Final Agency Determination: FAD-050

Subject: Request dated April 14, 2005, requesting a Final Agency Determination for the 2004 crop year and subsequent crop years, regarding the interpretation of section 8(h) of the Cotton Crop Insurance Provisions, published at 7 C.F.R. § 457.104 and the Extra Long Staple Cotton Crop Insurance Provisions, published at 7 C.F.R. § 457.105. This request is pursuant to 7 C.F.R. part 400, subpart X.

Section 8 (h) of the Cotton Crop Provisions and Section 8 (h) of the ELS Cotton Crop Provisions state, as here pertinent:

"8. Causes of Loss

In accordance with the provisions of section 12 (Causes of Loss) of the Basic Provisions, insurance is provided only against the following causes of loss which occur within the insurance period:

* * *

(h) Failure of irrigation water supply, if applicable, due to an unavoidable cause of loss occurring within the insurance period."

The requestor asked that the Final Agency Determination interpret what constitutes a "failure of the irrigation water supply" especially as it pertains to the release of irrigation water by the Federal Government, such as the Bureau of Reclamation ("BOR") and other irrigation districts.

The requestor interprets "failure of the irrigation water supply" with respect to water allocated to producers by the Federal Government or other irrigation districts, to apply only to those situations in which the amount of water allocated is less than the normal allotment and the reason for the reduction is itself unavoidable. More specifically, if under normal water conditions, the BOR allocates 65 percent of its total historic water volume for agricultural use, then a 65 percent allocation in subsequent years does not constitute a failure of the irrigation water supply. In short, an allocation of less than 100 percent of the contracted allotment is not a failure of the irrigation water supply if a water district never has the expectation of receiving 100 percent of the contracted allotment.

The requestor provided the following scenario to better illustrate their interpretation:

Historically, the BOR's Central Valley Project delivers 65 percent of the total contracted water volume to its agricultural producers south of the Delta, each of whom has a contract with the BOR. If, in 2004, the BOR provided this 65 percent prior to the final planting date, then failure of the irrigation water supply would not constitute an insurable cause of loss.

The requestor interprets section 8(h) of the Cotton Crop Provisions and ELS Cotton Crop Provisions to mean that a loss is payable only if the water supply is reduced below the amount that would normally be available had the insured cause of loss not occurred.

FCIC agrees that a loss is payable only if the water supply is reduced during the insurance period to an amount that is less than what would normally be available had the insured cause of loss not occurred. Section 9(b) of the Basic Provisions makes it clear that acreage qualifying as irrigated is limited to the acreage for which the insured had adequate facilities and water or the reasonable expecting of receiving adequate water. This means that if the BOR normally provides 65 percent of the contracted water allotment, no loss is payable if the BOR continues to provide 65 percent of the contract water allotment.

However, FCIC disagrees that such failure need only be unavoidable. Such failure must also be due to an insured cause of loss that occurs within the insurance period. For prevented planting purposes, the insurance period for a new applicant begins on the sales closing date for the current crop year. The insurance period for a carryover insured begins on the prior year's sales closing date. For planted acreage, insurance attaches at the time of planting.

This means that if the BOR reduced the normal 65 percent allotment because of an insured cause of loss (e.g., drought) that occurred within the insurance period, such failure of the irrigation water supply is covered. However, if the BOR reduced the allotment because of an uninsured cause of loss such as a court order or an agreement by water users to divert water to a use other than agriculture, or because of an insurable cause of loss that occurred outside of the insurance period, it is not covered.

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 2004 crop year and succeeding crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: July 13, 2005