Final Agency Determination: FAD-027

FAD: 027

Subject: Request dated October 29, 2003, for Final Agency Determination of section 26(a), Payment and Interest Limitation, Part (a), of the Common Crop Insurance Policy Basic Provisions (Basic Provisions), applicable for the 2004 and subsequent crop years. This request was submitted pursuant to 7 C.F.R. part 400, subpart X.

Section 26(a) of part 1 of the Basic Provisions provides, as here pertinent:

(a) Under no circumstances will we be liable for the payment of damages (compensatory, punitive, or other) attorney's fees, or other charges in connection with an claim for indemnity, whether we approve or disapprove of such claim.

The requester interprets the term "other charges" to include the costs incurred by an insured in conjunction with the initiation and prosecution of legal action, whether in arbitration or litigation. Based on its interpretation, it is the requester's opinion that an insured that prevails in arbitration, for example, may recover the underlying indemnity but is not entitled to recoup the charges associated with the arbitration. The requester further contends that section 26(a) supersedes the rules of the American Arbitration Association, which grant an arbitrator the discretion to award or allocate the costs of arbitration.

The Risk Management Agency (RMA) disagrees with the interpretation of section 26(a) of the Basic Provisions submitted by the requester. This provision must be read in conjunction with other provisions of the Basic Provisions and FCIC regulations. Section 25(c) of the Basic Provision states that the producers right to recover "other charges" is limited or excluded by Federal regulation or the contract. Under limited circumstances, such costs may be imposed on insurance companies in accordance with 7 C.F.R. 400.352(b)(4). This interpretation is supported by the definition of "ultimate net loss" in the Standard Reinsurance Agreement, which states that ultimate net loss may include court costs.

In accordance with 7 CFR 400.765 (c) this constitutes the Final Agency Determination and is binding on all participants in the Federal crop insurance program for the 2004 and subsequent crop years, unless such provisions are revised.

Date of Issue: January 26, 2004