Final Agency Determination: FAD-93

FAD-93

Subject: Request dated August 15, 2008, requesting a Final Agency Determination for the 2008 crop year and subsequent crop years, regarding the interpretation of section 14 of the Apple Crop Insurance Provisions published at 7 C.F.R. 457.158. This request is pursuant to 7 C.F.R. part 400, subpart X.

Background

Section 14 of the Apple Crop Provisions provides, in pertinent part:

(b) In return for payment of the additional premium designated in the actuarial documents, this option provides for quality adjustment of fresh apple production as follows:

* * *

(5) If appraised or harvested fresh apple production is damaged to the extent that 20 percent or more of the apples do not grade U.S. Fancy or better the following adjustment will apply:

(iv) Fresh apple production to count with 65 percent or more damaged apple production will not be considered production to count.

(v) Notwithstanding sections 14(b)(5)(i) through (iv), if you sell any of your fresh apple production as U.S. Fancy, all such sold production will be included as production to count under this option.

Further and in this regard, Table C in the Reference Materials of the Apple Loss Adjustment Standards Handbook, entitled "Adjustment Percentages for Apples with Insured Damage Under Optional Coverage" states after the table:

Use this table when the insured has selected Optional Coverage for Fresh Fruit Quality Adjustment to adjust appraised unharvested and appraised harvested production that grades U.S. Fancy grade or other grades(s) listed in the Special Provisions or better. This table does not apply to any harvested production that is sold as U.S. Fancy grade or other grade(s) listed in the Special Provisions or better."

Interpretation Submitted

The requestor interprets section 14(b)(v) to supersede Table C of the Apple Loss Adjustment Standards Handbook and to require all apples sold as U.S. Fancy or better to be treated as production to count regardless of the percent of damage determined for the unit. The requestor provided an example to explain the context of its interpretation as follows:

An insured purchases the Optional Coverage for Fresh Fruit Quality Adjustment for insuring a unit of fresh apples. The unit produces 1,000 bushels of apples that are U.S. No. 1 Processing or better. As a part of the adjustment process, the apples are graded resulting in the determination that 20 percent of the apples are U.S. Fancy or better, or 80 percent of the apples are damaged. In accordance with Table C, the percent damage equates to 100 percent. If the insured simply discards the apples-they are dropped to the ground and rot-the production to count is zero, i.e. a 100 percent loss. Likewise, if the insured markets the apples to a cider mill, production to count is zero. However, if the insured markets 250 bushels as U.S. Fancy or better, production to count is 250 bushels, regardless of the 80 percent damage calculation.

Final Agency Determination

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

Under section 14(b)(5)(v) of the Apple Crop Provisions, if the insured sells any damaged fresh apple production as U.S. Fancy or better, such production is considered production to count under the Optional Coverage for Fresh Fruit Quality Adjustment. The other provisions in section 14(b)(5) of the Apple Crop Provisions only apply to apple production not sold as U.S. Fancy or better.

FCIC does not agree that the section 14(b)(v) supersedes Table C in the Reference Material of Apple Loss Adjustment Standards Handbook. The provisions after Table C specifically states Table C does not apply when damaged apples are sold as U.S. Fancy or better under the Optional Coverage for Fresh Fruit Quality Adjustment. Therefore, both provisions must be given effect.

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 2008 crop year and succeeding crop years.

Date of Issue: October 23, 2008