Final Agency Determination: FAD-98

FAD-98

Subject: Request dated September 5, 2008, requesting a Final Agency Determination for the 2006 crop year regarding the interpretation of sections 34(b) and (e) 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 34 of the Basic Provisions states, as here pertinent:

34. Unit Division

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(b) Unless limited by the Crop Provisions or Special Provisions, a basic unit as defined in section 1 of the Basic Provisions may be divided into optional units if, for each optional unit, you meet the following:

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(4) You have records of marketed or stored production from each optional unit maintained in such a manner that permits us to verify the production from each optional unit, or the production from each optional unit is kept separate until loss adjustment is completed by us; and

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(e) If you do not comply fully with the provisions in this section, we will combine all optional units that are not in compliance with these provisions into the basic unit from which they were formed. We will combine the optional units at any time we discover that you have failed to comply with these provisions. If failure to comply with these provisions is determined by us to be inadvertent, and the optional units are combined into a basic unit, that portion of the additional premium paid for the optional units that have been combined will be refunded to you for the units combined.

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The requestor’s interpretation of the above quoted provisions is that if the insured does not provide the approved insurance provider (AIP) with separate marketing or storage records for each insured optional unit that allow the AIP to verify the amount of production generated on each optional unit, the AIP must combine the optional units which are not in compliance into the basic unit from which they were formed. For example, if a grain farmer places grain from three optional units into one on-farm grain bin which is not measured and there is no way to accurately attribute the production to each unit when the grain is sold and removed from the bin, the AIP is required to combine the three optional units into the basic unit from which the optional units were formed.

This position is buttressed by several Crop Provisions. For instance, section 12(a) of the Rice Crop Provisions (7 C.F.R. 457.141) states, “We will determine your loss on a unit basis. In the event you are unable to provide separate acceptable production records: (1) For any optional units, we will combine all optional units for which such production records were not provided; or (2) For any basic units, we will allocate any commingled production to such units in proportion to our liability on the harvested acreage for the units.”

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 sections 34(b) and (e) of the Basic Provisions. Section 34(b)(4) of the Basic Provisions makes it clear that records for each unit must be maintained so that the AIP can verify the production for each individual unit or the production must be kept separate until loss adjustment is complete. Storing all production together before loss adjustment is complete or failing to maintain separate records by unit in a manner that allows for verification constitute failure to comply with the provisions of section 14 of the Basic Provisions. In such circumstances, the optional units must be combined into the basic unit from which they were derived.

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: Dec 3, 2008