Final Agency Determination: FAD-162

FAD-162

Final Agency Determination: FAD-162

Subject: A joint request for a Final Agency Determination, dated April 6, 2012, was submitted by two parties, along with their separate interpretations of the same policy provision requesting a Final Agency Determination for the 2009 crop year regarding the interpretation of Section 9 of the Guaranteed Tobacco Crop Provisions (Crop Provisions), published at 7 C.F.R. 457.136. This request is pursuant to 7 C.F.R. part 400, subpart X.

Background:

Section 9 of the Tobacco Provisions states, in relevant part:

9. Insurance Period. In accordance with the provisions of section 11 of the Basic Provisions, insurance ceases at the earliest of: (a) Total destruction of the tobacco on the unit; (b) Weighing-in at the tobacco warehouse; (c) Removal of the tobacco from the field where grown except for curing, grading, packing, or immediate delivery to the tobacco warehouse; or (d) The calendar date for the end of the insurance period, which is: (i) Types 11 and 12 November 30; (ii) Type 13 October 31; (iii) Type 14 October 15; (iv) Types 31 & 36 February 28; (v) Types 21, 35 and 37 March 15; (vi) Types 22 and 23 April 15; (vii) Type 32 May 15; (viii) All other types April 30. Requestor's Interpretation Submitted

As indicated above the joint request for a Final Agency Determination was submitted by two parties. Both parties submitted their interpretation of the crop provision as follows:

First Requester's Interpretation

When sections 9(a) or (c) do not apply, the end of the insurance period is either the weighing-in at the warehouse as set forth in section 9(b), or November 30 as set forth in section 9(d)(i).

When the amount of the loss is based on the sale of the tobacco and not the amount of tobacco weighed-in, it is necessary for the tobacco to be sold in order to determine the total amount of the loss.

The final sales date is not one of the four dates specified in section 9. When the weigh-in date is not appropriate for the determination of the claim, then the only other date that is defined in the policy is the calendar date in section 9(d) (November 30). If the AIP has all of the required information for the determination of the claim within 60 days of the calendar date in section 9(d), the First Requester interprets section 9 to require that the AIP use the calendar date of November 30, as the end of the insurance period. To interpret the policy as the Second Requester contends, so that a sale date is the same as a weigh-in date, adds a definition which is not in the policy. If no separate weigh-in date is known, and the amount of loss is determined by the sale results, then the only definition remaining for the end of insurance period is November 30.

Second Requestor's Interpretation

Section 9 of the Guaranteed Tobacco Crop Insurance Provisions for Crop Year 2009 states that weighing-in of tobacco is one of the events that triggers the end of the insurance period. Even though the Federal tobacco quota and price support programs no longer exist, private tobacco warehouses still play an important role in the industry. In Manager's Bulletin MGR-01-021, FCIC explained that the term "tobacco warehouse" in section 9(b) means "the location where the tobacco is delivered for sale." Most tobacco-producing states regulate the sale of tobacco at warehouses. For example, in North Carolina, where the policy dispute giving rise to this request originated, state law requires that a qualified weigher must weigh the tobacco before it is sold at a warehouse. The term "weighing-in" still has a clear meaning inside the industry.

The Second Requester disagrees with the First Requester's interpretation that Guaranteed Tobacco losses are based on the sale of tobacco. Section2 of the Guaranteed Tobacco Crop Provisions explains that the AIP calculates the loss based on the shortfall in production to count relative to the production guarantee. The AIP may use sale records to determine the amount of harvested production, and the sale price might reduce the production to count through quality adjustment, but the loss is ultimately based on the amount (weight) of production.

Because tobacco purchasers pay for tobacco by weight, it is necessary for the warehouse to weigh-in the tobacco in order to determine the price for the production before sale. Therefore, when there is no separate record of a weigh-in other than the sale bills, the sale date is the same as the weigh-in date, or, at the very least, the two dates are the same for purposes of section 9(b) of the Guaranteed Tobacco Provisions because the sale date reflects the latest possible date upon which the warehouse could have weighed-in the production. If tobacco was weighed and sold at a tobacco warehouse before the calendar date included in section 9(d) and no earlier end-of-insurance-period date applies, then the weigh-in-and-sale date constitutes the end of the insurance period.

Final Agency Determination

The Federal Crop Insurance Corporation (FCIC) agrees with the Second Requestor's interpretation and disagrees with the First Requestor's interpretation.

Section 9 specifies the end of the insurance period and when the earliest condition that causes the insurance period to end occurs. Section 9(b) states that one of the conditions that ends the insurance period is the "weighing-in" of tobacco at the tobacco warehouse. As specified in Manager's Bulletin MGR-01-21, "tobacco warehouse as used in the Crop Provisions is the location where tobacco is delivered for sale." In accordance with the Crop Provisions and Manager's Bulletin MGR-01-021, the sale of tobacco meets the condition of section 9(b) and, therefore, ends the insurance period if such event occurs before the calendar date stated in section 9(d).

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 all crop years the provision is 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