Final Agency Determination: FAD-89

FAD-89

Subject: Request dated June 16, 2008, requesting a Final Agency Determination for the 2007 crop year regarding the interpretation of section 17(f)(3) 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 17(f)(3) of the Basic Provisions states:

17. Prevented Planting

***

(f) Regardless of the number of eligible acres determined in section 17(e), Prevented Planning coverage will not be provided for any acreage:

(3) Used for conservation purposes, intended to be left unplanted under any program administered by the USDA or other government agency, or required to be left unharvested under the terms of the lease or any other agreement (The number of acres eligible for prevented planting will be limited to the number of acres specified in the lease for which you are required to pay either cash or share rent);

The requestor interprets these provisions to mean if an insured entered into a cash rent agreement that provided for the tenant to pay the landlord cash rent on the basis of planted acres only, with acres that “received” a prevented planting payment being considered planted for the lease purposes, such acreage would not be eligible for prevented planting coverage. Since a cash rent payment is due and payable contingent only upon receiving a prevented planting payment, the insured is not required to “pay either cash or share rent” on those acres if they do not receive prevented planting payments—hence they do not meet the requirements of section 17(f)(3).

The Federal Crop Insurance Corporation (FCIC) agrees that, under the terms of the policy, unless a producer is required to pay cash rent for acreage, it does not qualify for prevented planting. However, the basis for this interpretation is the definition of “share” in section 1 of the Basic Provisions and section 9(a) of the Basic Provisions. Section 9(a) states in part that “Acreage planted to the insured crop in which you have a share is insurable . . .” Therefore, unless the producer has a share in the acreage, it is not insurable. If the acreage is not insurable, it cannot be eligible for a prevented planting payment.

“Share” is defined in section 1 of the Basic Provisions as “Your percentage of interest in the insured crop as an owner, operator, or tenant at the time insurance attaches. However, only for the purpose of determining the amount of indemnity, your share will not exceed your share at the earlier of the time of loss or the beginning of harvest.”

Under normal circumstances, insurance attaches with the seeding of a crop. In the case of prevented planting, there is no seeding to trigger the attachment of insurance. As such, it is reasonable to identify some event which supports a transfer of interest from the landowner to the tenant. Many cash lease arrangements require one half of the cash rent up front, with the remainder paid at harvest. Thus, the initial cash rent payment could be considered the transfer of interest from the landowner to the tenant.

As previously specified in an Informational Memorandum released on May 18, 2001, and available on the RMA Web site at https://www.rma.usda.gov, when cash rent lease provisions apply, the requirement for the payment of cash rent is necessary to provide a legitimate insurable interest to receive prevented planting indemnity payments. Terms of cash rent leases vary and a review of the cash rent lease is necessary to determine the insurable interest.

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 the Crop Revenue Coverage and Revenue Assurance policies have not yet been codified in the Code of Federal Regulation, to the extent those provisions are identical or nearly identical, this 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 2007 and succeeding crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: Aug 28, 2008