Final Agency Determination: FAD-153

FAD-153

Subject: Request dated December 5, 2011, requesting a Final Agency Determination for the 2012 crop year regarding the interpretation of section 8(b) of the Florida Citrus Fruit Crop Insurance Provisions, published at 7 C.F.R. 457.107. This request is pursuant to 7 C.F.R. part 400, subpart X.

Background:

Section 8 of the Florida Citrus Fruit Crop Insurance Provisions (Crop Provisions) states:

8. Insurance Period.

(a) In accordance with the provisions of section 11 of the Basic Provisions:

(1) Coverage begins on May 1 of each crop year, unless:

(i) For new or carryover policies, as applicable, we inspect the acreage and determine it does not meet the requirements for insurability contained in your policy (You must provide any information we require for the fruit type, so we may determine the condition of the grove to be insured); or

(ii) For carryover policies, you report additional citrus acreage, or a greater share, such that the amount of insurance will increase by more than 10 percent and we notify you all or a part of your citrus acreage is not insurable.

(2) The calendar date for the end of the insurance period for each crop year, unless specified otherwise in the Special Provisions, is:

(i) February 7 for early and navel oranges, Orlando tangelos and tangerines;

(ii) February 28 for all other tangelos;

(iii) March 31 for mid-season and temple oranges;

(iv) April 30 for lemons, limes;

(v) May 15 for murcott honey oranges; and

(vi) June 30 for grapefruit and late season oranges.

(b) In addition to the provisions of section 11 of the Basic Provisions:

(1) If you acquire an insurable share in any insurable acreage of citrus fruit after coverage begins, but on or before the acreage reporting date of any crop year, and if after inspection we consider the acreage acceptable, then insurance will be considered to have attached to such acreage on the calendar date for the beginning of the insurance period.

(2) If you relinquish your insurable share on any insurable acreage of citrus fruit on or before the acreage reporting date of any crop year, insurance will not be considered to have attached, no premium will be due, and no indemnity payable, for such acreage for that crop year unless:

(i) A transfer of coverage and right to an indemnity, or a similar form approved by us, is completed by all affected parties;

(ii) We are notified by you or the transferee in writing of such transfer on or before the acreage reporting date; and

(iii) The transferee is eligible for crop insurance.

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Section 11 of the Common Crop Insurance Policy, Basic Provisions (Basic Provisions) states, in relevant part:

11. Insurance Period.

(a) Except for prevented planting coverage (see section 17), coverage begins on each unit or part of a unit at the later of:

(1) The date we accept your application (For the purposes of this paragraph, the date of acceptance is the date that you submit a properly executed application in accordance with section 2);

(2) The date the insured crop is planted; or

(3) The calendar date contained in the Crop Provisions for the beginning of the insurance period.

(b) Coverage ends on each unit or part of a unit at the earliest of:

(1) Total destruction of the insured crop;

(2) Harvest of the insured crop;

(3) Final adjustment of a loss on a unit;

(4) The calendar date contained in the Crop Provisions or Special Provisions for the end of the insurance period;

(5) Abandonment of the insured crop; or

(6) As otherwise specified in the Crop Provisions.

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Section 28 of the Basic Provisions states:

28. Transfer of Coverage and Right to Indemnity.

If you transfer any part of your share during the crop year, you may transfer your coverage rights, if the transferee is eligible for crop insurance. We will not be liable for any more than the liability determined in accordance with your policy that existed before the transfer occurred. The transfer of coverage rights must be on our form and will not be effective until approved by us in writing. Both you and the transferee are jointly and severally liable for the payment of the premium and administrative fees. The transferee has all rights and responsibilities under this policy consistent with the transferee's interest.

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The 2012 Florida Citrus Fruit actuarial documents indicate that for all counties in Florida insured under the 2012 Florida Citrus Fruit Crop Provisions, the acreage reporting date and sales closing date are April 1, 2011.

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Section 6 of the 2012 Crop Insurance Handbook states, in relevant part:

6 SERVICING AND ADMINISTRATIVE REQUIREMENTS

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D Transfer of Coverage and Right to an Indemnity.

Use a Transfer of Coverage and Right to an Indemnity to transfer insurance coverage and the right to any subsequent indemnity from one insured person to another person. The transfer is used when a transfer of part or all of the ownership/share of the insured crop occurs during the insurance period.

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(6) Expiration. The transfer expires at the end of the insurance period for the crop year specified. For succeeding crop years, an Application must be made to insure the proper person for insurance to remain in effect unless the transferee already has an existing policy.

Interpretation Submitted

The requester interprets the foregoing policy provisions as such that if a policy is applied for or renewed prior to the April 1, 2011 sales closing date and the insured sells or transfers their insurable share of the crop to another party after April 1, 2011, a transfer of coverage could be done at any time after April 1, 2011 on the approved form. Additionally, the requester states that a transfer of coverage and right to indemnity would be the only way to transfer coverage of insurance after April 1, 2011. For example, if an insured "A" sells his/her entire share of a citrus crop/grove to party "B" on April 15, 2011 and executes a transfer of coverage to the new owner (party "B"), coverage would attach to the citrus crop on May 1, 2011 provided the transferee (party "B") is eligible for crop insurance.

Final Agency Determination

The Federal Crop Insurance Corporation (FCIC) disagrees with the requestor's interpretation.

Section 8(b) of the Crop Provisions only applies when a share is acquired or relinquished during the insurance period but on or before the acreage reporting date. Under section 11 of the Basic Provisions, coverage begins on the later of the date of application, the date the crop is planted or the date in the Crop Provisions. For Florida Citrus Fruit, the date of application is the sales closing date, which is April 1; since the crop is not planted annually, the planting date is not applicable; and the date in the Crop Provisions is May 1. Therefore, coverage attaches and the insurance period begins on May 1.

However, section 8(b) of the Crop Provisions also states that the acquisition or relinquishing of the share must occur before the acreage reporting date for the provisions in paragraphs (1) and (2) to apply. For most crops, the acreage report is after the date insurance attaches and that is why the provisions were included in this policy. Florida Citrus Fruit is an anomaly in that the acreage reporting date is the same as the sales closing date, which is April 1, prior to the start of the insurance period. Therefore, under section 8(b) of the Crop Provisions, there is no time period between the start of the insurance period and the acreage report date so the provisions in section 8(b)(1) and (2) of the Crop Provisions are not applicable. There is no ambiguity in section 8(b) of the Crop Provisions. Further, the preamble of the Basic Provisions states that FCIC cannot waive or modify a term of the policy. This means that FCIC cannot interpret section 8(b) of the Crop Provisions other than to give it its plain meaning.

While section 8(b) of the Crop Provisions relates to the insurance period and when insurance is considered to attach, section 28 of the Basic Provisions also authorizes a transfer of coverage if a share is relinquished and it is separate from section 8(b). In accordance with section 28 of the Basic Provisions, a transfer of coverage and right to indemnity can be performed anytime during the crop year provided the transferee is eligible for crop insurance. As noted above, the crop year begins on the date insurance attaches, which for the 2012 crop year is May 1, 2011, for all crops insured under the Crop Provisions. The end of the insurance period is different for separate crops insured under the Crop Provisions. Neither the Basic Provisions nor the Crop Provisions authorize a transfer of coverage and right to indemnity if the transfer of a share occurs outside of the insurance period.

Certain crops insured under the Florida Citrus Fruit Crop Provisions (early oranges, mid-season oranges, navel oranges, Orlando tangelos, tangerines, and temple oranges) have an end of insurance period date prior to the sales closing date for the next crop year. For these crops a transfer of coverage and right to indemnity cannot be executed if a share is transferred after the April 1 sales closing date, but before the May 1 insurance attachment date. Furthermore, if the transfer of share occurred after the April 1 sales closing date the transferee would not be able to purchase insurance on the transferred share for the upcoming crop year because the sales closing date has past. However, if the transfer of the share occurred after May 1 and before the end of the insurance period, the transfer of coverage and right to indemnity would be valid provided all the other requirements were met.

Other crops insured under the Florida Citrus Fruit Crop Provisions (lemons, limes, murcott honey oranges, grapefruit, and late season oranges) have an end of insurance period date that extends up to or beyond the date insurance attaches for the subsequent crop year. For these crops, a transfer of coverage and right to indemnity for the current crop year could fall between the April 1 sales closing date and the May 1 insurance attachment date for the upcoming crop year. If a transfer of coverage and right to indemnity was performed during this time period, the transfer of coverage and right to indemnity would be applicable for the current crop year. However, under section 6D(6) of the 2012 Crop Insurance Handbook, the offer expires at the end of the crop year and a new application would have to be submitted before insurance could attach. Since the transfer occurs after the sales closing date, insurance would not attach for the next crop year.

For example, assume producer A sold his insured share of lemons to producer B on April 15, 2011. Because the insurance period for lemons ends on April 30, 2011, for the 2011 crop year, Producer A could transfer his coverage and right to indemnity to producer B, for the remainder of the 2011 crop year. At the end of the crop year, the transfer expires. Furthermore, since the share was transferred after the April 1 sales closing date for the 2012 crop year, producer B would not be able to purchase crop insurance for the 2012 crop year.

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 2012 crop year and succeeding crop years the policy provisions are in effect. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).

Date of Issue: February 28, 2012