On December 19, 2019, the Risk Management Agency (RMA) issued Frequently Asked Questions (FAQs) regarding the breached levee statement. https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/Breached-Levee-Statement. The FAQs provides answers to questions regarding the statement contained in certain Special Provisions in the Actuarial Documents. The Special Provisions statement reads:
“Land flooded due to a breach in a levee resulting from prior year(s) flooding is insurable. The applicable rate will be assigned based on conditions of the levee and soils on the latter of the sales closing date or earliest planting date. If, by that date, the levee has not been repaired to prior specifications, or if damaged soil (if any) has not been restored to at least the same crop yield potential as prior to the flood event, the land will be classified as high-risk and will have the highest rate classification in the county. However, if the levee is repaired to prior design specifications, and the soil has at least the same crop yield potential as before the flood, the land will be classified as shown on the current crop year Actuarial Map. If the levee has been temporarily or permanently repaired, but not to prior design specifications, by the latter of the sales closing date or earliest planting date, and the soil has at least the same crop yield potential as before the flood, then RMA may adjust the rate to an amount consistent with the level of flood risk by written agreement, if applicable. For RMA to consider any levee repair, RMA must be provided a certification from the U.S. Army Corps of Engineers or signed and sealed certification from a professional engineer who is currently licensed and registered in the state where the levee is located. For soils to be considered restored to the same crop yield potential as before the flood, you must sign a statement that damaged soil (if any) has been restored to at least the same crop yield potential as prior to the flood event.”
The FAQs then answer questions regarding the purpose of the beached levee statement (to state that land flooded by a beached levee is insurable), the meaning of “prior specification” (repaired to the original designed height, slope, crown, width, etc. using the same or similar materials as established by a certification from the U. S. Army Corps of Engineers or a signed and sealed certification by a professional engineer licensed and registered in the state where the levee is located), what happens if the levee is repaired but not to the prior specifications (RMA can adjust the high-risk rate for the protected side of the levee to reflect the new flood risk to the acreage), what RMA considers when determining whether the levee meets prior specifications (a certification from U. S. Army Corps of Engineers or a signed and sealed certification by a professional engineer licensed and registered in the state where the levee is located), how producers will know of the levee was repaired to prior specifications or repaired but not to prior specifications (producers should contact their insurance agents for the most current levee repair status and as sales closing dates approach RMA will provide updates to approved insurance providers (AIPs)), whether written agreements are necessary if the levee has been certified as permanently or temporarily repaired (no), what happens if the producers acreage is classified as high-risk behind a levee breach but the acreage did not flood (the producer should submit a high-risk written agreement through their crop insurance agent and RMA’s Regional Office will evaluate the request for lower rates), what happens of the producer received a high-risk written agreement in March 2019 but the levee was breached in May 2019 and flooded the acreage and the producer wanted to submit the same high-risk written agreement request for 2020 (the request would be considered a new requests since conditions changed since the last request), whether RMA can change the breached levee statement after it is posted in the actuarial documents (no changes can be made after the contract change date), what happens if the levee is certified as repaired before the producer planted the crop but after the sales closing or earliest planting dates (producers would receive the highest rate classification in the county unless they submit a high-risk written agreement request to receive a lower rate), what happens of the levee is certified repaired after the producer plants the crop but no crop damage has occurred (producers cannot receive lower premium rates after insurance attaches when the crop is planted), what are the options if the land has a higher rate due to a breached levee (the producer can obtain a high-Risk Land Exclusion Option that allows producers not to insure their high risk land or insure it under the catastrophic risk protection endorsement or a High-Risk Alternative Coverage Endorsement that would allow producers to select a different coverage level on the high risk land), what is the meaning of “…or if damaged soil (if any) has not been restored to at least the same crop yield potential as prior to the flood event…” (if the soil has been damaged it must be restored so it as the ability to producer the same yield protection as before the breach so gullies must be leveled, debris and sediment cleared, etc. and the restoration must be documented), whether RMA verifies that damaged soils have been restored (producers must sign and date a self-certification that they have restored the acreage to at least the same yield potential as prior to the flood event and provide a copy to their AIP upon request and the AIP will need to make certain determinations regarding the restoration), and whether the current breached levee statement applicable to crops with a November 30, 2019 or subsequent contract change date apply to fall planted winter wheat with a breached levee statement that is not the same (the breached levee statement in effect on the contract change date for the crop is applicable).
ANALYSIS – These FAQs seem to be a comprehensive list of issues that may arise with respect to premium rating for breached levees and the responses seem accurate for the most part. One issue the FAQs fails to address is what is the meaning of “insurable” in the Breached Levee Statement.
There is a cause of loss, flooding and breach of a levee, that occurred in 2019. Flooding is a covered cause of loss but a breach of a levee may not be if it was cause by negligence, neglect or mismanagement. This may not affect insurability, but it does affect coverage and possible indemnities in 2019 and 2020. The first sentence of the Special Provisions statement refers to land flooded due to a breach of levee resulting from the prior year’s flooding. RMA may be presuming that the acreage is no longer flooded and it is only a rating issue.
However, that may not be the case and the acreage may still be flooded or 2020. For the most part, the policy requires the insured cause of loss to occur within the insurance period, which is generally starts when insurance attaches at planting and ends at harvest. This flooding occurred in a prior crop year so, on its face, it would not appear to be an insurable cause of loss for 2020. Which could mean that while the acreage is insurable, and the producer would pay the premium, the cause of loss that is most likely to result in loss is not covered.
However, RMA has used exceptions for extended causes of loss, such as drought, when that drought continues unabated across crop years. Once there is sufficient moisture to end the classification of drought, it ceases to be an insurable cause of loss after that crop year and for the next year a new cause of loss must occur within the insurance period to indemnified. Possibly RMA is applying that principle here and the flooding that occurred in 2019 is still covered in 2020 as loss as long as it is unabated. So it is possible that RMA intends for the 2019 flooding to be considered an insurable cause of loss for 2020. However, RMA has not stated this.
Further, RMA has not addressed how this insurability would apply to prevented planting for existing or new insureds. If the acreage remains flooded, prevented planting is likely to be the result. When RMA states that the flooded acreage is insurable producers need to know what that means, what coverage is provided, and for what losses.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.