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Final Agency Determination: FAD-184

Subject:

Request dated January 4, 2013, requesting a Final Agency Determination for the 2011 and succeeding crop years regarding the interpretation of section 508(k)(2), and 508(b)(8), 508(h)(6) of the Federal Crop Insurance Act (Act) (7 U.S.C. § 1509). This request is pursuant to 7 C.F.R. § 400, subpart X.

Background:

Section 508(b) of the Act states, in relevant part:

(b) CATASTROPHIC RISK PROTECTION.

(1) IN GENERAL. The Corporation shall offer a catastrophic risk protection plan to indemnify producers for crop loss due to loss of yield or prevented planting, if provided by the Corporation, when the producer is unable, because of drought, flood, or other natural disaster (as determined by the Secretary), to plant other crops for harvest on the acreage for the crop year.

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(8) LIMITATION DUE TO RISK. The Corporation may limit catastrophic risk coverage in any county or area, or on any farm, on the basis of the insurance risk concerned.

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Section 508(h)(6) of the Act states, in relevant part:

(h) SUBMISSION OF POLICIES AND MATERIALS TO BOARD.

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(6) ADDITIONAL PREVENTED PLANTING POLICY COVERAGE.

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(C) TIMING OF LOSS. A crop loss shall be covered by the additional prevented planting coverage if

(i) crop insurance policies were obtained for

(I) the crop year the loss was experienced; and

(II) the crop year immediately preceding the year of the prevented planting loss; and

(ii) the cause of the loss occurred

(I) after the sales closing date for the crop in the crop year immediately preceding the loss; and

(II) before the sales closing date for the crop in the year in which the loss is experienced.

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Section 508(k) of the Act states, in relevant part:

(k) REINSURANCE.

(1) IN GENERAL. Notwithstanding any other provision of this subtitle, the Corporation shall, to the maximum extent practicable, provide reinsurance to insurers approved by the Corporation that insure producers of any agricultural commodity under 1 or more plans acceptable to the Corporation.

(2) TERMS AND CONDITIONS. The reinsurance shall be provided on such terms and conditions as the Board may determine to be consistent with subsections (b) and (c) and sound reinsurance principles.

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Interpretation Submitted:

The requestor believes that Congress has granted the authority to FCIC to regulate reinsurance within the program using policy and procedure and to limit insurance consistent with sections 508(b) and•(c) of the Act as necessary based on sound reinsurance principles. The requestor believes the law clearly states that the terms and conditions of reinsurance can be limited, notwithstanding any other provision of the subtitle. Therefore, the requestor believes section 508(b), in conjunction with 508(k)(2), grants FCIC the authority to limit reinsurance on any farm, county, or region based on the insurance risk concerned, despite the presence of a cause of loss within the insurance period defined in section 508(h)(6) of the Act. The requestor believes this authority is granted by Congress through the Act at sections 508(k)(1) and (2), and 508(b)(8).

Furthermore, the requestor understands 508(h)(6) to mean that only acreage that suffers a crop loss is eligible for prevented planting, because the law specifically states that only a crop loss is covered by prevented planting coverage. Therefore, the requestor does not believe that any acreage claimed as prevented planting, which experienced a cause of loss within the insurance period, is eligible for prevented planting coverage. The presence of a cause of loss in itself does not determine that an actual loss existed; the requestor believes section 14 of the Basic Provisions supports this as well, requiring both a cause of loss and an actual loss be established prior to indemnification. Cause of loss indicates that a loss could exist based on the conditions experienced. It must be established that the acreage that experienced the cause of loss is Federal Crop Insurance Corporation (FCIC) defined cropland (acreage physically available for planting) which would have been able to produce a crop if planted, and thus actually had a crop loss. For example, rain on a lake does not produce a loss, because the acreage cannot sustain a crop to begin with. It is a lake. The requestor believes potholes, marshes, and lakes within the Prairie Pothole National Priority Area of the United States shrink and dry during dry periods, and are consequently classified with the Farm Service Agency as cropland. As a result, during normal and wet weather the acreage is susceptible to normally recurring moisture and is vulnerable to subsequent prevented planting claims and indemnification due to a perceived cause of loss (excess moisture).

The requestor believes claims must be adjusted using the procedures (handbooks, manuals, memoranda and bulletins), as issued by the FCIC and published on RMA's Web site at http://www.rma.usda.gov/ or a successor Web site, in the administration of the policy. The requestor believes approved policy and procedures define cropland acreage for crop insurance purposes, and thus acreage FCIC would deem eligible for an indemnity due to a crop loss, if a cause of loss occurred. The requestor believes procedures require producers to prove specifically which acreage experienced a loss, and approved insurance providers (AIPs) are required to verify and that proof based on section 14 of the Basic Provisions, and any Special Provisions for the area which may limit coverage. Moreover, if a loss cannot be determined, the acreage is ineligible for prevented planting, because the requirements of the Basic Provisions, and thus the Act have not been met.

The requestor believes AIPs are required to inspect all acreage claimed as prevented planting because they have the burden to determine whether marsh vegetation existed prior to and during the insurance period. The 2012 Special Provisions for the Prairie Pothole National Priority Area state that acreage which has or recently had marsh vegetation is acreage not considered physically available for planting. Therefore, the requestor believes all acreage must be inspected to determine if acreage claimed for prevented planting indemnification contains new submerged aquatics and other marsh vegetation. For example, for the 2012 planting period, an insured is unable to plant acreage surrounding a pothole and claims PP on that acreage. The producer was able to plant the acreage surrounding the pothole in crop year 2010, but unable to plant the acreage in crop year 2011. The AIP would be required to inspect the acreage in crop year 2012 and determine whether the acreage had marsh vegetation prior to March 15, 2011.

Final Agency Determination:

FCIC has the authority under sections 508(b)(8) and 508(c)(9) of the Act to limit coverage in a county, area or farm and FCIC has exercised that authority by declaring acreage uninsurable. However, this limitation of the risk is based on the availability of insurance, not a specific cause of loss. Section 508(k)(2) of the Act is irrelevant to the authority conferred in sections 508(b)(8) and 508(c)(9) of the Act to limit coverage based on the risk. Unless the acreage has been determined to be uninsurable because of the risk, prevented planting and loss of production are covered causes of loss unless coverage is excluded in the policy provisions. FAD-183, issued by FCIC on February 28, 2013, identifies the provisions of the Act that are specific to limiting coverage on the basis of the insurance risk.

FCIC does not agree section 506(h)(6) of the Act means that only acreage that suffers a crop loss is eligible for prevented planting. Section 508(b)(1) of the Act clearly states FCIC shall offer a catastrophic risk protection plan to indemnify producers for crop loss due to loss of yield or prevented planting, if provided by FCIC. Prevented planting by definition is in part, the inability to plant the crop. Therefore, coverage is provided against the inability to plant a crop by an insurable cause of loss that occurs within the time period specified in section 508(h)(6) of the Act. Additionally, section 508A(c) specifically allows a producer the option to collect an indemnity payment on acreage for the first crop when that crop is insured in a crop year and is prevented from being planted.

Lastly, FAD-110 published February 25, 2010, FAD-119 published July 15, 2010, and FAD-179 published January 8, 2013, found on RMA’s Web site, address the subject of prevented planting, which is largely the issue the requestor presents.

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 2011 and succeeding crop years the provisions are in effect. Any appeal of this decision must be in accordance with 7 C.F.R. § 400.768(g).

Date of Issue: March 25, 2013