Final Agency Determination: FAD-87

FAD-87

Subject: Request dated February 20, 2008, requesting a Final Agency Determination for the 2008 and subsequent crop years regarding section 6(c) of the Nursery Crop Insurance Provisions, published at 7 C.F.R. § 457.162. This request is pursuant to 7 C.F.R. part 400, subpart X.

Section 6 of the Nursery Crop Insurance Provisions states, in part:

6. PIVR

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(c) The PIVR must include, by basic unit, all growing locations, basic unit value, coverage level selected, as applicable, and your share.

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(2) At our option, you will be required to provide documentation in support of your PIVR, including, but not limited to, a detailed plant inventory listing that includes the name, the number, and the size of each plant; acceptable records of sales and purchases of plants for the three previous crop years in the amount of detail we require; and your ability to properly obtain and maintain nursery stock. Acceptable records must contain the name and telephone number of the purchaser or seller, as applicable, names of the plants, the number of each plant sold or purchased, and the sales price for each plant.

(3) (3) Failure to provide documentation when requested or providing inadequate documentation will result in denial of insurance for the crop year for any basic units for which such documentation was not provided…

Because section 6(c)(3) states that an insured’s failure to provide adequate documentation “result[s] in the denial of insurance,” the requestor interprets this section to require the approved insurance provider (AIP) to void or cancel the insurance policy for the subject crop year and refund premium accordingly.

Based on section 6(c)(2)’s statement that documentation must contain “the amount of detail we require,” the requestor believes that, with respect to section 6(c)(3), the AIP has some discretion in determining whether the documentation is adequate or inadequate, provided the documentation meets the minimum standard imposed by the last sentence of section 6(c)(2). To this end, an AIP may determine that the insured’s documentation is adequate even if it does not verify the PIVR to the last penny. Documentation that reasonably establishes the values set forth in the PIVR may be adequate.

Finally, because the Nursery Crop Insurance Provisions do not establish a time frame in which the insured must provide documentation if requested by the AIP, the AIP has the discretion to impose its own reasonable deadline, provided the AIP does not finalize or process a claim until the insured provides the requested information.

The Federal Crop Insurance Corporation (FCIC) agrees in part with the requestor’s interpretation. FCIC agrees the provisions contained in section 6(c)(3) mean that failure by the insured to provide adequate documentation when requested by the AIP will require the AIP to deny coverage for the crop year for any basic units for which such documentation was not provided, and that the AIP will refund any premium it had received from the insured on those basic units. The AIP is not required to void the policy but the AIP cannot establish liability for any units for which required verifiable documentation was not provided.

FCIC does not agree that the provisions contained in section 6(c)(2) allow the AIP discretion in determining whether the documentation is adequate or inadequate, provided the documentation meets the minimum standard imposed by the last sentence of section 6(c)(2). Section 6(c)(2) specifically states what is required for the records to be considered acceptable. The only discretion permitted in section 6(c)(2) is in regard to the amount of additional detail required in those acceptable records of sales and purchases of plants for the three previous crop years. Nowhere in section 6(c)(2) is there any discretion to decide how closely the acceptable records support the PIVR. Acceptable records submitted in accordance with section 6(c)(2) must, in their entirety, support the amount stated on the PIVR. To allow AIPs the discretion to decide how closely the records must support the PIVR can lead to disparate results between AIPs with respect to similarly situated producers. Therefore, records that do not meet the requirements for acceptability or that do meet the requirements for acceptability but do not support the amount stated on the PIVR must be considered inadequate. However, the Crop Insurance Handbook does allow for rounding to the nearest dollar.

Should the insured report a notice of loss or damage, acceptable records of sales and purchases must not only support the PIVR on which liability was established, but must also be adequate to support the amount claimed for indemnity.

FCIC also agrees AIPs have the discretion to impose a reasonable deadline for an insured to provide documentation when requested, provided the AIP does not finalize or process insurance documents that establish liability, premium or an indemnity until the insured provides the required information. However, the Common Crop Insurance Policy Basic Provisions in section 14(c) (Your Duties) states:

In addition to complying with the notice requirements, you must submit a claim for indemnity declaring the amount of your loss not later than 60 days after the end of the insurance period unless you request an extension in writing and we agree to such extension. Extensions will only be granted if the amount of the loss cannot be determined within such time period because the information needed to determine the amount of the loss is not available. The claim for indemnity must include all information we require to settle the claim. Failure to submit a claim or provide the required information will result in no indemnity, prevented planting payment or replant payment. (Even though no indemnity or other payment is due, you will still be required to pay the premium due under the policy for the unit).

Consequently, although the AIP may establish a reasonable deadline for the insured to provide requested documentation, the deadline cannot extend more than 60 days after the end of the insurance period.

In accordance with the 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 2008 crop year.

Date of Issue: March 27, 2008

Reposted Sep 18, 2008 to correct technical error.