There have been several articles published the last few days regarding prevented planting and whether Secretary Perdue will allow a portion of the new disaster legislation funding to be used to increase the amount of preventing planting coverage. Currently prevented planting coverage stands at 55-60 percent of the guarantee for corn and soybeans and there is talk of possibly increasing the amount to 90 percent of the guarantee. There have been questions raised in articles whether this action is authorized in the disaster legislation and not having read it, I express no opinion.
The question is will history repeat itself. In 1995, there was widespread prevented planting. At the time, producers received a prevented planting payment of 50 percent of the guarantee as long as nothing was planted on the acreage. In June of 1995, long after the November 30, 1994 contract change date, the sales closing date, the planting date, and when losses had occurred, USDA elected to increase the prevented planting coverage. For acreage for which was left with nothing planted or planted to a cover crop that would not be harvested, hayed or grazed, producer’s coverage increased to 75 percent of the guarantee (with a couple of exceptions). For acreage the producer planted a cover crop that would be hayed or grazed, the producer received a 50 percent of the guarantee (with a couple of exceptions). For acreage the producer planted a second crop, the producer receive 25 percent of the guarantee. USDA also allows payment on conserving use acreage, which was previously ineligible for prevented planting (with a couple of exceptions). https://legacy.rma.usda.gov/news/managers/1995/mgr95028.txt.
The approved insurance providers (AIP) complained that these changes were in breach of the Standard Reinsurance Agreement (SRA) and FCIC agreed to hold them harmless, which meant they were not responsible for any losses that exceeded to coverage that was in effect as of the contract change date. The problem was FCIC had no mechanism to directly pay producers for these additional losses so the AIPs made the payments and were reimbursed by FCIC through a complex formula. For the 1996 crop year, FCIC published a regulation by November 30, 1995, that incorporated some of the changes made to prevented planting in 1995. Some of the AIPs again sought to be held harmless and FCIC denied their request on the grounds that it had made the changes in accordance with the contract change date. The AIPs appealed and these appeals were not resolved in 2008.https://www.casemine.com/judgement/us/5914b2aeadd7b04934761499. In the meantime, a considerable amount of resources had been expended litigating these appeals.
It appears that USDA is again contemplating increasing prevented planting coverage after the contract change date, the sales closing date, the planting date, and when losses occurred. The difference is that in 2019, USDA has a separate funding source for the payments, allegedly the disaster legislation, which it did not have in 1995. This means that USDA could simply provide a separate payment to producers to cover the additional coverage for prevented planting. This would avoid the SRA issues and challenges by the AIPs. If they include this additional coverage in the existing prevented planting payments, it could conceivably start the whole mess over again. Having dealt with this for 13 years, I know which way I would prefer.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.