On August 30, 2019, the Risk Management Agency (RMA) issued a Press Release announcing changes to the Whole-Farm Revenue Protection (WFRP) policy. One of the major changes allows producers who have both Noninsured Crop Disaster Assistance Program (NAP) and WFRP on the same crop to receive both payments. RMA determined that NAP payments would not be considered revenue-to-count as long as such payments do not exceed the deductible for the WFRP policy. After the deductible has been met, any amounts in excess of the deductible count as revenue-to-count.
Other changes to WFRP include producers with NAP not receiving a premium discount under WFRP and state and Federal disaster program payments will be excluded from the revenue-to-count. RMA also raised the limit for livestock and nursery from $1 million to $2 million in expected revenue. Producers will now be able to insure hemp. RMA has also added history smoothing provisions that will allow the producer to choose a 60 percent revenue plug based on the simple indexed average revenue, drop the lowest year from the revenue history, or have the approved revenue cupped at no less than 90 percent of the previous year’s approved revenue.
ANALYSIS – It appears that RMA is relying on section 508(n) of the Federal Crop Insurance Act, which states in part:
“A producer who purchases additional coverage under subsection (c) may also receive assistance for the same loss under other programs administered by the Secretary, except that the amount received for the loss under the additional coverage together with the amount received under the other programs may not exceed the amount of the actual loss of the producer.”
WFRP only allows additional coverage so section 508(n) allows producers to receive multiple benefits for the same loss up to the total amount of the loss. For example, a producer has 65 percent coverage under WFRP and has an 80 percent loss. The producer could receive an indemnity to cover 65 percent of their loss under WFRP and a NAP payment to cover the remaining 15 percent of the loss.
The major problem is that this is how the law requires the multiple benefits to work but this is not how the press release or the WFRP policy reads. Both state that the producer can receive the NAP payment up to the amount of the deductible. Under the terms of the newly revised WFRP policy, in the above stated example, the producer would receive a WFRP payment for 65 percent of the loss and receive the NAP payment to cover the 35 percent deductible (100-65 coverage). This would effectively provide payment equal to 100 percent of the liability even though the loss was only 80 percent of the liability. In this example, this NAP payment would violate the FCIA.
Further, neither the WFRP policy nor the press release address how NAP payments will be tracked and who is responsible to ensure that both WFRP and NAP are paid in accordance with the law. NAP is administered by the Farm Service Agency while WFRP is administered by RMA.
In addition, RMA has determined that state and Federal disaster payments are not included as revenue-to-count. There could be a problem with the Federal disaster payments because they are administered by the Secretary so, if they cover the same loss covered by the WFRP policy, then section 508(n) still applies. This means that the Federal disaster payment is limited to the amount of the actual loss not covered by WFRP. This means that both NAP and the Federal disaster payments need to be tracked and coordinated to ensure producers do not receive payments in excess of their actual losses. Provided the state disaster payment is not administered by the Secretary, producers could receive the full state disaster payment.
Bottom line, RMA’s changes to the WFRP policy could possibly result in producers receiving payments in amounts greater than authorized by law.
Another possible issue is the ability to drop a year from the revenue history. Section 508(g) of the FCIA requires actual yields, revenue, etc. be used for the specified period and some flexibility is provided but the adjustments to the resulting average history are very specific. They include the 60 percent plug and they include the exclusion of a yield but only if it is less than 50 percent of the 10 year county average. That does not directly translate to WFRP but at a minimum it appears than only those years that have less than 50 percent of the historical revenue should be dropped.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.