Final Agency Determination: FAD-052
Subject: Request dated May 23, 2005, requesting a Final Agency Determination for the 2004 and subsequent crop years regarding the interpretation of section 17(e)(1)(i) of the Common Crop Insurance Policy (CCIP) Basic Provisions (Basic Provisions), published at 7 C.F.R. 457.8. This request is pursuant to 7 C.F.R. part 400, subpart X.
In the prefatory note of the Basic Provisions, the CCIP states: "Throughout this policy, "you" and "your" refer to the named insured shown on the accepted application."
Section 17(e)(1)(i) of the Basic Provisions states, as here pertinent:
Section 17. Prevented Planting
(1) *** The eligible acres for each insured crop will be determined in accordance with the following table.
|Type of Crop
||Eligible acres if, in any of the 4 most recent crop years, you have planted any crop in the county for which prevented planting insurance was available or have received a prevented planting insurance guarantee
||Eligible acres if, in any of the 4 most recent crop years, you have not planted any crop in the county for which prevented planting insurance was available or have not received a prevented planting insurance guarantee
|(i) The crop is not required to be contracted with a processor to be insured
||(A) The maximum number of acres certified for APH purposes, or insured acres reported, for the crop in any one of the 4 most recent crop years (not including reported prevented planting acreage that was planted to a second crop unless you meet the double cropping requirements in section 17(f)(4)…
||(B) The number of acres specified on your intended acreage report which is submitted to us by the sales closing date for all crops you insure for the crop year and that is accepted by us...
For purposes of determining whether to apply subsection (A) or subsection (B), the requestor interprets the term "you" in section 17(e)(1)(i) of the Basic Provisions to refer to the current named policyholder, as opposed to any prior insured entity even if that entity was made up of at least one person that had a substantial beneficial interest in the current named policyholder and the prior entity qualified the named policyholder to receive the actual production history (APH) of the previously insured entity. The requestor states that the reference to "you" means it can only consider whether the current named policyholder "planted any crop in the county for which prevented planting insurance was available . . ."
The requestor provided an example to explain the context of the interpretation as follows:
In 2003, A Farms, which had been a policyholder and had received prevented planting payments, is dissolved. In 2004, a new entity, B Farms, is formed. All Actual Production History (APH) and loss experience was transferred from A Farms to B Farms because at least one person who had a substantial beneficial interest in A Farms also has a substantial beneficial interest in B Farms. In 2004, B Farms submits a prevented planting claim. Moreover, to satisfy the requirement of planting in the county or receiving a prevented planting insurance guarantee "in any of the 4 most recent crop years," B Farms submits a prevented planting payment received by A Farms in one of the 4 most recent crop years. In light of A Farms" planting and prevented planting history, B Farms claims it is subject to section 17(e)(1)(i)(A). The requestor disagrees.
Based on its interpretation of "you," the requestor does not believe that subsection 17(e)(1)(i)(A) applies to B Farms because B Farms never had planted a crop or received a prevented planting insurance guarantee in the county. The fact that B Farms borrowed the production and loss history of A Farms does not change the fact that B Farms had not planted any crop or received a prevented planting insurance guarantee in the county in the most recent 4 crop years. Therefore, for purposes of adjusting B Farms" prevented planting claim, the requestor must apply subsection 17(e)(1)(i)(B) and an intended acreage report is required to establish B Farms" prevented planting acreage.
Final Agency Determination
The Federal Crop Insurance Corporation (FCIC) agrees in part with the interpretation.
FCIC agrees that the term "you" in section 17(e)(1)(i) refers to the current policyholder (the named insured on the accepted application). In the requestor's example, this would mean "you" would refer to B Farms, the current policyholder.
However, FCIC does not agree that "you" can be read as narrowly as the requestor has suggested. To accept such an interpretation would permit producers to constantly change entities to avoid the use of their production histories or qualify for new producer status. The policy must recognize that entities are made up of individuals who make the actual decisions, pay the premium, and receive the benefits of indemnities paid. To do otherwise would introduce significant program vulnerability to waste and abuse.
This interpretation is supported by section 4C(8)(e) of the Crop Insurance Handbook, which states that if an entity is dissolved and a new entity is formed, FCIC requires that the new entity report the production history of the old entity if any person within the entity would qualify as a successor-in-interest. In addition, section 6C of the Crop Insurance Handbook states that if an insured received a share of the insured crop's production or was a member or substantial beneficial interest of a person that received a share of the insured crop's production, that insured is considered to have produced the crop that crop year in the county in which it was produced.
Since FCIC requires the successor entities to assume the actual yields of the previous entities and considers the entity's members to have produced the crops for the purpose of determining actual production history and new producer status, FCIC cannot claim that these APH requirements do not apply for the purpose of determining whether the successor entity previously produced the crop under section 17(e)(1)(i).
Accordingly, in the example provided, the maximum number of acres eligible for prevented planting for B Farms would be determined based on the number of planted acres contained in B Farms" APH database in accordance with section 17(e)(1)(i)(A).
In accordance with 7 C.F.R. 400.765(c), this Final Agency Determination is binding on all participants in the Federal crop insurance program for the 2004 and succeeding crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).
Date of Issue: August 16, 2005