On September 8, 2020, the Risk Management Agency (RMA) issued Frequently Asked Questions (FAQs) relating to the wildfires. https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/Wildfires. RMA provided the following information:
- Losses from resulting conditions of wildfire, such as smoke-taint, are an insurable cause of loss for certain crops.
- With respect to natural causes, a fire may have been ignited due to an uninsured cause of loss (COL), but spread due to an insured COL, such as excessive heat, drought, or excessive wind. In other words, the “wildfire” spread due to other insurable conditions.
- With respect to lab tests, the Grape Crop Provisions do not provide coverage for the inability to market the grapes for any reason other than actual physical damage from an insurable cause of loss. Therefore, lab tests are required to substantiate the loss is from smoke that was due to a “wildfire” as the result of an insured cause of loss and not due to market related conditions. Lab tests must be performed by an independent lab, accredited lab, or other credible source (e.g., winery lab with the resources to perform such a test). Documentation must indicate the location of the field, the results of the test (may be attached), the lab name, and any accreditations that would indicate the lab/chemist was qualified to perform the appropriate test, such as by the Alcohol and Tobacco Tax and Trade Bureau.
- If labs are not available for testing, other options must be authorized by approved insurance providers (AIPs) on a case-by-case basis.
- If lab tests will not be provided under after the crop is normally harvested, it is the insured’s decision on whether to harvest, regardless of the timing of lab test results. AIPs must perform appraisals if insureds do not intend to harvest.
- With respect to lab tests during the fermentation process, RMA has always allowed AIPs to use lab tests they believed are appropriate to document the presence of chemical markers, including fresh fruit tests and micro-fermentation tests; however, the sample of the grapes must have been maintained and not commingled. The loss adjuster must determine the grapes were affected by smoke prior to harvest; a fermentation test may be used to identify the presence of chemical markers that caused smoke taint.
- With respect to baseline concentrations of chemical markers, there are no industry standards and the markers could differ by region or market. Furthermore, the establishment of baselines could affect markets and inadvertently involve RMA in claim disputes.
ANALYSIS – In the second FAQ, RMA states that wildfires do not have to be ignited due to a natural cause. RMA states a wildfire may be ignited by an uninsured cause of loss but spread due to an insured cause of loss, such as excessive heat, drought, or excessive wind, so the wildfire spread due to insurable conditions. This interpretation is very broad because it does not define or describe what is meant by “spread.” In the past, fires started by uninsured causes were only insurable if they spread way beyond the bounds that could normally be expected for the fire by insurable causes of loss like high winds that caused the fire to spread miles from its origination point. Drought or excessive heat may have contributed to the spread by it was the high winds that spread the fire far beyond the normal spread that made the wind and fire an insurable cause of loss. RMA’s current interpretation is not so limiting. Conceivably, a producer can burn a brush pile next to an insured field and because there is a drought, the embers may ignite that field and, under the FAQ, this could be a covered loss due to “spread” by an insured cause of loss. RMA should consider tightening this FAQ.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.