Final Agency Determination: FAD-61

FAD-61

Subject: Interpretation/Final Agency Determination of Policy Provisions - The definition of “direct marketing” in section 1 and sections 9(b) and (c) of the Peach Crop Provisions (7 C.F.R. § 457.153) and section 14(a)(2) of the Common Crop Insurance Policy Basic Provisions (7 C.F.R. § 457.8).

On August 15, 2006, the Risk Management Agency received a request for a Final Agency Determination on an interpretation of policy provisions for the 2005 crop year: The provisions at issue are as follows:

The Peach Crop Provisions

Section 1. Definitions

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Direct marketing - Sale of the insured crop directly to consumers without the intervention of an intermediary such as a wholesaler, retailer, packer, processor, shipper or buyer. Examples of direct marketing include selling through an on-farm or roadside stand, farmer's market, or permitting the general public to enter the field for the purpose of picking all or a portion of the crop.

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Section 9. Duties in the Event of Damage or Loss

In addition to the requirements of section 14 (Duties in the Event of Damage or Loss) of the Basic Provisions 7 CFR (Sec.457.8), and unless the insurance period has ended prior to each of the following events, the following will apply:

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(b) You must notify us at least 15 days before any production from any unit will be sold by direct marketing unless you have records verifying that the direct market peaches were “weighed and graded” through a packing shed. Failure to give timely notice that production will be sold by direct marketing will result in an appraised amount of production to count not less than the production guarantee per acre if such failure results in our inability to make the required appraisal.

(c) If you previously gave notice in accordance with section 14 of the Basic Provisions 7CFR (Sec.457.8), and if you intend to claim an indemnity on any unit, you must notify us at least 15 days prior to the beginning of harvest of the damaged variety, so that we may inspect the damaged production. You must not sell or dispose of the damaged crop until after we have given you written consent to do so.

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The Basic Provisions

Section 14 Your Duties -
(a) In case of damage to any insured crop you must:

(1) Protect the crop from further damage by providing sufficient care;

(2) Give us notice within 72 hours of your initial discovery of damage (but not later than 15 days after the end of the insurance period), by unit, for each insured crop;

The requestor’s interpretation of the provisions is that the peaches are not directly marketed when they are packed through a packing shed and are weighed and graded even though the packing shed is owned by the producer, that section 9(b) only applies if the peaches are direct marketed, and that 9(c) does not apply, when there was no prior notice of a claim because no damage was detected prior to harvest and packing.

Your request for a FAD describes a specific factual situation regarding a case, and the Federal Crop Insurance Corporation (FCIC) will not interpret any specific factual situation or case in accordance with section §400.768(a) of 7 CFR part 400, Subpart X. FCIC has responded only to your specific request for an interpretation of the definition of “direct marketing” in section 1 and sections 9(b) and (c) of the Peach Crop Insurance Provisions and section 14(a)(2) of the Basic Provisions.

FCIC agrees that section 9(b) is only applicable if peaches are direct marketed. FCIC disagrees with the submitter’s interpretation that if the peaches are sent to a packing shed, weighed and graded, they cannot be considered as direct marketed. To be considered as direct marketed the peaches must be sold directly to the consumer without the intervention of an intermediary. The fact that the peaches are sent to a packing house is not dispositive if the packing house is owned by the producer. If the peaches sent to the producer’s packing house are later sold to an intermediary such as a wholesaler or retailer, the peaches are not direct marketed. However, if the peaches sent to the producer’s packing house are sold directly to consumers, then they will be considered as direct marketed because the packing house is considered part of the producer’s farming operation and not as an intermediary.

FCIC agrees with the submitter’s interpretation that the provisions in 9(c) apply when a notice has previously been given. If there is no previous notice, the notification requirements contained in 9(c) do not apply. The question is whether a previous notice was required under section 14(a)(2) of the Basic Provisions. Section 14(a)(2) provides that insureds must give notice within 72 hours of their initial discovery of damage, but not later than 15 days after the end of the insurance period. When notification is provided within 72 hours of the discovery of damage and within 15 days of the end of the insurance period, the Basic Provision requirements have been met. It is the insured’s responsibility to determine whether the crop suffered any damage after there has been a cause of loss. This means the insured is required to act and cannot claim a lack of knowledge due to a failure to inspect the crop for damage. Therefore, the standard is whether the insured knew or should have known of the damage and reported it within 72 hours. Evidence of a widespread damage that affected the farms around the insured will allow approved insurance providers to meet their initial burden of showing the insured should have know of the damage and provide the requisite notice. In such cases, it would be up to the insured to present affirmative evidence that the crop was inspected and no damage was detected.

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. Any appeal of this decision must be in accordance with 7 C.F.R. § 400.768(g).

Date of Issue: November 13, 2006