Final Agency Determination: FAD-95

FAD-95

Subject: Request dated September 5, 2008, requesting a Final Agency Determination for the 2006 crop year regarding the interpretation of section 2(b) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions), published at 7 C.F.R. § 457.8. This request is pursuant to section 7 C.F.R. part 400, subpart X.

Section 2 of the Basic Provisions states, as here pertinent:

2. Life of Policy, Cancellation, and Termination

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(b) Your application for insurance must contain your social security number (SSN) if you are an individual or employer identification number (EIN) if you are a person other than an individual, and all SSNs and EINs, as applicable, of all persons with a substantial beneficial interest in you, the coverage level, price election, crop, type, variety, or class, plan of insurance, and any other material information required on the application to insure the crop. If you or someone with a substantial beneficial interest is not legally required to have a SSN or EIN, you must request and receive an identification number for the purposes of this policy from us or the Internal Revenue Service (IRS) if such identification number is available from the IRS. If any of the information regarding persons with a substantial beneficial interest changes during the crop year, you must revise your application by the next sales closing date applicable under your policy to reflect the correct information.

(1) Applications that do not contain your SSN, EIN or identification number, or any of the other information required in section 2(b) are not acceptable and insurance will not be provided (Except if you fail to report the SSNs, EINs or identification numbers of persons with a substantial beneficial interest in you, the provisions in section 2(b)(2) will apply);

(2) If the application does not contain the SSNs, EINs or identification numbers of all persons with a substantial beneficial interest in you, you fail to revise your application in accordance with section 2(b), or the reported SSNs, EINs or identification numbers are incorrect and the incorrect SSN, EIN or identification number has not been corrected by the acreage reporting date, and:

(i) Such persons are eligible for insurance, the amount of coverage for all crops included on this application will be reduced proportionately by the percentage interest in you of such persons, you must repay the amount of indemnity, prevented planting payment or replanting payment that is proportionate to the interest of the persons whose SSN, EIN or identification number was unreported or incorrect for such crops, and your premium will be reduced commensurately; or

(ii) Such persons are not eligible for insurance, except as provided in section 2(b)(3), the policy is void and no indemnity, prevented planting payment or replanting payment will be owed for any crop included on this application, and you must repay any indemnity, prevented planting payment or replanting payment that may have been paid for such crops. If previously paid, the balance of any premium and any administrative fees will be returned to you, less twenty percent of the premium that would otherwise be due from you for such crops. If not previously paid, no premium or administrative fees will be due for such crops.

The requestor also cited the definitions of “person” and “substantial beneficial interest” contained in section 1 of the Basic Provisions. Section 1 of the Basic Provisions states, as here pertinent:

1. Definitions

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Person - An individual, partnership, association, corporation, estate, trust, or other legal entity, and wherever applicable, a State or a political subdivision or agency of a State. “Person” does not include the United States Government or any agency thereof.

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Substantial beneficial interest - An interest held by any person of at least 10 percent in [the insured]…

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The requestor’s interpretation of the above quoted provisions is that the insured is required to include on the application the name and SSN, EIN, or identification number of each person which constitutes a substantial beneficial interest (SBI) holder in the insured. That is, each person who holds at least a ten percent share in the insured must be identified by name and SSN, EIN, or identification number on the insured’s application.

Moreover, if the application does not contain the name and SSN, EIN, or identification number of each SBI holder in the insured who is eligible to participate in the Federal crop insurance program, the approved insurance provider (AIP) is required to reduce the amount of coverage under the policy proportionately by the interest of such person in the insured. For example, if an insured is a partnership which consists of two individuals and a corporation with each holding an equal share, the insured partnership’s application must identify the names and SSNs of the two individuals and the name and EIN of the corporation. If the corporation is omitted from the application, the AIP is required to reduce the coverage provided by the policy by 33 1/3 percent. In addition, if the SBI holder who is omitted is not eligible to participate in the Federal crop insurance program, the policy is void.

The requestor stated that identical or nearly identical language is set forth in the Crop Revenue Coverage (CRC) and the Revenue Assurance (RA) insurance policies. Accordingly, they request this Final Agency Determination explicitly be made applicable to the CRC and RA policies as well.

The Federal Crop Insurance Corporation (FCIC) agrees with the requestor’s interpretation of section 2(b) of the Basic Provisions. Each person who holds at least a 10 percent share in the insured must have their names and SSN or EIN included on the application and persons includes individuals and entities such as corporations. In addition, if the persons within an entity have a share in the entity such that they would have at least a 10 percent share of the insured, their SSN or EIN must also be reported. In the above stated example, if the corporation has three individuals having an equal interest in the corporation and the corporation has a one-third interest in the insured, each of the individual would have at least a 10 percent share in the insured (33 percent ÷ 3) and each individual’s SSN must also be reported. Failure to report a person with an SBI in the insured will reduce the coverage by the percentage of such person’s share. If the person with an SBI that was omitted from the application is ineligible to participate in the crop insurance program, the policy is void.

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 CRC and RA policies have not yet been codified in the Code of Federal Regulations, 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 constitutes the Final Agency Determination and is binding on all participants in the Federal crop insurance program for the 2006 and succeeding crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: November 12, 2008