Final Agency Determination: FAD-104

FAD-104

Subject: Request received in our office October 27, 2009, requesting a Final Agency Determination for the 2007 crop year regarding the interpretation of § 400.176(b) of Subpart L. This request is pursuant to 7 C.F.R. part 400, subpart X.

Section 400.176, as here pertinent:

§400.176 State action preemptions.
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(b) No policy of insurance reinsured by the Corporation and no claim, settlement, or adjustment action with respect to any such policy shall provide a basis for a claim of punitive or compensatory damages or an award of attorney fees or other costs against the Company issuing such policy, unless a determination is obtained from the Corporation that the Company, its employee, agent or loss adjuster failed to comply with the terms of the policy or procedures issued by the Corporation and such failure resulted in the insured receiving a payment in an amount that is less than the amount to which the insured was entitled.
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The requestor submitted a Request for Interpretation of Procedure on July 22, 2009. The Request for Interpretation of Procedure was in relation to sections 7H(3) and 7J(6) of the Nursery Loss Adjustment Standards Handbook.

7. NURSERY APPRAISALS

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H. ESTABLISHING FIELD MARKET VALUE B (FMV-B)

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(3) In establishing the total market value of the insured crop for the damaged unit, the loss adjuster must determine the value of plants that will fall into 4 groups:

(a) Plants that are not damaged;
(b) Plants that are damaged and will not recover to a marketable quality any time after the loss;
(c) Plants that are damaged and will only partially recover to a lower marketable value;
(d) Plants that are damaged and will fully recover.

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J. SPECIAL CONSIDERATIONS/CASE PROCEDURE

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(6) Once liability is accepted by the assuming company, the assuming company is liable for coverage from that date. The inspection affirms the nursery's potential to produce a marketable product without undue probability of loss.

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1) If the plants fail to recover during the recovery period, the insured is entitled to an indemnity payment for the remaining value of the plants; and
2) Once an approved insurance provider (AIP) pays a partial claim for plants and establishes a recovery period, the AIP has accepted all liability for the plants that fail to recover within the recovery period.

The requestor provided an example in the request for a Final Agency Determination to s upplement the interpretation stated above:

Insured plants are damaged under a valid crop insurance policy. AIP pays a partial settlement to the insured and establishes a recovery period for the remaining damaged plants. AIP then fails to pay for the plants that did not recover within the established recovery period.

The requestor’s interpretation of § 400.176(b), in conjunction with the example given above, is as follows:

The AIP’s failure to make payment for the plants that failed to recover within the agreed and established recovery period after only paying a partial claim, which did not include the recovery period plants, is a failure by the AIP, its employee, agent or loss adjuster to comply with the terms of the policy or procedures issued by the Corporation that resulted in the insured receiving a payment in an amount that is less than the amount to which the insured was entitled.

The Federal Crop Insurance Corporation (FCIC) agrees in part with the interpretation of §400.176(b) submitted by the requestor. If FCIC determines that an AIP fails to comply with the terms of the policy or procedures issued by FCIC and such failure resulted in the insured receiving a payment in an amount that is less than the amount to which the insured was entitled, the insured may be entitled to compensatory or punitive damages. However, to the extent that the requestor is seeking a determination that the AIP failed to comply with procedures because it failed to make a payment for plants that failed to recover within the agreed to recovery period, that is a factual determination beyond the scope of this final agency determination.

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 2007 crop year. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: Jan 7, 2010