Farm Machinery and Power Equipment Dealers Update : Thursday, September 20, 2012 BEST'S HAZARD INDEX

Best's Hazard Index

Underwriting Comments

Automobile Liability

7

Frequent deliveries of machinery and equipment to customers' premises.

General Liability: Premises and Operations

6

Test drives and demonstrations of equipment and machinery.

Product Liability and Completed Operations

5

Faulty maintenance and/or improper repairs.

Environmental Impairment Liability

3

Fuel storage on the premises.

Workers' Compensation

6

Service workers at greatest risk of injury.

Crime

3

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Fire and E.C.: Property

6

Numerous ignition sources.

Business Interruption

4

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Inland Marine

6

New equipment and machinery covered under floor plan financing here.

Line

Low 1-3, Medium 4-6, High 7-9, Very High 10

SIC CODES AND CLASSIFICATIONS 5084 5083 5082 5191 7699

Industrial Machinery and Equipment Farm and Garden Machinery and Equipment Construction and Mining (Except Petroleum) Machinery and Equipment Farm Supplies Repair Shops and Related Services, Not Elsewhere Classified NAICS CODES AND CLASSIFICATIONS

423820 444210 444220 532490 811310

Farm and Garden Machinery and Equipment Merchant Wholesalers Outdoor Power Equipment Stores Nursery, Garden Center, and Farm Supply Stores Other Commercial and Industrial Machinery and Equipment Rental and Leasing Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance RELATED CLASSIFICATIONS

Automobile Repair Shops and Oil Change Centers Farm Machinery Manufacturing Welding, Brazing and Cutting SPECIAL EXPOSURES   RISK DESCRIPTION

Source: Best's Underwriting Guide, Version 2017

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Copyright © 2017 A.M. Best Company. All Rights Reserved.

Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

Farm machinery and power equipment dealers sell new and used farm machinery, outdoor power equipment (OPE), and light industrial equipment. Dealers will sell farm machinery (e.g., tractors, combines, and harvesters), as well as outdoor power equipment (e.g., lawn tractors, lawn mowers, posthole diggers, etc.). Dealers also sell light industrial equipment including rollers, crawlers/loaders/dozers, skid steer loaders, payloaders, excavators, generators, and vibrating plates. In addition, dealers sell a variety of machinery attachments, such as backhoes, plows, tillers, cultivators, planters, and trailers. Accessories, such as oil, oil and air filters, belts, and regular and oversized tires are also sold by a number of insureds. To improve sales volume, dealers typically carry all three equipment lines, but some will specialize in the sale of one line. The dealer's specialty will depend on his geographical location; for instance, a dealer located in the Corn Belt, which has a high concentration of farms, will usually carry a full line of farm machinery and smaller lines of OPE and light industrial equipment. In addition to selling machinery, dealers may rent or lease equipment to farmers and industrial contractors, service or repair new and used equipment, and repair and mount regular and oversized tires. As an added service to customers, most dealers will send out roving repair crews to customers' sites to conduct routine maintenance and repairs of customers' equipment. If the customer's equipment requires more serious work, it will be transported back to the dealer's premises. All dealers will offer financing, and most will deliver machinery to their customers. Some dealers will rent or loan machinery to customers while their machinery is being repaired. Dealers may carry several auxiliary lines of products, such as trucks, building materials, electrical appliances, fertilizers, pesticides, and home and garden machinery. These product lines will not be covered in this report; see the appropriate related reports for more information. Although very rare, a few dealers may be involved in custom farming, in which they plan, plant, cultivate, and harvest a crop for a third party for hire; such a process will not be covered in this report. Dealers generally allow customers to test drive farm machinery and power equipment on the premises. In addition, to increase sales, most dealers will demonstrate their equipment for customers on the dealer's premises, at the customer's site, and at state or county fairs. Many dealers offer lifetime service contracts to their customers for an additional fee. Properly maintained, most farm and power machinery will last 20 years or longer. Maintenance and repairs are usually conducted by factory-trained mechanics. Factory-trained mechanics initially attend a six-month factory training program and must be certified annually by the factory. In 2007, there were approximately 4,357 power equipment dealers and 8,405 farm machinery equipment merchant wholesalers in the United States. These dealers are located in 10 geographical areas: Northeast, Southeast, Corn Belt, Lake States, Northern Plains, Middle Plains, Southern Plains, Delta, Pacific, Western Canada and Eastern Canada. According to the North American Equipment Dealers Association (NAEDA), the industry trade association, the largest number of dealers is concentrated in areas with the highest concentrations of farms, such as the Corn Belt, the Northeast, the Lake states, and the Southeast. Most dealers are small- to medium-sized, privately-owned, family-run enterprises. Some dealers will be part of a chain that operates in several states, and a few larger dealers may be operated by the equipment manufacturers themselves. Of their annual revenue, 60% to 70% is from the sale of new and used equipment, with the remainder from the rental, servicing, and sale of machinery and equipment parts. Smaller, factory-authorized equipment dealers may be under contract to exclusively sell one manufacturer's products. Most dealers are under contract to sell the machinery of two or three manufacturers. Most dealers enter into floor plan contracts with equipment manufacturers to sell their products, in which dealers sell machinery on a consignment basis and will pay the manufacturer for the merchandise at the time of the sale. Those dealers with an adequate cash flow may prefer to pay for their merchandise up front. If the manufacturer does not offer floor planning, dealers may finance their merchandise through a bank or other financial institution. Pre-assembled merchandise is shipped from the factory to the dealers twice a year; dealers, however, can order equipment quarterly. As part of the contract, manufacturers offer dealers cooperative advertising, floor planning (i.e., financing the dealer's inventory of machinery), financing for customers, short-term and long-term leasing, and lease-to-buy programs. In addition, dealers are often given low rates on the purchase of equipment for their rental or lease fleets. Under most contracts, dealers are allowed to hold onto the shipments for six months without finance charges. After six months, the dealers are charged a monthly installment fee until the machinery is paid for or sold. Manufacturers usually require their authorized dealers to sell a certain number of units per year and typically conduct inventory audits monthly. Dealers will usually turn over their inventories twice in a year. Farm machinery and equipment dealers are most often situated in rural areas on several acres of land, in single-story buildings of masonry or metal construction. The layout of the premises will include a showroom and sales floor, offices, a customer waiting area, a parts department, a service area with service bays, and equipment yards and storage areas. Some dealers will display equipment in a showroom, but most will display larger equipment and machinery outside in a fenced lot. Small dealers typically maintain 25 to 30 pieces of equipment on the premises at any given time, whereas larger dealers maintain up to 100 pieces of equipment on site. Some dealers will have a refueling depot with diesel and/or gasoline fuel pumps. Farm machinery and power equipment dealers are open year round, usually from 9 a.m. to 5 p.m. Most operations will

Source: Best's Underwriting Guide, Version 2017

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Copyright © 2017 A.M. Best Company. All Rights Reserved.

Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

be open five or six days a week, but a few may be open seven days a week during peak sales seasons. The peak sales season will depend on the dealer's geographical location and its area of specialty. Farm machinery sales usually rise in the spring when planters and tillers are needed and then again in the fall when harvesting equipment is needed. OPE and light industrial sales usually peak in the early spring and late summer. During the peak seasons, the dealer may hire temporary or part-time personnel to handle the extra business. During the rest of the year, a dealer will employ from 7 to 50 workers for positions as managers, salespeople, mechanics, and office staff; most dealers on average, employ 15 workers. A leading trade association representing this industry is the North American Equipment Dealers Association (NAEDA, which may be reached at http://www.naeda.com ). MATERIALS AND EQUIPMENT Merchandise. Motor analyzers, air compressors, hydraulic lifts, steam cleaners, electric welders, acetylene torches. Power and hand tools for servicing and repairing farm machinery and power equipment. Shelving and display racks. PROCESS OR SERVICE   NARRATIVE LINES OF LIABILITY Automobile Liability Farm machinery and power equipment dealers will have a substantial Automobile Liability exposure from delivering merchandise to customers and picking up equipment to be serviced. In addition, some dealers will have a roving repair service that travels to customers' premises to repair equipment. Common driving hazards will include traveling on rural and unpaved roads, as well as driving during hours of darkness and inclement weather. What are the number, type, age, and condition of the insured's vehicles? Determine if the insured's vehicles are owned or leased. Most insureds will own or lease several trucks with flatbed trailers that they will use to deliver and pick up heavy and awkward machinery. Smaller trucks, vans, or passenger vehicles will be used to run local errands and for the roving repair service. Do the insured's employees ever use personal vehicles for business-related purposes? If so, a nonowned vehicle exposure will exist. The insured should confirm personal insurance at an acceptable level. Most insureds will deliver merchandise to customers. In addition, dealers may pick up customers' machinery and transport it back to the dealership for repairs and then deliver the repaired machinery back to the customer. What are the average and maximum numbers of daily and weekly deliveries and pickups the insured makes? During peak seasons (e.g., planting or harvesting) dealers will make up to five daily deliveries. How frequently does the insured travel to deliver or pick up equipment? Merchandise and supplies are typically shipped to the insured by manufacturers. It is unlikely that the insured would ever pick up merchandise from suppliers. Does the insured pick up supplies or have them delivered? Dealers that are part of chains may transfer equipment and supplies from one store to another. Is the insured part of a chain? Determine how often the insured transfers equipment and supplies between dealerships. What is the insured's radius of operations? Because of the high concentration of large farms in rural areas, such as the Corn Belt, Lake states, and Northern and Middle Plains, dealers may have a radius of operations of 300 miles or more. Dealers located in the eastern and western portions of the United States, where there are fewer farms, will usually travel within a 100-mile radius. Does the insured ever travel beyond the 300-mile radius? If so, a long-haul exposure may exist. The exposure may be exacerbated by time constraints and a large volume of deliveries. The insured may increase the number of loads its drivers must deliver per day to meet customers' needs during planting and harvesting seasons. The underwriter should investigate the driver's logs to assess the insured's travel practices. What are the typical hazards faced by the insured's drivers? Since dealers are typically located in rural areas and may service customers' equipment and machinery at off-site locations, such as on farms or construction sites, much of their driving may be on unpaved roads or off road. Common hazards will include driving during hours of darkness in the early morning and during inclement weather. Does the insured require its drivers to turn their vehicle's headlights on before dusk and in the rain, fog, or snow? Typically, these dealers will work with the same customers, so travel patterns and route hazards should be easy to determine. Most long-haul driving, however, will be on major highways, and hazards may include traffic congestion. How is farm equipment and machinery secured during transport? If a heavy piece of equipment were to fall off of a

Source: Best's Underwriting Guide, Version 2017

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Copyright © 2017 A.M. Best Company. All Rights Reserved.

Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

flatbed trailer during transit, it could cause a serious accident. Are all awkward and heavy loads properly flagged? All loads must be adequately secured to prevent them from shifting in transit and distracting drivers. Who is responsible for securing loads? Usually, heavy equipment will be chained down onto the flatbed. Does the insured inspect all securing mechanisms prior to the vehicle's departure? As an added service to customers, most dealers will send out repair crews to customers to conduct routine maintenance and repairs of their equipment. How frequently does the insured send the repair crew out? Insureds may send the repair crew out daily during planting and harvesting seasons, greatly increasing the exposure. How much driving do the insured's roving repair crews do on a given day? These repair crews will carry all the equipment necessary to make routine repairs (e.g., tune-ups, oil changes, etc.). How does the insured secure equipment aboard repair vehicles to prevent it from shifting during transit and distracting the driver? If the machine requires more serious work, it will be transported back to the insured's premises. What are the ages, training, and experience levels of the insured's drivers? A commercial driver's license (CDL) will be required for all truck drivers in the US, issued by the state in which they reside. Some of the insured's drivers will be under the age of 25. If so, a youthful operator exposure will exist. Obtain MVRs on all drivers. Since the Fair Credit Reporting Act in the US requires written permission from the driver to obtain MVRs, the insured should make obtaining this permission part of the hiring process. Dealers that own large tractor-trailer units for transporting machinery may engage in hauling-for-hire or back-hauling activities (i.e., hiring out vehicles and personnel to transport goods for third parties) to keep the vehicles in constant use and obtain a return on their investment. Does the insured ever act as a contract carrier? Refer to the Automobile Liability section of the Trucking – Long Haul report for more information. Because the insured's employees will routinely drive onto customers' property, there is the potential for accidents involving the customers' vehicles or damage to the customers' premises. Careless drivers could back into customers' buildings, fences, vehicles, or equipment, causing property damage for which the insured would be liable. To avoid disputes over claims arising from loading and unloading operations, it is recommended that the Automobile Liability and General Liability: Premises and Operations coverage should be underwritten by the same company for the same limits. Damage to customers' property could occur during the actual delivery or pickup of machinery. Only experienced personnel should load and unload equipment onto or off flatbed trucks. For instance, a tractor could break loose and run over a customer or damage his property. Customers must never be allowed to assist during loading or unloading. Today's vehicles have many electronic distractions, such as navigational and communications devices. These items can be factory-installed or brought into the vehicle by the driver, but all have the potential of creating distractions that could lead to a motor vehicle accident. What types of electronic distractions are present in the insured's vehicles? Some of the insured's vehicles will be equipped with a two-way communication system, such as cellular telephone that permits drivers to remain in contact with their office. Do the insured's vehicles have a two-way communication system? Insureds could be held liable for damages that occur as a result of drivers using their cell phones while driving. Therefore, it is highly recommended that the insured provide hands-free headsets and cell phone safety rules, such as preprogramming frequently dialed numbers, to all drivers. Do the insured's driver training safety courses include cell phone safety tips for workers who do a lot of driving? Throughout the US, states and the District of Columbia have enacted restrictions on cell phone and texting while driving. Depending on the state, laws are restrictive (i.e., they ban cell phone use and texting while driving and require the use of hands-free devices) while other states place no limits on cell phone use. Often, state's driving-while-distracted laws and regulations restrict the use of cell phones according to the age or experience of the driver (e.g., 18 or under, student, or probationary) or the occupation of the driver (e.g., school bus drivers, truck drivers). Canadian distracted driving laws are similar to those in the US, and depend on the Canadian province or territory. Elsewhere, distracted driving laws are just as varied. Japan prohibits all mobile phone use while driving, including the use of hands-free devices. Between 2009 and 2010, both Australia and New Zealand enacted bans on the use of mobile phones and texting while driving; both currently permit the use of hands-free devices. All European Union (EU) nations, with the exception of Sweden, ban handheld cell phone use while driving but permit the use of hands-free devices. Ten of the 27 EU member states specifically prohibit texting. In the UK, distracted driving laws prohibit the use of handheld mobile phones and currently permit the use of hands-free mobile devices. Some insureds prohibit their employees from using cell phones while driving entirely, making them pull off the road if they need to initiate or respond to a call. What is the insured's policy? How often do the insured's drivers go to new or unfamiliar locations? If drivers must venture into unfamiliar territory, what king of navigational assistance does the insured provide – maps or a GPS? Are any of the insured's vehicles equipped with built-in or portable GPS? If so, this is a positive underwriting sign. Do drivers familiarize themselves with routes to clients' premises? Even though the use of a GPS has obvious benefits, one drawback is it can also cause drivers to become distracted when they are operating a company vehicle for business purposes, thus making the insured liable. Whether factory installed or portable, a GPS momentarily requires the drivers' attention and many will call attention to themselves simply as an inherent feature of their usage and design. If the insured uses a GPS in its company vehicles, has it selected models that are minimally distracting? Units that are dash-mounted should be positioned in such a way that they do not block the vehicle operator's view of or access to any other gauges or controls. In addition, the mounting unit should be sturdy to hold the GPS steady. Since the most obvious source of distraction when using a GPS is inputting route information, the insured should instruct its drivers to always do this before engaging the vehicle. Does the GPS used by the insured have a screen and text that are clearly legible, as well as audio commands that are easily understood?

Source: Best's Underwriting Guide, Version 2017

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Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

Are vehicles regularly inspected and serviced by a qualified mechanic? The insured should contract out all vehicle maintenance services. Employees should not be allowed to do repair work on any of the insured's vehicles. Some large insureds will hire their own mechanics to conduct repairs on the company premises. Does the insured contract out mechanical services? If so, determine the experience and qualifications of the insured's auto repair and maintenance contractors. Are the insured's mechanics Automotive Service Excellence (ASE)-certified? General Liability: Premises and Operations Farm machinery and power equipment dealers will have a significant General Liability: Premises and Operations exposure due to the possibility of customers being injured during demonstrations and test drives of farm machinery and power equipment. Claims are likely to be more frequent than severe as a large percentage of all bodily injury claims will result from visitors tripping and falling in the insured's showroom and outside in the equipment yard. What is the insured's layout? Farm machinery and power equipment dealers are typically housed in single-story buildings. The layout of the premises will include a showroom, a parts department, a service department, a refueling area, a customer waiting area, storage areas, offices, and an equipment yard. What are the insured's hours of operation? Farm machinery and power equipment dealers are open year round, usually from 9 a.m. to 5 p.m. Most operations will be open five or six days a week, but a few may be open seven days a week during peak sales seasons. The peak sales season will depend on the dealer's geographical location and its area of specialty. Farm machinery sales usually rise in the spring when planters and tillers are needed and then again in the fall when harvesting equipment is needed. Outdoor power equipment and light industrial sales usually peak in the early spring and late summer. What are the average and maximum numbers of visitors to the insured's premises daily? Visitors will include customers, suppliers, inventory auditors, and friends and family members of the insured's employees. Farm machinery and power equipment dealers may have up to 10 customers per day; suppliers and auditors usually visit monthly. Are there any parts of the premises, such as storage areas, from which visitors are restricted? If so, "Employees Only" signs should be posted at all entrances to these and other areas where the general public would not be allowed access. Merchandise, such as tractors, combines, and bulldozers, will be on display outside in the equipment yard. Because of the heavy machinery present, the equipment yard is an important liability consideration and requires constant care and supervision. Customers could be seriously injured (e.g., broken bones, bruises, back injuries, and concussions) if they fell against a piece of heavy machinery. The equipment yard must be kept free from debris and in good condition. Potholes, rocks, and other tripping and falling hazards must be filled in or removed as needed. How often does the insured or one of its employees inspect the yard for such hazards? The equipment yard needs to be well-organized to allow customers to walk around and inspect the merchandise. Is there ample space between machinery to allow free access? Overcrowding the equipment yard could lead to trips and falls. Machinery is typically locked to the ground with chains and left in park. Are customers accompanied by an employee while in the equipment yard? Salespeople should be instructed to assist customers to prevent them from tripping over chains and equipment. Dealers may demonstrate equipment to customers on premises, at the customer's site, or at a state or county fair. For example, an employee may demonstrate how a tractor or a combine handles. Such demonstrations must be conducted by experienced employees and should be well supervised. Customers and other visitors could be run over by a tractor or combine during a demonstration. How does the insured set up the demonstration to prevent customers from being injured? Is the demonstration area roped off to prevent viewers from being run over by heavy machinery or struck by debris thrown up by a piece of machinery? Are customers ever allowed to test-drive equipment before purchasing it? Customers could be thrown from the vehicle in an accident or pinned and crushed underneath. What operating instructions are customers given before being allowed to operate machinery? This exposure will be mitigated by the fact that most customers will be familiar with the equipment they are test-driving. Nevertheless, the test-driving area should be clear, paved, well lit, and free of obstacles (e.g., other equipment) and hazards (e.g., potholes, hills, and ditches). Is all equipment that is to be test driven equipped with roll-over protection and seat belts to reduce the severity of injuries? Does the insured test and inspect all equipment before allowing customers to drive it? The showroom must be well maintained to prevent trips and falls. In the showroom, racks, shelves, and tables will be set up to display smaller merchandise, such as air and oil filters. Are all displays set up to allow customers easy access? Merchandise must never be set up so as to block an aisle since customers could trip and fall over a protruding box or shelf. Are salespeople on hand to assist customers? All floors should be vacuumed or swept frequently and worn or torn floor coverings repaired immediately. What is the quality of the lighting in the showroom? The showroom should be provided with trash receptacles, which should be emptied daily. Does the insured allow eating and drinking in the showroom? Are telephone and electrical cords routed along walls and baseboards and not stretched across walkways? Are cords that cross aisles or walkways covered with carpet or mats to help prevent tripping accidents. If the insured has stairs, they should be in good condition, covered with a nonskid material, and equipped with sturdy handrails. If there is an elevator located on the premises, is it inspected and serviced by a qualified professional? Customers should be restricted from the insured's service department and refueling areas. Are "Authorized Personnel

Source: Best's Underwriting Guide, Version 2017

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Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

Only" signs prominently posted at entrances to these areas? Visitors who must enter the service department, such as suppliers and inventory auditors, should be accompanied by one of the insured's employees at all times. Is a waiting area provided for customers who bring in machinery for repairs? Oil, grease, and other lubricants may be spilled on the floor in the service area and could cause customers to slip and fall. All spills should be cleaned up as quickly as possible, and "Caution – Wet Floor" signs should be displayed over the affected areas. The insured will also have an exposure related to the refueling depot. Suppliers will deliver shipments of diesel fuel and gasoline to the insured and pump the fuel into aboveground or underground storage tanks. What is the level of housekeeping in the refueling depot? Trash and debris must not be allowed to accumulate. Are all spills be cleaned up promptly? Smoking should be strictly prohibited in the refueling depot since diesel and gasoline fumes could ignite and cause an explosion. Are "No Smoking" signs prominently posted? Drivers should be required to turn off their engines before refueling. Farm machinery and power equipment constitutes an attractive nuisance to children in the showroom and equipment yard, especially during demonstrations. Does the insured have a policy regarding adult supervision of children? Children should not be allowed to play on or around dangerous equipment. A few dealers offer toy tractors and other equipment for sale and, in addition, may have an area designated for children in the showroom. Is this area well supervised? Investigate the type and condition of toys provided for children. Toys with sharp edges or removable parts are not suitable for children as they could be cut or choke on small pieces. The insured may be held liable for any bodily injury and/or property damage that occurred while its employees delivered machinery and equipment or performed repairs at a customer's residence or place of business. Careless or inexperienced employees could accidentally damage part of the customer's premises or injure a customer. How frequently does the insured deliver machinery and equipment to customers' location? The insured must instruct all drivers in the proper moving techniques. The hiring of part-time or temporary workers for delivery operations increases this exposure slightly. Are employees instructed in appropriate delivery techniques and equipped with the appropriate materials-handling equipment? Since customers could be injured while moving or assisting in the lifting of heavy farm machinery and equipment, they must not be allowed to assist in unloading operations. Some insureds will rent or lease equipment to customers or loan equipment to customers while their equipment is being repaired. Customers may rent a variety of farm machinery and power equipment, such as tractors, backhoes, and combines. Dealers typically offer both short-term and long-term leases that range from a single day to a year or longer. If the rental or loaner equipment is not in proper working condition, serious injuries could result, and the insured would be liable. All equipment which is rented, leased, or loaned to customers must be tested and inspected thoroughly and repaired as needed before it is released to a customer. Are customers given explicit operating instructions and warnings? It is a positive underwriting sign if, in the rental agreement, the insured requires renters to obtain insurance which protects the dealer from liability for bodily injury and property damage. Dealers typically sign nonbinding agreements with farm machinery and power equipment manufacturers to sell their product lines. Most dealers sign agreements with two or three manufacturers, but a few may sign agreements with a single manufacturer. The underwriter should examine all signed agreements. What liabilities has the insured agreed to accept? Have any hold-harmless agreements been signed? What is the condition of the insured's outdoor premises? Are they well-lit at night? All parking areas and sidewalks should be free from debris and in good condition. Have arrangements been made for the prompt removal of snow and ice? Product Liability and Completed Operations The Product Liability and Completed Operations exposure for farm machinery and power equipment dealers will be moderate. Claims can arise from the sale of inherently hazardous farm machinery and outdoor power equipment (OPE), as well as from faulty maintenance and repairs performed on customers' equipment. (Note: Because this equipment is heavy, large, and complex, the potential for claims involving the injury or death of a customer or user is much higher for this industry than for most other retail establishments.) What type or types of equipment does the insured sell and from which manufacturers? Farm machinery and power equipment dealers sell a variety of new and used merchandise. Dealers sell farm machinery such as tractors, combines, harvesters, and various accessories. They will also sell outdoor power equipment and light industrial equipment, such as rollers, bulldozers, crawlers, skid-steer loaders, payloaders, excavators, generators, vibrating plates, and backhoes. All machinery and equipment should be sold with the manufacturer's original warranties intact. Does the insured ever make any structural or power train modifications to machinery? This practice should be strictly prohibited since making any modifications may void the manufacturer's warranty and expose the insured to a lawsuit if an accident occurs. In most cases, equipment manufacturers will be held liable for claims of faulty design of machinery and equipment. However, if an accident is caused by a manufacturer's error, the insured may still be named party to a suit and incur defense costs. The insured may be held liable if false or misleading claims have been made by its sales staff about the features or performance capabilities of a piece of equipment. What type of information does the insured's staff relay to customers about the features or performance of machinery and equipment? All employees should be instructed to avoid inflating safety or performance features of equipment. It is recommended that all machinery and equipment sold by the insured includes operating instructions and feature information literature provided by the manufacturer.

Source: Best's Underwriting Guide, Version 2017

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Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

Farm machinery and power equipment is designed for specific uses and can be dangerous if used for purposes for which it was not intended; for example, using a low horse-power tractor to haul an extremely heavy load. Are employees aware of the limitations of the equipment they sell and inform customers of what the equipment should and should not be used for? Equipment operators have been severely injured and killed in accidents caused by design defects and improper operation. Operators may be pinned and crushed underneath a tractor that has rolled over or may be thrown out of a tractor during a collision. In cases involving more sophisticated equipment, such as combines, which require the operator to follow certain safety procedures, operators have been run over and crushed to death during refueling. To lessen the impact of accidents, manufacturers have added safety features to their equipment. For example, many tractors are now equipped with cab rollover protection and seat belts. Brake locking systems were also developed to prevent equipment from being used in a hazardous way. These mechanisms automatically lock the equipment in park when the equipment is turned off to prevent it from rolling. Provided the customer is advised of all operating and safety procedures, the equipment (e.g., a lawn mower, lawn tractor, farm tractor, combine, or harvester) can be operated safely. Because of this fact, dealers have a duty to provide their customers with all manufacturer operating manuals and warranties. Does a factory-trained mechanic check all equipment carefully to make sure it is in good operating condition before the sale is finalized? Because of the potential for the abovementioned claims, the training and experience of the insured's sales force and mechanics are critical underwriting factors. What training does the insured's sales staff receive in the features and performance capabilities of the equipment they sell? Factory-authorized contract dealers are required to send their sales staff to annual sales training courses sponsored by the manufacturer. These courses are designed to give the insured's salespeople a working knowledge of the manufacturer's equipment specifications, the equipment's operating capabilities, suggested scheduled maintenance, and manufacturer warranties. How often do the insured's sales staff attend manufacturer training courses? Are all mechanics factory-trained and certified? Determine if the insured's mechanics are recertified annually. Some manufacturers will require this. Supervision of all employees, including mechanics and salespeople, is another critical loss control measure. Management should periodically review the work of the sales and service staff. The insured may also be held liable for claims involving the sale of used machinery and equipment. Most insureds will repair and sell a variety of used equipment, including tractors, combines, rollers, and crawlers/loaders/dozers. Some of this equipment will have been acquired by the insured as trade-ins for new equipment. The insured may sell equipment that was previously rented or leased to customers. Is all used equipment sold labeled as such? From where does the insured obtain its supply of used equipment? Before used equipment can be sold, it must be tested and inspected to ensure that it is fit for sale and that all necessary repairs have been made. Who conducts the insured's repairs and tests? What are that person's qualifications and training? Repairs and tests should be conducted by mechanics who have been trained and certified by the equipment's manufacturer. Does the insured have a written list of critical operating points that are checked on all equipment before it is sold? Does the insured ever offer warranties on used equipment? Most will sell used equipment on an as-is basis, but a few may offer a limited warranty for engines or tires sold. The underwriter should evaluate the condition and integrity of the tools, instruments, and equipment used to repair and test equipment. Faulty instruments may cause mechanics to misdiagnose a problem or to create a hazardous situation in which an operator could be injured. Electronic testing equipment must be regularly inspected and calibrated. What are the type, number, and condition of the tools and equipment used to repair and test power machinery? If the insured operates a repair service, claims could be filed for inadequate or faulty repairs or for improperly matching and fitting accessories or attachments, such as plows, tillers, or backhoes. Sales from rentals, parts, and service typically comprise 30% to 40% of the insured's revenue. What percentage of the insured's annual sales are derived from service operations? A faulty repair job on the steering or power take-off unit on a tractor could cause a customer to lose control of the tractor and crash. Also, during repairs, mechanics will degrease individual engine parts in parts-cleaning machines. Employees must be trained in the proper operating procedures for parts-cleaning machines. If the parts are reassembled without sufficient cleaning, a customer's engine could be damaged, and the customer could be injured. Determine the training and expertise of the insured's mechanics. Most insureds will have a roving repair service that will handle repairs on the customer's premises. What type or types of repairs do roving repair services make? Typically, insureds will handle only minor repairs, such as tune ups and oil changes. If the job requires more than minor servicing, does the insured transport the machinery back to the service shop? What are the average and maximum daily and weekly numbers of repairs the insured handles? The number of repairs the insured is able to handle will depend on the expertise of its mechanics, the size of its service department, and the type of service typically handled, all of which will vary widely. How many mechanics does the insured employ, and what are their qualifications and experience? During busy times, or if the insured is understaffed, it may contract out repairs to independent mechanics or other dealers. Some insureds will send difficult repairs, such as engine reconstructions, back to the manufacturer. What are the experience, reputations, and loss histories of the contractors the insured deals with most often? What liabilities has the insured assumed, if any? What other types of merchandise does the insured sell? Some dealers will sell auxiliary product lines which include chainsaws, irrigation equipment, and snowmobiles. Who are the insured's suppliers, and what are their reputations and loss

Source: Best's Underwriting Guide, Version 2017

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Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

histories? A few dealers offer toy tractors for sale during the holiday season. The US federal government closely monitors and regulates toys. The most basic law concerning toy safety is the Child Protection Safety Act (CSPA) of 1995. The Consumer Product Safety Commission has the authority to develop and enforce safety regulations for toys, which are applicable to those made in the United States as well as those that are imported from foreign countries. Among the toy safety regulations enforced by the CPSC are specific requirements and test criteria for: paint and other surface coating materials; electrical toys; chemistry sets; sharp edges and points; small parts (which present a choking hazard for young children); and flammability. These regulations can also be found in the American Society for Testing and Materials (ASTM) document F963, a set of voluntary guidelines for toy safety that is widely adhered to by American toy makers, retailers, and importers. Revisions to the ASTM F963 are made periodically as needed; at the time of this writing, the most recent version was published in 2011. For further information on the sale of toys refer to the Product Liability and Completed Operations section of the Toy Stores report. Environmental Impairment Liability Farm and power equipment dealers will have a slight Environmental Impairment Liability exposure related to gasoline, oil, and grease stored on the premises. Claims may result from leaks of materials or spills from storage tanks or from the improper disposal of waste. Does the insured have a refueling depot where gasoline and diesel fuel is stored in aboveground or underground storage tanks? How much fuel does the insured store on the premises? Fuel storage tanks and the surrounding ground should be inspected and tested regularly for corrosion and leaks. Are ground samples sent regularly to a testing facility? Some insureds will have tank monitoring systems (TMSs) installed. In addition to automatically monitoring the fuel levels in each of the insured's underground storage tanks, the TMS continually runs air pressure tests on all tanks and connecting pipe systems to check for leaks and weak connecting joints. Does the insured have a TMS installed on its underground storage tank and pipe systems? Refer to the Environmental Impairment Liability section of the Gasoline Stations – Full-Service and Self-Service report for a discussion on exposures and the appropriate loss controls associated with having fuel storage tanks on site. The insured's service department will use various cleaning solvents to clean engine parts and will produce large amounts of waste oil and grease. It is highly recommended that the underwriter obtain a list of chemicals used by the insured (in order to check their toxicity levels) and investigate the insured's methods of chemical usage. In the United States, are all of the chemicals used by the insured approved by the Environmental Protection Agency (EPA)? Are any of the chemicals used by the insured on the EPA's "restricted use" or "community right-to-know" lists? If so, these chemicals require special handling and care. The insured should follow all manufacturer's label instructions and precautions, as well as any regulations when mixing, applying, storing, and disposing of chemicals. What are the storage methods for any chemicals that are used in the insured's cleaning operations? Such substances should be kept in tightly sealed containers and labeled according to their contents; in the US, these containers should be EPA approved. They should be stored away from other materials and equipment in a cool, dry, well-ventilated, fireproof, low-traffic area that is accessible only to authorized personnel. How often do inspections of storage containers take place, and who performs them? Poorly trained or careless workers could mix chemicals improperly and increase the hazards of contact and the risk of damage or injury. Most states have stringent certification requirements that workers must meet to be qualified to use various chemicals. Are the insured's employees properly certified to handle such substances? What worker training does the insured have in place for the proper handling and use of any chemicals? Waste oil is typically collected in pans and drained into a collection drum which is taken to an oil refinery by a hazardous waste hauler. How much waste oil does the insured produce daily and weekly? Grease and other lubricants are used to lubricate engine parts. Excess grease should be collected and disposed of by a hazardous waste hauler. Although this transfer of responsibility should be clearly stated in the contract with the disposal firm, the courts cannot relieve the insured of all liability. Who are the insured's hazardous waste haulers, and what are their reputations and loss histories? What criteria did the insured use in selecting the disposal firm? Are chain of custody documents maintained here as well? The contractor should give the insured copies of all waste manifests and receipts from approved disposal facilities. The insured will produce large quantities of oil- and grease-soaked rags. How does the insured dispose of oily and greasy rags? Such rags should be collected in an approved self-closing hamper and taken weekly to a commercial launderer who handles hazardous materials. Cleaning machinery may produce wastewater containing various petroleum contaminants. Wastewater could leak into the ground and contaminate the water table. How much wastewater does the insured produce? Typically, the amounts are minimal and are drained directly into the sewer system. Larger amounts of wastewater may require special precautions, such as an aboveground or underground collecting tank and disposal by a hazardous waste hauler. Chain-of-custody documents must be maintained. Does the insured have a wastewater collecting tank? Investigate the condition and construction of the tank. The tank should be inspected frequently for signs of deterioration. Is wastewater disposed of by a hazardous waste hauler?

Source: Best's Underwriting Guide, Version 2017

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Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

Workers' Compensation The Workers' Compensation exposure for farm machinery and power equipment dealers will be significant. Service and repair department personnel are at the greatest risk of such injuries as contusions, fractures, lacerations, amputations, and burns. Other possible injuries include strains, sprains, and back injuries caused by heavy lifting and working in cramped spaces. Workers in retail and office areas will face such common hazards as slips, trips, and falls and electrical shocks. What are the number, experience levels, training, and duties of the insured's employees? Farm machinery and power equipment dealers may employ from 5 to 50 workers including managers, retail salespeople, service mechanics, parts department workers, and drivers. The insured may hire additional part-time and temporary workers during their peak season. Who is responsible for training new workers? Depending on what job they are hired for and their assigned duties, workers will be trained by different people and some training will be on-the-job and other training will be more formal, such as factory certification for mechanics and service personnel. Are less experienced workers paired with more seasoned employees until they have shown an acceptable level of competence in their assigned tasks? Evaluate any in-house training programs the insured has established. What type of safety program does the insured have in place? Safety training for service mechanics must cover the proper operation of all service equipment, power tools, and materials-handling equipment, including cranes, hydraulic lifts, and hoists. Failure to observe normal operating/safety procedures could result in mechanics injuring themselves and/or others. Some of the more serious possible injuries include being struck by a swinging crane or hoist or being crushed by a hydraulic lift. What is the layout of the insured's premises? Farm machinery and power equipment dealers are typically housed in single-story buildings. The layout of the premises will include a showroom, a parts department, a service department, a refueling area, a customer waiting area, storage areas, offices, and an equipment yard. Equipment will be on display in showrooms and arranged to allow easy passage. What are the dealer's hours of operation? Farm machinery and power equipment dealers are open year round, usually from 9 a.m. to 5 p.m. Most operations will be open five or six days a week, and a few will be open seven days a week during peak sales seasons. The peak sales season depends on the geographical location and the area of specialty of the insured. Farm machinery sales usually rise in the spring when planters and tillers are needed and then again in the fall when harvesting equipment is needed. Outdoor power equipment (OPE) and light industrial sales usually peak in the early spring and late summer. Slips, trips, and falls will be a primary source of injuries for sales and office personnel in this industry. What is the level of housekeeping on the premises? Aisles, stairways, and walkways should be free from debris and clutter. Are telephone and electrical cords routed away from walkways? Cords that must cross doorways should be covered with a mat or otherwise secured to the floor. Is trash removed from the premises daily? What is the condition of the insured's floors and floor coverings? Floors should be swept, vacuumed, or mopped daily. Worn, torn, or loose floor coverings should be repaired or replaced promptly. Are spills cleaned up promptly and "Caution – Wet Floor" signs displayed over the affected areas? What is the condition of the insured's furniture and furnishings? Office and sales floor areas will have seating arrangements and desks and chairs. Workers may be injured by furniture that is unsteady or has sharp or pointed edges. All furniture should be sturdy and free from protruding nails, splinters, and screws. Is furniture inspected periodically and repaired or replaced as necessary? Determine who is responsible for the maintenance and repair of the insured's furniture. What is that person's reputation and qualifications? What is the condition of all storage areas? Just as in the showroom and equipment yard, all walking areas should be clear of debris and clutter to prevent trips and falls. To reduce the possibility of injuries sustained from collapsing shelves and/or toppling parts or equipment, shelves should be solidly constructed of steel or hard wood, and items should be neatly arranged. On shelves where materials might slide because materials do not reach all the way across, are items secured in such a way to hold them in place? Determine who is responsible for inspecting the insured's shelves for structural integrity, and how often such inspections are conducted. Shelving units should stand level so that leaning on them does not cause them to topple over. If the insured has stairs, are they in good condition, have treads covered with nonskid material, and equipped with sturdy handrails? Insureds that operate out of a multi-story facility may have an elevator on the premises. Are elevators inspected and serviced by a qualified professional? Most insureds will contract out elevator maintenance. Determine the reputation and qualifications of the elevator maintenance contractor. Have current certificates of operation been obtained for all elevators? Electrical shocks could result from wiring that is worn, damaged, or exposed. Equipment and machinery on display, computers, and other electrical equipment should be properly grounded, NRTL-listed, and equipped with circuit breakers. All wiring should be double insulated, and loose or exposed wiring should be disconnected from its power source. A licensed electrician should inspect all wiring and power cords on electrical equipment. Workers should be discouraged from eating and drinking around electrical equipment to protect against shocks caused by spilled liquids coming into contact with electricity. Workers may be required to use ladders and step stools to retrieve parts and supplies. However, employees could

Source: Best's Underwriting Guide, Version 2017

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Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

possibly sustain injuries by tripping over a stool while walking down an aisle or falling off a stool or ladder. For added stability, all stepstools and ladders should have rubber treads, and rubberized feet that sink down when stepped upon. Is the US insured in compliance with OSHA standards 1910.25, Portable Wood Ladders and 1910.26, Portable Metal Ladders? Farm machinery and power equipment dealers located in other countries should follow the appropriate occupational and safety standards where they operate. Although employees are more apt to touch or interact with displayed machinery than customers, their training and experience should make them less susceptible to the premises hazards in the equipment yard and showroom. The equipment yard should be well organized and free from debris, potholes, and other tripping and falling hazards. How are machinery and equipment secured? All heavy machinery must be placed in park and secured by chains. Is there adequate room to walk between displayed machinery? Is the equipment yard adequately lit? The service department is more hazardous because of the possibly large amounts of oil, grease, and other debris that may be on the floor. Does the insured have a policy requiring workers to use nonflammable absorbent materials to soak up spills of oil or grease? Tools must be kept organized and not strewn about. Are all parts and equipment stored neatly and securely? Workers can injure their backs while lifting and moving heavy objects, and get muscle strains and pulls. What types of farm machinery and power equipment does the insured sell, and how are they moved around the showroom? Most large pieces of equipment in the showroom will not necessarily be moved about; however, tires, handheld power equipment, or small attachments to farm machinery will. Workers should be instructed in proper lifting techniques. Are they taught to always lift, then turn, and to never lift and turn simultaneously since this could lead to serious back injuries? Are backbelts provided for workers who request them? Although the use of such devices as handcarts and dollies will reduce lifting injuries, workers will still need to lift heavy boxes of parts and supplies onto the dolly or handcart. Is the US insured in compliance with OSHA standard 1910.176, Handling Materials – General? Are employees instructed to seek assistance from other employees if an item is too heavy or awkward to handle alone? Does the insured operate a warehouse on the premises? A safe, well-organized dock will effectively reduce worker injuries; the dock's traffic flow, including the arrival and departure of trucks, forklift operations, manual materials-handling equipment, and pedestrian traffic should be closely regulated. Traffic lanes for pedestrians as well as vehicles should be clearly marked. Good verbal, written, and hand-signal communication is essential for a safe dock. Are speed limit and warning signs, such as "Sound Horn" and "Proceed with Caution" posted throughout the area? A loading dock may also have blind corners that can contribute to an accident; convex mirrors should be installed at corners and the beginnings and ends of aisles. Thorough training in the safe operation of forklifts is essential to minimize injuries. Are forklift operators trained to inspect, drive, load, park, and refuel their vehicles properly? What are the training and experience level of the insured's forklift operators? Prior to operation, drivers should use a written checklist to assess the condition of their vehicles; gauges, warning lights, horns, motion alarms, forks, fork retainer pins, locks, tire pressure, and steering and braking functions should be inspected. What types of forklifts does the insured use? If gasoline or propane forklifts are used, proper ventilation during refueling is required; ideally, it should be done outdoors. Because explosive gases may escape from a forklift battery during recharging, this procedure should take place outdoors and away from ignition sources. When forklifts are left unattended, control levers should be placed in neutral, emergency brakes set, forks lowered, and power cut. If the lift is parked on an incline, chocks must be placed in front of or behind wheels to prevent rolling. Are forklifts equipped with backup alarms? Is the US insured in compliance with OSHA standard 1910.178, Powered Industrial Trucks? Improper use of lifts could result in the operator or other employees being injured by toppling loads or by the forklift overturning. Is the rated load capacity clearly marked on all forklifts? Are employees instructed not to exceed the rated load capacity of any forklift and not to ride on the forks while they are in motion? All forklifts should be equipped with overhead protection, such as a roll cage. Structural repairs to equipment or machinery may require welding. The most common injuries welders can suffer are skin burns. Fortunately, from a loss control perspective, they are also among the most preventable. During the process of welding, brazing, or cutting, such things as sparks, molten metal fragments, and hot slag (from the flux in the arc welding cord) are naturally emitted, bursting forth from the point of the weld in all directions. To prevent skin burns, workers must wear either welders' gloves or heavy-duty leather gloves (preferably ones that have been treated with a fire-resistant coating). Gloves should always be gauntlet style, extending up and over the worker's forearms to help prevent skin burns to the forearm as well as the hands. Because burns to their hands and forearms is a daily hazard for workers welding, strict adherence for US insureds with OSHA standard 1910.138, Hand Protection is vital. For additional hazards and loss controls involving welding operations, the underwriter should review the Workers' Compensation section of the Welding, Brazing and Cutting report. Workers in the service department may spray paint machinery. Paint is a severe eye irritant and inhalation of paint fumes also can be hazardous. Some small service areas will not be ventilated adequately. If spraying operations are conducted onsite, what type of ventilation system has been installed? Does the US insured comply with OSHA standards 1910.134, Respiratory Protection and 1910.94, Ventilation? The insured should have exhaust ducts leading from spraying booths. Determine if spraying is done manually or automatically by machine. Is respiratory equipment provided where needed? Spray painting should be conducted in a separate, well-ventilated spray booth or outside. All workers in the spray painting areas must wear respiratory and eye protection.

Source: Best's Underwriting Guide, Version 2017

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Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

Machinery engines produce carbon monoxide and other hazardous fumes, which can accumulate in the service department. Inhalation of carbon monoxide can cause headaches, suffocation, and death. Does the insured's service area have an exhaust ventilation system to remove these fumes, or are doors kept open to allow fresh air to circulate? What are the age, type, and condition of personal protective equipment issued to the insured's employees? All personal protective equipment should be NIOSH-approved. To prevent serious foot injuries, are workers issued unlined, thick-soled, chemical-resistant, steel-toed work boots that cover the ankles? Leather boots should not be worn. Is the US insured in compliance with OSHA standard 1910.136, Foot Protection? How does the insured enforce the use of personal protective equipment? Farm machinery and power equipment dealers may sell, repair, and mount tires for farm machinery and power equipment. This machinery is equipped with oversized tires that must be inflated to high air pressures. Overinflation could result in a tire exploding, which could severely injure or kill workers. Is a safety cage or restraining device used whenever oversized tires are inflated? Most dealers will employ a tire specialist who is familiar with the proper procedures for inflating, mounting, and balancing oversized tires. Does the insured have such a specialist on staff, or are those services contracted out to a qualified third party? What training do tire specialists receive? What are the age, condition, and accuracy of all tools and safety equipment (e.g., tire gauges, air hoses, etc.) used in tire inflating, mounting, and balancing? Employees may be sent out in roving repair crews to make minor repairs on customers' equipment. Employees face hazards from working with heavy machinery, such as being run over or crushed, and must take precautions to secure the machinery before beginning work on it. Are mechanics required to brace all wheels with chocks and place the machinery in park? All repairs should be conducted in areas with adequate space and lighting. What precautions do mechanics take on roving repair calls? Employees may be sent out to pick up or deliver a machine to a customer. Does the insured ever deliver machinery and equipment to the customer's location? How are loads secured on vehicles? Drivers could be injured in vehicular accidents. Refer to the Automobile Liability of this report for more details on delivering equipment and machinery. Employees may demonstrate equipment to customers or test drive equipment that has been repaired. Workers could be injured in a collision, pinned underneath a machine that has rolled over, or be thrown from a machine during equipment demonstrations. Where does the insured conduct demonstrations – on the premises or at the customer's premises? Demonstrations conducted on the insured's premises are easier to control. Are all machinery and equipment demonstrations performed only by experienced employees? The insured should have a policy in place regarding inspecting the demonstration area for driving hazards before any demonstrations commence. Such a policy will prevent employees from having to react to a hazard, which could lead to collisions and other accidents. Some administrative personnel at farm machinery and power equipment dealers will spend much of their time in front of computer terminals, making them susceptible to such repetitive motion injuries as carpal tunnel syndrome. Additionally, employees working with computer monitors may experience eye fatigue. It is recommended that they look away from the screen frequently to focus on distant objects and take a 15-minute break every 3 hours. US employers should follow standard ANSI/HFES 100-2007, which provides ergonomic design guidelines for visual displays, keyboards, and workstations. What is the availability of emergency health care and first aid? Are first aid kits available throughout the premises and are employees aware of their location? Telephone numbers for local emergency medical teams should be posted in strategic places in the office and on the sales floor. Is the US insured in compliance with OSHA standard 1910.151, Medical Services and First Aid? Crime The Crime exposure for farm machinery and power equipment dealers will be slight. Due to the high cost of most large pieces of equipment, most customers will pay for their purchases with check, credit card, or electronic funds transfer (EFT). However, dealers will have a modest amount of cash on hand since parts and maintenance services will often be paid with cash. Employee dishonesty will be a concern. (Note: Theft of farm machinery or equipment will be covered by an Implement Dealer's Stock Floater under Inland Marine.) What are the average and maximum amounts of cash on the premises daily? Most farm machinery and power equipment dealers will do business with large and small customers with payment arrangements varying. Most insureds will bill and accept payments by check, credit card, or EFT. Even so, many will have cash on hand from sales of parts and petty cash for incidental purchases. Are all checks stamped "For Deposit Only" immediately upon receipt? Bank deposits should be made daily, and their schedule should be staggered to avoid suggesting a routine. Are employees trained in the proper credit card verification procedures? Checks, credit card receipts, and cash should be stored in a tool-, torch-, and explosive-resistant, NRTL-listed, time-delay safe until they can be deposited. Who carries out the insured's check disbursement and bank statement reconciliation functions? Different people should handle these functions if possible. Are accounting functions performed by more than one employee? It is a positive underwriting sign if the insured makes periodic, unannounced audits. An employee dishonesty exposure may exist. Employees could pilfer small parts and equipment or collude with suppliers. How are items in the insured's inventory protected from employee pilferage? Most dealers will have a computerized inventory management system that allows them to keep better track of their inventory. Does the insured

Source: Best's Underwriting Guide, Version 2017

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Copyright © 2017 A.M. Best Company. All Rights Reserved.

Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

conduct frequent unannounced inventories of all parts and equipment? What inventory controls does the insured have in place? Are references and previous employment checked on all workers? A careful pre-employment screening of all employees will help minimize this exposure. What is the level of security on the premises? Is the facility connected to a central-station alarm monitoring system? Having closed-circuit surveillance cameras on site is also advisable, particularly where large equipment or machinery is stored, such as fenced-in lots. Are all doors equipped with double-cylinder, deadbolt locks? Windows that open should have tamperproof locks in place. Flood lighting around the premises at night is recommended. Parking lots, sidewalks, and other outdoor premises should be well lit at night. Does the insured hire a security service to patrol the grounds at night? What is the location and response time of the nearest police department? Fire and E.C.: Property There will be numerous ignition sources and a large amount of flammable materials present in the service department at farm equipment dealers' locations. Common ignition sources include malfunctioning electrical equipment, faulty wiring, sparks from welding and cutting, and possibly smoking. The fire load will consist of retail inventory of equipment and machinery, office furniture and equipment, various flammable materials in the showroom and service departments, papers and trash. If the insured has a refueling depot on site, the fire load will be greater. Overall, farm machinery and power equipment dealers will have a significant Property exposure. What are the age, condition, and construction of the insured's building? Most equipment dealers will be housed in single-story buildings of masonry or metal-frame construction located in rural areas on a lot with an acre or more of land. Determine what hazards, if any, are posed by nearby facilities. Do firewalls that extend to the roof separate the insured from any adjacent occupancy that shares its roof? Is the insured located in a renovated structure? In renovated buildings, concealed spaces may be left between walls or above suspended ceilings where fire may spread rapidly and undetected. Are the premises owned or leased? What is the layout of the insured's premises? The layout of the building will include a showroom/sales area, offices, a parts department with storage area, an equipment yard, customer waiting areas, restrooms, and a service department with service bays. Potential ignition sources for farm machinery and power equipment dealers include faulty wiring, malfunctioning electrical equipment, and smoking. What is the age and condition of the insured's electrical wiring? Wiring should be in compliance with NFPA 70, National Electrical Code. If the insured operates out of a renovated structure, check if any rewiring has been done. Is the insured's wiring sufficient to meet its electrical needs? It is recommended that a planned program of scheduled inspection and preventative maintenance for all wiring be implemented. What are the number, age, type, and condition of the electrical equipment used by the insured? Are cords and wires on all electrical equipment periodically inspected for fraying and cracking? Worn or frayed cords could spark, and should be repaired or replaced promptly. Is all electrically powered equipment properly grounded, NRTL-listed, and in good repair? Does the insured have a routine maintenance and inspection plan in place for its electrical equipment? Determine the experience and qualifications of the person who maintains the equipment. Does the insured permit smoking on the premises? If so, smoking should be restricted to certain areas, preferably outdoors and away from ignition sources. "No Smoking" signs should be posted in all areas where smoking is prohibited, such as refueling areas and service repair bays. Does the insured provide self-closing, fire-resistant receptacles in any areas where smoking is allowed? Are they emptied regularly? What is the insured's fire load? Most of the fire load will be comprised of retail inventory and equipment, trash, documents, office furniture and furnishings, and computers and equipment. The extent of the fire load will depend on the scope of operations, and whether the insured operates a service department or refueling operations on site. For insureds that store their documents and files offsite or digitally, the fire load for offices will be reduced. How does the insured store parts and supplies in the office or stock area? In all storage and office areas, paper goods and other items should be well organized and stacked neatly on shelves that do not block any entrances, exits, hallways, or aisles. Are the insured's shelves constructed of metal or hard wood? Metal shelves are preferable since they will not burn as readily as wooden ones. It is a positive underwriting sign if shelves do not touch the ceiling or obstruct any fire detection and suppression devices. Are packaging materials stored neatly and at a safe distance from potential ignition sources? Does the insured store fuel on the premises for use in its forklifts and other materials-handling equipment? If so, areas where fuel is stored or dispensed should be located away from the building. Are refueling areas kept clear of trash and debris and equipped with fire extinguishers? Are flammable and/or combustible substances stored in separate areas that are separated from the rest of the facility by firewalls? The insured should be in compliance with NFPA 30, Flammable and Combustible Liquids Code. Good housekeeping can be an effective loss control measure for this hazard. Both the office and the sales floor should be kept clean and free of debris and clutter. Are all floors and floor coverings swept, mopped, or vacuumed daily? All work surfaces should be kept neat and well organized in order to eliminate clutter. Trash should be removed from the premises and disposed of daily. All electrical wiring should be properly insulated and run inside the walls. Does the insured have equipment and machinery repair and/or refueling areas on the premises? If so, there is an

Source: Best's Underwriting Guide, Version 2017

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Copyright © 2017 A.M. Best Company. All Rights Reserved.

Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

increased risk from a potential fire due to the associated use and hazards of gasoline, diesel fuel, and LP-gas. With the exception of trucks using diesel fuel, which has a higher flashpoint, fires may result from fuel leaks ignited by a hot engine, an ignition system, electrical equipment, or other external ignition sources. The insured should be in compliance with NFPA 30A, Motor Fuel Dispensing Facilities and Repair Garages. Spray painting operations are a serious fire hazard and should only be conducted in NFPA-approved spray booths, in a cut-off area, or outside the facility. Does the insured conduct spray operations on the premises? If so, how much spray painting does the insured do, and where are such operations conducted? All spray booths and spray painting operations must be in compliance with NFPA 33, Standard for Spray Applications Using Flammable or Combustible Materials. Wherever such operations are conducted, exhaust fans are needed to draw paint fumes away from heating systems and other ignition sources. Explosion-proof electrical equipment and outlets must be used in spray booths and cut-off areas. Check the accumulation of paint on the walls, ceiling, exhaust fans, and ducts of the spray booths. Are paint residues cleaned off periodically to prevent explosions? How is the spray booth heated? Flame heat sources, such as portable heaters, should not be permitted anywhere near the spray booths and only heat from an outside source, hot water or steam should be used to heat the spray booth. Parts cleaning machines are used to degrease engine parts during repairs and represent a serious fire hazard. The insured may have tanks of approved high flash point solvents for cleaning motors and engine parts. Some firms will still use flammable solvents for parts cleaning operations. Parts cleaning machines which use these flammable solvents must be equipped with an operational trap door which automatically closes in the event of a fire. Because of its low flash point, gasoline must never be used to degrease motors and engine parts. The proper storage of these flammable materials is an extremely important consideration. Welding and cutting operations are a significant exposure for farm machinery and equipment dealers and should be conducted in an isolated area of the service department. Is the insured in compliance with NFPA 51B, Standard for Fire Prevention During Welding, Cutting, and Other Hot Work? Welding and cutting operations should only be handled by a licensed welder. Who conducts the insured's welding and cutting operations, and what are their experience and training? Welding curtains should be used to protect the surrounding area from sparks. What are the age, type, and condition of the insured's welding and cutting equipment? Welding torches and cables should be inspected and tested periodically for signs of wear. Are frayed or worn cables replaced promptly? If electrical arc welding is conducted, all electrical plugs must be inspected periodically, and cracked or broken plugs should be replaced prior to use. Tanks of propane, acetylene, and oxygen should be stored upright and secured in a protected area away from ignition sources. Refer to the Fire and E.C.: Property section of Welding, Brazing and Cutting report for more information. What flammable materials are stored in the service bay area? Most insureds will keep oil, gasoline, paint thinner, kerosene, transmission fluid, brake fluid, grease, lubricants, cleaners, and paints on the premises. These materials must be stored in an NFPA-approved, fire-resistant safety cabinet away from possible ignition sources. Used oil and grease must be collected in NFPA-approved, fire-resistant receptacles. Does the insured collect contaminated petroleum products and send it to a recycling facility? Servicing machinery and power equipment produces large amounts of waste oils that need to be collected and removed from the premises. How does the insured collect waste materials from changing oil and transmission fluid? Oil, grease, and other waste materials may spill on the floor and should be cleaned up immediately. Oil-soaked rags used to clean up spills must be disposed of in self-closing, fire-resistant canisters. These canisters should be removed from the premises daily as they constitute a serious fire hazard. There are a number of nonflammable absorbing materials that can be used to control this hazard, but sawdust, because of its flammability, must never be used. Many dealers have gasoline pumps and store large amounts of gasoline in aboveground storage tanks. The refueling depot should be situated away from the service department and potential ignition sources and should be separated from other areas by a firewall. Smoking must be prohibited during all refueling operations. All fuel pumps and fuel lines must be inspected periodically and kept in good condition. Since an engine spark could ignite gasoline vapors, machinery and equipment must be turned off during refueling. Are fuel spills cleaned up immediately? Some farm machinery and equipment dealers will sell regular and oversized tires for tractors and other machinery. Rubber is slow to ignite, but once ignited, it burns intensely and is difficult to extinguish. Where are tires stored on the insured's premises? Horizontal, solid piles of tires with clear aisles are recommended for best storage. Typically, tires are stored in the parts department storage area and/or in the service department. What type of fire detection and suppression system does the insured have in place? A sprinkler system is typical in the showroom, parts and service departments. Smoke detectors should be located throughout the premises. Both the fire detection and suppression system should be tested periodically. Are annually tagged, Class ABC fire extinguishers strategically located throughout the premises, and have employees been made aware of their location? Workers should be trained in the proper use of fire extinguishers. Since most dealers are located in rural areas, prefire planning is essential. The local fire service should be consulted and informed of all fire hazards. What is the response time of the local fire service? Is an adequate water supply available for putting out fires? According to industry experts, the farm machinery and power equipment dealer industry is cyclical, depends upon the local economy and can be hit hard by economic recessions. Periodic adverse weather and crop failure which affects farming will also affect this industry. As a result, there is a slight moral hazard associated with this industry. The underwriter should review the insured's financial records for the last five years to determine the insured's ability to withstand economic

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Best's Underwriting Guide

downturns. How dependent on computers is the insured for its day-to-day operations? Most insureds will have computers with software that has been specially designed to meet their needs. What are the age, number, type, and condition of the insured's computers and computerized cash registers? Do the insured's computers have identification numbers permanently etched on them? Depending on the type of software used, retail salespersons may be able to track and even print out bar coded tags for each individual item in the store. A complete record of each item (e.g., a description, the cost and selling price, etc.) can be kept on their computer, along with information on customers. What are the insured's recordkeeping practices? If essential information is stored on computer disks, backup disks should be kept off premises in an NRTL-listed, fire-resistant safe. Business Interruption Farm machinery and power equipment dealers will have a minor Business Interruption exposure. Most dealers will occupy standard commercial property, and therefore, relocation will not be problematical. Rebuilding or repairing the facility and replacing the insured's inventory of merchandise and parts should not prove difficult. In the event of a loss, is the insured more likely to rebuild, repair, or relocate? Relocation will not be difficult; standard retail space can fulfill the needs of the farm equipment and machinery dealers for sales and other business operations. However, if the insured has a number of large pieces of machinery that requires an equipment yard, repairing or rebuilding the facility will be more important as finding a large enough replacement space needed for such machinery may not be easy. Could operations continue while repairs were being made to the facility? Determine the amount of time it would take the insured to repair or rebuild in the event of a loss. What is the availability of temporary/replacement space in the insured's area? The size and scope of the insured's operations, such as a service department or equipment yard, will be a consideration. Smaller insureds should have little difficulty finding temporary retail space. It is recommended that the insured have a contingency plan in place. Does the contingency plan include arrangements with other farm equipment dealers? The service department is the main exposure, as it will require the installation of lifts, hoists, and cranes. The installation of gasoline and diesel fuel tanks may also take some time. In all likelihood, the insured could probably operate out of its home temporarily and have equipment manufacturers ship orders directly to customers. What is the availability of replacement equipment, supplies, and merchandise? The insured's inventory of merchandise, including parts, supplies, tools, and other equipment should be easy to replace. Does the insured maintain files on its suppliers in order to contact them should inventory runs low? Many insureds keep such files, either on computer or hard copy, so they could be contacted in the event that merchandise needed to be replaced quickly. Nevertheless, it could take several weeks or even months until the store's inventory is restored to its pre-loss levels. The insured may have a Contingent Business Interruption exposure if only one or two manufacturers supply the majority of the insured's stock. Other than manufacturers and suppliers, does the insured have any alternate means of obtaining supplies and parts? Does the insured deal with one key manufacturer? Does the insured experience a peak season? Typically, farm machinery and power equipment dealers sell most of their products in the spring and fall when farmers are either planting or harvesting their crops. Lines of outdoor power equipment and light industrial equipment are also seasonal and typically sell in the spring, summer, and fall. How much of the insured's revenue is related to its peak season sales? Is the insured more dependent on its location or reputation for business? Farm machinery and power equipment dealers rely on both walk-in and repeat clientele, so location is the key to the success of many insureds. Stores may be located in rural and suburban areas. Farm machinery is often an expensive purchase. Smaller, family-run stores are usually more service-oriented and, thus, are more likely to have a loyal customer base. These customers will most likely remain faithful to the insured, even in the event of a total loss. Given such occurrence, insureds may choose to rebuild on the same site, relocate nearby, or leave the area altogether. The insured may have an exposure related to his dependence on service income. Typically, parts and service comprise 30% to 40% of the insured's income. What percentage of the insured's income is related to parts and service? This percentage may fluctuate during economic downturns as equipment sales slump and parts and service sales increase. If the insured's mechanics had their own tools, they could continue to handle most service calls at customers' premises. More serious repairs, such as engine rebuilding, would have to be sent out to other dealerships. Does the insured have a reciprocal agreement with a competitor to use their service bay facilities or mechanic's tools? Inland Marine Loss or damage to new farm machinery and power equipment either sold or rented to customers will be covered here. Additional exposures include protection of valuable papers and records and mobile equipment. Overall, the Inland Marine exposure for farm machinery and power equipment dealers will be significant. In factory-authorized floor planning, the manufacturer ships the equipment to the insured. The insured pays the freight costs, but no finance charge for the first six months; this is done to encourage dealers to sell their inventories more quickly. After six months, a monthly installment fee is charged to the insured until the equipment is sold.

Source: Best's Underwriting Guide, Version 2017

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Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

The insured may finance its inventory of equipment through manufacturer floor planning programs, banks, or other financial institutions. Floor plan policies can be written to cover only the interest of the insured or the interest of the insured and the financial institution (e.g., manufacturers, wholesalers, banks, and other financial institutions). Some lending institutions will require floor plan insurance as a condition for financing. The dealer borrows money from the financial institution to pay the manufacturer and then makes monthly payments to the lender. Equipment financed through lending institutions is considered to be encumbered, meaning that the title documents for the equipment are held by the lender (i.e., the equipment is collateral for the loan). At the time of sale, when the dealer's interest terminates, the encumbrance is released by the lender. An Equipment Dealer's Policy and an Implement Dealer's Stock Floater provide "all risk" coverage for the loss, damage, or theft of farm machinery and power equipment in transit and while on the insured's premises. The Equipment Dealer's Policy typically excludes coverage for the operation of farm machinery and power equipment on highways and roadways. Farm machinery and power equipment are susceptible to damage from lightning, windstorm, hail, and fire. Claims have been filed for damage caused by accidents in transit or during loading or unloading operations. The machinery may also be damaged in collisions with other equipment or vehicles during equipment demonstrations or customer test drives. Non-owned equipment in the insured's care, custody, and control for repairs can also be covered by the Equipment Dealer's Policy. In addition, the Equipment Dealer's policy can be used to cover loss or damage to equipment in the insured's service department, including cranes, lifts, hoists, mechanic's tools, and roving repair service equipment. Farm machinery and power equipment is made to be durable and, if properly maintained, can last 20 years or longer. However, the high value of farm machinery and power equipment makes it extremely attractive to thieves. A tractor can cost up to $50,000, and more sophisticated equipment, such as bulldozers and combines, can cost over hundreds of thousands of dollars. What are the average and maximum values of the insured's inventory? In recent years, dealerships have encountered a high number of equipment thefts. Thieves armed with flatbed trucks and heavy duty cranes have stolen tractors and other equipment out of dealers' equipment yards. A high incidence of these thefts have occurred in rural locations along major highways. Where is the insured located, and how are the premises situated? The underwriter should investigate the response time of the local police. Do police patrol the area regularly? What security measures has the insured taken to protect its stock from damage or theft? Because of its size, farm machinery and power equipment is generally stored outside in an equipment yard. Is the machinery and equipment arranged in rows in an organized manner? Machinery should be placed in the park or locked position to prevent it from rolling into other equipment. Is the equipment yard well lit and fenced to deter thefts? Machinery and equipment stored in the yard should also be chained to the ground. Does the insured have a central-station alarm monitoring system in place? Removing the ignition switches from machinery and equipment will help to reduce the theft exposure as well. Does the insured have a night guard to patrol the facility? In addition, the insured should keep a list of all machinery, including make, model, and serial numbers in an NRTL-listed, fire-resistant safe; a copy of the list should be kept in a similar manner off premises. A transit exposure will exist relating to the delivery and pick up of new and used merchandise. Merchandise could be damaged while in transit from the insured's premises to the customer's premises. Improperly secured merchandise could fall off the truck or shift and cause the truck to crash. What precautions does the insured take to secure merchandise in transit? Farm machinery and power equipment dealers will also have a Bailee exposure because of customers' machinery in the insured's care, custody, and control for repairs. If the insured repairs machinery for customers, it will often pick up merchandise from the customer's premises and transport it back to its premises. Nonowned machinery could be damaged or stolen while being transported to or from the insured's premises or while on the insured's premises. What precautions are taken to secure nonowned machinery in transit and on the premises? The same security measures that protect the insured's stock from theft (e.g., perimeter fencing, adequate lighting, chaining down equipment, removing ignition switches) will help limit the Bailee exposure as well. Farm machinery and power equipment is often taken off premises by dealers for demonstrations at customers' premises or fairs. How frequently does the insured transport equipment to customer sites and fairs for demonstrations? Machinery and equipment is typically transported on flatbed trucks or trailers. What precautions are taken to secure the machinery in transit? Machinery should be chained to the trailer, the wheels should be chocked and the machine should be left in park to prevent it from rolling off the flatbed or trailer or shifting in transit. What security measures does the insured take on machinery and equipment demonstrated or displayed at a fair? The equipment must be operated only by experienced employees, and equipment on display should be supervised at all times. Does the insured equip machinery which is on display at a fair with an alarm system? Most insureds will use mobile equipment, such as forklifts and pallet loaders, to unload or load inventory from trucks as well as to move machinery and equipment on the sales floor. What are the age, type, and condition of the insured's mobile equipment? Mobile equipment should be permanently etched with identification numbers to aid in their recovery if stolen. A Mobile Equipment Floater will therefore be necessary. Mobile equipment should be serviced regularly by qualified professionals to avoid breakdowns and extend its lifetime. Does the insured conduct daily checks and regular servicing of all its mobile equipment? The insured may require Valuable Papers and Records coverage for leases, contracts signed with manufacturers, wholesalers, and subcontractors, chain-of-custody documents, employment and accounting records, as well as other business documents. Are all valuable papers and records stored in an NRTL-listed, fire-resistant safe? Copies of important

Source: Best's Underwriting Guide, Version 2017

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Farm Machinery and Power Equipment Dealers

Best's Underwriting Guide

records and papers should be stored likewise in an off-premises safe. UNDERWRITER'S CHECKLIST What product lines does the insured sell – farm machinery, outdoor power equipment (OPE), or light industrial equipment? How much of each type or types of products are sold? Is the insured a contract dealer? How many factory-authorized product lines does the insured carry? What percentage of the insured's sales revenue is derived from the sale of new and used equipment, and what percentage from parts, rentals, and service? Does the insured have a roving repair service? From where does the insured obtain its floor plan financing – the manufacturer or financial institutions? Does the insured have a peak season? Is the dealership situated in a remote rural area or a suburban area? Is the insured located near a major highway? Is all equipment in the equipment yard fitted with an alarm? Are the premises well lit and fenced? How many mechanics does the insured employ? Have they been trained by factory-sponsored schools? Are they all currently certified? Are the insured's salespeople required to attend factory-sponsored sales training courses? Does the insured ever demonstrate equipment at customers' premises or at fairs? Are customers allowed to test drive equipment before buying it? Where are test drives conducted? Are customers given adequate operating instructions, and are they well supervised? ACKNOWLEDGEMENTS  

Source: Best's Underwriting Guide, Version 2017

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Copyright © 2017 A.M. Best Company. All Rights Reserved.