INFORMATIONAL MEMORANDUM: R&D-95-047 TO: All Reinsured Companies CFSA Headquarters, Program Delivery and Field Operations All Risk Management Field Offices FROM: Tim B. Witt Acting Director Research and Development Division SUBJECT: Loss Adjustment of Crops Damaged by the Early Freeze BACKGROUND: The early freeze across parts of the country has resulted in questions regarding the adjustment of losses. Among other issues addressed below, a concern has been expressed regarding quality adjustment of coarse grains (corn, soybeans, and grain sorghum) with excessive kernel damage and/or low test weight. ACTION: Adjust claims for frost or freeze damage in accordance with the instructions contained in the individual crop handbooks, the Loss Adjustment Manual (LAM), the Special Provisions (for coarse grains) and the following guidelines. 1 If the insured wants immediate release of crop acreage to put it to another use (e. g., to plant winter wheat for the 1996 crop year), the LAM provides instructions for appraising representative sample areas and representative strips under specific circumstances. 2 The insurable cause and amount of damage to representative sample areas must reflect only the cause and amount of damage suffered before the end of the insurance period defined in the policy. Among other specified events, harvest or destruction of the crop ends the insurance period. As an example, corn insured for grain is harvested for silage and representative sample areas were left for grain appraisals. After the corn was harvested as silage, a killing freeze damaged the representative sample areas. The final appraisal must be based upon the amount of damage evident at the time the crop was harvested as silage. The freeze damage to the representative sample areas is not covered since it occurred outside the insurance period. 3 Kernel damage must be determined by grain graders licensed by the Grain Inspection, Packers and Stockyards Administration (GIPSA), formerly the Federal Grain Inspection Service (FGIS), or under the United States Warehouse Act (USWA). All samples used for quality adjustment purposes must be obtained by the insurance provider or by a disinterested third party approved by the insurance provider. Loss adjusters are to verify that a grading certificate has been issued by either GIPSA or a licensed grader authorized under the USWA. Kernel damage not determined by a grader licensed by either the GIPSA or the USWA must not be used for quality adjustment purposes. Soybeans damaged by frost or freezing temperatures will be considered as damaged for grading purposes ONLY if the kernels have damage in accordance with the grain standards. Damage which appears to be severe can be superficial; i.e., soybeans which have been injured by frost or freeze near maturity may be discolored (green), but still not qualify as damaged. Soybeans damaged by frost or freeze at the immature stage of growth can also be discolored (green) and be considered as damaged under inspection. Low oil content, high fatty acid content, or other factors not used in determining the "official" grade and damage by the inspection agency will not be used for quality adjustment purposes. 4 Quality Adjustment of Coarse Grains (Corn, Soybeans, and Grain Sorghum) The first paragraph of the quality adjustment statement in the Coarse Grains Special Provisions states that any grain which, due to insurable causes, has zero value either before or after quality adjustment will not be considered production to count. This applies regardless of whether the grain's test weight or kernel damage percentage is within the range provided on the factor chart (or whether soybeans have a musty, sour, or commercially objectionable foreign odor). However, as provided in the LAM's guidelines for establishing values or reductions in value (RIV's), the loss adjuster is responsible for ensuring that only usual, customary, and reasonable discounts are allowed in establishing the value or RIV's of damaged production. Accordingly, loss adjusters are responsible for ensuring that any zero value is reasonable and that any zero-value production is destroyed before the claim is finalized (see paragraph B below and the LAM). A If the insured prefers to destroy production which has some value, apply the applicable discount factors as provided in the Coarse Grains Special Provisions. B If production is declared zero value, a completed certification form verifying destruction of the production must be received from the insured before the claim can be finalized. If the production is considered injurious to human or animal health due to the presence of substances or conditions identified by the Food and Drug Administration or other public health organizations of the United States, destruction must be in accordance with Extension Service and any other governmental guidelines. In lieu of destroying production which is determined to have no value otherwise, insureds may offer a value for the production or may intend to utilize the production in a manner which establishes a value. In such cases, the established value will be utilized in accordance with the LAM guidelines to determine the RIV for quality adjustment purposes if: 1 A higher value for the production cannot be determined, 2 Final disposition of the production is not in conflict with Extension Service or other public health guidelines, and 3 The insured certifies the projected method of final disposition.