On July 6, 2020, the Risk Management Agency (RMA) published Final Agency Determination: FAD-298, interpreting the preamble and section 14(i) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions). https://www.rma.usda.gov/Policy-and-Procedure/Final-Agency-Determinations/Preamble-14i-FAD-298.
The requestor quoted the preamble and section 14(i) of the Basic Provisions relating the the use of loss adjustment procedures approved by RMA in the adjustment of any claim. The requestor interprets the policy provisions to mean that the loss adjustment procedures established by the RMA in the Loss Adjustment Manual (LAM) and a crop’s Loss Adjustment Standards Handbook (LASH) are part of the contract between the approved insurance provider (AIP) and the policyholder as established by the Basic Provisions. Therefore, if an AIP, or its employees, fail to comply with the loss adjustment procedures specified in either the LAM or a crop LASH, the AIP has breached the contract between the policyholder and the AIP.
RMA stated that it agrees that procedures established by FCIC in the LAM and the Apple LASH are part of the contract between the AIP and the policyholder. RMA stated the definitions of “contract” and “policy” contained in the Basic Provisions and referenced in the preamble are an agreement between the policyholder and the AIP. RMA also stated that, in FAD-249, published on RMA’s website on December 2, 2015, the preamble and section 14(i) of the Basic Provisions are codified in the Code of Federal Regulations and have the force of law. RMA states that the AIP must service a crop policy, including the adjustment of claims arising thereunder, in accordance with the terms of the Basic Provisions, Crop Provisions, and the procedural guidance promulgated by the FCIC.
ANALYSIS – There is no question that policies are required to adjusted in accordance with the procedures approved by RMA. However, RMA and the requestor goes farther and suggests that the loss adjustment procedures are part of the contract/policy. However, the definition of “contract” and “policy” enumerates the documents that comprise the policy but they never reference the loss adjustment or any other procedures. It is not the policy that creates the obligation on the AIP to apply the loss adjustment procedures approved by RMA, it is the Standard Reinsurance Agreement (SRA), which is a separate contract and one in which the policyholder is not a a party. The Basic Provisions just informs the policyholder that the AIP are required to use the loss adjustment procedures approved by RMA.
Bottom line, the obligation to adjust any claim in accordance with RMA approved loss adjustment procedures is a contractual requirement and failure to act in accordance with that obligation could allow a cause of action by the policyholder against the AIP. However, by definition, the provisions of the LAM and LASH themselves are not part of the policy.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.