Final Agency Determination: FAD-171

FAD-171

Subject: Request dated August 6, 2012, requesting a Final Agency Determination for the 2009 crop year regarding the interpretation of section 17(a)(1) 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.

Section 1 definition of “prevented planting” of the Basic Provisions states:

Prevented planting - Failure to plant the insured crop with proper equipment by the final planting date designated in the Special Provisions for the insured crop in the county. You may also be eligible for a prevented planting payment if you failed to plant the insured crop with the proper equipment within the late planting period. You must have been prevented from planting the insured crop due to an insured cause of loss that is general in the surrounding area and that prevents other producers from planting acreage with similar characteristics.

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Section 17 of the Basic Provisions states, in relevant part:

17. Prevented Planting. (a) Unless limited by the policy provisions, a prevented planting payment may be made to you for eligible acreage if: (1) You were prevented from planting the insured crop (Failure to plant when other producers in the area were planting will result in the denial of the prevented planting claim) by an insured cause that occurs: *****

The requestor stated that identical or nearly identical language is set forth in the Crop Revenue Coverage (CRC) and the 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 stated in FAD-012, the Federal Crop Insurance Corporation (FCIC) determined, “...to qualify for a prevented planting payment due to any insured cause of loss, the acreage must be located in an area where other producers with acreage with similar characteristics are also prevented from planting their crop.” It stated, “...the area must be defined by the cause of loss... Once this area is defined, acreage with similar characteristics within the area would be compared to determine whether producers are prevented from planting.” It also determined, “...acreage would be considered to have similar characteristics if it had comparable geography, topography, soil types and the same weather conditions and exposure.”

The first requestor stated subsequently, in FAD-105, the FCIC considered a scenario in which a producer took the position that his land should not be compared to that of a neighboring producer because his operation was a no-till operation while his neighbor employed a minimum till or conventional till practice. FCIC determined, “...a farm management decision to no-till acreage is not a ‘characteristic’ of the acreage or a factor considered when determining if the acreage has characteristics similar to other acreage in the area.” However, FAD-012 and FAD-105 do not authorize denial of 2009 prevented planting claims for acreage with similar characteristics such as comparable geography, topography, soil types, weather conditions, and exposure simply because the producers in the area utilize no-till operations. Rather, the approved insurance provider (AIP) still must independently determine prevented planting eligibility and payments on a case-by-case basis based on FCIC-issued policies, procedures, information provided by the policyholder, and other generally available supporting evidence such as weather records.

The first requestor stated excessive moisture is an insured cause of loss. The moisture content of the acreage can vary dramatically depending upon the type of crop residue that remains. The differing weather conditions and exposure that are imposed constitute differing “characteristics” of acreage which must be considered by the AIP when determining prevented planting eligibility. As a result, it is improper to conclude that land within the “area” with differing crop residue has the same characteristics without verification of the practicality of planting the ground in question. The practical implication of a contrary determination would result in a policyholder unknowingly extinguishing any right to a prevented planting claim if his or her, or the neighboring operations includes crops with differing residue.

The first requestor believes this determination is consistent with the findings of FCIC set forth in FAD-012. In particular, FCIC stated, “The decision by some producers to plant in conditions where the crop could not germinate and make normal progress towards maturity may not preclude other producers in the area with acreage with similar characteristics from receiving prevented planting payments.”

The first requestor proposed the following interpretation be adopted:

A policyholder is eligible for a prevented planting payment if he or she is prevented from planting the insured crop due to an insured cause of loss that is general in the surrounding area and that prevents other producers from planting acreage with similar characteristics. Acreage is properly considered to have similar characteristics if it has comparable geography, topography, soil types and the same weather conditions and exposure. Differing crop residue may impact the characteristics of the subject acreage as it can affect the weather conditions and exposure characteristics of the acreage. Neither FAD-012 nor FAD-105 support the blanket denial of no-till operation prevented planting claims on acreage with differing crop residue as the AIP must consider acreage with similar characteristics in its determination of prevented planting eligibility.

The second requestor stated crop residue remaining from a producer's decision to plant a particular type of crop or to follow a particular farming method is neither a “characteristic” of the acreage nor an insured cause of loss for purposes of a prevented planting claim. Instead, FCIC has consistently determined that crop residue remaining on a policyholder’s acreage is the direct result of management decisions made by the policyholder. As will be discussed below, the Federal Crop Insurance Act, the CRC provisions, and prior FADs prohibit coverage for any loss caused by management decisions made by the policyholder. This is not to say that no-till farmers are somehow ineligible for prevented planting, as suggested in the first requestor’s interpretation. Instead, it simply means that, in order to be eligible for a prevented planting payment, no-till farmers, like all producers, must prove that they were prevented from planting by an insured cause of loss, rather than by the extent or type of crop residue that existed on the acreage claimed as prevented planting.

Section 508(a)(1) of the Federal Crop Insurance Act states:

(a) Authority to Offer Insurance. (l) In General. If sufficient actuarial data are available (as determined by the Corporation), the Corporation may insure, or provide reinsurance for insurers of, producers of agricultural commodities grown in the United States under 1 or more plans of insurance determined by the Corporation to be adapted to the agricultural commodity concerned. To qualify for coverage under a plan of insurance, the losses of the insured commodity must be due to drought flood, or other natural disaster (as determined by the Secretary).

Section 14(e)(Your Duties) of the Basic Provisions provides:

(e) You must establish the total production or value received for the insured crop on the unit, that any loss of production or value occurred during the insurance period, and that the loss of production or value was directly caused by one or more of the insured causes specified in the Crop Provisions.

In FAD-60, posted on RMA's website on November 1, 2006, RMA stated, in relevant part:

Further, section 14(e) of the Basic Provisions requires the insured to establish that any loss was directly due to an insured cause of loss. This places the burden on the insured to prove that an insured cause of loss caused the loss of production or revenue.

In FAD-105, posted on RMA's website on January 7, 2010, RMA stated, in relevant part:

FCIC agrees with the requestor’s interpretation that a farm management decision to no-till acreage is not a “characteristic” of the acreage or a factor considered when determining if the acreage has characteristics similar to other acreage in the area.

RMA posted FAD-012 on its website on February 27, 2002. In FAD-012, RMA interpreted the term “area” to be the area affected by the cause of loss. Once the area is determined, acreage with similar characteristics within the area would be compared to determine whether the producer is prevented from planting. RMA also stated in FAD-012 that acreage would be considered to have similar characteristics if it had comparable geography, topography, soil types, the same weather conditions and exposure. Therefore, the management decision to no-till the acreage is not a “characteristic” of the acreage.

In FAD-145, posted on RMA's website on July 12, 2011, RMA stated, in relevant part:

Section 17(a)(1) of the Basic Provisions addresses those situations when a policyholder may have been able to plant the insured crop on some or all of the days earlier in the planting period but elected to wait towards the end of the planting period to plant and adverse weather then prevented the policyholder from planting. A policyholder's decision to wait to plant the crop when other producers in the area were planting is a farm management decision, not an insured cause of loss. The fact that an insured cause of loss prevented planting the last few days of the planting period does not negate the fact that but for the producer's election not to plant on those days where planting was possible, the acreage would have been planted during the planting period.

In accordance the Crop Insurance Act, the above-quoted policy provisions, and the above-quoted FADs, the second requestor proposed the following interpretation:

In order to be eligible for a prevented planting payment, the burden of proof is on the policyholder to prove that the policyholder was prevented from planting the insured crop due to an insured cause of loss that is general in the surrounding area and that prevents other producers from planting acreage with similar characteristics. Crop residue remaining as a result of a policyholder’s management decision to utilize a particular production method, such as no-till farming, is neither a characteristic of the acreage nor an insured cause of loss. Similarly, crop residue remaining as a result of the policyholder’s management decision to plant a particular type of crop is neither a characteristic of the acreage nor an insured cause of loss. Thus, if there is planted acreage with similar characteristics to, and in the same “area” as, the acreage claimed by the policyholder as prevented planting, the policyholder is not eligible for a prevented planting payment on the claimed acreage, even if there was less crop residue or a different type of crop residue on the planted acreage.

Final Agency Determination

FCIC disagrees with the first requestor’s interpretation and agrees with the second requestor’s interpretation. Allowing crop residue to remain on the acreage or the decision to plant a particular crop that may have a differing residue is a management decision of the producer, not a characteristic of the acreage. Additionally, a policyholder’s farm management decision cannot be an insured cause of loss. Section 12 of the Basic Provisions states, “insurance is provided to protect against unavoidable, naturally occurring events”, which does not include a farm management decision. Approved insurance providers must look at the physical characteristics of the acreage, such as geography, topography, soil types, the same weather conditions and exposure. Exposure means the natural characteristics of the acreage, such as easterly versus westerly exposure or natural windbreaks, etc. It does not include management decisions that may create differing exposures.

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: Oct 31, 2012