysis:

This issue was recently litigated for the first time in a first-party insurance context in Hudson v. Farm Family Mut. Ins. Co., 697 A.2d 501 (N.H. 1997). The opinion in that case explained that stray voltage results when there are elevated levels of "neutral-to-earth" voltage. Because of these elevated levels, farm implements, including water troughs, fences, and milking equipment can become electrically charged. Because this electrical charge can go undetected to humans for a long period of time, it may lead to behavioral changes in the dairy cattle who receive an electrical shock every time they come into contact with farm implements which are electrically charged. As a result, cows may begin to avoid these structures. If they fail to drink out of the watering troughs, the cows can become dehydrated and fail to produce milk. In addition, when cows exhibit nervousness, this may cause poor milk let-down and incomplete milk-out of the cows. Residual milk in the cows can lead to growth of bacteria causing mastitis. This type of infection can make milk unacceptable for sale. If undetected for a long enough period of time, the cow may become useless as a dairy animal.

In the Hudson case, the insured farmer sought coverage under the perils of Sudden and Accidental Damage from Artificially Generated Electrical Current and Electrocution of Livestock. Most of the court's opinion focused on the meaning of the terms "sudden and accidental." The main focus was on the treatment that these terms have been given under general liability policies containing pollution exclusions which use these terms. The court reviewed a number of pollution cases and noted that some of these held that "sudden" means an event which occurs quickly or abruptly. Other courts have not looked at the time aspect, and held that "sudden" means "unexpected."

The court construed "sudden and accidental" as used in this peril to include events which are unexpected and unintended. Since, in this case, the damage to the cattle by stray voltage was both unexpected and unintended, the court held that there was coverage under the peril of Sudden and Accidental Damage From Artificially Generated Electrical Current.

Since the court fond coverage under the Artificially Generated Electrical Current peril, it found it unnecessary to consider whether the damage to the cattle was covered as Electrocution.

There may be some instances in which a particular farm policy contains only an Electrocution peril and no Artificially Generated Electrical Current peril. For example, in the ISO Farm Property Coverage Forms, under the Basic Causes of Loss neither of these perils are covered. Under the Broad Causes of Loss, Electrocution of Covered Livestock is a named peril, but there is coverage for Artificially Generated Electrical only for Coverages A, B, C, and D, but not for Livestock which is covered under Coverage E.

Under these ISO forms, or other farm package policies, it would be necessary to consider the Electrocution peril. It seems that the question of coverage under this peril would revolve around whether an animal that exhibited abnormal behavior due to electric shock was "electrocuted."

Webster's New 20th Century Dictionary Unabridged (2nd Ed. 1983), defines "electrocution" as "the act of putting to death by means of an electric current." According to this and other dictionaries which we consulted, it appears that there would be no coverage under the electrocution peril in this case because the dairy cattle did not die from the shocks they received. However, after conducting a Westlaw search using the term "electrocution," there were a number of negligence cases and at least one Worker's Compensation case which used the term "electrocution" to refer to injuries from electric shock which did not result in death.

Since none of the cases located dealt with electrocution of livestock under this type of coverage, it is impossible to predict how a court would rule on this. However, since this is a coverage provision, and the term is undefined, it is likely that a broad interpretation of the term would be applied. One of the other perils in the Farm Policy involves death to livestock by collision. In that peril the form writers specifically use the term death. An argument could be made that the electrocution peril could more clearly indicate whether or not the peril was limited to death by electrocution.

Under the Special Causes of Loss of a farm policy there seems to be no applicable exclusion for the damage to the cattle caused by stray voltage. The only possible argument seems to be that perhaps a mere loss of profits from the cattle would not be considered direct physical loss to the cattle, but merely an economic loss. The case of Farmers Mut. Aid Ass'n v. Williams, 386 N.E.2d 950 (Ind. App. 1979), dealt with a similar issue. In that case, a tornado ripped through the insured's farm killing three of twenty cattle. Since the grain for the surviving cattle was seriously damaged, it was impossible to keep and properly raise them until maximum weight was reached. Since the cattle were showing signs of deterioration, they were sold prematurely. The insurer argued that the claim for lost profits on these cattle was not a direct physical loss. The court ruled that the term "direct" was ambiguous and ruled in favor of the insured. It seems that actual documentation of health problems to the dairy cattle by stray voltage would be considered a direct physical loss and the only problem remaining would be the valuation of the injuries and lost profits sustained as a result of the stray voltage.

Since this is the first property insurance case we are aware of on this issue, it is impossible to predict whether other cases will be litigated, but this case certainly seems to open the door for that possibility.

Before this case, the other cases dealing with stray voltage involved a farmer suing the supplier of electrical service to the dairy farm for damage caused by stray voltage. Perhaps the future underwriting of dairy farms should include a stray voltage inspection requirement and/or the installation of a "blocker" or "neutral isolator" as they were referred to in these cases.