Sec. 508.CROP INSURANCE.
Section 10 of the Guaranteed Tobacco Crop Insurance Provisions states, in relevant part:
Section 508(a)(1) of the Federal Crop Insurance Act (Act) states the losses of the insured commodity must be due to a drought, flood, or
other natural disaster. The preamble to the Basic Provisions states that if there is a conflict between the Act and the Basic Provisions or
Crop Provisions, the Act will control.
This means that section 12 of the Basic Provisions and section 10 of the Guaranteed Tobacco Crop Provisions must be interpreted to require
that any stated cause of loss must be due to natural disaster or natural cause before it can be insured. In addition, in accordance with
section 12 for the Basic Provisions, all specified causes of loss must be due to a naturally occurring event and must be unavoidable. This
would include fire.
Further, section 14(e)(Your Duties) 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. As stated above, because the Act only authorizes coverage for losses due to natural disaster, the burden is on the insured to
not only establish that a
fire occurred, the insured must also establish that the fire was due to natural causes.
Interpretation Submitted By Requestor One
The requestor interprets the current interpretations issued through FAD 35, 60, and 80, that coverage for “fire” loss can hardly be called
“predictable coverage.” The arson example provided in FAD-80 is one example where similarly situated farmers may or may not be able to “prove”
the cause of their fire loss. The issue is immensely compounded in the case of dark-fire tobacco insurance for farmers who are required to light
a smoldering fire as part of a good farming practice. These farmers pay an increased premium for federally reinsured “fire-cured” tobacco over
similar “air-cured” tobacco; the only difference in the crop is the “firing” process. This of course, leads reasonable minds to conclude that
the increased premium corresponds to the coverage for the risk of the “firing” process. When tobacco barns are lost, it is generally
catastrophic and there is nothing more than a pile of ashes left as evidence of the crop’s existence. The current interpretation of
section 508(a) of the Act provides zero predictability in a farmer’s ability to gather proof that a catastrophic loss was due to a
“naturally occurring source” that caused the fire to escalate to an uncontrollable blaze. Such was not the intentions of Congress in
amending the statute in 1994.
The list of “covered” causes of loss in the prior version of section 508(a) of the Act is almost identical to a number of causes of
loss identified in section 10 of the Guaranteed Tobacco Crop Provisions. More importantly, section 12 of the Basic Provisions states that
the coverage is limited to “unavoidable loss” as identified in the specific Crop Provisions. This “unavoidable loss” is consistent with
the language of section 508(a) of the Act prior to the Congressional amendment removing the detailed list of “causes of loss” in lieu of
the more general statement of “drought, flood, or other natural disaster (as determined by the Secretary).” The reference in section 12
of the Basic Provisions that a loss must be “due to a naturally occurring event” must be reasonably construed as the same liberal construction
required by section 508(a) of the Act. The requestor, having considered the overall framework of the of the Act and specifically the changes
made to section 508(a) by the 1994 amendments of Congress in expanding coverage under the Act, propose an interpretation of that section as
Section 508(a) in requiring “the losses of the insured commodity must be due to drought, flood, or other natural disaster
(as determined by the Secretary)” must be liberally construed, consistent with the legislative intent of expanding the Act to increase farmer
participation and provide sound predictability of insurance coverage. Therefore, coverage for “fire” as referenced in the insurance policy
includes any unavoidable fire, whatever the source, as the failure to use good farming practices, negligence, mismanagement, or wrongdoing by
the insured or any
member of the insured’s family or household, the insured’s tenants, or the insured’s employees.
Alternatively, the requestor stated that section 508(a) of the Act should be broadly construed that the insured is not required to
“prove” or “establish” the ignition source of the fire was specifically due to a natural disaster. Fire is a covered cause of loss under
the policy unless evidence exists of negligence, mismanagement, or wrongdoing by the insured, a member of the insured’s family or household,
the insured’s tenants, or the insured’s employees.
Interpretation Submitted By Requestor Two
The requestor’s interpretation is that the insured must establish the loss was due to a naturally occurring event as opposed to an
event brought about by human interference. In case of loss due to fire, this may include either that the fire was ignited by a
naturally occurring event, or that the fire was spread beyond where it otherwise would have been contained due to a naturally
occurring event. When the insured cannot establish that the source of the fire was a naturally occurring event, or that the spread
of fire was due to a naturally occurring event, then any damage resulting therefrom is uninsurable.
Final Agency Determination
The Federal Crop Insurance Corporation (FCIC) disagrees with requestor one’s interpretation that the cause of loss does not have to
be the result of a natural cause or natural disaster, or that the producer does not have to prove the cause of loss. First and foremost,
section 508(a) of the Act only authorizes coverage for natural disasters. Regardless of any previous language in section 508(a) of the Act,
FCIC is interpreting the current language, which is plain and unambiguous. Losses must be caused by natural disasters. Therefore, neither
the policy provisions nor the procedures can be interpreted in any manner that would conflict with this provision of the Act. Hence, section
12(a) of the Basic Provisions specifies negligence, mismanagement, or wrongdoing by the insured, any member of the insured’s family or
household, or the insured’s tenant or employees are not covered. Accordingly, this provision cannot be interpreted to mean that wrongdoing
by others is covered under the policy. No man-made loss is covered.
Further, section 14(e)(Your Duties) of the Basic Provisions clearly states the insured is required to establish “that the loss of production or value was directly caused by one or more of the insured causes specified in the Crop Provisions.” Therefore, the insured is required to prove or establish that a covered cause of loss occurred. This means there must be an affirmative finding that the ignition source of the fire that caused the loss was naturally occurring. If the insured cannot meet this burden, no indemnity can be paid. This is reinforced by paragraph 125A (1) of the Loss Adjustment Manual (LAM) Standards Handbook, which states that any damage resulting from fire when the insured cannot establish the
ignition source of the fire was due to a natural cause or natural disaster is uninsurable.
FCIC agrees in part with requestor two’s interpretation that the insured is required to prove or establish that a covered cause of loss occurred and that there must be an affirmative finding that the ignition source of the fire that caused the loss was a naturally occurring event. Further, if the insured cannot meet this burden no indemnity can be paid. However, FCIC disagrees with the requestor two’s interpretation that any damage to fire-cured tobacco by fire cannot be covered as an insured cause of loss. The cultural practices for fire-cured tobacco consist of man-made controlled smoldering hardwood fires built on the barn floor. However, even with good management practices, an unavoidable naturally occurring insured peril (e.g., hurricane, tornado, or other abnormally excessive winds) can cause the smoldering fires to uncontrollably ignite unintended areas of
the barn (e.g., timbers) that quickly spread and damage or destroy the tobacco in the barn.
Consistent with FAD-80 in the case of tobacco, and specifically including fire-cured tobacco, fire damage to the curing tobacco can be covered if the insured can establish, with verifiable documentation, that the fire igniting the curing tobacco was caused:
1. By a naturally occurring unavoidable insured peril, and
2. In no way due to negligence, mismanagement or wrongdoing by the insured or member of the insured’s family or household, insured’s tenants or employees or anyone else.
Verifiable documentation must include at a minimum:
1. Local weather information collected by sources whose business it is to record and study the weather including but not limited to local weather reporting stations of the National Weather Service or documented local news reports, newspapers, television news reports, etc.; that clearly establishes there was a hurricane, tornado, abnormally excessive winds, earthquake or other naturally occurring insured peril in the area; and
2. If applicable, a report from the Property and Casualty Insurance Company who paid the fire claim on the barn stating there was no arson or malfeasance on the insured’s or anyone else’s part; or
3. Reports from the local fire department and/or law enforcement agency indicating the cause of the fire was due to a natural event.
In accordance with 7 C.F.R. 400.765(c), this constitutes the Final Agency Determination and is binding on all participants in
the Federal crop insurance program for the 2008 crop year and succeeding crop years.
Date of Issue: Apr 22, 2010