Subject: Request dated February 6, 2004, for Final Agency Determination for the 2003 and succeeding crop years, regarding the interpretation of sections 11(d)(2) and 11(e) of the Northern Potato Crop Provisions (NCPC), as published at 7 C.F.R. 457.142. This request is pursuant to 7 C.F. R. part 400, subpart X.

Sections 11(d) (2) and 11(e) state:

11. Settlement of Claim.

(d) The total production to count (in hundredweight) from all insurable acreage on the unit will include:

(1) . . .
(2) All harvested production from the insurable acreage (the amount of production prior to the sorting or discarding of any production).

(e) Potato production is eligible for quality adjustment if:

(1) The potatoes have freeze damage or tuber rot that is evident at, or prior to, the end of the insurance period; and
(2) A grade inspection is performed. . . .

(f) Potato production is eligible for quality adjustment, as specified in section 11(e) with a 5.1 percent damage or more (by weight) will be adjusted as follows:

(1) . . .
(2) For potatoes that have tuber rot due to an insurable cause other than freeze damage, production to count will be determined as follows:
. . .

An insured, who has not purchased the quality the Quality Endorsement (7 C.F.R. 457.143), harvests potatoes and delivers them to a processor, who subsequently rejects the potatoes because of insect damage to the tubers (holes bored by wireworms). The insured files a notice of loss and claims that the potatoes are eligible for a quality adjustment in accordance with section 11(e).

In this case, the requestor interprets section 11(e) of the NPCP to preclude the application of a quality adjustment and requires the insurance provider to count all harvested production, including production subsequently rejected by the processor because of insect damage. Specifically, section 11(e) authorizes a quality adjustment only if the potatoes have freeze damage or tuber rot and a grade inspection is performed. The requestor considers section 11(g) (2) to be irrelevant because it expressly applies only to potatoes afflicted with tuber rot. Thus, insect damage, which is damage other than freeze damage or tuber rot, is not entitled to a quality adjustment absent the Quality Endorsement. Accordingly, the requestor believes that section 11(d)(2), which requires that all harvested production be considered "production to count," compels it to count as production all potatoes harvested and delivered to the processor, even those ultimately rejected because of insect damage.

The Federal Crop Insurance Corporation (FCIC) agrees with the interpretation provided. Under section 11(e), only production having freeze damage or tuber rot can be adjusted for quality deficiencies under the terms of the NPCP. Under section 9(a) of the NCPC, insect coverage is a covered cause of loss but because it does not qualify for a quality adjustment under section 11(e), insect damage is only considered to the extent that it reduces the total amount of potato production. Section 11(g)(2) is not applicable because even though it refers to other insured causes of loss, such causes of loss have to cause tuber rot before the production is eligible for a quality adjustment under the NPCP. Potato production is eligible for quality adjustments caused by insects only under the terms of the Northern Potato Quality Endorsement.

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 2003 and subsequent crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: May 6, 2004