Final Agency Determination: FAD-128

FAD-128

Subject: Request dated August 5, 2010, requesting a Final Agency Determination for the 2009 crop year requesting an interpretation of 7 C.F.R § 400.459. This request is pursuant to 7 C.F.R. part 400, subpart X.

7 C.F.R. § 400.459 states:

Any person who owes a debt to FCIC, or an approved insurance provider, arising from any program administered under the Act, and that debt is delinquent, will be ineligible to participate in all such programs until the debt is paid in full or the person enters into an agreement, acceptable to FCIC or the approved insurance provider, to repay the debt. If the person provides adequate evidence to demonstrate that the amount of the debt is in dispute, the person's application will be accepted or their insurance will remain in effect, but no indemnity payment will be made, until the disputed issue is resolved between that person and FCIC or the approved insurance provider through the available appeal process.

*****

Section 1 of the Common Crop Insurance Policy Basic Provisions (Basic Provisions) defines "policy" and "termination date" as follows:

1. Definitions.

***

Policy - The agreement between you and us to insure an agricultural commodity and consisting of the accepted application, these Basic Provisions, the Crop Provisions, the Special Provisions, other applicable endorsements or options, the actuarial documents for the insured agricultural commodity, the Catastrophic Risk Protection Endorsement, if applicable, and the applicable regulations published in 7 CFR chapter IV. Insurance for each agricultural commodity in each county will constitute a separate policy.

***

Termination date - The calendar date contained in the Crop Provisions upon which your insurance ceases to be in effect because of nonpayment of any amount due us under the policy, including premium.

*****

Section 2(f)(2)(i)(A) of the Basic Provisions states, as here pertinent:

2. Life of Policy, Cancellation, and Termination.

***

(f) A delinquent debt for any policy will make you ineligible to obtain crop insurance authorized under the Act for any subsequent crop year and result in termination of all policies in accordance with section 2(f)(2).

***

(2) With respect to termination:

(i) Termination will be effective on:

(A) For a policy with unpaid administrative fees or premiums, the termination date immediately subsequent to the billing date for the crop year;

*****

The requestor interprets 7 C.F.R. § 400.459 to mean if a person obtains a policy under the Basic Provisions for the 2009 and succeeding crop years and the person becomes ineligible after the 2009 policy is issued because the person failed to pay a 2008 premium for a policy issued by another approved insurance provider (AIP), but the person pays the premium due under the 2008 policy before any indemnity or benefits are payable on the 2009 crop year policy, that person becomes ineligible to participate in any program issued under the Federal Crop Insurance Act (Act) after the 2009 policy is issued and the person's policy for the 2009 crop year is not terminated. However, the person is only ineligible to receive any indemnification or benefits from the 2009 crop year policy during the period of ineligibility.

The requestor states this interpretation is supported by the terms of the Basic Provisions. Section 2(f) of the policy states a delinquent debt for any policy terminates all policies in accordance with section 2(f)(2). Section 2(f)(2)(i)(A) states the termination is effective, when a premium is unpaid, on the first termination date after the billing date for the 2009 crop year. Termination date is defined in section 1 of the Basic Provisions as the date insurance coverage ceases to be effective because of non-payment of the premium. For example, assume the billing date for the 2009 crop year for corn and soybeans was October 1, 2009, and the termination date was March 15, 2010. The first termination after the billing date of October 1, 2009, was March 15, 2010. This means the 2009 policy cannot terminate because of an unpaid premium until March 15, 2010. As a result, 7 C.F.R. § 400.459 cannot mean the 2009 crop insurance policy terminates as of the date of ineligibility when there is a delinquent debt for the 2008 crop year policy.

The requestor believes the definition of "policy" in the Basic Provisions also supports the requestor's interpretation. Policy is defined as the agreement between the named insured and the company providing insurance. The Basic Provisions states a delinquent debt for any policy results in termination. Because policy is defined as only the policy with the AIP issuing it and since the 2008 policy was not issued by the AIP issuing the 2009 policy, the 2008 policy is not a policy for purposes of the 2009 policy. Failure to pay the premium on the 2008 policy issued by one AIP makes the person ineligible for benefits but does not terminate the 2009 policy issued by another AIP.

The requestor notes that 7 C.F.R. § 400.459 states a participant who owes a debt is ineligible until the debt is paid. If the debt does not become delinquent until on or after the sales closing date, the debt cannot be resolved until after the sales closing date. No application can be made after the sales closing date. Allowing termination after the sales closing date results in the person's inability to have a crop insurance policy until the following crop year. This is not consistent with the regulation because it means the person is not eligible until the debt is paid and until the next crop year. The requestor believes this is a more severe penalty than the regulation authorizes. To satisfy FCIC's policy as set out in the regulation, the person must be allowed to retain the crop insurance policy but be ineligible for any indemnity or benefits during the period the debt remains unpaid.

Lastly, the requestor states that the Basic Provisions Final Rule published April 29, 2010, in the Federal Register supports their interpretation. These final regulations are effective for 2011 and subsequent crop years. The new regulations add at section 2(f)(2)(i)(A) that the termination date is the sales closing date. Because this is a change, it supports the position that prior to the 2011 crop year the policy did not terminate prior to the termination date (or the sales closing date). For 2011, even though the termination date is after insurance has attached to the crop, the policy terminates at the sales closing date. This is a change in agency policy and was not the law for the 2009 crop year.

For the reasons above, the requestor interprets the regulations for the 2009 crop year to be that in the example above, the delinquent debt for the 2008 crop year policy only made the policyholder ineligible for benefits during the period of ineligibility. It did not allow the AIP issuing the 2009 policy to terminate the 2009 policy effective the first day the policyholder became ineligible.

FCIC disagrees with the requestor's interpretation. Section 2(f) of the Basic Provisions provides that any policyholder who has a delinquent debt will be unable to obtain crop insurance under the Act until the debt is paid in full; the policyholder enters an agreement to repay the debt, or files a petition to have their debt discharged in bankruptcy.

In accordance with section 2(f), the delinquent debt for the 2008 policy, in the example provided by the requestor, makes the policyholder ineligible to obtain crop insurance authorized under the Act for any subsequent crop year, including the 2009 crop year policy. This means that a policyholder cannot seek to avoid ineligibility by applying for insurance with another AIP. If the policyholder did not pay the debt by the termination date for the 2008 crop year, the policyholder was ineligible for insurance for the 2009 crop year. Under section 2(f)(2)(iii), once the policy is terminated it cannot be reinstated unless the termination was in error. The policyholder can only regain eligibility by paying the delinquent debt in full, discharging the debt in bankruptcy, or entering a scheduled installment payment agreement in accordance with section 2(f)(3) of the Basic Provisions. Further, under section 2(f)(4) of the Basic Provisions, the policyholder must make new application after regaining eligibility.

To use the example provided, the termination of the 2008 policy for delinquent debt occurs for the 2009 crop year on the termination date immediately subsequent to the 2008 crop year billing date, which is October 1, 2008. The termination date immediately subsequent to this date is March 15, 2009, for corn and soybeans in the requestor's example. Therefore, if the 2008 premium was not paid by the termination date, the policy terminated as of that date and cannot be reinstated unless the termination was in error. Any 2009 policy application submitted by the March 15, 2009, sales closing date would be rejected because of ineligibility. However, it may take time for such rejection to occur because of the delay in placing the ineligible person on the Ineligible Tracking System. However, this does not change the fact that the person is ineligible, the 2008 policy was terminated and any 2009 application for insurance rejected. This means that if the policyholder repays the delinquent debt in full on March 30, 2009, the earliest date by which the policyholder can obtain crop insurance for corn or soybeans is to apply for crop insurance by the March 15, 2010, sales closing date for the 2010 crop year. This is consistent with section 2(f) of the Basic Provisions and specifically the example in section 2(f)(5) of the Basic Provisions.

Although the requestor asked for an interpretation of 7 C.F.R. § 400.459, section 2(f) of the Basic Provisions is very clear in how and when a policyholder becomes ineligible. Further, there is no conflict between section 2(f) of the Basic Provisions and 7 C.F.R. § 400.459. Section 400.459 simply states that a delinquent debt makes a person ineligible. Section 2(f) explains what that means, such as when the period of ineligibility begins and its effect on the crop insurance policy, and how to regain eligibility. To the extent that there is perceived to be a conflict between the provisions, as stated in the preamble of the Basic Provisions, if a conflict exists between the policy provisions published at 7 C.F.R. part 457 and the administrative regulations published at 7 C.F.R. part 400, the policy provisions published at 7 C.F.R. part 457 control. Therefore, the provisions contained in section 2(f) of the Basic Provisions would still control.

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 2009 crop year. Any appeal of this decision must be in accordance with 7 C.F.R. § 400.768(g).

Date of Issue: Nov 2, 2010