Final Agency Determination: FAD-111

FAD-111

Subject: Request dated December 29, 2009, requesting a Final Agency Determination for the 2008 crop year regarding the interpretation of Section 29 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.

Section 29 of the Basic Provisions states, as here pertinent:

29. Assignment of Indemnity.

You may assign to another party your right to an indemnity for the crop year. The assignment must be on our form and will not be effective until approved in writing by us. The assignee will have the right to submit all loss notices and forms as required by the policy. If you have suffered a loss from an insurable cause and fail to file a claim for indemnity within 60 days after the end of the insurance period, the assignee may submit the claim for indemnity not later than 15 days after the 60-day period has expired. We will honor the terms of the assignment only if we can accurately determine the amount of the claim. However, no action will lie against us for failure to do so.

The Risk Management Agency (RMA) is requested to provide an interpretation that clarifies if an insured may enter into more than one Assignment of Indemnity per crop per county for a given crop year. Does the person or entity to whom the previous Assignment of Indemnity given to have to be notified and agree to the subsequent Assignment of Indemnity. Additionally it is requested the FAD also apply to Crop Revenue Coverage (CRC) Insurance Policy and the Revenue Assurance (RA) Insurance Policy.

Regarding the insureds ability to assign an indemnity to more than one person or entity, the requestor interprets Section 29 “Assignment of Indemnity” of the Basic Provisions as using the word party in singular context. This implies that only one assignment of indemnity is permissible. The requestor states RMA procedure found in the Section 4F(3) of the 2008 Crop Insurance Handbook (CIH) reads as though an insured may enter into more than one assignment of indemnity per crop per county for a particular crop year.

Section 4F(3) of the 2003 CIH contained the statement that, “Only one assignment per crop per county is allowed.” This statement was omitted from the 2004 CIH and has not appeared in any versions of the CIH since. The deletion of the directive that there can be only one assignment of indemnity per crop per county appears to be strong evidence the Federal Crop Insurance Corporation (FCIC) no longer restricts the number of assignments of indemnity per crop per county in a crop year. This position is enhanced further by the use of the terms “assignment(s)” and “party(ies)” in subsequent versions of the CIH. Nonetheless, the policy still speaks in terms of an assignment to a “party.”

It is the requestor’s interpretation of the policy provision and procedures that an insured may enter into more than one assignment of indemnity per crop per county for a single crop year. However, if the insured does so, the insured must notify and obtain the approval of the prior assignee, or possibly assignees.

For example, if an insured enters into an assignment of indemnity with Bank A early in the crop year, Bank A has a legitimate expectation that any indemnity payment will be made payable jointly to the insured and Bank A. If the insured later adds a second assignment of indemnity to Bank B, Bank A’s rights have arguably been diminished as an indemnity draft would then be made payable not only to the insured and Bank A, but to Bank B as well. The requestor does not believe this to be appropriate under FCIC policy and procedure.

The Federal Crop Insurance Corporation (FCIC) agrees with the requestor’s interpretation that section 29 “Assignment of Indemnity” of the Basic Provisions and section 4F(3) of the 2008 CIH allow an insured to assign their right to an indemnity to more than one party. While section 29 may use the singular form, the preamble to the Basic Provisions makes it clear that the singular form of a word also includes the plural form of the word. Therefore, there is no conflict between the Basic Provisions and the procedures.

However, the crop insurance policy and the CIH are silent with respect to whether the producer must notify an existing assignee when an additional assignment is made. Since the provisions are silent, state law regarding notification would apply to such assignments. It is the responsibility of the policyholder and AIP to ensure that state laws are followed.

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 hereunder, 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 Final Agency Determination is binding on all participants in the Federal crop insurance program for the 2008 and subsequent crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: Mar 9, 2010