Final Agency Determination: FAD-88

FAD-88

Subject: Request dated March 18, 2008, requesting a Final Agency Determination for the 2005 crop year for crops with a contract change date prior to August 31, 2004, regarding the interpretation of 7 C.F.R.§400.652(d) and section 18(b) 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.

Section 508(a)(4)(B) of the Federal Crop Insurance Act (Act) (7 U.S.C. § 1508(a)(4)(B)) states:

In an area in the United States or specified in subparagraph (A) where crop insurance is not available for a particular agricultural commodity, the Corporation may offer to enter into a written agreement with an individual producer operating in the area for insurance coverage under this title if the producer has actuarially sound data relating to the production by the producer of the commodity and the data is acceptable to the Corporation.

Section 508(c)(9) of the Act (7 U.S.C. § 1508(c)(9)) states:

The Board may limit the availability of additional coverage under this subsection in any county or area, or on any farm, on the basis of the insurance risk involved. The Board shall not offer additional coverage equal to less than 50 percent of the recorded or appraised average yield indemnified at 100 percent of the expected market price, or an equivalent coverage.

7 C.F.R. § 400.652(d) provides:

For additional coverage, in areas where insurance is not available for a particular agricultural commodity that is insurable elsewhere, FCIC may enter into a written agreement with a person to insure the commodity, provided that the person has actuarially sound data relating to the production of the commodity that is acceptable to FCIC and that such written agreement is specifically allowed by the crop insurance regulations applicable to the crop.

Section 18(b) of the Basic Provisions states, in part:

Terms of this policy which are specifically designated for the use of written agreements may be altered by written agreement in accordance with the following:

(b) The application for a written agreement must contain all variable terms of the contract between you and us that will be in effect if the written agreement is not approved;

The requestor interprets these provisions to mean that the producer has the burden when applying for a written agreement to provide all information necessary; and only FCIC may approve a producer’s written agreement application. Also that FCIC cannot approve any application that does not contain all variable terms of the contract that will be in effect if FCIC does not approve the application. The requestor further interprets that FCIC cannot approve an application for written agreement where the producer does not have actuarially sound data relating to the production of the commodity.

Thus, the requestor concludes that if an approved insurance provider (AIP) receives a written agreement application from a producer that does not contain all variable terms of the contract that will be in effect if FCIC does not approve the application because the producer does not have the required information (for example, the producer does not have the required three consecutive years of APH for the crop); then the insurance provider must nevertheless forward the producer’s incomplete application to FCIC (rather than denying it, or returning it to the producer). Because FCIC, under these circumstances, is the only entity that has authority to deny the application. The preamble states the provisions of the policy “may not be waived or varied in any way by the crop insurance agent or any other agent or employee of FCIC or the company’, thus the requestor infers because only FCIC has authority to offer and approve written agreements and the policy prohibits waiving its terms, an AIP has no authority to grant a written agreement, whether expressly or by estoppel, since doing so would waive the policy terms.

The Federal Crop Insurance Corporation (FCIC) agrees in part with the requestor’s interpretation.

FCIC agrees that producers may submit a written agreement application in areas where insurance is not available for a commodity provided the commodity is insurable in another county by FCIC. Section 3B of the Written Agreement Handbook specifically details what must be included in any request for a written agreement. Therefore, FCIC agrees that the producer has the responsibility to provide the information necessary to submit a request. Further, section 508(a)(4)(B) of the Act and 7 C.F.R. § 400.652(d) specifically state that FCIC can only enter written agreements if there is actuarially sound data relating to the production by the producer of the commodity that is acceptable to FCIC. Section 3B of the Written Agreement Handbook specifies the actuarially sound data that is acceptable to FCIC. Therefore, FCIC agrees that it does not have the authority to approve any request for a written agreement that does not contain data that meets the requirements for actuarially sound data in section 3B of the Written Agreement Handbook. Although the AIP, or its agent, is not required to provide data to support the request, the AIP, or its agent, should assist the producer in the completion of the applicable paperwork in which to make the request.

FCIC agrees section 508(a)(4)(B) of the Act only authorizes FCIC to approve the written agreement request. AIPs do not have any authority to approve a written agreement request. Further, although FCIC issued procedure changed for the 2005 crop year for crops with a November 30 contract change date, FCIC agrees that only for 2005 policies with a contract change date on or before August 31, neither the Act, the policy, nor the Written Agreement Handbook authorizes the AIP to deny or return a request for a written agreement because it does not have the required information. Only FCIC has that authority so the AIP is required to forward incomplete applications to FCIC for the appropriate action. In accordance with Written Agreement Handbook, if required information is missing, and cannot be obtained by the deadline, the request for written agreement must be denied.

However, there is a distinction between having actuarially sufficient data and having all variable terms in the contract should the written agreement request be denied. Each are separate requirements under the Act and policy and the failure to satisfy one or both of these requirements provide separate grounds for denial of the request for written agreement. Further, the requirement for having actuarially sufficient data acceptable to FCIC is a threshold question. If such information is lacking, as stated above, the written agreement request must be denied, regardless of whether the contract contains the variable terms.

Further, the variable terms of the contract in place should the written agreement application not be approved are contained within the Written Agreement Handbook. However, to clarify, the contract at issue is between the AIP and the named insured, not FCIC. Section 18(b) of the Basic Provisions states “the application for a written agreement must contain all variable terms of the contract between you and us that will be in effect if the written agreement is not approved”. According to the preamble in the Basic Provisions for reinsured policies, “us” refers to the AIP and “you” represents the named insured. This means that the contract is between the AIP and the named insured and AIPs are required to include specified required statements on the application for written agreement that are acknowledged by the producer’s signature.

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 2005 crop year only for crops with a contract change date prior to August 31, 2004. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: June 2, 2008