Final Agency Determination: FAD-83
Subject: Request dated November 1, 2007, requesting a Final Agency Determination (FAD) for the 2006 and succeeding crop years, regarding the interpretation of section 12 of the Common Crop Insurance Policy Basic Provisions (Basic Provisions) published at 7 C.F.R. 457.8, and section 9 of the Northern Potato Crop Provisions published at 7 C.F.R. 457.142. This request is pursuant to 7 C.F.R. part 400, subpart X.
The preamble to the Basic Provisions as here pertinent states:
The provisions of the policy may not be waived or varied in any way by us, our insurance agent or any other contractor or employee of ours or any employee of USDA unless the policy specifically authorizes a waiver or modification by written agreement. We will use the procedures (handbooks, manuals, memoranda and bulletins), as issued by FCIC and published on the RMA website at http://www.rma.usda.gov/ or a successor website, in the administration of this policy, including the adjustment of any loss or claim submitted hereunder.
Section 12 of the Basic Crop Provisions as here pertinent states:
The insurance provided is against only unavoidable loss directly caused by specific causes of loss contained in the Crop Provisions. All specified causes of loss, except where the Crop Provisions specifically cover loss of revenue due to a reduced price in the marketplace, must be due to a naturally occurring event. All other causes of loss, including but not limited to the following, are NOT covered:
Section 9 of the Northern Potato Crop Provisions as here pertinent states:
Section 9 Cause of Loss
(a) In accordance with the provision of Section 12 of the Basic Provisions, insurance is provided only against the following causes of loss that occur within the insurance period:
(1) Adverse weather conditions;
(b) In addition to the causes of loss not insured against as contained in Section 12 of the Basic Provisions, we will not insure against any loss of production due to:
(1) Damage that occurs or becomes evident after the end of the insurance period, including, but not limited to, damage that occurs or becomes evident in storage; or
(2) Causes, such as freeze after certain dates, as limited by the Special Provisions.
The 2006 Loss Adjustment Manual (LAM) Standards Handbook, paragraph 68 found on page 147, Indemnity Inspection (Final) - End of the Insurance Period, as here pertinent states:
A When the calendar date for the end of the insurance period has been reached, and the crop has not been harvested, appraised production will be used to adjust the loss if the crop will not be harvested. A final inspection is required as soon as practical unless the Approved Insurance Provider (AIP) determined that insured perils (listed in the policy) delayed and prevented harvest of the crop.
(1) AIP's may settle claims based on harvested production by authorizing additional time
to harvest on a case-by-case basis if:
(a) The AIP determines and documents that the delay in harvest was due to an insured
cause of loss; and
(b) The insured proves that harvest was not possible; and
(c) The delay in harvest was not due to uninsured causes of loss or because the insured did not have sufficient equipment or manpower to harvest the crop by the calendar date for the end of the insurance period.
B When the AIP authorizes additional time to complete loss adjustment due to an insured peril preventing harvest by the calendar date for the end of insurance period (as stated above), follow the instructions below:
(2) If harvest completion was delayed due to an insurable cause occurring within the insurance period, any subsequent damage to the crop, due to the insurable causes specified in the contract, is covered provided that it is determined on a case-by-case basis that the insured has:
(a) Complied with the notice of damage or loss requirements identified in the policies and administered in accordance with the loss adjustment procedures, and
(b) Made every reasonable attempt to harvest the crop timely and properly.
(3) This does not include a mature crop that could have been harvested by the calendar date for the end of the insurance period but was not because the
insured was waiting for the moisture to decrease to avoid drying costs. In such cases, appraise the crop and finalize the claim as soon as possible after the
calendar date for the end of the insurance period.
(4) The calendar date for the end of the insurance period is NOT extended. Rather, the insured is given additional time to attempt to harvest the crop in order to settle any loss on the basis of harvested production.
(5) In the above circumstances, any subsequent and unavoidable loss of production caused by insurable causes is to be considered as an unavoidable loss resulting from the original insurable cause, which prevented the timely harvest of the crop. Any avoidable loss of production is to be charged as an appraisal against the guarantee.
(7) Verify and document that damage resulted from insured causes occurring during the insurance period (as clarified in B (2) and (3) above). Items to verify include (but are not limited to) the following:
When adverse weather conditions, a covered peril, prevent timely harvest of an insured crop before the end of the applicable insurance period, including the frost coverage period, any subsequent damage, including frost damage, is directly caused by adverse weather conditions and is covered as long as the inability to timely harvest the crop was not otherwise avoidable.
The requestor provided the following, in part, as analysis in support of the interpretation submitted:
Because a number of variables may combine to cause the loss, the LAM procedures repeatedly direct the AIP to verify the actual cause of loss on an individual case-by-case basis rather than merely considering the apparent cause of loss. (See LAM procedures, cited above).
For instance, the LAM gives this example when instructing the AIP to verify the cause of loss "e.g. apparent loss may be poor weed control; however, the damage may have been indirectly caused by insufficient rainfall to activate a properly applied herbicide" (2006 LAM 121(G)(2)). Similarly, it is explained that "although weeds are not a stated insured cause, the FCIC will consider damage caused by them as a covered cause of loss, if recognized and accepted control measures were used, and if adverse weather directly caused the control measures to be less effective."
The requestor claimed:
It is not consistent with the loss adjustment procedures set forth in the LAM for an AIP to summarily conclude that a cause of loss is due to an uninsured cause such as "freeze damage" or "weed infestation" without considering that the loss may be due to one or more insured causes, such as adverse weather conditions.
Final Agency Determination
The Federal Crop Insurance Corporation (FCIC) agrees in part with the proposed interpretation. FCIC agrees it is possible a loss that appears to be caused by uninsured causes, may in fact be the result of an insured cause of loss. Therefore, the example regarding the weed infestation is correct. A weed infestation, which is not an insurable cause of loss, may be a covered cause of loss if such infestation was due to an insured cause of loss such as insufficient rainfall and that cause of loss failed to activate the properly applied herbicide.
FCIC also agrees that if the end of insurance period has been reached and harvest cannot be completed due to an insurable cause occurring within the insurance period, additional time may be granted after the time the insured crop is normally harvested provided all the conditions in paragraph 68 of the LAM are met. However, the calendar date for the end of the insurance period is not extended. The producer is only given additional time to attempt to complete harvest of the crop. Any subsequent, unavoidable insured cause of loss is considered to be a continuation of the original cause of loss that prevented completion of harvest within the insurance period.
Further, there are situations where damage that occurs after a covered cause of loss prevents or delays harvest that may not be covered. For example, if damage occurs after the end of the insurance period, due to the uninsured cause of loss, such damage is not covered. In such cases, if the producer is able to harvest the crop but fails to do so, any subsequent damage is not covered.
Therefore, if an insured peril results in an inability to harvest before the freeze date specified in the Special Provisions, losses due to freeze occurring after the freeze date may be covered provided the conditions stated in paragraph 68 have been met. When additional time is allowed for harvest, it is still the producer's responsibility to comply with any requirements identified in the policy and to make every reasonable attempt to harvest the crop. If the producer fails to harvest the crop when it is possible to do so, then subsequent damage is not covered.
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 2006 and succeeding crop years. Any appeal of this decision must be in accordance with 7 C.F.R. 400.768(g).
Date of Issue: January 17, 2008