On June 29, 2020, the Risk Management Agency (RMA) published Product Management Bulletin: PM-20-045 announcing changes to the Area Risk Protection Insurance Policy (ARPI), Common Crop Insurance Policy Basic Provisions (Basic Provisions), and the Coarse Grains Crop Provision effective for the 2021 and succeeding crop years with a contract change date of June 30, 2020, and the 2022 crop year for all other applicable crops and the the Area Risk Protection Insurance Policy. https://www.rma.usda.gov/en/Policy-and-Procedure/Bulletins-and-Memos/2020/PM-20-045; https://www.rma.usda.gov/-/media/RMAweb/Policies/Area-Risk-Protection/2021/Area-Risk-Protection-Insurance-21-ARPI.ashx. https://www.rma.usda.gov/-/media/RMAweb/Policies/Basic-Provisions/2021/Basic-Provisions-21-BR.ashx; https://www.rma.usda.gov/-/media/RMAweb/Policies/Coarse-Grains/2021/Coarse-Grains-Crop-Provisions-21-0041.ashx.
RMA states that the changes were made to implement section 11122 of the Agriculture Improvement Act of 2018 (2018 Farm Bill), which required RMA to research and develop methods for adjusting quality losses. RMA states that in addition, changes were made to update provisions regarding premium offsets, Administrator reinstatement, notice of loss, double cropping, prevented planting, and units.
ANALYSIS – The published policies for ARPI, the Basic Provisions and the Coarse Grains Crop Provisions provide a summary of the changes made but they fail to state the actual change or explain the basis for such changes. However, these changes were effectuated through a Final Rule published on June 29, 2020. https://www.govinfo.gov/content/pkg/FR-2020-06-29/pdf/2020-13831.pdf.
One significant change made to these policies that is not mentioned in PM-20-045 is the revision of the definition of “second crop.” Previously, RMA had defined second crop to include acreage that is hayed or grazed during the crop year for the purposes of determining whether the payment for a loss or prevented planting must be reduced for the first crop planted. Over the years this has caused problems when there has been significant shortages of feed and producer wanted to graze or hay their crop before the end of the insurance period. In the past, had they done this, they would have receive a reduced payment for their first crop. In the Final Rule, RMA removed the reference of a cover crop that is hayed or grazed to provide flexibility to producers to use a cover crop for forage while considering a cover crop otherwise harvested as grain to be a second crop. This will solve a long standing issue in accordance with the rulemaking process instead of ad hoc solutions.
With respect to premium offsets, the Final Rule states that there has been confusion regarding whether approved insurance providers (AIPs) must offset premiums owed from any indemnity or prevented planting payment. Apparently there has been a problem of producers assuming the premium has been offset from an indemnity or prevented planting payment when it had not and the producer found themselves ineligible for failure to timely pay. The Final Rule states that for a crop policy with an indemnity due, the producer’s premium and administrative fees for that same crop policy will be offset from any indemnity or prevented planting payment due to the producer, even if it is prior to the premium billing date. The Final Rule states that for any other crop policy insured with the AIP, if the claim is to be paid: (1) prior to the premium billing date, and the producer agrees, their premium and administrative fees will be offset from any indemnity or prevented planting payment due them; or (2) on or after the premium billing date, the producer’s premium and administrative fees will be offset from any indemnity or prevented planting payment due to the producer. This should provide consistent application of the offset provisions.
With respect to Administrator reinstatement, previously the policy stated that the Administrator can reinstate a policy if the producer provides documentation that the failure to pay the debt was due to “an unforeseen or unavoidable event or an extraordinary weather event that created an impossible situation for you to make timely payment.” The Final Rule states the Administrator can reinstate a policy if the the producer provides “documentation that your inadvertent failure to pay your debt is due to an unforeseen or unavoidable event or other extenuating circumstances that created the inadvertent failure for you to make timely payment.” “Extenuating circumstances” is not defined and could be interpreted so broadly as to allow the Administrator to reinstate any policy, defeating the purpose of the termination of the policy, which is to encourage the timely payment of premium.
The Final Rule also allows the AIPs to allow reinstatement up to 15 calendar days after a due date for payment received during a previously executed payment agreement and clarifies that when a producer has a previously executed a written payment agreement to pay a debt, they are required to pay the amount due specified in the payment agreement, rather than the full amount owed.
With respect to double cropping, the Final Rule added provisions to allow the allocation of comingled first and second crop production to the associated crop acreage in proportion to the liability for the acreage that was and was not double cropped. The Final Rule states that producers had challenges keeping separate records of acreage and production that was and was not double cropped because often the acreage is in the very same field and they harvest both first and second crop production at the same time. An example was given that explained when this provision applied: wheat grown and double cropped with soybeans is planted next to a field that single cropped soybeans, and all soybeans are harvested at the same time. This provision would allocate the soybean production in proportion to the liability for each field of soybeans. This makes sense and should not adversely affect the integrity of the policy.
The Final Rule added provisions to address double cropping requirements when another plan of insurance does not require records of production. The Final Rule states that each insured crop must follow its own Basic Provisions, Crop Provisions, and Special Provisions to determine if the double cropping requirements have been met. If the double cropping requirements in the applicable Basic Provisions, Crop Provisions, or Special Provisions have not been met for each insured crop, the Basic Provisions for that crop policy apply regarding payment reductions when the double cropping requirements are not met. This provision was explained in the example where a producer has Rainfall and Vegetation Index plan of insurance (RIVI provisions) and the Basic Provisions. If a crop insured under the Annual Forage Crop Provisions (an insurance policy that uses the RIVI provisions) is involved in a scenario where the AIP is determining if the acreage meets the double cropping requirements or if the first crop and second crop rules apply, the Annual Forage Crop Provisions and RIVI provisions should be followed not the Basic Provisions. Even with the example, it is not clear what this provision means. Presumably this covers a situation where another crop insured under the Basic Provisions is planted on acreage previously covered under the Annual Forage Crop Provisions. The Annual Forage Crop Provisions have its own provisions regarding first and second crop and double cropping and apparently these provisions apply to the determinations.
The Final Rule also revises the provisions regarding qualifying for double cropping. Now, the producer’s double cropping acreage eligibility is limited to the highest number of acres double cropped within the applicable 4- year period.
The Final Rule also adds new provisions that allow eligible double cropping acres to be based on either: (1) The greatest number of acres double cropped in 2 of the last 4 crop years in which the first insured crop was grown; or (2) The percentage of acres historically double cropped in 2 of the last 4 crop years in which the first insured crop was grown. The Final Rule provides the example of if a producer has a 100- acre farm and has historically double cropped 50 acres planted to wheat followed by soybeans (50 percent of acres historically double cropped), and the producer purchases and plants an additional 200 acres of wheat for a total of 300 acres of planted wheat, the number of acres eligible for double cropping would be based on 50 percent, or 150 acres. The Final Rule states that if the producer has historically double cropped wheat followed by soybeans on some or even all of the acreage, there is a reasonable presumption they may continue to do so in the future. The Final Rule states this change is currently contained in the Basic Provisions and it is appropriate in the ARPI policy.
With respect to prevented planting, the Final Rule adds a new provision to clarify how eligible acres are determined for crops that require a processor contract to be insured. Apparently there have been situations where some producers had reduced contracted acreage, which was not reduced solely due to prevented planting, or have no contracted acres for the current crop year, and some of these producers have exhausted all eligible prevented planting acreage and are not eligible to provide prevented planting coverage to remaining cropland acres. In response, the Final Rule allows a producer who has exhausted eligible acres to provide prevented planting coverage for all insured cropland acres in the farming operation due to a reduced contract in the current crop year, to use the previous crop year’s contract for the remaining acres.
With respect to units, the Final Rule provides an additional unit option when enterprise units for both irrigated and non-irrigated practices are elected, but the producer doesn’t qualify. The Final Rule states that if the producer does not qualify and it is discovered on or before the acreage reporting date, the producer has an additional option to elect an enterprise unit on one practice and a basic or optional unit on the other practice. The Final Rule states that previously, a producer’s options were either one enterprise unit containing both practices or basic or optional units for both practices, whichever the producer reported on the acreage report and qualified for.
The Final Rule adds provisions to provide another risk management option to producers that will allow a producer to replace post-quality production amounts in the APH databases with their pre-quality production amounts, therefore increasing their APH database yield for individual crop years with a Notice of Loss. The Final Rule states that this quality loss option’s overall impact is to prevent an insured producer’s guarantee from declining due to low quality when this option is elected. This change is apparently in response to section 11122 of the 2018 Farm Bill, which required that RMA research and develop methods of adjusting for quality losses that: (1) Do not impact the actual production history of a producer; (2) Allow producers to exclude a quality loss from their actual production history when the quality loss is insufficient to trigger an indemnity payment; (3) Is optional for a producer to use; and (4) Is offered at an actuarially sound premium rate. It appears that section 11122 is intended to cover those quality losses are not sufficient to trigger an indemnity payment. However, this provision is not included in the Final Rule. As drafted, as long as the producer provides a notice of loss due to an insurable cause of loss, the producer can substitute pre-quality adjusted production for post quality adjustment production even if the producer received an indemnity for the quality adjustment. It is not clear whether this was intended by RMA.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.