Final Agency Determination: FAD-165

FAD-165

Final Agency Determination: FAD-165

Subject: Request for interpretation of section 20(b) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions) in effect for the 2010 crop year as to whether an approved insurance provider’s (AIP) annual calculation and billing of premium is a determination for the purposes of section 20(a).

Background:

The section 20 of the 2005 Basic Provisions states in relevant part provides:

(a) If you and we fail to agree on any determination made by us except those specified in section 20(d), the disagreement may be resolved through mediation in accordance with section 20(g). If resolution cannot be reached through mediation, or you and we do not agree to mediation, the disagreement must be resolved through arbitration in accordance with the rules of the American Arbitration Association (AAA), except as provided in sections 20(c) and (f), and unless rules are established by FCIC for this purpose. Any mediator or arbitrator with a familial, financial or other business relationship to you or us, or our agent or loss adjuster, is disqualified from hearing the dispute.

(b) Regardless of whether mediation is elected:

(1) The initiation of arbitration proceedings must occur within one year of the date we denied your claim or rendered the determination with which you disagree, whichever is later;

(2) If you fail to initiate arbitration in accordance with section 20(b)(1) and complete the process, you will not be able to resolve the dispute through judicial review;

Section 7 of the Basic Provisions states in relevant part:

7. Annual Premium and Administrative Fees.

(a) The annual premium is earned and payable at the time coverage begins. You will be billed for the premium and administrative fee not earlier than the premium billing date specified in the Special Provisions.

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(c) The annual premium amount is determined, as applicable, by either:

(1) Multiplying the production guarantee per acre times the price election, times the premium rate, times the insured acreage, times your share at the time coverage begins, and times any premium adjustment percentages that may apply; or

(2) The amount of insurance per acre times the premium rate, times the insured acreage, times your share at the time coverage begins, and times any premium adjustment percentages that may apply.

(d) The premium will be computed using the price election or amount of insurance you elect or that we assign in accordance with section 3(d). The information needed to determine the premium rate and any premium adjustment percentages that may apply are contained in the actuarial documents or an approved written agreement.

Requestor’s Interpretation

The Requester interprets Basic Provisions sections 7 and 20 to mean that the AIP’s calculation of annual premium and notification to the policyholder of the amount of premium due is a determination subject to the one-year time period for appeal under Basic Provisions section 20, if the policyholder later disagrees with that determination. Section 7(a) provides that the premium is owed at the moment that coverage begins. For most types of policies, including Texas Citrus Fruit and Tree policies, the AIP calculates the premium that is due once it has received both an acceptable application and an acreage reporting form from the policyholder. An AIP typically first informs the policyholder of the amount of premium that is earned by sending out a schedule of insurance and then again later in the season by sending a premium bill. If the policyholder disagrees with the AIP’s determination of premium, it must appeal that determination within one year of the date the AIP sends the policyholder a schedule of insurance or a similar coverage document containing the premium totals (or, if applicable, within one year of any notice of a revised premium calculation).

The Requester interprets section 20(a) to mean that an AIP’s premium calculation is a determination for the purpose of starting the arbitration limitations period if the policyholder later disputes whether premium is owed or the amount. The AIP may determine premium based on all of the information the policyholder submits and the existing factual circumstances (see Basic Provisions section 6(e)). Premium is calculated in part by the information that the policyholder submits on its application. That information includes coverage level, price election, county/state location, along with the SBI holder information and identification numbers that the application must contain in order to comply with section 2(b).

FCIC’s Interpretation:

FCIC agrees with the requestor’s interpretation the AIP’s calculation of annual premium and notification to the policyholder of the amount of premium due is a determination for the purposes of section 20(a) of the Basic Provisions. FCIC agrees that because the determination of whether premium is owed and the amount of premium owed is a determination for the purposes of section 20(a) of the Basic Provisions, the policyholder is required to file for arbitration to resolve any disputes regarding the premium. FCIC also agrees that under section 20(b) of the Basic Provisions, the policyholder must file for arbitration within the one-year time period for appeal. FCIC disagrees that the one year period starts to run on the date the Schedule of Insurance is provided to the policyholder. Under the terms of the policy, adjustments could still be made under certain circumstances that could affect premium. For the purposes of establishing the date of the determination of whether premium is owed and the amount, the date the premium is billed is more appropriate because a demand for payment makes it clear that premium is owed and in what amount. Therefore, the one year period in which to file for arbitration to challenge whether premium is owed or the amount of premium owed starts on the date the premium is billed.

The requestor asked that this interpretation provide that the decision is applicable to the 2005 and 2001 Basic Provisions. To the extent the language in the provisions interpreted is identical to the language applicable for any other crop year; the same interpretation can be applied to such other crop year. It is the responsibility of the person seeking to use the interpretation for a different crop year to ensure that the language of the provisions is identical. Even minor language changes can have an effect on the interpretation.

Date of Issue: Sep 9, 2012