Final Agency Determination: FAD-132

FAD-132

Subject: Two requests for a Final Agency Determination are submitted on the same subject by two parties. Submitter One's request is dated November 9, 2010 and Submitter Two's request is dated December 6, 2010, both requesting a Final Agency Determination (FAD) for the 2010 crop year regarding sections 3(d) and 3(e) of the Fresh Market Pepper Crop Insurance Provisions, published at 7 C.F.R. 457.148. This request is pursuant to 7 C.F.R. part 400, subpart X.

Background

Sections 3(d) and 3(e) of the Fresh Market Pepper Crop Provisions state, as here pertinent: 3. Amounts of Insurance and Production Stages.

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(d) The amounts of insurance per acre are progressive by stages as follows:

Stage	1	2	3
Percent of the Amount of Insurance per acre that you selected	65	85	100
Length of time if Direct-seeded	From planting through the 74th day after planting	From the 75th day after planting until the beginning of stage 3	Begins the earlier of 110 days after planting, or the beginning of harvest
Length of time if Transplanted	From planting through the 44th day after planting	From the 45th day after planting until the beginning of stage 3	Begins the earlier of 80 days after planting, or the beginning of harvest

(e) Any acreage of peppers damaged in the first or second stage to the extent that the majority of producers in the area would not normally further care for it, will be deemed to have been destroyed. The indemnity payable for such acreage will be based on the stage the plants had achieved when the damage occurred.

Also, sections 14(b)(4)(i) and 14(c)(3) of the Fresh Market Pepper Crop Provisions state, as here pertinent: 14. Settlement of Claim.

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(b) In the event of loss or damage covered by this policy, we will settle your claim by:

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(4) Subtracting either of the following values from the result of section 14(b)(3):

(i) For other than catastrophic risk protection coverage, the total value of production to be counted (see section 14(c)); or

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(c) The total value of production to count from all insurable acreage on the unit will include:

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(3) The total value of all harvested production from the insurable acreage will be the dollar amount obtained by subtracting the allowable cost contained in the Special Provisions from the price received for each box of peppers (this result may not be less than the minimum value shown in the Special Provisions for any box of peppers), and multiplying this result by the number of boxes of peppers harvested. Harvested production that is damaged or defective due to insurable causes and is not marketable will not be counted as production to count.

Interpretation Submitted

(a) If damage occurs to a pepper crop and the majority of producers in the area would not normally further care for it, then the Approved Insurance Provider (AIP) must pay the producer the indemnity based upon the assumption that the crop has been destroyed using the amount of insurance set forth in section 3(d). In addition, the AIP should not deduct any production which the producer is able to produce from such acreage if the producer elects to further care for the crop. Under this interpretation, section 3(e) would require the immediate payment of the calculated indemnity, and sections 14(b)(4) and 14(c) would not be applicable because there can be no "claim" for a crop that is deemed to have been destroyed; and (b) If damage occurs to a pepper crop and the majority of producers in the area would normally care for it, and the producer elects to care for the crop until harvest, the AIP must pay the producer the indemnity based upon the full amount of insurance reduced by the production produced on such acreage. Under this interpretation, section 3(e) would not be applicable, and the term "applicable stage" in section 14(b)(2) would be Stage 4 because the producer took the crop to harvest.

Submitter Two interprets sections 3(d) and 3(e), and section14, to mean the following: Section 14 of the Fresh Market Pepper crop provisions require an AIP to subtract the appraised value of the crop or the harvested value of the crop, as applicable, from the percentage of the amount of insurance that is determined to exist under section 3(d). The purpose of section 3(d) is simply to determine the applicable amount of insurance. Once the amount of insurance is determined, the AIP must then independently subtract from this amount the value of the crop, regardless of the percentage of insurance determined under section 3(d):

(a) If the damage occurs to a pepper crop during Stage 1 or Stage 2 and it is damaged to the extent that "the majority of producers in the area would not normally further care for it" then the AIP must pay the producer an indemnity based on 65% (Stage 1) or 85% (Stage 2) of the amount of insurance per acre, less the appraised value of the crop if the insured intends to destroy the crop or put it to another use; (b) If the damage occurs to a pepper crop during Stage 1 or Stage 2 and it is damaged to the extent that "the majority of producers in the area would not normally further care for it" but the insured chooses to care for the crop anyway and brings it to harvest, then the AIP must pay the producer an indemnity based on 65% (Stage 1) or 85% (Stage 2) of the amount of insurance per acre, less the appraised value of the crop, unless the value of the harvested production exceeds the appraised value, in which case the AIP must pay the producer an indemnity based on 65% (Stage 1) or 85% (Stage 2) of the amount of insurance per acre, less the value of the harvested production; and (c) If damage occurs to a pepper crop during Stage 1 or Stage 2 and "the majority of producers in the area" would normally further care for it, and the producer elects to care for the crop until harvest, the AIP must pay the producer an indemnity based on 100% of the amount of insurance per acre, less the value of the harvested production from such acreage.

Final Agency Determination

The Federal Crop Insurance Corporation (FCIC) agrees with the interpretation of Submitter Two and disagrees with the interpretation of Submitter One. There are two distinct issues in question, as presented in these requests for Final Agency Determination, and Submitter Two identifies such appropriately. The purpose of section 3(d) is simply to determine the applicable amount of insurance. Once the amount of insurance is determined, the AIP must then independently subtract from this amount the value of the crop, regardless of the percentage of insurance determined under section 3(d). Section 14 of the Fresh Market Pepper crop provisions require an AIP to subtract the appraised value of the crop or the harvested value of the crop, as applicable, from the percentage of the amount of insurance that is determined to exist under section 3(d).

Section 3 (e) states "Any acreage of peppers damaged in the first or second stage to the extent that the majority of producers in the area would not normally further care for it, will be deemed to have been destroyed. The indemnity payable for such acreage will be based on the stage the plants had achieved when the damage occurred." Additionally, nothing in Section 3(e) negates the provisions contained in Sections 14(b)(4)(i) or 14(c) with regard to the value of production to count.

The Fresh Market Pepper Loss Adjustment Standards Handbook further clarifies when the fresh market pepper crop is damaged to the extent that the majority of producers in the area would no longer care for the crop (and it is not practical to replant) any indemnity will be based on the stage the peppers had reached at the time of damage. If the peppers are not destroyed and are subsequently harvested, settlement of the claim will be based on the stage the plants had achieved when the insured damage occurred as required by Sections 14(b)(4)(i) or 14(c). The total value of this harvested production will be considered as production to count.

In accordance with the 7 C.F.R. 400.765(c), this constitutes the final agency determination and is binding on all participants in the Federal crop insurance program for the 2010 crop year.

Date of Issue: February 3, 2011