Final Agency Determination: FAD-056

Subject: On September 20, 2005, the Risk Management Agency (RMA) was asked to provide a Final Agency Determination regarding the interpretation of 7 U.S.C. §1508, subpart (g) Yield Determinations, 7 C.F.R. §400.52, 7 C.F.R. § 400.53, 7 C.F.R. § 400.54, 7 C.F.R. § 400.55(b), Common Crop Insurance Policy Basic Provisions (Basic Provisions) (7 C.F.R. § 457.8) sections 3(d) and 21(b), as they pertain to the 2000 through 2004 crop years. This request is pursuant to 7 C.F.R. part 400, subpart X.

However, 7 C.F.R. § 400.765(b) states “Requestors may seek interpretations of those provisions of the Act and the regulations promulgated thereunder that are in effect for the crop year in which the request under this subpart is being made and the three previous crop years.” Since it is currently the 2005 crop year, this provision limits review to the applicable statutory and regulatory provisions that were in effect for the 2002 through 2005 crop years. Therefore, FCIC will only interpret the provisions in effect for the 2002 through 2004 crop year. To the extent that the language in these provisions is the same for any other crop year, the same interpretation would apply.

1. 7 U.S.C. §1508:

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(2) Yield coverage plans

(A) Actual production history. Subject to subparagraph (B), the yield for a crop shall be based on the actual production history for the crop, . . .
(B) Assigned Yield. If the producer does not provide satisfactory evidence of the yield of a commodity under subparagraph (A), the producer shall be assigned– (i) a yield . . . as specified in regulations issued by the Corporation based on production history requirements; or . . .

2. 7 C.F.R. §400.52 (Definitions):

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(n) Production report–A written record showing the insured crop’s annual production and used to determine the insured’s yield for insurance purposes. The report contains yield history by unit, if applicable, including planted acreage for annual crops, insurable acreage for perennial crops, and harvested and appraised production for the previous crop years. This report must be supported by written verifiable records, measurement of farm stored production, or by other records of production approved by FCIC on an individual basis. Information contained in a claim for indemnity is considered a production report for the crop year for which the claim was filed.

(o) Production Reporting Date (PRD)–The PRD is contained in the crop insurance contract and is the last date production reports will be accepted for inclusion in the database for the current crop year.

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(q) Verifiable records–Contemporaneous records of acreage and production provided by the insured, which may be verified by FCIC through an independent source, and which are used to substantiate the acreage and production that have been reported on the production report.

3. 7 C.F.R. § 400.53:

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(b) Production reports and supporting records are subject to audit or review to verify the accuracy of the information certified. Production and supporting records may be reviewed and verified if a claim for indemnity is submitted on the insured crop. The reported yield is subject to revision, if needed, so that the claim conforms to the records submitted at that time.

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(2) Records must be provided by the insured at the time of an audit, review, or as otherwise requested, to verify that the acreage and production certified are accurate. . . .

4. 7 C.F.R. § 400.54:

(a) The insured is solely responsible for the timely submission and certification of accurate, complete production reports to the agent. Production reports must be provided for all planted units.

(b) Records may be requested by the FCIC, or an insurance company reinsured by the FCIC, or by anyone acting on behalf of the FCIC or the insurance company. The insured must provide such records upon request.

5. 7 C.F.R. § 400.55(b):

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(1) If no acceptable production records are available, the approved APH yield is the adjusted T or D-Yield (65 percent of T or D-Yield).

(2) If acceptable production records containing information for only the most recent crop year are provided, the three T or D-Yields adjusted by 80 percent will be used to complete the minimum database and calculate the approved APH yield.

(3) If acceptable production records containing information for only the two most recent crop years are provided, the two T or D-Yields adjusted by 90 percent and the two actual yields will be used to complete the database and calculate the approved APH yield.

(4) If acceptable production records containing information for only the three most recent crop years are provided, the three actual yields and one unadjusted T or D-Yield are used to complete the database and calculate the approved APH yield.

(5) When the database contains four or more (up to ten) continuous actual yields, the approved APH yield is a simple average of the actual yields.

6. Common Crop Insurance Policy Basic Provisions (7 C.F.R. § 457.8) 3(d) for the 2000-2004 crop years:

3. Insurance Guarantees, Coverage Levels, and Prices for Determining Indemnities.

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(d) We may revise your production guarantee for any unit, and revise any indemnity paid based on that production guarantee, it we find that your production report under paragraph (c) of this section:

(1) Is not supported by written verifiable records in accordance with the definition of production report; or
(2) Fails to accurately report actual production, acreage, or other material information.

7. Common Crop Insurance Policy Basic Provisions (7 C.F.R. § 457.8) 21(b) for the 2000-2004 crop years:

21. Access to Insured Crop and Records, and Record Retention.

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(b) For three years after the end of the crop year, you must retain, and provide upon our request, complete records of the harvesting, storage, shipment, sale, or other disposition of all the insured crop produced on each unit. This requirement also applies to the records used to establish the basis for the production report for each unit . . .

The requestor submitted the following interpretation of the cited regulations and provisions of the Federal Crop Insurance Act (Act) and provided the following example to explain the context of the interpretation in regard to an Actual Production History (APH) record audit:

Example: Assume that during the course of an APH record audit, the insured submitted what he or she claims are all of their available production records and the insurance provider then concludes the audit based upon those records, resulting in revision of the insured’s APH database and approved APH yield due to lack of acceptable records. Subsequent to conclusion of the APH record audit, the insured submits additional records that he or she failed to provide during the audit.

The requestor interprets the insurance provider is not required to consider any new or additional production records that the insured submits later in relation to the APH yield for the crop year in question.

The requestor interprets the cited regulations and provisions of the Act that an insurance provider cannot, at a later date, consider newly-presented records after conclusion of an audit that result in a reduced approved APH yield for a particular crop year, since the insured failed to present those records when the insurance provider requested such records in the audit. Similarly, the insured cannot present those new records to an arbitrator in an appeal of the insurance provider’s determination regarding the production history records. Since the insurance provider cannot consider records that the insured did not present to it in the audit, neither can the arbitrator.

The requestor believes that the regulations in 7 C.F.R. part 400, subpart G and the Basic Provisions (and corresponding Crop Revenue Coverage (CRC) Basic Provisions), cited above, support their interpretation for the reasons they explain below.

Under the Federal crop insurance program APH regulations in 7 C.F.R. part 400, subpart G, an insured farmer must report its crop production history on the insured land on a Production Report (see 7 C.F.R. §400.52(n)) no later than the Production Reporting Date (see 7 C.F.R. §400.52(o)).

7 U.S.C. §1508(g)(2)(B) requires that “[i]f the producer does not provide satisfactory evidence of the yield of a commodity . . . the producer shall be assigned-(i) a yield . . . as specified in regulations issued by the Corporation based on production history requirements . . .”

To enforce the yield evidence mandate in the Act, 7 C.F.R. §400.53(b) provides that “[p]roduction reports and supporting records are subject to audit or review to verify the accuracy of the information certified.” 7 C.F.R. §400.54(b) further provides that “[r]ecords may be requested by the FCIC, or an insurance company reinsured by the FCIC, or by anyone acting on behalf of the FCIC or the insurance company. The insured must provide such records upon request.” Similarly, the Basic Provisions (7 C.F.R. §457.8) provide in section 3(d) that “[w]e may revise your production guarantee for any unit, and revise any indemnity paid based on that production guarantee, if we find that your production report . . . (1) Is not supported by written verifiable records in accordance with the definition of production report . . .”(see also the identical provisions in the CRC Basic Provisions at section (e)).

7 C.F.R. §400.53(b)(2) (emphasis added) provides that “[r]ecords must be provided by the insured at the time of an audit, review, or as otherwise requested, to verify that the acreage and production certified are accurate . . §400.53(b) also provides that “[t]he reported yield is subject to revision, if needed, so that the claim conforms to the records submitted at that time” (emphasis added). Similarly, section 21(b) of both the Basic Provision and CRC Basic Provisions applicable to the 2000-2004 crop years requires the insured to maintain certain records for at least three years including “the records used to establish the basis for the production report for each unit,” and to “provide [those records] upon our request.”

Because 7 C.F.R. §400.52(n) requires that an insured’s production report “must be supported by written verifiable records” when the insured certifies that report, if the insured does not have or cannot “provide such records upon request” (see §400.54(b); emphasis added), the auditor must recompute the approved APH yield at that time to conform to the records available to it. The Actual Production History regulations provide that an insured’s “failure to retain acceptable records shall result in the verifier . . . recomputing the approved APH yield. These actions shall be taken at any time after reporting or record discrepancies are identified . . .” See 7 C.F.R. §400.53(b)(1) (emphasis added).

The APH calculation and records requirements mandated in 7 C.F.R. §400.55 do not provide any mechanism to revisit the APH calculation if or when the insured farmer locates records that he or she was unable to provide at the time of audit. Instead, that regulation mandates a series of outcomes based upon the number of years of continuous, acceptable records that the insured provides when the verifier or auditor requests records, using mandatory language (“. . . the approved APH yield is . . .,” “ . . . will be used . . .,” “are used . . .,” etc.). §400.55(b)(1) provides an example: “If no acceptable production records are available, the approved APH yield is the adjusted T or D-Yield (65 percent of T or D-Yield).”

The records’ availability “upon request” at calculation or audit time is as important as the content of those production history records. The regulations do not provide any grace period to come up with records, because the insured must already have those records at the time they complete the production report (otherwise, the production report would not be “supported by written verifiable records” when the insured certifies the report; see 7 C.F.R. §400.52(n)).

Therefore, once a records audit concludes and an insurance provider or RMA determines a revised approved APH yield for a particular crop year, the insured cannot present new or additional records in the insured’s appeal of the records audit and yield determinations.

The Federal Crop Insurance Corporation (FCIC) disagrees with the interpretation as outlined above. The requestor is correct that the insurance provider has the right to request the records to support the production history certified by the producer. The requestor is also correct that the insurance provider may audit those records and the reported yield may be revised to conform to the records provided at the time of audit. However, there is nothing in the Act, 7 C.F.R. part 400, subpart G, or the Common Crop Insurance Policy Basic Provisions published at 7 C.F.R. § 457.8 that precludes the producer from later providing additional records and the insurance provider from considering those records and making further revisions to the reported yield.

There can be numerous legitimate reasons why a producer may be unable to produce all the records at the time of audit, such as a shareholder may not be available to provide the records for their share of the crop, records may have been destroyed by flood or other natural disasters and may have to be recreated again, etc. Therefore, without a specific provision in the Act, the applicable regulations or policy stating that once the audit is complete the reported yield cannot be further adjusted, it would be arbitrary and capricious to impose such a requirement in specific cases when there are legitimate reasons established for the delay in providing records.

After a yield is adjusted as a result of an audit, FCIC recognizes that there may be a temptation for producers to “create” records to support their reported yield, especially when the adjustment to the reported yield results in the producer having to repay previously paid indemnities. However, because a temptation may exist does not preclude the insurance provider from considering the records. The insurance provider is already required to verify such records and that duty is heightened when there is a greater incentive to falsify records. If the records cannot be verified, they should be rejected by the insurance provider.

Since the insurance provider can consider additional production records provided after an audit, nothing would preclude an arbitrator from considering the same documentation. However, such arbitrator would be subject to the same requirement as the insurance provider regarding the verification of the truth and accuracy of such records before accepting them and adjusting the reported yield.

The requestor asked that the Final Agency Determination explicitly provide that the decision is applicable to the provisions of CRC Basic Provisions in effect for the 2000 through 2004 crop years in relation to calculated approved APH yields for 2000 crop year CRC policies. Even though 7 C.F.R. part 400, subpart X is only applicable to provisions of the Federal Crop Insurance Act and the regulations promulgated there under, and CRC is not codified in the C.F.R., to the extent these provisions are identical or nearly identical, the Final Agency Determination applies accordingly to assure consistent, uniform, and equitable treatment to all producers insured under the same policy provisions.

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 the 2002 and subsequent crop years. Any appeal of this decision must be in accordance with 7 C.F.R. § 400.768(g).

Date of Issue: December 19, 2005