On September 16, 2019, the Risk Management Agency (RMA) issued Final Agency Determination: FAD-290 regarding the interpretation of section 10(a) under 7 C.F.R. part 400, subpart X. Section 10(a) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions) provides that insurance attaches only if the person completing the application has a share of the crop and only to that persons share. Insurance can only attach to another persons share if the application clearly states that insurance is requested for other than an individual, such as a partnership or joint venture or the application states a landlord is insuring a tenant’s share or vice versa.
The first requestor interpreted the policy provisions to mean that coverage only attaches to the insurable interest of the named applicant using his/her/its own SSN or EIN. The first requestor states that insurance does not attach to any SBI holder in the applicant or to any other person with a common ownership interest in the names applicant. The first requestor relied on sections 2(b) and 10(a) of the Basic Provisions and FAD-204, where FCIC stated that the identification number on the application must be the identification number of the named insured, which means if the named insured has an EIN for the entity that EIN must be used on the application. FCIC stated that there is no exception for the usage of a parents EIN for a subsidiary when the subsidiary is disregarded. FCIC made clear that references to “you” and “your” in the policy refers to the names insured. FCIC also expressed concern that allowing a entity that actually has an insurable interest in the crop to use the EIN of a parent that may not have a share of the crop could circumvent ineligibility determinations.
The second requestor’s interpretation is that insurable interest in the property may include an individual or company that has 100 percent of the risk and 100 percent of the ownership of the entity which is the named insured. The second requestor states that one can have an insurable interest in the crop even though not necessarily named in the policy if that individual or company owns 100 percent of the crop and has 100 percent interest in the crop.
FCIC agreed with the first requestor that coverage can only attach to the insurable interest or share actually held by the named insured using his/her/its own SSN or EIN. FCIC stated that coverage dos not extend to any SBI in the named applicant or to any other person with a common ownership interest with the named applicant. FCIC also stated that although another person may have an interest in the crop, the policy only covers the interest of the named insured. Insurance only attaches if the person making application has a share in the crop in accordance with section 10 of the Basic Provisions. A persons share includes the share of a spouse, unless the spouse can prove he/she has a separate farming operation, any child living in the insured’s household or any other member of their household.
ANALYSIS – RMA is correct in its analysis. Only the person named on the application is insured and only their share of the crop is insured under the policy. To the extent that another person has a share of the crop, they are not insured unless the application specifies it covers partners or joint venturers. The purpose of SBI’s is to ensure that all persons with an interest in the insured are known and their eligibility can be determined. For this same reason, the named insured must be the person with an interest in the crop. To allow another entity with any ownership interest in the named insured to have coverage under the policy would circumvent the purpose of the SBA and make it difficult to track ineligible persons. under the terms of the policy, in the second requestors example where an individual or company owns 100 percent of the crop and has a 100 percent interest in the crop if that individual or company is not the named insured, no insurance attaches because the named insured would not have any interest in the crop.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.