Final Agency Determination: FAD-100

FAD-100

Subject: Request dated June 5, 2009, requesting a Final Agency Determination for the 2006 crop year regarding the interpretation of section 2(a) 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.

The title to policy containing the Basic Provisions states:

Common Crop Insurance Policy
(This is a continuous policy. Refer to section 2.)

The preamble to the Basic Provisions states, as here pertinent:

AGREEMENT TO INSURE: In return for the payment of the premium, and subject to all of the provisions of this policy, we agree with you to provide the insurance as stated in this policy. If there is a conflict between the Act, the regulations published at 7 CFR chapter IV, and the procedures as issued by FCIC, the order of priority is as follows: (1) the Act; (2) the regulations; and (3) the procedures as issued by FCIC, with (1) controlling (2), etc. If there is a conflict between the policy provisions published at 7 CFR part 457 and the administrative regulations published at 7 CFR part 400, the policy provisions published at 7 CFR part 457 control. If a conflict exists among the policy provisions, the order of priority is: (1) the Catastrophic Risk Protection Endorsement, as applicable; (2) the Special Provisions; (3) the Crop Provisions; and (4) these Basic Provisions, with (1) controlling (2), etc.

Section 1 of the Basic Provisions states, as here pertinent:

1. Definitions
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Coverage begins, date - The calendar date insurance begins on the insured crop, as contained in the Crop Provisions, or the date planting begins on the unit (see section 11 of these Basic Provisions for specific provisions relating to prevented planting).
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Crop year - The period within which the insured crop is normally grown, regardless of whether or not it is actually grown, and designated by the calendar year in which the insured crop is normally harvested, unless otherwise specified in the Crop Provisions.
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End of insurance period, date of - The date upon which your crop insurance coverage ceases for the crop year (see Crop Provisions and section 11).

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Section 2(a) of the Basic Provisions states:

2. Life of Policy, Cancellation, and Termination.

(a) This is a continuous policy and will remain in effect for each crop year following the acceptance of the original application until canceled by you in accordance with the terms of the policy or terminated by operation of the terms of the policy or by us.

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Section 11 of the Basic Provisions states, as here pertinent:

11. Insurance Period.

(a) Except for prevented planting coverage (see section 17), coverage begins on each unit or part of a unit at the later of:

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(3) The calendar date contained in the Crop Provisions for the beginning of the insurance period.
(b) Coverage ends at the earliest of:

(1) Total destruction of the insured crop on the unit;
(2) Harvest of the unit;
(3) Final adjustment of a loss on a unit;
(4) The calendar date contained in the Crop Provisions for the end of the insurance period;
(5) Abandonment of the crop on the unit; or
(6) As otherwise specified in the Crop Provisions.

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Section 12(f) of the Basic Provisions states:

12. Causes of Loss.

The insurance provided is against only unavoidable loss directly caused by specific causes of loss contained in the Crop Provisions. All specified causes of loss, except where the Crop Provisions specifically cover loss of revenue due to a reduced price in the marketplace, must be due to a naturally occurring event. All other causes of loss, including but not limited to the following, are NOT covered:
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(f) Any cause of loss that results in damage that is not evident or would not have been evident during the insurance period, including, but not limited to, damage that only becomes evident after the end of the insurance period unless expressly authorized in the Crop Provisions. Even though we may not inspect the damaged crop until after the end of the insurance period, damage due to insured causes that would have been evident during the insurance period will be covered.

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Section 14 of the Basic Provisions states, as here pertinent:

14. Duties in the Event of Damage, Loss, Abandonment, Destruction, or Alternative Use of Crop or Acreage.
Your Duties -
(a) In case of damage to any insured crop you must:

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(2) Give us notice within 72 hours of your initial discovery of damage (but not later than 15 days after the end of the insurance period), by unit, for each insured crop;
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(c) In addition to complying with the notice requirements, you must submit a claim for indemnity declaring the amount of your loss not later than 60 days after the end of the insurance period unless you request an extension in writing and we agree to such extension. Extensions will only be granted if the amount of the loss cannot be determined within such time period because the information needed to determine the amount of the loss is not available. The claim for indemnity must include all information we require to settle the claim. Failure to submit a claim or provide the required information will result in no indemnity, prevented planting payment or replant payment (Even though no indemnity or other payment is due, you will still be required to pay the premium due under the policy for the unit).
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(e) You must establish the total production or value received for the insured crop on the unit, that any loss of production or value occurred during the insurance period, and that the loss of production or value was directly caused by one or more of the insured causes specified in the Crop Provisions.
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Section 8 of the Prune Crop Provisions states, as here pertinent:

8. Insurance Period.

(a) In accordance with the provisions of section 11 of the Basic Provisions:

(1) Coverage begins for each crop year on March 1.
(2) The calendar date for the end of the insurance period for each crop year is:

(i) October 1 for California; or
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(c) Notwithstanding paragraph (a)(1) of this section, for each subsequent crop year that the policy remains continuously in force, coverage begins on the day immediately following the end of the insurance period for the prior crop year…

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Section 9(a)(1) of the Prune Crop Provisions states:

9. Causes of Loss.

(a) In accordance with the provisions of section 12 of the Basic Provisions, insurance is provided only against the following causes of loss that occur during the insurance period:

(1) Adverse weather conditions;

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RMA is requested to clarify the meaning of the “continuous policy” as it is defined and used in the policy and the consideration and coordination of that term with the balance of the applicable provisions of the Basic Provisions and the Prune Crop Provisions relative to the crop year and insurance period as well as any requirements or relationship between the timing of the cause of damages relative to the occurrence of the claimed damages.

Specifically RMA is requested to clarify how the term “continuous policy” is interpreted relative to the policy definitions of “crop year” and “insurance period” when there is a “continuous policy” for prunes for consecutive years and an otherwise insured cause of loss due to adverse weather occurs in an insured crop year but the damage is evident in the subsequent crop year to the subsequent crop year’s crop.

A joint request for a Final Agency Determination was submitted by two parties. Both parties submitted their interpretation of the provisions.

The first requestor interprets these provisions to mean regardless of the number of years an insured has a “continuous policy,” there is a definite stated or calculable insurance period with a specific beginning and ending date for a prune crop for each distinct crop year, according to section 11 of the Basic Provisions and section 8 of the Prune Crop Provisions.

The first requestor maintains that the reference to the “continuing” nature of the policy is not interpreted to mean that insurance coverage continues seamlessly from one insurance period to the next. In other words, in a prune policy, an otherwise insured cause of loss that occurs in one insurance period that allegedly causes actual and evident crop damage in the subsequent insurance period for the subsequent crop year is not a covered cause of loss even though an insured may have a “continuous policy” for the two years in question.

On a prune policy, an insured cause of loss must be in the same insurance period and to the same crop year in which actual damage becomes evident to be potentially recoverable as is set forth in sections 12 and 14 of the Basic Provisions and section 9 of the Prune Crop Provisions.

There is no express authorization in the Prune Crop Provisions or Basic Provisions which allows for crop damages to a subsequent crop year’s prunes that are caused in the current insurance period but are not evident nor would have been evident during the current insurance period, but which will become evident within the subsequent insurance period. Also, there are no provisions which allow for crop damages to a subsequent crop year’s prunes that are evident during and caused by a covered cause of loss in a current insurance period.

The second requestor interprets these provisions to mean that although there is an inception date for the beginning of the insurance period as stated in section 8 of the Prune Crop Provisions, there is no specific requirement that the causation of the loss must be exclusively within that period. If there were such a requirement, the second requestor maintains it would be inconsistent with the definition of “crop year” because “crop year” is defined as “The period within which the insured crop is normally grown, and designated by the calendar year in which the insured crop is normally harvested unless otherwise specified in the Crop Provisions.”

The second requestor maintains that to interpret the provisions otherwise would allow an insurance yield to be set to effect insurance for the next crop year, with the yield being set after an alleged cause of loss to prune trees has already occurred but with damage to the next crop year’s prunes that will not be manifested or evident until the next crop year. That would result in a situation at the time the insurance becomes effective for the next crop year, it will be impossible for the trees to produce a crop for that insured crop year because the cause of loss already occurred in the prior insurance period. That would result in an insured agreeing to buy a policy to cover a future loss, which is unknown to the insured at the time of policy inception, but which could never be indemnified due to the cause of loss having occurred in the prior crop year. That would not be reasonable if the insured were already covered during the time the policy was written for the next crop year, because crops do not grow only on calendar dates. A cause of loss can occur in one prune crop year which results in damage for a subsequent crop year and damage would not have been evident in the year of the cause of loss when the insured was already insured. The concept that a crop can be “grown” in a calendar year prior to when the crop is normally harvested is recognized in the definition of “crop year.”

The second requestor maintains that as long as the insured carried insurance for both 2005 and 2006, there was “continuous insurance” as expressed in the very title of the Contract, and therefore there would be an indemnity available in 2006 for damage which manifested itself in 2006 but which was caused by an otherwise covered cause of loss in 2005. To interpret the term “continuous insurance” otherwise defeats the purpose of the crop insurance program to protect farmers from such losses.

Therefore, the second requestor asserts the only reasonable interpretation of the policy is that a 2006 prune crop that was lost at harvest in 2006 was insured under the 2006 policy, regardless if the insured cause of loss, adverse weather, caused the loss to occur in 2005 or 2006.

The Federal Crop Insurance Corporation (FCIC) agrees with the first requestor’s interpretation of section 2(a) of the Basic Provisions. Section 14(e) (Your Duties) of the Basic Provisions and section 9(a) of the Prune Crop Provisions provides protection only against unavoidable loss of production due to the named insured cause that occurs during the insurance period. For the year of application, the insurance period for prunes begins March 1 for the crop year in accordance with section 8(a)(1) of the Prune Crop Provisions. For each subsequent crop year that the policy remains continuously in force, coverage begins on the day immediately following the end of the insurance period for the prior crop year. Coverage ends for the crop year the first date any one of the events specified in sections 11(b)(1) through (6) of the Basic Provisions occurs that triggers the end of the insurance period. Only insurable causes of loss that occur after insurance attaches and on or before the end of the insurance period are covered for the crop year under the policy. Any cause of loss that occurs during a previous insurance period is not covered under the current year’s policy.

Because the Basic Provisions state the “policy” is “continuous”, does not mean a cause of loss that occurred during a previous crop year’s insurance period can be covered under the current crop year’s insurance period. Under the terms of the policy, each crop year forms a separate policy with a separate insurance period within which the cause of loss must occur and the damage must have been evident. If the cause of loss occurs in one insurance period but the damage is not evident until a subsequent insurance period, such damage is not covered under the policy.

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 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: July 30, 2009