The Risk Management Agency (RMA) issues a new Final Agency Determination, FAD-286, that interprets sections 12 and 14 of the Common Crop Insurance Policy Basic Provisions (Basic Provisions). The interpretation sought had to do with those provisions relating to insurable cause of loss and the policy language in section 12 that references “unavoidable, naturally occurring events.” The requestor interpreted “unavoidable’ to mean the event must be naturally occurring that was not caused or contributed to by human activity, not merely unavoidable from the policyholders perspective. The requester opined that sections 12 of the Basic Provisions and section 8 of the Cotton Crop Provisions, which refers to failure of the irrigation supply, means that the failure must have been caused by a listed insurable cause of loss that occurred during the insurance period and whether it was unavoidable from the policyholder’s perspective is immaterial. The requestor opined that regardless of whether the producer did everything possible to irrigate the crop, failure to irrigate is not a covered loss unless caused by one of the listed insured causes. The requestor states that under sections 12 of the Basic Provisions and 8 of the Cotton Crop Provisions, failure of the irrigation water supply caused by failure to maintain irrigation ditches or canals or a supplier’s refusal to sell the water are not insurable causes of loss.
The requestor also opined that since the Document and Supplemental Standards Handbook (DSSH) are not part of the policy, even though they are used in the administration of the policy. Apparently the DSSH contains irrigation practice guidelines but the requestor states that purpose of these guidelines is to provide form standards and procedures for use in sales and service of the policy and the irrigation guidelines allow for the proper reporting of irrigated acreage and not govern determinations of whether a loss is insurable. The requestor states that the guidelines in the DSSH cannot circumvent the requirements in the Basic Provisions and Crop Provisions. The requestor also states that section 14(e)(4)(iii) of the Basic Provisions places the burden on the policyholder to prove that failure of the irrigation water supply was caused on one of the stated causes of loss that occurred during the insurance period.
FCIC agreed with the interpretation, stating that sections 12 of the Basic Provisions and 8 of the Cotton Crop Provisions are specific as to insurable causes of loss. FCIC also agreed that sections 14(e)(4)(iii)(B) and (C) of the Basic Provisions place the burden on the policyholder to establish that failure of the irrigation water supply was a result of one of the stated causes of loss in the Cotton Crop Provisions.
ANALYSIS – FCIC’s interpretation is correct but it seems incomplete. If fails to address that the DSSH may contain provisions that are in conflict the Basic Provisions and Crop Provisions. The DSSH was developed as a result of the Paperwork Reduction Act that required that all government forms be approved by the Office of Management and Budget. Given that there are applications, production reports, acreage reports, and claims documents, which may differ by crop, RMA elected to not create its own forms and instead create a handbook that contains all the requirements that must be contained in these forms. Therefor, if an approved insurance provider wanted to create its own acreage report it could do so as long as all the information required by the DSSH was contained on the form.
As a general rule, there has never been substantive provisions in the DSSH so it is unclear what these irrigation guidelines are and how they may be in conflict with the policy provisions. However, RMA’s FAD probably should have made clear that in the event of a conflict between the policy provisions and procedures, the policy provisions prevail. Procedures, which are not provided to the policyholder, should never be used to amend a policy, especially if those provisions are codified in the regulations. The Administrative Procedures Act requires that regulations be revised through the rulemaking process.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.