Final Agency Determination: FAD-113

FAD-113

Subject: Request dated January, 4, 2010, requesting a Final Agency Determination for the 2008 and three previous crop years regarding the interpretation of 2(b)(1) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions), published at 7 C.F.R. 457.8, and section 3(b) of the Crop Revenue Coverage (CRC) Insurance Policy. This request is pursuant to 7 C.F.R. part 400, subpart X.

The submitter requests the Risk Management Agency (RMA) provide an interpretation regarding the loss of coverage to persons bearing a risk of financial loss due to their inadvertent failure to report the correct name of the insured and any applicable substantial beneficial interest holder(s) (SBI). The submitter also requests for RMA to provide an interpretation of MGR-08-008 and the relief provided to those named insureds affected by section 2(b) of the Basic Provisions.

Section 2(b) of the Basic Provisions and 3(b) of the CRC Insurance Policy are identical and state in relevant part:

Your application for insurance must contain your social security number (SSN) if you are an individual or your 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…

(1) Applications that do not contain your SSN, EIN or identification number, or any other information required in section 3(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 3(b)(2) will apply);

(2) If the application does not contain the SSNs, EINs, or identification number of all persons with a substantial beneficial interest in you, you fail to revise your application in accordance with section 3(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…

(3) The consequences described in section 3(b)(2)(ii) will not apply if you have included ineligible person’s SSN, EIN, or identification number on your application and do not include the ineligible person’s share on your acreage report.

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The requestor interprets section 2(b)(1) of the Basic Provisions to impose upon an insured the duty to report all persons with a SBI, as well as their SSN or EIN, as applicable. In addition, the failure to perform the duty set forth in section 2(b)(1) will result in the penalties described in section 2(b)(2), including the reduction of an indemnity commensurate with the interest of the unreported person (assuming the person is eligible for insurance). Moreover, section 2(b) is predicated on section 506(m)(3) of the Federal Crop Insurance Act, (Act) which authorizes the Manager of Federal Crop Insurance Corporation (FCIC) to require a policyholder to provide “the name of each individual that holds or acquires a substantial beneficial interest in the policyholder.” Accordingly, the requestor believes that neither FCIC nor an approved insurance provider may waive or modify a duty imposed by Congress. Further, the requestor does not believe that MGR-08-008 waives or varies section 2(b)’s requirement that an insured identify all persons with SBI in the policyholder or provide the applicable SSNs or EINs. MGR-08-008, by its terms, addresses situations in which the named insured is not the person with the insurable interest but still bears risk of loss to the crop.

To that end, the requestor interprets MGR-08-008 to provide relief under section 10(a) of the Basic Provisions to the extent the named insured is erroneous. MGR-08-008 neither discusses section 2(b) of the Basic Provisions nor excuses a policyholder from identifying persons holding a substantial beneficial interest in the policy.

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FCIC agrees with the requestor’s interpretation that section 2(b)(1) of the Basic Provisions impose a duty upon the insured to report all persons with a SBI in the insured, as well as their SSN or EIN. Under section 2(b)(2) of the Basic Provisions, failure to properly report all persons with an SBI and the applicable identification numbers will result in the reduction of any indemnity commensurate to the interest of the unreported SBI, provided the person who was not reported is eligible for insurance.

Additionally, FCIC agrees that Manager’s Bulletin MGR-08-008 does not affect, waive or modify the requirements of section 2(b) of the Basic Provisions. Section 2(b) of the Basic Provisions involves persons with an interest in the insured and the requirement to provide identification numbers for such persons. MGR-08-008 involves the persons with an insurable interest in the crop, not the insured, and determining the correct insured and amount of indemnity. Interest in the insured and interest in the crop have always been treated as separate issues and have separate reporting requirements. RMA released MGR-08-008 to provide relief under section 10(a) of the Basic Provisions where the named insured is reported erroneously due to an inadvertent failure to report the correct named insured. However, the issue with the named insured involves who has a proper interest in the crop and to be eligible for relief the persons with an SBI and the correct identification numbers had to be provided in accordance with the policy.

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 Final Agency Determination is binding on all participants in the Federal crop insurance program for the 2005 through 2009 crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: Mar 17, 2010