Final Agency Determination: FAD-180

Request dated November 6, 2012, requesting a Final Agency Determination for the 2010 and three previous crop years regarding the interpretation of section 2(b)(2)(ii) of the Common Crop Insurance Basic Provisions (Basic Provisions), published at 7 CFR §457.8. This request is pursuant to section 506(r) of the Federal Crop Insurance Act (7 U.S.C. 1501-1524) and 7 C.F.R. part 400, subpart X.

Section 2(b) states, in relevant part:

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(b) Your application for insurance must contain your social security number (SSN) if you are an individual or employer identification number (EIN) if you are a person other than an individual, and all SSNs and EINs, as applicable, of all persons with a substantial beneficial interest in you, the coverage level, price election, crop, type, variety, or class, plan of insurance, and any other material information required on the application to insure the crop. If you or someone with a substantial beneficial interest is not legally required to have a SSN or EIN, you must request and receive an identification number for the purposes of this policy from us or the Internal Revenue Service (IRS) if such identification number is available from the IRS. If any of the information regarding persons with a substantial beneficial interest changes during the crop year, you must revise your application by the next sales closing date applicable under your policy to reflect the correct information.

(1) Applications that do not contain your SSN, EIN or identification number, or any of the other information required in section 2(b) are not acceptable and insurance will not be provided (Except if you fail to report the SSNs, EINs or identification numbers of persons with a substantial beneficial interest in you, the provisions in section 2(b)(2) will apply);

(2) If the application does not contain the SSNs, EINs or identification numbers of all persons with a substantial beneficial interest in you, you fail to revise your application in accordance with section 2(b), or the reported SSNs, EINs or identification numbers are incorrect and the incorrect SSN, EIN or identification number has not been corrected by the acreage reporting date, and:

(i) Such persons are eligible for insurance, the amount of coverage for all crops included on this application will be reduced proportionately by the percentage interest in you of such persons, you must repay the amount of indemnity, prevented planting payment or replanting payment that is proportionate to the interest of the persons whose SSN, EIN or identification number was unreported or incorrect for such crops, and your premium will be reduced commensurately; or

(ii) Such persons are not eligible for insurance, except as provided in section 2(b)(3), the policy is void and no indemnity, prevented planting payment or replanting payment will be owed for any crop included on this application, and you must repay any indemnity, prevented planting payment or replanting payment that may have been paid for such crops. If previously paid, the balance of any premium and any administrative fees will be returned to you, less twenty percent of the premium that would otherwise be due from you for such crops. If not previously paid, no premium or administrative fees will be due for such crops.

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FAD-151 states the following (emphasis added):

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FCIC agrees with the requestor's interpretation that the comment and response cited above demonstrates that a determination of voidance can occur years after the application was accepted. FCIC agrees that section 2(b) allows the AIP to void the policy whenever the company discovers that a basis for voidance exists, the policy is void for all years the basis for voidance existed, and that under such circumstances the policyholder is entitled to the return of a portion of the premium paid for those years the policy is void.

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FAD-152 provides the following:

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FCIC disagrees that the failure to provide or revise an application to include the identification number of the person who holds a substantial beneficial interest in the insured makes the insured ineligible and results in policy voidance. Section (2)(b)(2)(i) states that the failure to provide, request, or correct the identification number of a person with a substantial beneficial interest in the insured who is eligible for insurance shall result in the amount of coverage for all crops included on the application to be reduced proportionally by the percentage of interest held in the insured. Consequently, the reduction in the percentage of interest held by the substantial beneficial interest holder in the insured reduces the amount of coverage available to the insured, but does not make the insured ineligible to participate. Conversely, if the person with a substantial beneficial interest in the insured is not eligible for insurance, except as provided in 2(b)(3), the policy is void, including all crops listed on the application.

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The Requestor interprets that Section 2(b) provides that an application for insurance must contain the social security number or employer identification number of all person with a substantial beneficial interest in the insured. Under Section 2(b)(2)(ii), if an application does not contain the SSNs, EINs, or identification numbers of all person having a substantial beneficial interest , such person are not eligible for insurance, and Section 2(b)(3) does not apply, the policy is void. If previously paid, the balance of any premium and any administrative fees, less twenty percent of the premium that would otherwise be due will be returned to the policyholder.

FAD 151 states that “FCIC agrees that section 2(b) allows the AIP to void the policy whenever the company discovers that a basis for voidance exists, the policy is void for all years the basis for voidance existed, and that under such circumstances the policyholder is entitled to the return of a portion of the premium paid for those years the policy is void.” Moreover, “a determination of voidance can occur years after the application was accepted.”

However, under the circumstances described in Section 2(b)(2)(ii), the Requestor interprets that an AIP is required to declare a policy void and return the premium to the insured in the manner described. Thus, when an AIP obtains information that: (1) an application does not contain the SSN, EIN or identification number of a person with a substantial beneficial interest, and (2) the person with the substantial beneficial interest is not eligible for insurance, the AIP is required to void the policy. Voidance of a policy is required even when the AIP obtains the information more than one year after the date the premium is billed.

For example, if an AIP issues a policy and years later is presented with new information that existed at the time the application was accepted, and the information would have prevented the AIP from accepting the application and issuing the policy, the AIP is required to void the policy for all the years the basis for voidance existed. The AIP would also be required to return to the insured the balance of any premium and any administrative fees previously paid, less twenty percent of the premium that would otherwise be due.

FCIC agrees with the Requestor that section 2(b)(2)(ii) of the Basic Provisions requires that a policy is voided if the application does not contain the SSN, EIN, or identification number of a person with a substantial beneficial interest and the person is not eligible for insurance. While FAD-151 refers to “allowing” the AIP to void the policy, section 2(b)(ii) of the Basic Provisions is unambiguous and states that if the conditions stated therein are met, “the policy is void.”

As FAD 151 provided, “section 2(b) allows the AIP to void the policy whenever the company discovers that a basis for voidance exists. The policy is then void for all years the basis for voidance existed, and that under such circumstances the policyholder is entitled to the return of a portion of the premium paid for those years the policy is void.” The fact that section 2(b) had contingencies if the voidance occurs before or after premium or an indemnity was paid means that this determination by the AIP can occur years after the application was provided. This is consistent with FAD-151.

Finally, it is noted the Requestor asked that the FAD provide that the decision is applicable to the 2010 and three previous crop years (2007 through 2010 crop years). 7 C.F.R. part 400, subpart X states requesters may seek interpretations of those provisions of the Act and the regulations promulgated thereunder that are in effect for the crop year in which the request is being made and the three previous crop years. 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 published 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. In accordance with 7 C.F.R. part 400.765(c), this Final Agency Determination is binding on all participants in the Federal crop insurance program for the 2008 through 2010 crop years. Any appeal of this decision must be in accordance with 7 C.F.R. part 400.768(g).