Crop Insurance Update: Coverage for Pennsylvania Pears

Written by M. Sean High—Staff Attorney

On September 14, 2016, the United States Department of Agriculture (USDA) Raleigh Regional Office—Raleigh, NC issued a Risk Management Agency Fact Sheet regarding crop insurance for pears grown in Pennsylvania. 

According to USDA, crop insurance is available for all pears in a Pennsylvania county where: (1) a premium rate is provided by the actuarial documents; (2) the pears are of a variety that is adapted to the area; and (3) the pears are grown on trees that have produced at least 3 tons of pears per acre in at least 1 of the previous 4 years.

USDA states that all pears in Adams County are eligible for crop insurance, and that “pears may [also] be insurable in other [Pennsylvania] counties by written agreement if specific criteria are met.”

According to USDA, crop insurance provides pear producers protection against the following: (1) adverse weather conditions, including hail, frost, freeze, wind, drought, and excess precipitation; (2) failure of irrigation water supply, if caused by an insured peril during the insurance period; (3) fire caused by an insured peril during the insurance period; (4) insect damage and plant disease, except for insufficient or improper application of control measures; or (5) wildlife.

The sales closing date for Pennsylvania pear crop insurance coverage is November 20, 2016 with the insurance coverage period beginning of November 21, 2016 and lasting until the earliest occurrence of one of the following events: (1) total destruction of the crop; (2) harvest of the crop; (3) final adjustment of a claim; (4) abandonment of the crop; (5) September 15 for all types of summer and fall pears; or (6) October 15 for all types of winter pears.

Crop Insurance Update: Understanding the Actual Production History Yield Exclusion

Written by M. Sean High—Staff Attorney

Under the 2014 Farm Bill, the United States Department of Agriculture (USDA) Risk Management Agency (RMA) offers crop insurance policy holders the potential to exclude certain bad production years when calculating yields used to establish crop insurance coverage.  Known as the Actual Production History (APH) Yield Exclusion (YE), this provision allows for the exclusion of certain years when the average per planted acreage yield for a specific county is at least 50% below the simple average for the previous 10 consecutive crop years.

According to RMA, the agency conducts a review of the crop insurance actuarial documents to identify years that will be eligible for APH YE.  RMA states that the agency primarily uses RMA data to identify eligible years, but “[i]f RMA data is not sufficient for any given crop year, National Agriculture Statistics Service data is used, if available and appropriate, and then, in a limited number of situations, the applicable county transitional yield may be used, as appropriate, to complete a 10-year consecutive period.” Information regarding eligible APH YE years can be found at: http://prodwebnlb.rma.usda.gov/apps/MapViewer/index.html.

According to RMA, to be permitted to exclude bad production years when calculating yields used to establish crop insurance coverage, an agricultural producer “must choose the Actual Production History Yield Exclusion Option by the sales closing date for [their] insurance policy.” Importantly, RMA states that this option is continuous, and once chosen, “will automatically exclude all eligible crop years from your actual production history database, unless you specifically opt out of the exclusion for a specific crop year because you wish to retain your yield for an eligible crop year in your actual production history database.” Consequently, if the policy holder decides to end this coverage, they must request a cancellation of the option by the sales closing date.

Finally, RMA states that the exclusion of bad production years may result in “an increased approved yield, a higher insurance guarantee and greater indemnity payment could occur due to the yield exclusion.” Because of this potential benefit, the policy holder claiming the exclusion will have their policy premium adjusted to reflect the higher effective coverage level.  

Crop Insurance Update: Understanding the Risk Management Agency

Written by M. Sean High—Staff Attorney

Established in 1996, the United States Department of Agriculture’s (USDA) Risk Management Agency (RMA) provides assistance to America’s farmers through the promotion, support, and regulation of risk management tools designed to “strengthen the economic stability of agricultural producers and rural communities.” According to RMA, the work of the Agency consists of three main program areas: (1) promoting and supporting crop insurance services; (2) developing, testing, and reviewing crop insurance products; and (3) assessing and investigating crop insurance compliance.

Significantly, RMA manages the Federal Crop Insurance Corporation (FCIC) which administers the Federal crop insurance program.  According to RMA, “FCIC promotes the economic stability of agriculture through a sound system of crop insurance and providing the means for the research and experience helpful in devising and establishing such insurance.”

A wholly owned government corporation, FCIC is governed by a nine member Board of Directors consisting of three members from USDA and six members from the private sector.  The three FCIC Board members from USDA are: (1) the Under Secretary of Farm and Foreign Agricultural Services; (2) USDA’s Chief Economist; and (3) the current manager of FCIC (in a nonvoting role).  The six FCIC Board members from the private sector are: (1) four farmers, one of whom grows a specialty crop; (2) an individual involved in insurance; and (3) an individual knowledgeable about reinsurance or regulation.

Subject to the general supervision of the Secretary of Agriculture, “[t]he FCIC Board approves any new policy, insurance plan, or major modification to an existing plan or other materials under procedures established by the Board.”

According to RMA, under the Federal crop insurance program, “Approved Insurance Providers (AIP) sell and service Federal crop insurance policies in every state and in Puerto Rico through a public-private partnership with RMA…[and] RMA backs the AIPs who share the risks associated with catastrophic losses due to major weather events.” To locate an AIP or RMA insurance agent, an agricultural producer can contact any USDA service center or visit RMA’s Agent Locator webpage at: http://www.rma.usda.gov/tools/agent.html.  

Crop Insurance Update: Pennsylvania Sales Closing Date for Fall-Planted Wheat Nears

Written by M. Sean High—Staff Attorney

In August 2016, the United States Department of Agriculture (USDA) Risk Management Agency (RMA) Raleigh Regional Office—Raleigh, NC issued a revised Wheat crop insurance fact sheet for Delaware, Maine, Maryland, New Jersey, New York, North Carolina, Pennsylvania, Vermont, Virginia, and West Virginia for the 2017 crop year.

Accordingly, for fall-planted wheat in Pennsylvania, the sales closing date is September 30, 2016, for the insurance period ending August 31, 2017. 

Actuarial information regarding insurable counties is available for viewing on RMA’s website at http://webapp.rma.usda.gov/apps/actuarialinformationbrowser/. A listing of crop insurance agents is also available on RMA’s website at http://www.rma.usda.gov/tools/agent.html. 

Crop Insurance Update: Pennsylvania Sales Closing Date for Forage Production Nears

Written by M. Sean high—Staff Attorney

In August 2016, the United States Department of Agriculture (USDA) Risk Management Agency (RMA) Raleigh Regional Office—Raleigh, NC issued a revised Forage Production crop insurance fact sheet for Pennsylvania for the 2017 crop year.

According to RMA, crop insurance for forage production “[c]overage begins on October 16, 2016, for acreage seeded during the fall of 2015 and on May 22, 2017, for acreage seeded during the spring of 2016, if there is an adequate stand as of those dates.” Additionally, RMA stated “[i]nsurance ends with the earliest occurrence of one of the following:

• Total destruction of the crop;
•  Removal from the windrow or the field for each cutting;
• Final adjustment of a loss;
• Abandonment of the crop;
• The date grazing begins on the insured crop; or
• October 15.” 

The sales closing date for forage production crop insurance in Pennsylvania is September 30, 2016. 

Actuarial information regarding insurable counties is available for viewing on RMA’s website at http://webapp.rma.usda.gov/apps/actuarialinformationbrowser/. A listing of crop insurance agents is also available on RMA’s website at http://www.rma.usda.gov/tools/agent.html. 

Finally, the sales closing date for forage production Area Risk Protection Insurance (ARPI) (which “provides coverage based on the experience of an entire area, generally a county”) is September 30, 2016.  According to RMA, ARPI replaces the Group Risk Plan and the Group Risk Income Protection Plan and “provides for more flexibility in the data source used for establishing yields and requires production reporting requirements for producers enrolled in area-based plans, which will improve accuracy and allow the program to be offered in more areas.”

Crop Insurance Update: Pennsylvania Sales Closing Date for Fall-Planted Barley Nears

Written by M. Sean High—Staff Attorney

In July 2016, the United States Department of Agriculture (USDA) Risk Management Agency (RMA) Raleigh Regional Office—Raleigh, NC issued a revised Barley crop insurance fact sheet for Delaware, Maine, Maryland, New Jersey, New York, North Carolina, Pennsylvania, Vermont, Virginia, and West Virginia for the 2017 crop year.

Accordingly, for fall-planted barley in Pennsylvania, the sales closing date is September 30, 2016, for the insurance period ending August 31, 2017.  Additionally, for spring-planted barley in Pennsylvania, the sales closing date is March 15, 2017, for the insurance period ending October 31, 2017.  

Actuarial information regarding insurable counties is available for viewing on RMA’s website at http://webapp.rma.usda.gov/apps/actuarialinformationbrowser/. A listing of crop insurance agents is also available on RMA’s website at http://www.rma.usda.gov/tools/agent.html.   

Crop Insurance Update: Noninsured Crop Assistance Program

Written by M. Sean High—Staff Attorney

Reauthorized under the 2014 Farm Bill, and administered by the United States Department of Agriculture (USDA) Farm Service Agency (FSA), the Noninsured Crop Disaster Assistance Program (NAP) offers eligible producers of eligible non-insurable crops the possibility of receiving financial assistance in the event a natural disaster causes crop loss, reduced yields, or prevents crop planting. 

Available through county FSA offices, NAP provides coverage similar to crop insurance and may provide producers with up to 65% of yield history when a crop insurance policy is not available.  According to FSA, “NAP provides basic coverage equivalent to the catastrophic level risk protection plan of insurance coverage, which is based on the amount of loss that exceeds 50 percent of expected production at 55 percent of the average market price for the crop.” FSA further stated that producers my elect additional NAP coverage, but if elected, those producers “must pay a premium in addition to the service fee.”

To be considered an eligible producer for NAP, a producer must be “a landowner, tenant or sharecropper who shares in the risk of producing an eligible crop and is entitled to an ownership share of that crop.” Furthermore, FSA stated, “an individual’s or entity’s average adjusted gross income (AGI) cannot exceed $900,000 to be eligible for NAP payments…[and that] NAP payments received, directly or indirectly, will be attributed to the applicable individual or entity and limited to $125,000 per crop year, per individual or entity.”

Eligible crops under NAP must be crops which are “commercially produced agricultural commodities for which crop insurance is not available and be any of the following: 

•       Crops grown for food;
•       Crops planted and grown for livestock consumption, such as grain and forage crops, including native forage;
•       Crops grown for fiber, such as cotton and flax (except trees);
•       Crops grown in a controlled environment, such as mushrooms and floriculture;
•       Specialty crops, such as honey and maple sap;
•        Sea oats and sea grass;
•        Sweet sorghum and biomass sorghum;
•         Industrial crops, including crops used in manufacturing or grown as a feedstock for renewable biofuel, renewable electricity or biobased products;
•        Value loss crops, such as aquaculture, Christmas trees, ginseng, ornamental nursery and turf-grass sod; and
•         Seed crops where the propagation stock is produced for sale as seed stock for other eligible NAP crop production.”

For eligible Pennsylvania producers, upcoming 2016 application deadlines for coverage for NAP final dates are as follows: 

•          September 1, 2016—Value Loss Crops for the following year (flowers for fresh cut, onion sets, turfgrass sod, Christmas trees, aquaculture, ginseng, mushrooms, etc.) 

•          September 30, 2016—Grazing/forage crops, Garlic, Wheat, Barley, Rye, and Mint for the following year’s crop

•          November 20, 2016—Apples, Apricots, Aronia (Chokeberry), Asparagus, Blueberries, Caneberries, Cherries, Grapes, Hops, Nectarines, Peaches, Pears, Plums, Strawberries 

•          December 1, 2016—Honey for the following year

Crop Insurance Update: Kentucky Court Rejects Negligent Misrepresentation Claim

Written by M. Sean High – Staff Attorney

On August 3, 2016, the United States District Court Western District of Kentucky issued a ruling rejecting a claim brought against an insurance company for the alleged negligent misrepresentation of a crop insurance policy (Buckman v. Nau Country Insurance, 2016 WL 4154463).

According to the Court, in March 2011, Marion County Kentucky farmer Joseph Buckman applied for a Federal Crop Insurance Act Group Risk Income Protection insurance policy for his 2011 corn crop.  At that time, Buckman was told by his crop insurance agent “that he would be entitled to receive an indemnity payment if Marion County’s 2011 actual corn crop yield was more than ten percent less than the expected yield…and [that] Marion County’s 2011 actual corn crop yield would be based on planted acres” (emphasis added).

The Court stated that on March 8, 2012, the same insurance agent informed Buckman that based on the crop yields for his 2011 planted acres Buckman would be receiving an indemnity payment in the amount of $104,961.  Sometime between March 8, 2012 and April 11, 2012, Buckman “leased his farm, disposed of his farm equipment, and exited farming.”

According to the Court, on April 11, 2012, the same insurance agent informed Buckman that the crop yields had been incorrectly calculated through the use of planted acres and instead should have been based on harvested acres.  As a result of the new calculation, the insurance agent informed Buckman that he would not be entitled to an indemnity payment.  Subsequently, Buckman brought suit against NAU Country Insurance Company alleging that the company’s agent negligently misrepresented the policy terms.

The Court held that “under federal law, Buckman is charged with knowledge of his corn crop policy” and because it is his responsibility to have this knowledge, Buckman “could not have reasonably relied on [the insurance] agent’s erroneous representations.”

Crop Insurance Update: FCIC Finalizes Changes to Federal Crop Insurance

Written by M. Sean High - Staff Attorney

On August 12, 2016, the United States Department of Agriculture (USDA) Federal Crop Insurance Corporation (FCIC) published notice in the Federal Register (81 FR 53657) of a final rule changing the Code of Federal Regulation’s General Administrative Regulation—Subpart V—Submission of Policies, Provisions of Policies, Rates of Premium, and Non-Reinsured Supplemental Policies (7 CFR part 400, subpart V). 

According to FCIC, the final rule provides greater clarity of “existing regulations [and] lessen[s] the burden on submitters of crop insurance policies, provisions of policies, or rates of premium under section 508(h) of the [Federal Crop Insurance] Act (Act).” FCIC stated that the final rule also supplies “guidance on the submission and payment for concept proposals under section 522 of the Act” and furnishes “provisions for submission and approval of index-based weather plans of insurance as authorized by section 523(i) of the Act,” Finally, FCIC declared that the final rule “incorporate[s] changes that are consistent with those made in the Common Crop Insurance Policy Basic Provisions.”  

According to FCIC, the final rule’s changes to 7 CFR part 400, subpart V are the result of a notice of proposed rulemaking published in the Federal Register on February 25, 2015, which provided the public with a 60 day comment period (80 FR 10008—10022).  FCIC stated that the agency received 80 comments on the proposed rule from 10 commenters including: “insurance providers, insurance organizations, grower organizations, crop insurance product developers, and a business council.”

The effective date for the final rule is August 12, 2016.   

Crop Insurance Update: USDA Corrects Definition of “Limited Resource Farmer”

On August 9, 2016, the United States Department of Agriculture (USDA) Federal Crop Insurance Corporation (FCIC) published notice in the Federal Register that the agency was issuing a final rule/correcting amendment to replace an invalid link previously appearing in the Code of Federal Regulations (CFR) (81 FR 52590).

According to the Federal Register notice, as previously published, 7 CFR 457.8 contained an outdated link appearing within the definition of the term “limited resource farmer.”

To correct the problem, the 7 CFR 457.8 definition of “limited resource farmer” now contains a revised link and appears as follows:

Limited resource farmer. Has the same meaning as the term defined by USDA at http://lrftool.sc.egov.usda.gov/LRP_Definition.aspx or successor Web site.

The effective date for the amendment to the 7 CFR 457.8 definition of “limited resource farmer” is August 9, 2016. 

Crop Insurance Update: FCIC Finalizes 2014 Farm Bill Crop Insurance Provisions

Written by M. Sean High—Staff Attorney

On June 30, 2016, the United States Department of Agriculture (USDA) Federal Crop Insurance Corporation (FCIC) published notice in the Federal Register of a final rule completing “changes to the General Administrative Regulations—Ineligibility for Programs under the Federal Crop Insurance Act, the Catastrophic Risk Protection Endorsement, the Area Risk Protection Insurance Regulations, and the Common Crop Insurance Regulations, Basic Provisions” (81 FR 42453).

According to a press release issued by USDA’s Risk Management Agency (RMA), the published final rule “completes provisions such as enterprise units for irrigated and non-irrigated crops, adjustment in actual production history to establish insurable yields, crop production on native sod, beginning farmer and rancher provisions, coverage levels by practice, and the authority to correct errors.” RMA stated that the changes issued under the final rule were the result of the 2014 Farm Bill which mandated that USDA “make some changes that would strengthen the safety net [the agency] provide[s] for America’s farmers and ranchers.”

According to the Federal Register, USDA received 364 comments from 74 commenters (including academics, farmers, trade associations and others) regarding an interim rule published July 1, 2014.  As a result of these comments, USDA stated that RMA made changes to the final rule dealing with native sod so as to provide clarity regarding “an exception that allows producers to break up to five acres of native sod and not receive reduced premium subsidy on coverage of native sod acreage.” According to RMA, “[a]ll other provisions of the final rule remain unchanged.

The final rule became effective on June 30, 2016.

Crop Insurance Update: FCIC Issues Final Rule Regarding Double Cropping and Replanting

Written by M. Sean High—Staff Attorney

On June 22, 2016, the United States Department of Agriculture Federal Crop Insurance Corporation (FCIC) published notice in the Federal Register of a final rule and request for comment regarding the agency’s amendment to the Common Crop Insurance Regulations, Basic Provisions (81 FR40477). 

According to FCIC, the purpose of the final rule “is to provide policy changes and to clarify existing policy provisions to better meet the needs of policyholders.” Specifically, the final rule addresses “[i]ssues [that] have arisen regarding: The qualifications for double cropping; and when it is practical to replant.”

Under the final rule, FCIC is revising 7 CFR part 457 “to allow the allocation of comingled first and second crop production to the associated crop acreage in proportion to the liability for the acreage that was and was not double cropped.”  Additionally, under the final rule, FCIC is also revising 7 CFR part 457 regarding the definition of the term “practical to replant.”

Accordingly, the final rule stated that the final rule became effective on June 22, 2016 and “[t]he changes to the policy made in this rule are applicable for the 2017 and succeeding crop years for all crops with a contract change date on or after June 22, 2016, and for the 2018 and succeeding crop years for all crops with a contract change date prior to June 22, 2016.” Finally, the final rule specified that “FCIC will accept written comments on this final rule until close of business August 22, 2016.”

Crop Insurance Update: Disputes and Settlements

Written by M. Sean High—Staff Attorney

Federal crop insurance is a valuable risk management tool that may provide farmers with an extra layer of protection against many of the uncertainties of agricultural production.  Nevertheless, participation in the crop insurance program comes with a contractual agreement to abide by the rules set forth in the basic provisions of the common crop insurance policy.  Specifically, crop insurance contracts provide that when producers disagree with determinations regarding crop insurance claims, those disagreements are generally required to be settled, not through the court system, but through arbitration.[1]    

All federal crop insurance policies are issued under the terms of the Federal Crop Insurance Act (FCIA), underwritten by the Federal Crop Insurance Corporation (FCIC), and administered by the United States Department of Agriculture’s (USDA) Risk Management Agency (RMA).  Each crop insurance policy contains a clause written in accordance with the common crop insurance basic provisions.[2]

According to the common crop insurance policy basic provisions, if a disagreement arises regarding a crop insurance claim, the disagreement is generally permitted to be settled through the process of mediation.[3]

Representing an alternative form of dispute resolution, mediation involves a procedure where a neutral third party is employed “to help the disputing parties reach a mutually agreed upon solution.”[4] Importantly, during the mediation process the neutral third party only serves as a facilitator and does not have the power to decide the dispute.  

If an agreement regarding a crop insurance claim dispute cannot be settled through mediation, the common crop insurance policy basic provisions dictate that “the disagreement must be resolved through arbitration.”[5]

Unlike mediation, however, arbitration is an alternative dispute resolution process “involving one or more neutral third parties [called arbitrators] who are usually agreed to by the disputing parties and whose decision is binding.” Arbitration takes the place of conventional litigation and provides the disputing parties with a trial procedure.  Significantly, the disputing parties must abide by the final decision rendered by the arbitration and may not appeal to the courts simply because they disagree with the decision.

Arbitration is governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16; more commonly known as the Federal Arbitration Act (FAA).  Under FAA, any judicial review of an arbitral decision is extremely restricted.  Accordingly, FAA stipulates that the only grounds permitting a court to vacate an arbitral award are limited to:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.[6]

While FAA offers the possibility of having an arbirtral award vacated, in practice, most federal courts adhere to “the dictates of the emphatic federal policy favoring arbitration.”[7] As a result, decisions by arbitrators regarding crop insurance claims are almost always final and binding.

---

[1] 7 CFR § 457.8

[2] Id

[3] Id

[4] Black’s Law Dictionary, Ninth Edition pp. 1070-1071

[5] 7 CFR § 457.8

[6] 9 U.S.C. § 10(a)

[7] Arbitration in a Nutshell, Second Edition, Thomas E. Carbonneau (2007) p. 229

Agricultural Law Weekly Review—June 16, 2016

Written by M. Sean High – Staff Attorney

The following information is an update of recent, local, state, national, and international legal developments relevant to agriculture:

HPAI: PDA Lifts Poultry Quarantine for Farm Show, Competitions, Shows, Fairs, and Exhibitions

On June 11, 2016, the Pennsylvania Department of Agriculture published notice in the Pennsylvania Bulletin that the department was rescinding the “General Quarantine Order; Virus Control for Highly Pathogenic Avian Influenza Poultry and Poultry products at Competitions, Shows, Fairs and Exhibitions established at 45 Pa.B. 3716, July 11, 2015.” Accordingly, all restrictions delineated under the General Quarantine Order are withdrawn as of June 11, 2016.

Legislation: PA House Agricultural Committee Votes to Report Bills

On June 15, 2016, the Pennsylvania House of Representatives Agricultural and Rural Affairs committee voted to report HB 872 and SB 1123 for consideration.  Accordingly, HB872 is a “resolution encouraging the use of peer-reviewed, science-based data to assess the impacts and the regulation of agricultural technologies,” while SB1123 is an amendment to “Title 3 (Agriculture) of the Pennsylvania Consolidated Statutes, in weights and measures, further providing for standards for automotive fuel.”

FSMA: Oregon Passes Resolution Regarding Produce Safety Rule Implementation

On June 8, 2016, the Oregon State Board of Agriculture (OSBA) passed a resolution entitled: Oregon Department of Agriculture’s role in the Food Safety Modernization Act produce rule implementation (Resolution Number 317).  According to the resolution, because “the new Food and Drug Administration (FDA) Food Safety Modernization Act (FSMA) produce safety rule will have tremendous impacts to Oregon agriculture,” OSBA will only support the Oregon Department of Agriculture’s participation in the implementation of the produce safety rule if “federal resources are available to fully cover the costs of the department’s work.”

Crop Insurance: Final Rule Issued for Texas Citrus Fruit Crop Insurance Provisions

On June 13, 2016, the United States Department of Agriculture Federal Crop Insurance Corporation published notice in the Federal Register that the agency had “finalize[d] the Common Crop Insurance Regulations, Texas Citrus Fruit Crop Insurance Provisions, to provide policy changes to better meet the needs of policyholders, to clarify existing policy provisions, and to reduce vulnerability to program fraud, waste, and abuse” (81FR 38061).  According to the Final Rule, “[t]he changes will be effective for the 2018 and succeeding crop years.

Crop Insurance Update: Farmer Complaint Dismissed for Failure to State Claim

Written by M. Sean High—Staff Attorney

On February 11, 2016, the United States Court of Appeals for the Fifth Circuit issued an unpublished opinion affirming dismissal of a complaint for damages resulting from an alleged misrepresentation regarding an insurance agent’s license to sell crop insurance (Shannon v. Ham, 2016 U.S. App. LEXIS 2404).

According to the court, farmers Billy and Fannie Shannon (Shannons) filed a complaint alleging that insurance agent Bobby Ham (Ham) committed fraud by selling the couple crop insurance without a license; the result of which was a subsequent mishandling of their crop insurance policy and claims that resulted in over $200,000 in damages.

According to the court, the Shannons did not show “a causal connection between Ham’s lack of an insurance license and his mishandling of their policies.” The court asserted that Ham provided the Shannons with seven years of satisfactory insurance service without issue, and thus, “it is far more likely that Ham’s lack of licensure played no part in the Shannons’ injuries and that the claim mishandling that occurred in 2011 and 2012 is attributed to other causes.”

The court stated: “there is no direct relationship between the lie and the injury because the Shannons have not plausibly alleged that the lie had anything to do with the eventual claims mishandling.” Ultimately, the court affirmed the dismissal of the Shannons’ complaint because Ham’s faulty insurance credentials were not the proximate cause of his mishandling of the crop insurance policy and claims; the result of which meant the Shannons’ complaint failed to state a plausible claim for relief as required under 12(b)(6) of the Federal Rules of Civil Procedure. 

Understanding Crop Insurance: Historical Perspective—Part 4

Written by M. Sean High—Staff Attorney

Stabilization and Expansion

After the 1944 amendments to the Agricultural Adjustment Act of 1938 provided reauthorization for federal crop insurance, the program gradually began to show improvement.  Significantly, in 1947, for the first time, premiums collected exceeded indemnity payments on combined operations.[1] Additionally, from 1948-1952 the total surplus of premiums collected exceeded indemnity payments by $2.25 million.[2]

Perhaps more importantly, the federal crop insurance program offered many farmers a valuable tool for handling uncontrollable operating factors.  Significantly, just as drought conditions in “the 1930s provided impetus for the establishment of government-sponsored crop insurance, so did the drought of the early 1950s demonstrate the continued benefits of the program.”[3] Accordingly, “[i]n 1951 and 1952, indemnities totaled $42 million and enabled many farmers to continue operations on a scale not otherwise possible.”[4]   

Throughout the 1950s, crop insurance continued to achieve financial stability.  Of note, for every year from 1957-1961, the total surplus of premiums collected exceeded total indemnity payments.[5] 

During the 1960s, the Federal Crop Insurance Corporation (FCIC) undertook a concerted effort to expand the program’s coverage numbers.  The effect was an increase in total coverage from $271 million in 1959 to $920 million in 1969.[6] Unfortunately, along with rapid program expansion, “[p]remiums did not keep pace with liabilities and indemnities.”[7]

As a result, in 1970, the Secretary of Agriculture formed a task force, consisting of nongovernmental insurance experts, to investigate FCIC practices.[8]  Ultimately, the task force determined that FCIC had incorrectly chosen to set crop insurance premiums through the use of a countywide base.  Instead, the task force proposed that the program should set premiums “based on individual farm risks.”[9]

In 1977, the General Accounting Office (GAO) released a report supporting the task force’s assertion that the federal crop insurance program would be better served basing premiums on individual farm risks.  According to GAO, a crop insurance program “based on rates individualized by farm…[would] be more equitable because the premium rate and amount of coverage would be based on the farm’s actual yield history.”[10] Furthermore, GAO “suggested that individualized protection would particularly increase participation among low-risk producers who would enjoy lower premiums and/or higher coverage than under the existing areawide system.”[11]

In response to GAO’s recommendations, “FCIC instituted a pilot program of individualized crop insurance in twenty counties for the 1978 crop year.”[12] In 1979, the pilot program was expanded to offer individualized crop insurance in forty counties.

In 1980 federal crop insurance underwent its most dramatic expansion with the enactment of the Federal Crop Insurance Act of 1980.  Designed to become the primary tool for providing farmers with disaster protection, the legislation “removed annual limits on expansion, previously set at 150 counties and three commodities, and authorized the expansion of the program to all counties with significant amounts of agriculture.”[13] Perhaps of greatest significance, to encourage participation in the crop insurance program, the Federal Crop Insurance Act of 1980 explicitly authorized the subsidizing of crop insurance premiums.[14]

Farmer response to the new program was resoundingly positive.  As a result, in 1981 total acreage insured under the crop insurance program increased by 81%; up from 26.3 million acres to 47.7 million acres.[15]   

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[1] Federal Crop Insurance 1938-1982, Randall A. Kramer, Agricultural History, Vol. 57, No. 2 (Apr., 1983), p. 193

[2] Id at p. 194

[3] Id at p. 193

[4] Id.

[5] Id at p. 195

[6] Id at pp. 195-196

[7] Id at p. 196

[8] Id

[9] Id

[10] Id at p. 197

[11] Id

[12] Id

[13] Id at p. 198

[14] Id

[15] Id at p. 199

Understanding Crop Insurance: Historical Perspective—Part 3

Written by M. Sean High—Staff Attorney

Growing Pains

With the passage of the Federal Crop Insurance Act of 1938, federal crop insurance was initially only available for wheat planted in 1939.  To administer the crop insurance program, the enacted legislation created the Federal Crop Insurance Corporation (FCIC), an agency within the United States Department of Agriculture.  Accordingly, FCIC was to be managed by “a board of directors appointed by the Secretary of Agriculture.”[1]

The first version of federal crop insurance was “authorized for wheat planted for harvest in 1939” and provided coverage for losses resulting from “drought, flood, hail, wind, winterkill, lightning, tornado, insect infestation, plant disease, and such other unavoidable causes as may be determined by the Board.”[2] This initial version of federal crop insurance, however, did not prove to be successful.

In the first year of its offering, the crop insurance program made indemnity payments to nearly one-third of all the 165,775 enrolled farmers.[3]  Significantly, overall national participation in the program was relatively low which led to these indemnity payments greatly exceeding the total premiums received.[4] While participation in the program would gradually increase in 1940 to 360,596 farms and in 1941 to 371,392 farms, these relatively low enrollment numbers resulted in the program losing money each year as indemnity payments made to farmers continued to exceed the total amount of premiums collected.[5]

In 1941, the federal crop insurance program was expanded to include coverage for cotton.  Subsequently, in 1942 and 1943, crop insurance results for cotton and wheat mirrored those for wheat alone as “[i]ndemnities greatly exceeded premiums during both years.”[6] As a result of these poor performances, in 1943, Congress passed legislation that “prohibited the FCIC from writing any new crop insurance policies after 31 July 1943.”[7] Nevertheless, the suspension of the crop insurance program would prove to be temporary.

In late 1944, in an attempted to correct the problems with the original version of crop insurance, Congress passed legislation that amended the Agricultural Adjustment Act of 1938.   The result of the amendment was not only a restoration of crop insurance, but an expansion the program.

Under the 1944 amendment, FCIC was authorization to provide crop insurance coverage for not only wheat and cotton, but also for flax crops.  Additionally, policies could now be written to “include losses resulting from frost, fire, excessive rain, snow, wildlife, and hurricane.”[8] Importantly, coverage was restricted to certain designated counties and FCIC was given the power “to refuse to sell insurance in high-risk areas.”[9]

Significant to achieving the goal of expanded program participation, the new legislation authorized FCIC to begin implementing “experimental crop insurance programs for ‘corn, dry beans, oats, barley, rye, tobacco, rice, peanuts, soybeans, sugar beets, sugar-cane, timber and forests, potatoes and other vegetables, citrus and other fruits, tame hay, and any other agricultural commodity, if sufficient actuarial data are available.’”[10] Immediately, FCIC began offering crop insurance “on a trial basis in 1945 for corn in fifteen counties and tobacco in twelve.”[11]      

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[1] Federal Crop Insurance, Randall A. Kramer, Agricultural History, Vol. 57, No. 2 (Apr., 1983), p. 188

[2] Id.

[3] Id. at p. 189

[4] Id.

[5] Id.

[6] Id. at p. 191

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id. at p. 192