Final Agency Determination: FAD-73

FAD-73

Subject:: Request dated January 3, 2007, requesting a Final Agency Determination for the 2004 crop year regarding the interpretation of 7 U.S.C. Section 1508(a)(1), and the related provisions regarding cause of loss in section 12, and in section 14 (Your Duties) 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.

Background

7 U.S.C. 1508 states, as here pertinent:

(a) Authority to Offer Insurance

(1) In General

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To qualify for coverage under a plan of insurance, the losses of the insured commodity must be due to flood, or other natural disaster (as determined by the Secretary).

Section 12 of the Basic Provisions for the 2004 crop year states, as here pertinent:

12. Causes of Loss

The insurance provided is against only unavoidable loss of production directly caused by specific causes of loss contained in the Crop Provisions. All other causes of loss……are NOT covered.

Section 14 of the Basic Provisions for the 2004 crop year states, as here pertinent:

14. Duties in the Event of Damage or Loss

Your Duties-
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(e) You must establish…that the loss of production or value was directly caused by one or more of the insured causes specified in the Crop Provisions.

The requestor interprets the cited policy provisions as requiring the following in regard to a circumstance where an insured’s yields were uncommon to the area, such that the insured’s yields differed substantially from those of surrounding farms which experienced the same natural conditions and causes of loss:

(1) The burden is on the insured to establish that the loss of production or value was directly caused by one or more of the insured causes specified in the Crop Provisions;

(2) An approved insurance provider may assume the loss was avoidable or not directly caused by an insured cause if the cause to which the insured attributes the loss was common to the area but the insured’s yields were uncommon to the area; and

(3) “Yields uncommon to the area” under such circumstances is a valid and permissible contractual reason for denial of a claim.

The requestor interprets the Basic Provisions as requiring an approved insurance provider to determine whether the insured’s loss was avoidable or was caused by an uninsured cause if the perils to which the insured attributes the damage were common to the area for the crop year but the insured’s yield produced for that crop year was not.

Because it is the insured’s burden to establish an insured loss, the approved insurance provider may presume that the insured’s loss was either avoidable or not directly caused by an insured cause if the insured’s yields were uncommon to the area and the perils to which the insured attributes its losses were common to the area. Therefore, the requestor interprets the policy terms to require that “yields uncommon to the area” is a valid and permissible contractual reason to deny a claim.

The Federal Crop Insurance Corporation (FCIC) disagrees that “yields uncommon to the area” is a valid and permissible contractual reason, in and of itself, to deny a claim. There may be valid reasons why localized damage may occur to a crop, e.g., flooding in small areas along a river bottom, a localized hail storm, or a frost in an isolated low-lying area, which may produce yields different than other producers in the area. Each claim must be researched and evaluated on its own merit by the approved insurance provider.

Section 14(e)(2) (Your Duties) of the Basic Provisions specify it is the insured’s duty to establish that the loss of production or value was caused by one or more of the insured causes specified in the Crop Provisions. Section 14(d) (Our Duties) of the Basic Provisions requires approved insurance providers to apply the loss adjustment procedures established or approved by the Federal Crop Insurance Corporation.

In accordance with paragraph 76 of the 2004 Loss Adjustment Manual (LAM) Standards Handbook, FCIC-25010:

B The insured must establish the cause of loss; the adjuster will:

(1) Verify the cause of loss during the on-the-farm inspection.

(2) Be satisfied that the damage or loss is due to one or more insured causes(s) of loss; e.g., drought CANNOT be an insured cause of loss for acreage with an irrigated practice; however, failure of the irrigation water supply due to drought would be an insured cause of loss under an irrigated practice. Each inspection must be an individual determination. If the cause of loss appears to be different from what the insured has stated, document the facts on a Special Report. For more information see Unusual/Controversial Cases in Part 4.

Paragraph 84 of the 2004 LAM states:

A General Instructions

Be aware and watch for certain problems while on the farm verifying the information you have collected, such as (but not limited to), the following:

(1) Unreported production or acreage. If you are measuring one bin and notice another bin with the same type of grain that the insured has not informed you of, question the farmer to see where the grain was produced. If the explanation does not seem reasonable, document and notify your supervisor.

(2) Unjustified difference in production. If one farm produced 100 bushels of corn per acre and across the road the farm produced only 30 bushels per acre, determine if there is a justifiable explanation. See PAR. 118 regarding written and pictorial documentation.

B In determining if total production is correct, check:

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(9) Production from comparable acreage when there is reason to question harvested production reported. If the insured has comparable acreage, use it; however, when comparable acreage is not available on the insured's farming operation, use comparable acreage from other neighboring farms. Comparable acreage is acreage that is planted to the same crop, following the same farming practices, management practices, similar planting dates, etc. If comparable acreage is not available from the insured’s operation or from neighboring farms, see PAR. 121 L (2) (c). If production is still questionable, refer to subparagraphs C and D.

Paragraph 92 of the 2004 LAM states:

A Harvested production will be verified or determined by the following:

(1) Acceptable evidence of sales and/or commercial storage.

(2) Measuring farm-stored harvested production. (See Part 3, Section 6.)

(3) Comparing harvested production to appraisals made from the unharvested areas of the fields left under the terms of the policy or crop endorsement when the amount of reported harvested production is questionable.

(4) Comparing reported production to appraisals and production in the area when there is reason to question the reported harvested production.

(5) Weighed and farm-stored records (See PAR. 104).

B Caution. DO NOT rely solely on statements or evidence of sales to represent all of the production. Review all production evidence CLOSELY when the policyholder controls the transportation (e.g., trucking or handling company); manufacturing (processing plant); farm scales; or sales (warehouse) of a particular crop. If there is evidence that suggests the insured has misrepresented production, DO NOT (adjuster) sign the claim. Notify the insurance provider of the situation.

Based on these procedures, the loss adjuster is required to verify the case of loss and production reported. Verification can include comparison with the production to other acreage of the producer or other comparable acreage of neighboring producers. If there is a significant difference in yields with comparable acreage, the producer should be given an opportunity to explain the differences.

If the producer cannot adequately establish that the excess losses were caused by insured causes, the approved insurance provider must determine whether the producer suffered a loss due to uninsured causes or failed to adequately establish the total production. If the approved insurance provider determines there was a loss and it was due to uninsured causes, the procedures in paragraph 121 of the 2004 LAM would apply. If the approved insurance provider determines that the producer failed to provide adequate records to support the total production, the approved insurance provider can deny the claim in accordance with section 21(f) of the Basic Provisions or apply one of the other remedies available in that section.

The requestor asked that the Final Agency Determination explicitly provide that the decision is applicable to the provisions of Revenue Assurance (04-RA) since the language is identical or nearly identical. 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 thereunder, and RA has not yet been codified in the Code of Federal Regulations, 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 constitutes the Final Agency Determination and is binding on all participants in the Federal crop insurance program for the 2004 crop year. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: March 8, 2007