Final Agency Determination: FAD-047

Subject: Request dated February 7, 2005, requesting a Final Agency Determination for the 2005 crop year (for crops with a contract change date of August 31, 2004, or later) and subsequent crop years, regarding the interpretation of section 3(g)(2) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions), published at 7 C.F.R. 457.8. This request is pursuant to 7 C.F.R. part 400, subpart X.

Sections 3(f)(2) and 3(g)(2) of the Basic Provisions state, as here pertinent:

3. Insurance Guarantees, Coverage Levels, and Prices.

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(f) It is your responsibility to accurately report all information that is used to determine your approved yield. . . .

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(2) If you misreport any material information used to determine your approved yield:

(i) We will correct the unit structure, if necessary; and

(ii) You will be subject to the provisions regarding misreporting contained in section 6(g) . . . .

(g) In addition to any consequences in section 3(f), at any time the circumstances described below are discovered, your approved yield will be adjusted:

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(2) By reducing it to an amount consistent with the average of the approved yields for other databases for your farming operation with the same crop, type, and practice or the county transitional yield, as applicable, if:

(i) The approved APH yield is greater than 115 percent of the average of the approved yields of all applicable databases for your farming operation that have actual yields in them or it is greater than 115 percent of the county transitional yield if no applicable databases exist for comparison; and

(ii) The current year’s insured acreage . . . is greater than 400 percent of the average number of acres in the database or the acres contained in two or more individual years in the database are each less than 10 percent of the current year’s insurable acreage in the unit . . . .

Interpretation Submitted

The requestor interprets sections 3(f) and (g) to provide penalties that are cumulative. To wit, if an insured’s approved yield results in the imposition of a penalty described in section 3(g)(2), the insured also is subject to the measures set forth in section 3(f).

Moreover, the triggering factors described in sections 3(g)(2)(i) and (ii) do not necessarily entail the misreporting of material information. Rather, these subsections address quantitative discrepancies between an insured’s approved yield and yields contained in the subject database. More specifically, the fact that an insured’s approved APH yield is greater than 115 percent of the average of the approved yields does not mean that the insured misreported material information that is used to determine the approved yield. Nonetheless, by virtue of the phrase “in addition to any consequences in section 3(f),” an insured whose approved yield triggers section 3(g)(2) is subject to section 3(f) regardless of whether the insured misreported material information.

Final Agency Determination

The Federal Crop Insurance Corporation (FCIC) agrees the triggering of factors described in sections 3(g)(2)(i) and (ii) does not mean the insured misreported information. However, FCIC does not agree that triggering these provisions automatically subjects the insured to the provisions in section 3(f)(2) regarding the misreporting of information. An insured could report all production and acreage information correctly and still trigger the factors described in sections 3(g)(2)(i) and (ii). In this case, the producer is not subject to the provisions in section 3(f).

The reference to “in addition to the consequences in section 3(f),” was intended to provide notice that if there has been information misreported and the conditions in section 3(g)(2) have been met, both consequences can be applied. However, the misreporting provisions in section 3(f)(2) only apply if material information provided by the insured has actually been misreported. If material information has not been misreported, the misreporting provisions will not apply even though there may be an actual production history adjustment in accordance with section 3(g)(2).

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 2005 crop year (for crops with a contract change date of August 31, 2004 or later) and succeeding crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: May 3, 2005