Final Agency Determination: FAD-013

FAD-013

Subject: Section 25(b) of the Common Crop Insurance Policy Basic Provisions (7 C.F.R. § 457.8)

On February 6, 2002, the Risk Management Agency (RMA) was asked for a final agency determination for the 1999 and succeeding crop years, regarding the interpretation of section 25(b) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions) (7 C.F.R. § 457.8). The request is pursuant to 7 C.F.R. part 400, subpart X.

Section 25(b) of the Basic Provisions states:

If you do take legal action against us, you must do so within 12 months of the date of denial of the claim. Suit must be brought in accordance with the provisions of 7 U.S.C. 1508(j).

The requestor also pointed out that section 20(a) of the Basic Provisions provides that disputed factual determinations involving a policyholder and the company are to be resolved "in accordance with rules of the American Arbitration Association."

The requestor's of section 25(b) of the Basic Provisions is as follows: Based on the preamble to the Basic Provisions, the requestor opines that, with regard to the first sentence of section 25(b), "you" refers to the policyholder and Aus@ refers to the insurance provider.

The requestor interprets the term "legal action" to encompass both litigation and arbitration, the latter of which is mandated by the Basic Provisions. Accordingly, if a policyholder fails to initiate litigation or arbitration within 12 months of the denial of the claim, section 25(b) bars the policyholder from bringing legal action against the insurance provider. In short, section 25(b) is a contractual limitations period.

RMA agrees with the requestor's following interpretations: (1) based on the preamble to the Basic Provisions, with regard to the first sentence of section 25(b), "you" refers to the policyholder and "us" refers to the insurance provider; (2) section 20(a) of the Basic Provisions provides for disputes between the policyholder and the insurance provider regarding any factual determination to be resolved in accordance with rules of the American Arbitration Association; and (3) the provisions contained in section 25(b) of the Basic Provisions provide a 12-month period from the date of the denial of the claim for the policyholder to bring legal action.

RMA also agrees with the requestor's interpretation that "legal action" encompasses both litigation and arbitration. Arbitration must be completed prior to the producer's bringing any suit in a court. If suit must be brought within 1 year of the denial of the claim, any administrative appeal of that denial through arbitration must also be brought within 1 year of the notice of the denial of the claim. To find otherwise would negate the statutory limitation of the time to file suit found in section 508(j) of the Federal Crop Insurance Act because producers could simply wait 1 year before requesting arbitration.

Further, if "legal action" was not intended to include arbitration, the Federal Crop Insurance Corporation (FCIC) would simply have specified that 'suit" must be brought within 1 year of the denial of the claim, to be consistent with the following sentence in that paragraph. The fact that FCIC used both the terms "legal action" and 'suit" in the same paragraph means that they must be given different meanings, and the only meaning that can be ascribed to "legal action" includes arbitration.

In accordance with 7 C.F.R. § 400.765(c), this constitutes the final agency determination and is binding on all participants in the Federal crop insurance program for the 1999 and succeeding crop years.

Date of Issue: April 23, 2002