On July 8, the Risk Management Agency (RMA) issued Managers Bulletin MGR-19-018 regarding an emergency process for 2019 crop year processing tomato contract price. According to RMA, market conditions have delayed negotiations between processors and producers. Losses cannot be paid because the policy requires producers to have a processor contract that contains the final contract price. Producers fear they will lose coverage for 2019 because they do not have a final contract price. It appears that a severe hail storm caused extensive damage to thousands of acres of processing tomatoes in Fresno County, California on May 19, 2019. In addition, RMA states that section 3(b) of the Processing Tomato Crop Provisions states that liability will not exceed the number of tons required to be accepted by the processor under a processor contract in effect on or before the earlier of August 20 or the date of damage in all counties with an acreage reporting date of July 15. RMA states that consequently liability cannot be established in the contract is not provided by the earlier of August 20 or the date damage occurs. RMA states that producers have a written agreement from the processor to deliver their crop according to a predetermined delivery schedule.
For the 2019 crop year only, RMA states it will accept delivery schedules in lieu of processor contract to determine liability under section 3(b) of the Processing Tomato Crop Provisions up to October 20, 2019. The delivery schedules must be provided by the processor and reflect the tonnage to be delivered before any claims get processed. RMA states the processor contract must be provided to the approved insurance provider no later than October 20, 2019.
ANALYSIS – RMA has always recognized that impossibility is a defense to a strict enforcement of the policy and when impossibility exists some modification of the policy is allowed, such as extending dates. However, in this case, this defense does not appear to be raised by RMA and it would be questionable since the issue arises from a delay in finalizing the processing contracts between the producer and the processor. Assuming arguendo that there is an impossibility defense that would allow RMA to modify the contract it is not clear what this bulletin accomplishes. It can be used to establish the number of tons used to establish liability if the delivery schedule contains the tonnage to be delivered but liability cannot be established without the final contract price because liability is based on insured production times the expected market price. Therefore, it appears that the purpose of the bulletin is to extend the deadline for producers to provide their processor contracts.
Further, it is unclear the last time this policy has been updated since it allows the processor contract to be in effect on the earlier of August 20 or the date of damage. The problem is the billing date. In accordance with section 508(d)(4) of the Federal Crop Insurance Act RMA must establish the premium billing date as August 15. A review of RMA’s website only contains actuarial documents for tomatoes and in California, the billing date is August 15, so it is consistent with the law but it is still prior to the date the processor contract must in effect. Premium is based on the liability, which cannot be established without the contract price.
So it is unclear how all this works. Given what RMA has stated, while the production to be insured may be known and accepted through delivery schedules, there is still no contract price and there is no requirement to have a price until October 20, 2019. Therefore, no claims be paid until after the processor contracts are finalized with a contract price because there is no way to establish the guarantee until then. In addition, liability cannot be established for the purposes of billing premium by the premium billing date and there is nothing in this bulletin that addresses this conundrum. RMA needs to review its policies to ensure compliance with statutory requirements.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.