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    Crop Insurance News and Analysis – September 16, 2019

    September 16, 2019 By //  by Kim Arrigo

    On September 16, 2019, the Risk Management Agency (RMA) issues Final Agency Determination: FAD-289, which provided an interpretation of section 9(b) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions). Section 9(b) states:

    (b) If insurance is provided for an irrigated practice, you must report as irrigated only that acreage for which you have adequate facilities and adequate water, or the reasonable expectation of receiving adequate water at the time coverage begins, to carry out a good irrigation practice. If you knew or had reason to know that your water may be reduced before coverage begins, no reasonable expectation exists.

    The first requestor interpreted section 9(b) to require that the producer have adequate facilities in place and operational at the time coverage begins for the insured crop. The requestor states that this interpretation issupported by Exhibit 1B of the General Standards Handbook, which states “Irrigation facilities are considered adequate if it is determined that, at the time insurance attaches to planted or perennial acreage, they will be available and usable at the times needed and have the capacity to timely deliver water in sufficient quantities to carry out a good irrigation practice for the acreage insured under the irrigated practice.” Paragraph 1103 of the Crop Insurance Handbook contains identical language. The requestor states that the adequate irrigation facilities must be in place by the time insurance attaches or the acreage must be reported as non-irrigated.

    The second requestor states that section 9(b) of the Basic Provisions only requires that there be adequate irrigation facilities at the time coverage begins but that it does not have to be fully operational. The second requestor states that if at the time the policy was written there are sufficient wells to irrigate the crop and the wells would provide sufficient water, the fact that minor repairs are needed to make it fully operational would not defeat coverage. The requestor quotes paragraph 1103 of the Crop Insurance Handbook, which states “if it is determined that, at the time insurance attaches to planted or perennial acreage, they will be available and usable at the times needed and have the capacity to timely deliver water in sufficient quantities to carry out a good irrigation practice for the acreage insured under the IRR practice.

    The Federal Crop Insurance Corporation (FCIC) agreed with the first requestor that adequate facilities must be in place at the time coverage begins for the insured crop. FCIC also agreed with the second requestor that the irrigation system is not required to be fully operational at the time coverage begins as long as there is a reasonable expectation that it will be available and usable at the times necessary for a good irrigation practice. FCIC states that the approved insurance provider (AIP) must determine whether the irrigation facilities would reasonably be ready to deliver water to the crop at the appropriate time on a case-by-case basis. If the AIP determines that there are adequate irrigation facilities at the time coverage begins but there is no reasonable expectation of receiving adequate water at the time coverage begins to allow production of a normal crop, then there is no reasonable expectation that a good irrigation practice can be followed. If the AIP determines there are adequate facilities but they are not operational at the time coverage begins, but it will be operational during the growing season at the times needed for a good irrigation practice, and there is a reasonable expectation of receiving adequate water at the time coverage begins, the crop can be insurable under an irrigated practice.

    ANALYSIS – Under the plain language, determinations of the adequacy of the irrigation facilities must be made at the time insurance attaches, which includes a determination at that time that the facility will be available and usable at the times needed to apply water for a good irrigation practice. This is an insurability issue so all conditions must be met before insurance attaches. In this case, the condition is the knowledge at the time insurance attaches that they facility will be available and usable when needed. If the irrigation facility is inoperable, it is unclear how an AIP can determine at the time insurance attaches that the facility is available and usable because at that time it is not. It is unclear what evidence the AIP would base any determination on. The only evidence may be the word of the producer, which makes the provision meaningless since the producer will also claim the facility can be made operable. This interpretation seems to set up a litigation trap for AIPs that they may not be able to win.

    All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.

    Filed Under: Blog

    Previous Post: « Crop Insurance News and Analysis – September 5-11, 2019
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