Final Agency Determination: FAD-90

FAD-90

Subject: Request dated July 9, 2008, requesting a Final Agency Determination for the 2008 and succeeding crop years regarding the interpretation of section 15(e) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions), published at the 7 C.F.R. § 457.8. This request is pursuant to section 7 C.F.R. part 400, subpart X.

The submitter stated that section 15(e) of the Basic Provisions must be considered in the context of sections 6 and 9 of the Basic Provisions and section 8 of the Peanut Crop Provisions, which address the issue of insurable acreage. The bold text below denotes emphasis added.

Section 6 of the Basic Provisions states, as here pertinent:

6. Report of Acreage

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(c) Your acreage report must include the following information, if applicable:

(1) All acreage of the crop in the county (insurable and not insurable) in which you have a share;

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Section 9 of the Basic Provisions states, as here pertinent:

9. Insurable Acreage

(a) Acreage planted to the insured crop in which you have a share is insurable except acreage:

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(8) Of a second crop, if you elect not to insure such acreage when an indemnity for a first insured crop may be subject to reduction in accordance with the provisions of section 15 and you intend to collect an indemnity payment that is equal to 100 percent of the insurable loss for the first insured crop acreage. This election must be made on a first insured crop unit basis…

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(ii) In the event a second crop is planted and insured with a different insurance provider, or planted and insured by a different person, you must provide written notice to each insurance provider that a second crop was planted on acreage on which you had a first insured crop; and

(iii) You must report the crop acreage that will not be insured on the applicable acreage report; or

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Section 15 of the Basic Provisions states, as here pertinent:

15. Production Included in Determining an Indemnity and Payment Reductions

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(e) With respect to acreage where you have suffered an insurable loss to planted acreage of your first insured crop in the crop year, except in the case of double cropping described in section 15(h):

(1) You may elect to not plant or to plant and not insure a second crop on the same acreage for harvest in the same crop year and collect an indemnity payment that is equal to 100 percent of the insurable loss for the first insured crop; or

(2) You may elect to plant and insure a second crop on the same acreage for harvest in the same crop year (you will pay the full premium and, if there is an insurable loss to the second crop, receive the full amount of indemnity that may be due for the second crop, regardless of whether there is a subsequent crop planted on the same acreage) and:

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(g) The reduction in the amount of indemnity or prevented planting payment and premium specified in sections 15(e) and 15(f), as applicable, will apply:

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(2) Even if another person plants the second crop on any acreage where the first insured crop was planted or was prevented from being planted, as applicable.

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Section 8 of the Peanut Crop Provisions states, as here pertinent:

8. Insured Crop

(a) In accordance with section 8 of the Basic Provisions, the crop insured will be all the peanuts in the county for which a premium rate is provided by the actuarial documents:

(1) In which you have a share;

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By way of background, in areas of South Texas, it is an accepted practice to “double crop” on irrigated acreage, usually pivots. The fall planted crop, usually potatoes, which are insurable, are harvested in late May and early June. In the spring, a crop, usually peanuts and also insurable, are planted on the same pivot acreage. However, different producers plant the crops. The first crop, for the purposes of section 15, is planted by a potato producer, and the second crop is planted by a peanut producer. Traditionally, the potato producer will not plant a second crop on the acreage, so it can collect 100 percent of the indemnity that is due.

In addition to planting peanuts as a second crop following potatoes on the pivot acreage, most peanut producers also plant other acreage in the county on which the peanuts are the first crop. In short and within a given county, peanuts are planted both as a first crop and as a second crop (following potatoes on an irrigated pivot). If the peanut producer is entitled to and collects an indemnity on the peanuts planted as a second crop on the pivot acres, it may impact the potato producer’s right to retain 100 percent of indemnity previously collected on the potato loss. If the policy’s double crop requirements are not met, the potato producer’s indemnity will be reduced. A reduction would not be applicable if "the acreage" or “you” have records to prove double cropping per the Basic Provisions, or if the potato producer had also planted the peanuts and elected not to insure that unit.

To protect the potato producer’s right to a 100 percent indemnity, peanut producers have sought to choose which acreage within a county that they insure. More specifically, peanut producers seek to insure the acreage on which peanuts are a first crop, but not to insure the acreage on which peanuts are a second crop. Thus, if a loss occurs, the indemnity paid to the potato producer on the first crop – potatoes – is unaffected.

Based on the above-quoted policy provisions and with reference to the foregoing situation, the requestor does not believe that section 15 of the Basic Provisions, when read in the context of the other quoted provisions, permits a producer to elect to insure some acreage in a county and exclude from coverage other acreage in that county. Although section 15(e)(1) permits a producer to elect not to insure their second crop, this section does not authorize a producer to insure a crop on a piecemeal basis, and does not authorize a producer who did not grow the first insured crop to choose not to insure a portion of its second crop acres. Moreover and in this regard, section 8 of the Peanut Crop Provisions indicates that the insured crop is all peanuts in the county – regardless of whether those peanuts are planted as a first crop or a second crop following another producer’s potatoes. Thus and with respect to peanuts planted following potatoes, if the peanut producer collects an indemnity on a loss, the prior indemnity collected by the potato producer must be reduced.

The Federal Crop Insurance Corporation (FCIC) agrees in part with the requestor’s interpretation. All the provisions of the policy must be read together and in a manner consistent with section 508A of the Federal Crop Insurance Act (7 U.S.C. § 1508a).

When read together with the other policy provisions, FCIC does not agree the provisions contained in section 15 of the Basic Provisions do not permit a producer to elect to insure some acreage in a county and exclude from coverage other acreage in that county. While section 8 of the Peanut Crop Provisions state that all acreage of the crop in the county must be insured, section 15(e)(1) specifically states if a producer has suffered an insurable loss to planted acreage on their first insured crop in the crop year, that same producer may elect to plant and not insure a second crop on the same acreage for harvest in the same crop year and receive 100 percent of indemnity due for the first insured crop acreage. Therefore, in the cases where the producer suffers a loss to the first crop, that producer can elect to plant a second crop on those acres and not insure those acres. All other acreage except for those where an indemnity was paid for the first crop must be insured.

FCIC agrees section 15(e)(1) does not authorize a producer who did not grow the first insured crop to choose not to insure a portion of its second crop acres. Therefore, if a different person planted the second crop, that person cannot elect to not insure such acreage to allow the person who planted the first insured crop to preserve 100 percent of his/her first crop indemnity. Failure of the producer to insure all the acreage of producer’s peanuts in the county would be a violation of the policy provisions.

Provisions contained in paragraph 48 of the 2008 Loss Adjustment Manual (LAM) Standards Handbook, FCIC 25010, also clarify this as follows:

B. First (1st) insured crop acreage that is cash rented by another person who plants a crop on this acreage:

(1) Cash rent, as used in PAR. 48 means cash renting for agricultural use (growing a crop, haying, grazing, etc.) This does not apply when the acreage is cash rented for a non-agricultural use; e.g., hunting.

(2) The crop that is planted by the person cash renting the acreage is considered the second (2nd) crop for both the person having the 1st insured crop, and is also considered the 2nd crop for the person that cash rented the acreage and planted a crop on this acreage.

(3) Another person planting the 2nd crop cannot choose not to insure the acreage if the 2nd crop is an insurable crop and that person has an active policy for this crop in the county. This is because only the insured that had the 1st crop indemnity may elect to not insure any 2nd crop acreage to preserve 100% of his/her 1st crop indemnity.

FCIC also agrees in part that on the acreage on which the potato producer collected an indemnity for the first crop, that indemnity will be reduced if the peanut producer has a loss on the second crop unless the double cropping requirements contained in section 15(h) of the Basic Provisions have been met. However, if the double cropping requirements are not met, the indemnity for the potato producer is reduced when the peanut producer plants the second crop on the acreage. If the peanut producer does not have a loss on the second crop, the remaining indemnity is paid to the potato producer for the first crop and the balance of the premium is owed by the potato producer. If the double cropping requirements are met, both the potato producer and the peanut producer can collect 100 percent of any indemnity owed for the acreage on which the first and second crops were planted.

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 2008 and succeeding crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: Sep 8, 2008