Final Agency Determination: FAD-018

FAD-018

Subject: Interpretation of a portion of section 457.7 of the Common Crop Insurance Policy Basic Provisions (Basic Provisions), published in the Code of Federal Regulations (C.F.R.) at 7 C.F.R. 457.7. Background

On May 9, 2003, the Risk Management Agency was asked for a Final Agency Determination for the 2000 crop year, regarding the interpretation of a portion of section 457.7 of the Basic Provisions. This request is pursuant to 7 C.F.R., part 400, subpart X. Section 457.7 states in relevant part:

The contract.

No indemnity shall be paid unless the insured complies with all terms and conditions of the contract.

Section 457.7 is interpreted to mean that "before an insurance company must make a payment to an insured agricultural producer under a crop insurance contract reinsured by the Federal Crop Insurance Corporation ("FCIC"), the insured must comply fully and completely with all terms and conditions of the contract, and that no indemnity is due the insured if he or she fails to comply or only partially complies with such terms and conditions."

The Federal Crop Insurance Corporation (FCIC) agrees that section 457.7 requires an insured to comply with all policy provisions before an indemnity is paid. In addition, section 14(a) of the Common Crop Insurance Policy (Basic Provisions) (7 C.F.R. 457.8) requires compliance with all policy provisions before an indemnity is paid. Failure to comply with the policy requirements constitutes a breach of the insurance contract and could jeopardize receipt of any indemnity if such breach is determined to be substantive. For example, if the breach results in the inability to accurately determine the amount of loss or whether a loss occurred, then no indemnity could be paid.

However, when failure to comply with a provision is determined to not affect the amount or existence of a loss in any way, or when the policy provides a remedy for the failure to comply with a policy term, then an indemnity may still be paid. For example, section 3(c) of the Basic Provisions requires the insured to report production for an insured crop by a certain time, but this section also states a yield will be assigned if the insured fails to comply with the requirement. In this case, although the insured did not fully comply with a policy provision, an indemnity could still be paid.

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 crop year 2000.

Date of Issue: August 5, 2003