Final Agency Determination: FAD-019

FAD-019

Subject: Interpretation of a portion of section 14(d)(2) 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. 457.8. 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 section 14(d)(2) of the Basic Provisions. This request is pursuant to 7 C.F.R., part 400, subpart X. Section 14(d)(2) states in part:

14. Duties in the Event of Damage or Loss - Your Duties
. . .

(d) Upon our request, you must:
. . .

(2) Submit to examination under oath.

Section 14(d)(2) is interpreted to mean that an insured's duty to submit to an examination under oath survives the initiation of an arbitration proceeding. The fact that the Federal government provided for both arbitration and examination rights in 7 C.F.R. 457.8 demonstrates a conscious decision to provide a contractually bargained-for process that protects the complete investigatory interests of the insurer and the U.S. Treasury's commitment to reinsure their risks. Further, the refusal to submit to an examination under oath constitutes a material breach of the insured's duty of cooperation, which is a condition precedent to recovering proceeds under the policy. Also, the provision in the policy and in the regulations requiring an insured to submit to examination is a contractual obligation with which the insured must comply, regardless of whether the matter has been submitted to arbitration.

The Federal Crop Insurance Corporation (FCIC) agrees that section 14(d)(2) requires an insured to submit to an examination under oath and that initiation of arbitration proceedings does not change this requirement. There is nothing in section 14(d)(2) that places any restrictions on when such examination may take place or links it in any way to the arbitration or any other legal process. If the matter is in arbitration, the insurance company has the right to question the insured under oath in conjunction with that proceeding.

FCIC also agrees that refusal to submit to an examination under oath constitutes a breach of policy requirements. Such a breach could jeopardize receipt of any indemnity if the refusal to submit to the examination under oath results in the inability to accurately determine the amount of loss or whether a loss occurred.

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