Final Agency Determination: FAD-202

Subject: Request dated November 8, 2013, to the Risk Management Agency (RMA) requesting a Final Agency Determination for the 2010 crop year regarding the interpretation of section 11(a)(2) 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:

Preamble to the Basic Provisions states, in pertinent part:

Throughout this policy, “you” and “your” refer to the named insured shown on the accepted application and “we,” “us,” and “our” refer to the insurance company providing insurance. Unless the context indicates otherwise, use of the plural form of a word includes the singular and use of the singular form of the word includes the plural.

Section 1 definition of "coverage begins, date” of the Basic Provisions states:

1. Definitions.

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Coverage begins, date - The calendar date insurance begins on the insured crop, as contained in the Crop Provisions, or the date planting begins on the unit (see section 11 of these Basic Provisions for specific provisions relating to prevented planting).

Section 11(a)(2) of the Basic Provisions states:

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:

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(2) The date the insured crop is planted; or

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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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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 and further requests that the interpretation be binding on all participants in the Federal crop insurance program for the crop years in which identical or nearly identical policy provisions are in effect.

The requestor interprets the above provisions as coverage would attach to all acres planted prior to the execution of transfer of coverage rights by the policyholder. The actual date that the partnership was formed has no bearing on the attachment of coverage prior to the transfer of coverage rights.

The date of the formal creation of the partnership is irrelevant to the attachment of coverage. If the date of the transfer of coverage is not the relevant planting date for determining what coverage had attached, this it is the requestor’s opinion that the relevant planting date is a question of fact that must be determined through arbitration.

FCIC agrees in part with the requestor’s interpretation. Assuming that there is a valid policy in effect, coverage attaches when the crop is planted as long as the insured has an interest in the crop. The formation of partnerships or other entities and the transfer of coverage is immaterial to the issue of when insurance attaches to the crop.

It is totally a separate issue of whether the insured had an interest in the crop and; therefore, could transfer the coverage to another entity. Section 28 of the Basic Provisions specifically provides “we will not be liable for more than the liability determined in accordance with your policy that existed before the transfer occurred.” This means that coverage can only transfer on acreage that was planted by the named insured before the formal establishment and creation of the new entity because that is the only acreage in which the insured had a share, insurance attached, and liability is established in accordance with the policy. Furthermore, FAD-161 articulated that “[i]n order to transfer an insured share of a crop, the transfer must be approved in writing by the Approved Insurance Provider (AIP). 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.” This means that only acreage planted before the transfer of coverage is covered.

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: January 14, 2014