Final Agency Determination: FAD-161

FAD-161

Final Agency Determination: FAD-161

Subject: Two requests dated March 1, 2012, and March 15, 2012, requesting a Final Agency Determination for the 2009 crop year regarding the interpretation of section 28 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. 400, subpart X.

Background:

Section 1 definition of "share" of the Basic Provisions states:

1. Definitions.

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Share - Your percentage of interest in the insured crop as an owner, operator, or tenant at the time insurance attaches. However, only for the purpose of determining the amount of indemnity, your share will not exceed your share at the earlier of the time of loss or the beginning of harvest.

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Section 11 of the 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 at the earliest of:
(1) Total destruction of the insured crop on the unit;
(2) Harvest of the unit;
(3) Final adjustment of a loss on a unit;
(4) The calendar date contained in the Crop Provisions for the end of the insurance period;
(5) Abandonment of the crop on the unit; 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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Section 4F(4) of the 2007 FCIC 18010-01 Crop Insurance Handbook (CIH), applicable to the 2009 crop year, states, in relevant part:

4 GENERAL RULES

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4F Service Forms And Administrative Requirements

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F(4) Transfer of Right to an Indemnity. Use a Transfer of Right to an Indemnity Form developed according to RMA approved standards to transfer coverage and the right to any subsequent indemnity from one insured entity to another entity. This form is used when the transfer of part or all of the ownership/share of the insured crop occurs during the insurance period.

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This request relates to the ability of a policyholder to transfer his or her share in the insured crop to another person or entity by way of a transfer of coverage and right to indemnity form as contemplated by section 28 of the Basic Provisions.

The requestor states that identical or nearly identical language is set forth in the Crop Revenue Coverage (CRC) and Revenue Assurance (RA) insurance policies. Accordingly, they request this Final Agency Determination explicitly be made applicable to the CRC and RA policies as well.

Interpretation Submitted

The first requestor interprets section 28 of the Basic Provisions to mean that a transfer of coverage and right to indemnity can only be effective as to the share actually held by the policyholder in the insured crop at the time of the transfer of his interest in the land. Consequently, if the policyholder never acquires a share in the crop acreage sought to be insured, a transfer of coverage and right to indemnity is not effective to transfer any insurable interest in the subject crop.

The first requestor believes that their interpretation is consistent with the procedures established in section 4F(4) of the CIH.

The first requestor provides this reading of the policy is entirely consistent with section 28 of the Basic Provisions which states in part. "We will not be liable for more than the liability determined in accordance with your policy that existed before the transfer occurred." No "liability" can be established under a policy until the insured crop acreage is planted. Hence, there would be no "liability" to transfer.

The first requestor believes this interpretation is consistent with RMA policy and procedure that provides a transfer of coverage and right to indemnity must take place within the insurance period prescribed by the policy. For instance, a transfer of coverage or right to indemnity cannot be effective if it is executed prior to the policy insurance period - which, at the earliest, is the date of planting. This means a transfer of coverage or right to indemnity executed on March 20 cannot be effective to transfer coverage for crops that are first planted after that date.

In summary, it is the first requestor's interpretation that in order for a transfer of coverage and right to indemnity to be effective, the transferring policyholder must hold an insurable share in the crop acreage sought to be transferred at the time the interest in the land is transferred. If the policyholder does not plant the crop and, thus, does not acquire an insurable share, he or she has no share by which he can transfer to someone else by way of a transfer of coverage and right to indemnity. This would include acreage planted by the transferee farmer after the actual transfer of interest but before the transfer of coverage and right to indemnity form is signed.

The second requestor interprets section 28 of the Basic Provisions to mean that a policyholder can transfer all coverage rights for a basic unit after planting has begun on the basic unit (assuming that the date planting began is subsequent to the calendar date contained in the Crop Provisions for the beginning of the insurance period), including coverage rights for acreage within the basic unit that is planted subsequent to the date of the transfer of coverage.

The second requestor states that if the transfer of coverage was determined to be effective only as to acreage planted prior to the transfer of coverage and not as to acreage within the unit that is planted after the transfer of coverage, the transferee would have insured corn and uninsured corn within the same unit.

Final Agency Determination

The Federal Crop Insurance Corporation (FCIC) agrees with the first requestor's interpretation that a transfer of coverage and right to indemnity can only be effective as to the share in the insured crop actually held by the policyholder at the time his/her interest in the crop was transferred in accordance with section 28 of the Basic Provisions. Under the definition of "share" it is the producer's interest in the crop at the time insurance attaches. Therefore, before insurance attaches, the producer has no share of the crop that can be transferred. Under section 11 of the Basic Provisions, insurance attaches at the later of the date the application is filed, the date the crop is planted, or the calendar date contained in the Crop Provisions for the beginning of the insurance period.

For most crops, insurance attaches on the date the crop is planted. Therefore, if the acreage is transferred to another producer prior to planting, there can be no transfer of coverage and right to indemnity because the transferee has not yet acquired a share in the crop. There is one exception that allows for a transfer of coverage and right to indemnity prior to planting the crop and that is for prevented planting acreage. In the case of prevented planting, in accordance with the Federal Crop Insurance Act, the insurance period for a carryover policyholder begins on the prior year's sales closing date. This means that for prevented planted acreage only, insurance has attached to the acreage and the producer has a share of the crop as of the prior year's sales closing date. For example, if after the sales closing date a carryover policyholder transfers acreage to another party and such acreage is subsequently prevented from being planted by an insured cause of loss, an approved transfer of coverage and right to an indemnity would be applicable for prevented planting coverage, subject to all prevented planting qualifications and eligible prevented planting acreage remaining under the transferor's policy.

In order to transfer an insured share of a crop, the transfer must be approved in writing by the Approved Insurance Provider. Once approved, a transfer of coverage and right to an indemnity is applicable to acreage of the crop planted by the transferor and then assumed by the transferee. However, for any crop that was planted by the transferee, no coverage would be provided under the transfer of coverage and right to indemnity since the transferee only received the coverage transferred and the transferor did not have a share of the crop planted after the acreage was transferred.

FCIC disagrees with the second requestor that the transfer of coverage would include acres within the basic unit that were planted by the transferee.

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 are not 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 policyholders 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 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: May 24, 2012