General Administrative Regulations, Catastrophic Risk Protection Endorsement; Group Risk Plan of Insurance Regulations for the 2004 and Succeeding Crop Years; and the Common Crop Insurance Regulations, Basic Provisions

DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Parts 400, 402, 407 and 457

RIN 0563-AB94

General Administrative Regulations, Catastrophic Risk Protection Endorsement; Group Risk Plan of Insurance Regulations for the 2004 and Succeeding Crop Years; and the Common Crop Insurance Regulations, Basic Provisions

AGENCY:

Federal Crop Insurance Corporation, USDA.

ACTION:

Final rule.

SUMMARY:

The Federal Crop Insurance Corporation (FCIC) finalizes the Group Risk Plan of Insurance Regulations (GRP Provisions); and the Common Crop Insurance Regulations, Basic Provisions (Basic Provisions) to make revisions that will reduce program vulnerabilities and clarify existing policy provisions to better meet the needs of the insured. Further, FCIC is making conforming amendments to the General Administrative Regulations, Subpart L—Reinsurance Agreement—Standards for Approval; Regulations for the 1997 and Subsequent Reinsurance Years and Subpart P—Preemption of State Laws and Regulations, and the Catastrophic Risk Protection Endorsement. The changes will apply for the 2005 and succeeding crop years for all crops with a contract change date on or after the effective date of this rule, and for the 2006 and succeeding crop years for all crops with a contract change date prior to the effective date of this rule. In addition, FCIC is finalizing the interim rule published on June 30, 2000, implementing statutory mandates of the Agricultural Risk Protection Act of 2000 (ARPA).

EFFECTIVE DATE:

August 30, 2004.

FOR FURTHER INFORMATION CONTACT:

For further information or a copy of the Cost-Benefit Analysis, contact Janice Nuckolls, Insurance Management Specialist, Research and Development, Product Development Division, Risk Management Agency, United States Department of Agriculture, 6501 Beacon Drive, Stop 0812, Room 421, Kansas City, MO, 64133-4676, telephone (816) 926-7730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be significant for the purposes of Executive Order 12866 and, therefore, it has been reviewed by the Office of Management and Budget (OMB).

Cost-Benefit Analysis

A Cost-Benefit Analysis has been completed and is available to interested persons at the Kansas City address listed above. In summary, the analysis finds that changes in the rule will have positive potential benefits for insureds who do not engage in program abuse. Increased penalties for misreporting information affecting insurance liability should reduce the incidence of misreporting and should reduce the cost and amount of work needed to administer the program. Misreporting can result in increased indemnities and higher premium rates resulting from these higher than necessary payments. When misreporting is reduced, there will be fewer instances of fraud, waste and program abuse. The changes in this final rule will, over time, assist in (1) maintaining actuarial soundness as required by the Act, (2) protect the taxpayer dollar by reducing APH errors and other instances in which insurance liability is misstated and (3) reduce instances in which ineligible persons can obtain insurance benefits. Over time, if program abuse is decreased, premium rate reductions may result. Such reductions would be beneficial to producers who do not abuse the program. However, because the amount of abuse that currently occurs cannot be measured with existing data, immediate rate adjustments are not appropriate. Rather, such adjustments should be made when adequate loss experience is available to support actuarial calculations that satisfy appropriate credibility standards.

The analysis also examines changes made by the interim rule published on June 30, 2000. The analysis finds that the benefits provided outweigh associated costs. The crop insurance policy changes were required under ARPA. The analysis finds that the increases in the administrative fees for the catastrophic risk protection level of coverage from $60 per crop per county to $100 per crop per county, for additional coverage from $20 per crop per county to $30 per crop per county, and for limited coverage from $50 per crop per county, not to exceed $200 per county, and $600 for all counties, to $30 per crop per county with no limits may modestly increase the costs to producers but they will also reduce the overall costs of the program to taxpayers. The analysis also finds that giving producers the option of replacing certain yields in their actual production history (APH) with 60 percent of the transitional yield for the county will result in greater coverage for producers who have been impacted by multiple year disasters. Based on the cost benefit analysis and the requirements of the ARPA, FCIC finds this regulation is in the best interest of the overall crop insurance program.

Paperwork Reduction Act of 1995

Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35), the collections of information in this rule have been approved by the Office of Management and Budget (OMB) under control number 0563-0053 through February 28, 2005. Government Paperwork Elimination Act (GPEA) Compliance.

FCIC is committed to compliance with the GPEA, which requires Government agencies, in general, to provide the public with the option of submitting information or transacting business electronically to the maximum extent possible. FCIC requires that all reinsured companies be in compliance with the Freedom to E-File Act and section 508 of the Rehabilitation Act.

Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. This rule contains no Federal mandates (under the regulatory provisions of title II of the UMRA) for State, local, and tribal governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.

Executive Order 13132

It has been determined under section 1(a) of Executive Order 13132, Federalism, that this rule does not have sufficient implications to warrant consultation with the States. The provisions contained in this rule will not have a substantial direct effect on States, or on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

Regulatory Flexibility Act

FCIC certifies this regulation will not have a significant economic impact on a substantial number of small entities. This rule affects insurance for approximately 1,200,000 crop policies, of which 503,000 are held by individual farmers who generally independently own and operate their farms. The other crop policies are held by partnerships, trusts, corporations and various other types of entities. Based on the size

standards specified in 13 CFR 121.201, almost all of the individual policyholders would be considered a small entity or business (revenue of $0.75 million per crop per year).

New provisions included in this rule will not significantly increase costs to small entities or significantly change the amount of work required to have an insurance policy, nor will the changes impact small entities to a greater extent than large entities. The provisions in this rule focus on several program integrity issues, including, the consequences of failing to pay required premiums or other amounts owed, attempts to conceal identity when a person is ineligible to receive program benefits, failing to report accurate information needed to determine insurance liability and premium,

etc.,

and such changes will do very little, if anything, to increase costs to small entities or large entities. Insurance program requirements are the same for all producers regardless of the size of the farming operation. For example, producers are required to submit historical yield information to compute insurance coverage and premium amounts. These requirements are the same whether a producer has 10 or 10,000 acres and there is no difference in the kind of information collected.

Further, the Federal Crop Insurance Act (7 U.S.C. 1501

et seq.

) provides the authority to waive collection of administrative fees for “limited resource farmers.” FCIC believes this extra consideration helps assure certain small entities (those that meet USDA's definition of a “limited resource farmer”) can obtain insurance that might not otherwise be able to afford it. Therefore, this action is determined to be exempt from the provisions of the Regulatory Flexibility Act (5 U.S.C. 605), and no Regulatory Flexibility Analysis was prepared.

Federal Assistance Program

This program is listed in the Catalog of Federal Domestic Assistance under No. 10.450.

Executive Order 12372

This program is not subject to the provisions of Executive Order 12372, which require intergovernmental consultation with State and local officials. See the Notice related to 7 CFR part 3015, subpart V, published at 48 FR 29115, June 24, 1983.

Executive Order 12988

This rule has been reviewed in accordance with Executive Order 12988 on civil justice reform. The provisions of this rule will not have a retroactive effect. The provisions of this rule will preempt State and local laws to the extent such State and local laws are inconsistent herewith. With respect to any direct action taken by FCIC or to require the insurance provider to take specific action under the terms of the crop insurance policy, the administrative appeal provisions published at 7 CFR part 11 and 7 CFR part 400, subpart J for the informal administrative review process of good farming practices, as applicable, must be exhausted before any action against FCIC for judicial review may be brought.

Environmental Evaluation

This action is not expected to have a significant impact on the quality of the human environment, health, and safety. Therefore, neither an Environmental Assessment nor an Environmental Impact Statement is needed.

Background:

This rule finalizes changes to the Catastrophic Risk Protection Endorsement, Group Risk Plan of Insurance Regulations and the Common Crop Insurance Regulations; Basic Provisions mandated by ARPA, that were published by FCIC on June 30, 2000, as a notice of interim rulemaking in the

Federal Register

at 65 FR 40483-40486. The public was afforded 60 days to submit written comments after the regulation was filed in the Office of the Federal Register. No comments were received.

This rule also finalizes certain changes FCIC published on September 18, 2002, as a proposed rule in the

Federal Register

at 67 FR 58912-58933 to amend the General Administrative Regulations, subpart T-Federal Crop Insurance Reform, Insurance Implementation; the Group Risk Plan of Insurance Regulations; and the Common Crop Insurance Regulations, Basic Provisions to implement program changes mandated by the Federal Crop Insurance Act (Act), as amended by ARPA, and make other changes and clarify existing policy provisions to better meet the needs of the insureds, effective for the 2003 and succeeding crop years for all crops with a contract change date of November 30, 2002, or later.

Following publication of the proposed rule on September 18, 2002, the public was afforded 30 days to submit written comments and opinions. Based on comments received and specific requests to extend the comment period, FCIC published a notice in the

Federal Register

at 67 FR 65732 on October 28, 2002, extending the initial 30-day comment period for an additional 15 days, until November 12, 2002.

A total of 3,407 comments were received from 209 commenters. The commenters were reinsured companies, attorneys, trade organizations, commodity associations, State agricultural associations, regional agricultural associations, agents, insurance service organizations, universities, producers, USDA agencies, State Departments of Agriculture, grower associations, and other interested parties.

Due to the large number of comments received and the significant impacts of the changes being made, FCIC finalized certain provisions of the proposed rule in a final rule that was published in the

Federal Register

on June 25, 2003, and is finalizing all of the remaining provisions in this final rule. To the maximum extent practicable, any changes made in response to comments have been applied to both the Group Risk Plan (part 407) and the Basic Provisions (part 457) even though the comment may have been directed at only one of these policies.

Below is a summary of the major issues addressed in this rule, the general theme of the public comments received in response to the major issues and the changes, if any, made to address those comments. Following this summary of the major issues identified are the specific comments and FCIC's more detailed responses:

Summary of Major Issues:

(1)

Identification Information Collection:

The proposed rule included the requirement to collect identification numbers (SSNs, EINs) from additional persons, including the children of insured persons. The proposed provisions also required policy voidance if the required identification numbers were not provided.

Commenters indicated the penalty was much too harsh and that children's SSNs should not be required.

In response to the comments, FCIC has eliminated the requirement to report children's identification numbers unless the child has a separate legal interest in the insured. Additionally, FCIC has eliminated the provisions requiring the policy to be voided for failure to provide the required identification numbers unless the person whose identification numbers is not provided is ineligible to receive insurance benefits and maintained the current provisions regarding the reduction of insurable share in cases where the person whose identification number was not reported is eligible for insurance;

(2)

Establishment and Adjustment of Approved Yields:

Proposed provisions

provided for the adjustment of insurance guarantees when past yield history for a unit is inconsistent with other comparable insurance units, when the history is based on small acreage and is being applied to larger acreage, or when the history is based on a farming practice that is being changed.

Commenters agreed with the need for such provisions but asked several questions regarding administration of the provisions, including how comparable units would be determined and how inconsistent yields would be defined.

In response to the comments, provisions regarding “inconsistent yields” were removed and provisions pertaining to changes in farming practices and yield history based on small acreages were clarified to provide specific criteria to determine when the difference in yields will be adjusted and to provide exceptions;

(3)

Misreporting of Information:

The proposed rule included provisions intended to decrease misreporting of information necessary to determine insurance coverage. The proposed provisions would have denied an indemnity if misreporting exceeded a five percent tolerance, and would have still required the insured person to pay the premium.

Commenters stated the penalty was too harsh and that many inadvertent errors would exceed the five percent tolerance. Additional comments indicated the provisions made the policy coverage unreliable to producers and to lenders.

In response to those comments, the provisions related to denial of an indemnity were removed, a new sanction was added that would reduce the amount of indemnity paid commensurate with the amount misreported, and the tolerance was increased to 10 percent. The provisions were also clarified to specify the new penalty would not apply if the insurance provider or USDA employee was responsible for the error, or if the insured person had reported a preliminary acreage amount while waiting for an acreage measurement;

(4)

Removal of Arbitration Provisions:

The arbitration provisions were removed in the proposed rule and instead any dispute would have to be resolved through the judicial process.

Commenters were split between retaining, removing or replacing the arbitration provisions with provisions that would allow mediation or other means of dispute resolution. Commenters challenged FCIC's basis for removal, claiming the problems cited should be fixed or that the reasons were not justified. Commenters also indicated the judicial process is time consuming and expensive.

In response to these comments, arbitration provisions have been retained in this final rule. FCIC has addressed the concerns expressed by requiring that FCIC provide any policy or procedure interpretations to prevent disparate treatment of producers and having such interpretation be binding unless appealed to the National Appeals Division, clarifying when arbitration must be commenced, eliminating any conflicts of interest, requiring more detailed statements of arbitrator's decisions, allowing mediation, clarifying that arbitration is not binding, allowing only contractual damages unless FCIC determines the insurance provider failed to follow approved policy or procedure, and adding provisions specifying that when FCIC directly participates in the adjustment of a claim, the dispute is against FCIC, not the insurance provider;

(5)

Verification of Production Records:

The proposed rule included provisions requiring insurance providers to verify production records for the previous three years for any loss unit and added a penalty that failure to maintain such records would result in no indemnity due and the producer would still be required to pay the premium.

Commenters stated the penalty was too extreme, would substantially increase costs and delay claims, and that the work force is insufficient to accomplish the increased workload.

In response to the comments, the proposed change is not incorporated in the final rule. The policy provisions already contain record retention requirements and FCIC has determined the same effect could be achieved by having the insurance providers conduct reviews to ensure the producer is properly retaining records and that such records reflect the production reported;

(6)

Combining Insured Entities:

The proposed rule required that all entities composed of the same people be insured under one policy to avoid producers creating new entities to avoid the application of existing policy or procedure, such as the use of past production records.

Commenters stated the proposed change violates entities that are legally separate and protected and that the proposal is inconsistent with IRS and FSA rules.

In response to the comments, the proposed change is not incorporated in the final rule. Instead, FCIC has revised its procedures to require that past records be used anytime an insured received a share of the insured crop production or was a member of or had a substantial beneficial interest (SBI) in an entity that received a share in the insured crop production. This change results in the inability to drop past production history simply by creating a new entity.

Due to the number and complexity of the comments received, FCIC has provided a list of the issues covered in this rule and headings so that the reader can better determine the subject of the comments.

List of the Issues Covered in This Rule

In General—Burdens Imposed in Administering the Policy:

1. Burden on Producers; and

2. Burden on Insurance Providers;

Application of Rule;

Elimination of Good Faith Reliance Provisions;

Revisions to the Preamble;

General Comments to the Definitions;

Revisions to Specific Definitions:

1. Actuarial Documents;

2. Agent;

3. Agricultural Commodity;

4. Annual Crop;

5. Another use, notice of;

6. Application;

7. Border;

8. Code of Federal Regulations;

9. Contract;

10. Contract Change Date;

11. County;

12. Coverage;

13. Crop;

14. Crop Year;

15. Damage, Notice of;

16. Deductible;

17. Delinquent Account;

18. Discernible;

19. Disinterested Third Party;

20. Enterprise Unit;

21. Earliest Planting Date;

22. Field;

23. FCIC and RMA;

24. FCIC Procedures;

25. Farming or Farmed;

26. Household;

27. Indemnity;

28. Insurable Loss;

29. Insurance Provider;

30. Insured;

31. Insured Crop;

32. Irrigated Practice;

33. Liability;

34. Limited Resource Farmer;

35. New Producer;

36. Non-contiguous;

37. Offset;

38. Perennial Crop;

39. Person/Entity;

40. Policy;

41. Practical to Replant;

42. Premium;

43. Premium Billing Date;

44. Prevented Planting;

45. Replanting;

46. Second Crop;

47. Substantial Beneficial Interest;

48. Surrounding Area;

49. Summary of Coverage;

50. Timely Manner;

51. Verifiable Records;

52. Void;

53. Whole Farm Unit; and

54. Written Agreement;

Identity Collection Information—Section 2(b);

Delinquent Debts—Proposed Section 2(e) and Redesignated Section 2(f);

Clarification of Insurance Guarantees, Coverage Levels, Verification of Records,

Establishment and Adjustment of Approved Yields—Section 3;

Contract Changes—Section 4;

Eliminating the Liberalization Provisions—Section 5;

Revisions to Acreage Reports and Misreporting of Information—Section 6;

Clarification of Premium and Administrative Fees—Section 7;

Clarification of Insured Crop—Section 8;

Clarification of Insurable Acreage—Section 9;

Clarification of Share Insured—Section 10;

Clarification of Causes of Loss—Section 12;

Clarification of Replanting Payments—Section 13;

Clarification of the Insured's and Insurance Provider's Duties—Section 14;

Clarification of Production Included in Determining an Indemnity Provisions—Section 15;

Clarifications of the Prevented Planting Provisions—Section 17;

Clarifications to the Written Agreement Provisions—Section 18;

Elimination of the Arbitration Provisions—Section 20;

Clarification of Access to Insured Crop and Records, and Record Retention—Section 21;

Clarification Regarding Other Insurance—Section 22;

Clarification of the Amounts Due Us Provisions—Section 24;

Limitation of the Right to Collect Extra Contractual Damages—Section 25;

Clarification of the Interest Provisions—Section 26;

Policy Voidance Provisions—Section 27;

Transfer of Coverage and Right to an Indemnity Provisions—Section 28;

Clarification of the Subrogation Provisions—Section 30;

Applicability of State and Local Statutes—Section 31;

Notice Provisions—Section 33;

Clarification of the Unit Division Provisions—Section 34; and

New Provisions for Beginning and New Producers.

The specific comments received and FCIC's responses are as follows:

In General—Burdens Imposed in Administering the Policy

1.

Burden on Producers:

Comment:

Several commenters were concerned by what they perceive as unreasonable compliance requirements on producers' reporting procedures and agricultural practices.

Response:

To protect program integrity, stronger provisions regarding misreporting and changes in farming practices are necessary. New provisions in this final rule should reduce errors and program abuse that can adversely affect premiums and indemnities. In this final rule, FCIC has attempted to limit the information collection burden and implements only those changes needed to properly administer the program and minimize waste and abuse.

Comment:

(1) Many general comments were received regarding added program complexity, severe reporting requirements and associated penalties, increased workloads and program delivery cost, unclear definitions and terms and conditions, legality of certain changes, unpredictability of coverage, reduction in confidence by producers and lenders, customer dissatisfaction, conflicts with Congressional intent,

etc.;

(2) Some of the commenters agreed program integrity issues needed to be addressed. However, the commenters stated that the approaches presented in the proposed rule were far too harsh, could not be administered, and would result in an unreliable, unsaleable product. The commenters recommended focusing penalties on those who are abusing the program as Congress has directed rather than the Draconian measures and overly broad approach presented by FCIC in the proposed rule. Commenters stated that while it may be reasonable to have some penalties associated with unintentional errors, the severest penalties should be reserved for willful and intentional deception, as intended by Congress; (3) Several commenters stated the proposed changes would result in reduced participation, which is directly in conflict with Congressional efforts and direction.

Response:

Most of the general comments received are repeated in greater detail in comments to specific proposed changes and are responded to later in this section.

2.

Burden on Insurance Providers:

Comment:

A commenter noted FCIC stated the amount of work required of the insurance providers delivering and servicing these policies will not increase significantly from the amount of work currently required. They believe this is incorrect, as they believe more auditing, verifying,

etc.,

is being required from insurance providers and if more is being required of the insurance providers, they need to be compensated accordingly.

Response:

FCIC agrees some additional work will be required to administer new provisions contained in this final rule. However, such changes are necessary to protect program integrity and should ultimately result in savings to the insurance providers. Further, it is anticipated that the new provisions regarding misreporting of information used to determine liability, and improper use of Actual Production History (APH) yields, etc., will reduce some of the work insurance providers must do because there will be fewer errors to correct.

3.

Application of Rule:

Comment:

A commenter noted that FCIC stated the provisions of this rule would not have a retroactive effect. However, they believe this will have a retroactive effect because of the way things are stated in this proposal. The commenter stated that if it is true that it is not retroactive, then it needs to be stated that the rules will only apply from this point forward and not penalize anyone for not keeping records,

etc.

Response:

FCIC agrees the record-keeping provisions contained in the proposed rule would have had a retroactive effect. As stated more fully below, these provisions have been revised in this final rule to eliminate this effect.

Comment:

Other commenters were concerned with inclusion of “FCIC” in so many places in the policy because the contract is between the producer and the insurance provider, and recommended minimizing the visibility of “FCIC.”

Response:

FCIC agrees the insurance contract is between the producer and insurance provider. However, to place the insured on notice that procedures issued by FCIC will be used in administering the policy and to denote other areas in which FCIC involvement is required, it is necessary to reference FCIC.

Comment:

Some commenters stated FCIC unilaterally developed the proposed provisions without input from insurance providers, producer groups,

etc.,

and recommended all work together to develop any new provisions.

Response:

Over the past few years, insurance providers and producer groups provided input on the Basic Provisions and this input was utilized to prepare many of the proposed provisions, and many of the proposed provisions dealing with program integrity issues were developed based on past litigation, arbitration and appeal cases involving insurance providers.

Comment:

Some commenters also recommended not finalizing any of the proposed changes without publishing another proposed rule, and allowing for additional comments.

Response:

Interested parties were provided adequate time to provide comments and to allow an additional

comment period would delay the implementation of needed changes. FCIC has given consideration to all comments received on all proposed changes and has revised the provisions in this final rule accordingly.

Comment:

A few commenters requested their comments to the Basic Provisions be considered for the GRP Provisions where applicable.

Response:

FCIC has considered all the comments to the Basic Provisions as if they are applicable to the GRP Provisions. Where applicable, FCIC has made the same or similar changes in both the GRP Provisions and the Basic Provisions.

Elimination of Good Faith Reliance Provisions

Comment:

A commenter stated the deletion of the “good faith and reliance on misrepresentation” provisions will definitely not meet the needs of the insured. The commenter believes the reasons given for the deletion are wholly one sided and inadequate. They cited one reason given for the deletion was “because of the confusion surrounding the applicability of the provisions.” They believe this is a language problem and not a reason to delete the provision. They cited another reason, which was to “avoid the perception that FCIC was waiving the protection against the applicability of estoppel against it and permitting employees to bind FCIC with their errors,” does not provide a reason to delete the provision. The commenter believes the purpose of this provision is to clarify how to equitably resolve problems that occur when a producer relies in good faith upon misinformation given to the person by FCIC, by an insurance provider or by an agent. The commenter believes sometimes agents or insurance providers give wrong information to an insured, and sometimes it is so grossly erroneous that it can almost be considered intentional. They believe producers need some sort of equitable protection against that occurrence. The commenter believes if this provision is deleted, producers will have no way to protect themselves from even intentional and malicious misinformation. They believe deletion of this provision would indicate that FCIC believes it has no responsibility for its errors, but at the same time requires that producers be fully responsible for their errors. The commenter believes that perhaps rewording the provision for clarification is appropriate, but that deletion is not appropriate.

Response:

FCIC agrees that policyholders should be able to rely on the advice provided by government employees, insurance providers and agents. FCIC uses considerable resources to ensure that these persons have the correct information to provide to policyholders. It publishes policies in the

Federal Register

and on its Web site to ensure that all employees, agents, insurance providers, and policyholders have access to policy terms and conditions. However, even if a government employee provides erroneous advice the authority to provide equitable relief against the government is extremely limited. Only the Secretary has the authority to provide equitable relief on behalf of the government and such relief can only be granted when the producer and employee do not know that the advice provided is contrary to the Act or regulations. The Supreme Court has held that all FCIC personnel, insurance providers, agents and producers are presumed to know the provisions of the Act and the regulations, including all policy provisions, and are bound by the language even when a government employee had provided erroneous advice. Further, most of the advice given to policyholders is provided by agents. Therefore, the interests of insureds are protected because any erroneous advice would be covered by the agents' errors and omissions insurance. In addition, the preamble to the policy specifies that no policy provisions may be waived or varied in any way by an insurance provider, agent or any other contractor or employee of the insurance provider or USDA unless the policy specifically authorizes a waiver or modification by written agreement. To allow for equitable relief could permit government employees, insurance providers or agents to modify or waive policy provisions, which would conflict with the preamble. No change has been made.

Revisions to the Preamble

Comment:

A commenter asked how the first statement in the preamble, that reads, “The provisions of the policy are published in the

Federal Register

* * *” applies to pilot programs that are not published in the

Federal Register

.

Response:

FCIC agrees certain policy documents for pilot crop insurance programs and some policies submitted to FCIC under section 508(h) of the Act are not published in the

Federal Register

. Language indicating the policy provisions are published in the

Federal Register

and codified has been removed.

Comment:

A commenter believes that in view of the legislative initiatives made by ARPA, FCIC has done the right thing in expanding the list of persons who may not waive or vary any terms of the policy to include RMA and FSA. The commenter stated this portion of the first paragraph, however, also substitutes the term “crop insurance provider” for “insurance provider,” and this may introduce some confusion, because neither the current version of the Basic Provisions nor the proposed one defines these terms. The commenter believes that because agricultural producers are familiar with usage of the term “insurance provider” and since it is used elsewhere in the Basic Provisions, including the very next paragraph of the preamble, it is appropriate to use that term (even if undefined) in the first paragraph. They believe an alternative would be to define “crop insurance provider” as the “insurance provider” in the definitions portion.

Response:

FCIC agrees that the term “crop insurance provider” is undefined. The term has been replaced with “we,” “us” or “our,” as applicable to be consistent with the rest of the policy, which refers to the insurance company as “we,” “us,” and “our.” However, the term “insurance provider” is still used when referring to other than insurance companies.

Comment:

A commenter stated the preamble paragraph inaccurately states that the policy cannot be waived or varied in any way when, in fact, written agreements that modify the insurance offer, rates, actuarials (all a part of the policy) are allowed.

Response:

FCIC agrees the policy specifically allows for modification by written agreements. FCIC has revised the provision to state that the terms of the policy may not be waived or modified unless a written agreement is specifically authorized by the policy.

Comment:

A commenter believes FCIC is proposing a useful addition to the preamble by adding the sentence regarding handbooks, manuals, and directives.

Response:

FCIC agrees it is important to provide notice to policyholders that the procedural materials issued by FCIC will be used to administer the crop insurance program.

Several comments were received regarding language in the policy preamble as it relates to the roles of RMA and the insurance providers. The comments are as follows:

Comment:

Some commenters stated the proposed language overlooks the fact that this is a privately delivered product and implies the policy is a Federal contract or that a producer should take up policy conflicts directly with RMA.

Response:

While this may be a privately delivered product, policyholders must be made aware that they are participating in a Federal program. It is in no way intended to imply that the government is a party to the contract. The agreement to insure clearly indicates that the contract is between the producer and the insurance provider through its reference to “we,” which is defined in the previous paragraph as the insurance provider. However, the government still has regulatory control over the program. Further, there is nothing in the preamble regarding disputes. Provisions regarding resolution of disputes are contained in section 20 of the Basic Provisions and section 16 of the GRP Provisions. Those provisions make clear which disputes are properly brought against FCIC and those that must be brought against the insurance provider. No changes have been made.

Comment:

A few commenters recommended revising the language to indicate procedures approved by FCIC will be used rather than those issued by FCIC. Some of these commenters stated that it appears the new language would require private insurance providers to issue FCIC policy forms and use FCIC handbooks as opposed to National Crop Insurance Services (NCIS) forms and handbooks.

Response:

The reference to procedures as issued by FCIC is appropriate. This is to ensure that the same procedures are applicable to all producers regardless of the insurance provider. The procedures allow the insurance providers to create their own forms, in accordance with the procedures.

Comment:

A commenter stated a reference to NCIS publications as authoritative guidance should be added, for the consultative process and studied professionalism of those publications frequently is the most complete, consistent and meaningful treatment of key program issues. The commenter stated the terms “procedures” and “provisions” in the fourth sentence are not defined, and they believe are ambiguous and open to infinite interpretations, many of which are equally reasonable. The commenter stated the proposal appears to attempt distinguishing between these two terms, but because it defines neither that attempt fails. They also noted the proposal states that procedures and provisions “will be used” but does not say by whom, when or in what manner.

Response:

While NCIS may put out procedures under its own name, those procedures must be the same as those issued by FCIC. Even NCIS forms must contain, at a minimum, the information contained in FCIC's procedures. Therefore, it would be inappropriate to refer to NCIS because it would imply that NCIS is a regulator of the program. The proposed language referencing “provisions” is clearly modified by the phrase “of the policy.” Therefore, further clarification of this term is not needed. However, FCIC has revised the provision to specify that “procedures” refer only to handbooks, manuals, memoranda and bulletins. This will prevent infinite interpretations. FCIC has also revised the provisions to specify that the insurance provider will use the procedures as issued by FCIC in the administration of the policy.

Several comments were received regarding order of precedence of documents referred to in the policy preamble (the Act, regulations, policy, and procedures). The comments are as follows:

Comment:

Several commenters stated the proposed preamble is rather confusing as to conflicts between the policy, the Act and/or the regulations. They stated the preamble needs to address the order in which each takes precedence.

Response:

FCIC agrees the preamble needs to address the order of precedence of the referenced documents and has revised the language accordingly.

Comment:

Some commenters indicated the “agreement to insure” section establishes an order of precedence among policy documents but omits the Act, Regulations, etc. They recommend this paragraph be reconciled with the changed initial paragraph of the preamble. One of the commenters stated the policy must clearly state what action is to be taken when one of the listed documents is inconsistent with one or more other Agency publications.

Response:

FCIC also agrees that there should be one section that sets the order of precedence for all documents and has moved all the provisions to the “agreement to insure” section.

Comment:

Some commenters stated the policy provisions should take highest precedence since the policy is what is given to the policyholder to serve as the “contract” between insurance provider and policyholder.

Response:

FCIC agrees that between the policy regulations and the administrative regulations, the policy regulations should take precedence. However, the policy provisions cannot override the Act.

A few comments were received regarding references to agents in the policy preamble. The comments are as follows:

Comment:

A commenter stated that the paragraph seems to reinforce that the agent is separate and apart from the insurance provider. The commenter added that the agent is defined by an agency agreement between the insurance provider and the person or entity acting as an agent for the insurance provider. They believe the proposed language may be interpreted as stating the agent is a broker for the policyholder or some sort of third party.

Response:

FCIC has revised the provision to clarify that the “agent” refers to the insurance agent and that the insurance agent is affiliated with the insurance provider.

Comment:

A commenter stated that the term “agent” as used twice in the third sentence is not clear. They believe the key phrase should be reworded to read “* * * by the crop insurance provider, any insurance agent or any agent or employee of FCIC, the Risk Management Agency * * *”

Response:

FCIC has revised the third sentence to clarify that the first reference to “agent” refers to the insurance agent and has replaced the second reference to “agent” with “contractor” to encompass managing general agents, loss adjusters and other contractors of the insurance provider.

Comment:

A commenter believes the words “insurance provider providing insurance” in the second paragraph of the policy preamble should be replaced with the words “insurance provider providing you insurance” less there be confusion between all providers and this policy.

Response:

Since no changes to this paragraph were proposed, no changes were required as a result of conforming amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

Comment:

A commenter stated it is not clear from the

Federal Register

whether the following definitions remain in the proposed Basic Provisions: “Throughout this policy, ‘you’ and ‘your’ refer to the named insured shown on the accepted application and ‘we,’ ‘us,’ and ‘our’ refer to the insurance provider providing insurance. Unless the context indicates otherwise, use of the plural form of a word includes the singular and use of the singular form of the word includes the plural.” The commenter believes these definitions are extremely valuable and helpful in understanding a number of the subsequent sections of the policy,

and therefore, they believe these definitions should remain a part of the policy.

Response:

As stated in the proposed rule, FCIC has only revised the first paragraph of the preamble. Therefore, the second paragraph remains unchanged.

Comment:

A commenter noted that FCIC proposed to remove section 14(d), which states that the insurance provider adjusts losses in accordance with FCIC-approved loss adjustment procedures. The commenter added that to retain this concept in the Basic Provisions, they recommend that FCIC amend the fourth sentence of the preamble as follows: “Procedures, including, but not limited to, handbooks, manuals and directives, issued or approved by FCIC and published on the RMA Web site at

http://rma.usda.gov/

or a successor Web site will be used in the administration of this policy and in the adjustment of any loss or claim submitted hereunder.”

Response:

FCIC has revised the fourth sentence of the preamble to specify that procedures as issued by FCIC will be used in the adjustment of any loss or claim.

Comment:

A commenter noted the policy indicates “us” refers to the insurance provider providing insurance. However, the commenter states the term is also used in the context of FCIC.

Response:

Under “FCIC Policies,” the term “us” refers to FCIC. Under “Reinsured Policies,” the term “us” refers to the insurance provider providing insurance. Therefore, it will depend on who is offering the insurance as to which “us” is actually referenced. For reinsured policies, it will only be the insurance provider. For FCIC policies, it will only be FCIC.

A few comments were received regarding the phrase “cannot pay your loss.” The comments received are as follows:

Comment:

A commenter stated that it is anticipated that the soon-to-be negotiated Standard Reinsurance Agreement (“SRA”) will contain provisions implementing section V.P. of the SRA, including language that provides for the assumption by FCIC and insurance providers of liability of an insurance provider that has become insolvent or is otherwise unable to perform its duties under the SRA. The commenter noted that currently, the Basic Provisions state only: “In the event we cannot pay your loss, your claim will be settled in accordance with the provisions of this policy and paid by the FCIC.” They believe this statement may not accurately reflect the disposition of policies in the event that an insurance provider becomes insolvent, because in such a scenario, insureds may be transferred in bulk to other insurance providers. The commenter stated that transfer of policies from an insolvent insurance provider to other insurance providers affects the rights and duties of insureds, and FCIC should amend the Basic Provisions to provide: “In the event we cannot pay your loss, your claim will be settled and paid in accordance with the provisions of the Standard Reinsurance Agreement and this policy.”

Response:

FCIC has clarified that in the event an insurance provider cannot pay the policyholder's loss, FCIC will be responsible for the amount of such loss. This applies regardless of whether FCIC assumes the policy or it is transferred to another insurance provider.

Comment:

A commenter recommended the words “cannot pay your loss” be clarified. They presume it means to address a case where the provider is insolvent, but it does not say that.

Response:

FCIC has clarified that the phrase “cannot pay your loss” means an insurance provider has become insolvent or is otherwise unable to perform its duties under the SRA.

Comment:

A commenter believes the proposed language in the policy preamble seems to preclude FCIC/RMA from making any changes to provisions, procedures, etc. They asked if this is RMA's intent. The commenter stated that for example, it would seem the language would preclude the issuance of bulletins.

Response:

FCIC has revised the provision to specify that changes may not be made to the policy except as authorized by the policy. However, bulletins are usually used for the purpose of clarification, interpretation or to fill a gap that may exist in the policy or procedures. Under this revised preamble provision, FCIC may only revise the policy through a bulletin if specifically authorized in the policy. There is nothing in the preamble that affects or restricts the manner in which FCIC revises its procedures. The preamble only specifies that such procedures, which include bulletins, will be used to administer the policy.

Comment:

A commenter asked if the availability on the referenced Web site is intended to preclude the need to issue actual policy documents or change notifications to insureds.

Response:

The Web site address included in the policy tells the reader where all crop insurance materials can be found. Some of these documents are not provided to the policyholder even though they may affect the terms and conditions of insurance such as the actuarial documents and the manuals and handbooks. Nothing in this rule affects the requirement that insurance providers provide policy information to insureds or the notification requirements. Such information must still be provided to producers.

Comment:

A commenter asked why, in the added language, is a specific reference to “FSA” made, rather than “USDA.”

Response:

FCIC has revised the provision to refer to employees of USDA.

Comment:

A commenter stated that handbooks, manuals, and directives should not be used to circumvent rulemaking. They stated the policy preamble would add a reference to handbooks, manuals and directives, and that while the use of some interpretive handbooks is common in administrative agencies today, they should not be used to avoid notice and comment rulemaking when promulgating or changing substantive rules. The commenter believes these handbooks must be made readily available to farmers if they are to be relied upon by insurance providers.

Response:

Since the policies published in the Code of Federal Regulations have the force of law, procedures cannot be used to modify the terms of the policy. However, they have always been used to administer the policy through interpretations, clarifications or to fill gaps that may exist because of situations that arise that were not contemplated in the policy or procedures. Any change to the policy must be made through the rulemaking process unless otherwise authorized in the policy. Procedures are readily available to the public on RMA's Web site.

Comment:

A commenter stated it appears items (1) and (2) in the agreement to insure statement in the preamble are reversed from what they should be.

Response:

Since no changes to this paragraph were proposed and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. Any modification to this paragraph in this final rule was the result of a conforming amendment.

General Comments to the Definitions

Comment:

A few commenters made the following general statements regarding section 1 (Definitions): (1) Removing ambiguous language and definitions will strengthen the integrity of the Federal crop insurance program; (2) Loosely defined terms such as

“prevented planting” could be refined to help reduce disputes, and confusion; (3) Some definitions use terms such as “normally” which causes vagueness; (4) There are some definitions which reference language that is not in the policy itself but is part of the FCIC Act (Act) and many producers do not have access to the Act or consider it burdensome to find and interpret it; and (5) A producer should not need an attorney to interpret the policy.

Response:

FCIC agrees terms used in the policy should be as clear as possible and readers should be able to make interpretations without assistance. The terms referred to in this comment have been modified as indicated in response to specific comments included later in this section. In some instances it is necessary to refer readers to other documents such as the Act. However, such references are only used to provide the reader with information regarding the authority for specific actions and it is not necessary to access the Act to interpret the policy or determine the terms and conditions of insurance.

Comment:

Some commenters recommended capitalizing words that are used as defined terms throughout the policy to help clarify when a given definition applies.

Response:

Capitalization of specific words in the document that is contrary to the general rules of grammar tends to make the document more difficult to read. No change has been made.

Revisions to Specific Definitions

1. Actuarial Documents:

Comment:

A commenter stated the word “type” is ambiguous in the definition of “actuarial documents.” They stated if the intent is to describe the current actuarial documents, the phrase should be “particular types and varieties of the crop which may be insured.”

Response:

FCIC has clarified the definition to specify that “type” refers to the particular type or variety of the insurable crop.

Comment:

Several commenters recommended the first sentence in the definition of “actuarial documents” be modified to read “* * * agent's office and/or published * * *” to cover circumstances where the agent may not have the documents in question.

Response:

Actuarial documents are necessary to provide the policyholder with information regarding premium rates. Therefore, insurance agents must have this information to be able to advise policyholders. No change has been made.

Comment:

A commenter stated that the reference to RMA's Web site in the definition of “actuarial documents,” and throughout the provisions, leave it unclear as to whether certain documents are required in the agent's office or not.

Response:

The definition of “actuarial documents” clearly indicates the materials are available in the agent's office and on RMA's Web site. Sections 4(b) and (c) of the Basic Provisions also indicate the “actuarial documents” will be available in both locations. However, insurance agents with offices that have access to the actuarial documents from the Web site are considered to have the documents available for public inspection in their office. No change has been made.

Comment:

A commenter stated the reference to the agent's office in the definition of “actuarial documents” is archaic and should be broadened to include agent Web sites, insurance provider offices and Web sites, RMA offices and Web sites, etc.

Response:

These provisions are intended to notify the policyholder where the actuarial documents can be found. If FCIC were to make the requested change, it would require that all insurance agents and insurance providers have Web sites that have links to the actuarial documents. This would impose an unnecessary burden. Further, this information must be available in the agent's office in order to be able to respond to policyholder queries. No change has been made.

Comment:

A commenter asked if availability of actuarial documents on the Web site is intended to relieve the responsibility to notify policyholders of changes, and if the Web site is now to be considered a part of the policy.

Response:

The Web site is just intended to provide a convenient place to find all materials related to crop insurance. While the policy references the Web site, the content of the Web site has not been incorporated into the policy nor does the Web site revise any requirements in the policy for the insurance provider to notify policyholders of all policy changes in writing.

Comment:

A commenter stated the definition of “actuarial documents” indicates production guarantees are contained in the actuarial documents. They indicated the guarantees are not in the documents now, and asked if this would work since the APH and insurance guarantees change yearly.

Response:

FCIC agrees that production guarantees are not included in the actuarial documents. Therefore, FCIC has revised the definition by deleting the reference to production guarantees.

Comment:

Some commenters recommended changing “your agent's office” to “the policy servicing agent's office” in the definition of “actuarial documents.”

Response:

FCIC is unsure of what this change is intended to accomplish. FCIC does not see the distinction between an agent and a policy-servicing agent. Therefore, the recommended change does not appear to clarify or improve the definition. No change has been made.

Comment:

Several commenters recommended using a consistent reference to RMA's Web site in the definition of “actuarial documents” and throughout the rule.

Response:

FCIC has been unable to determine how the references are inconsistent but it will check references to the Web site to be certain they are consistent.

2. Agent:

Comment:

Some commenters recommended adding the definition of “agent.” A commenter recommended defining “agent” as “agent of the insurance provider.”

Response:

To the extent that the commenter was concerned that the policy was confusing as to who the agent is affiliated with, FCIC has clarified the preamble to specify that the agent is affiliated with the insurance provider. This clarification avoids the need to add a separate definition.

3. Agricultural Commodity:

Comment:

A few commenters suggested expanding the definition of “agricultural commodity.” One stated expansion was necessary to include livestock and aquatic programs, and the other recommended including any crop or other commodity, whether or not it is insured.

Response:

Agricultural commodity is a very broad term and the Act allows it to encompass almost any commodity. FCIC is reluctant to put qualifiers in the definition that could exclude certain commodities in future years. As drafted, the definition includes livestock and aquatic programs through its reference to other commodities. No change has been made.

Comment:

A few commenters stated the definition of “agricultural commodity” is expanded to include commodities other than crops, yet in most cases, the Basic Provisions reference “crop.” The comments recommended changing some of these references to “agricultural commodity.”

Response:

FCIC has already revised those provisions where it has determined it is appropriate to refer to agricultural commodity instead of crop. However, there are still many places

where the reference should remain as “crop.”

4. Annual Crop:

Comment:

One commenter recommended changing the definition of “annual crop” to show the contrast between annual, perennial, and volunteer crops.

Response:

The purpose of having separate definitions is to show their contrast. Therefore, it is not necessary to repeat this in each individual definition. No change has been made.

5. Another use, notice of:

Comment:

A commenter recommended removing the definition of “another use, notice of” since definitions of “loss, notice of” and “damage, notice of” were deleted.

Response:

FCIC has removed the definition accordingly.

6. Application:

Comment:

A commenter recommended the definition of “application” be modified to recognize the application process can be an electronic/paperless process, and not necessarily requiring a “form.” The commenter also suggested adding language indicating a new application must be filed once the producer again becomes eligible.

Response:

Since no changes to this definition were proposed, no changes were required as a result of conforming amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

7. Border:

Comment:

A commenter stated a change from 36,000 to 20,000 plants per acre would be a “border” within the meaning of the proposal's definition, yet it would not constitute a “discernible break” as required by established Agency procedures. The commenter stated use of the term “border” appears to be an attempt to replace “discernable break,” which they believe is a recognized term that is currently generally understood and consistently applied. They suggested the text of the proposal be revised wherever the term “border” now appears to state whatever FCIC intends.

Response:

FCIC agrees borders created by different plant densities may not be readily discernible and that the proposed definition of “border” is too subjective and overly broad. FCIC believes the current provisions contained in section 34 that require “a clear and discernible break in the planting pattern at the boundaries of each optional unit” is a more definitive requirement that has been generally consistently applied. Therefore, all references to “border” have been removed from the final rule.

Comment:

Several commenters recommended revising the definition by removing the words “plant density.” A few of the commenters stated the term “plant density” is too liberal. Other commenters stated “plant density” is not readily identifiable or readily discernable, and therefore FCIC should consider deleting plant densities and adding, “no crop is planted or the planted crop is destroyed by the acreage reporting date.”

Response:

See response to the first comment.

Comment:

A few commenters stated the definition is unclear. Some commenters recommended deleting “

etc.

” and “distinction” because of the possibility of different interpretations. A few commenters stated the term “readily identifiable” in the definition is too vague and is subject to differing interpretations. A commenter recommended defining “readily identifiable distinction.”

Response:

See response to the first comment.

Comment:

A commenter stated the definition is overly broad, vague and permits virtually any differentiation between land areas to be deemed a “border.” They stated FCIC should amend the definition to limit subjectivity or, at a minimum, state the insurance provider shall, in its sole discretion, determine whether a difference constitutes “a readily identifiable distinction.”

Response:

See response to the first comment.

Comment:

A few commenters recommended changing the definition to read as follows: “A readily identifiable discernable break between two areas of land (

e.g.

different planting patterns or area where no crop is planted).”

Response:

See response to the first comment.

Comment:

A commenter suggested border be defined as an “unplanted area,” and that planting it then disking or tilling to create a “border” should not qualify. The commenter stated the subjectivity of the proposed wording makes it impossible for an agent to properly explain and sell, and it puts the adjuster in a difficult situation.

Response:

See response to the first comment.

Comment:

A commenter stated the definition conflicts with the definition of field. A few commenters stated the proposed definition is inconsistent with current procedure in the Crop Insurance Handbook which requires a break in the planting pattern.

Response:

See response to the first comment.

Comment:

A commenter stated the definition is incomplete if additional terms, such as “discernible break” are needed. The commenter also asked if the border should not be identifiable to the extent that separate harvesting can result and records can be kept.

Response:

See response to the first comment.

8. Code of Federal Regulations:

Comment:

Several commenters recommended defining the “Code of Federal Regulations (CFR).” Some stated there should be an explanation of 7 CFR part 400, subpart G in the definitions of “average yield” and “approved yield,” and that FCIC should also explain other regulations referenced in the policy.

Response:

FCIC agrees the definition of “Code of Federal Regulations (CFR)” should be added. The new definition includes a Web site address where interested parties can find the full text of the CFR in electronic format. An explanation of the CFR subparts referenced in the policy should not be included in the policy as it would be repetitious with those parts and unnecessarily increase the size of the policy.

9. Contract:

Comment:

A commenter was concerned about the terms “contract” and “policy” and using them interchangeably.

Response:

Since the terms mean the same thing, using the two terms interchangeably should not cause confusion. No change has been made. However, the definition of “policy” has been revised in response to other comments.

10. Contract Change Date:

Several comments were received regarding the definition of “contract change date.” The comments are as follows:

Comment:

A few commenters recommended retaining the current definition of “contract change date.”

Response:

The current definition is too restrictive because FCIC does not have any control over when agents will obtain the policy changes. It would allow for disparate treatment of producers based on whether their agent had the changes in their office by the contract change date. The revised definition gives a date certain and location where the information can be found on that date. No change has been made.

Comment:

A commenter recommended not changing the definition because not requiring policy

changes to be available in an agent's office does not appear to meet the needs of limited resource farmers who may not have access to the Internet. The commenter recommended deleting the word “provisions” because “policy” is defined, if the new definition is retained. A commenter stated that producers cannot reasonably assess their alternatives regarding contract changes not available for review in the office of their agent. The proposal substitutes the undiscoverable decision of an unknown entity (“changes will be made,” but by whom?) for a clear, reasonable definition currently in use. A commenter recommended revising the definition of “contract change date,” to allow for years when no changes are made. The commenter recommended adding “if any” to the definition. The commenter further recommended clarifying who can make changes in the policy by including the words “the date by which we may make changes * * * ” A commenter recommended changing the definition of “contract change date” as follows: “The calendar date by which FCIC changes the policy in accordance with section 4.” The change is recommended because the insurance provider does not have the authority to change the Basic Provisions.

Response:

Reference to the location of where the changes can be found is not necessary in the definition of “contract change date.” The purpose of the definition is just to specify that there is a date by which changes must be made. Provisions in section 4 of the policy specify changes may be viewed either in the insurance agent's office or on RMA's Web site. Further, changes to the policy will still be directly mailed to the policyholder. Therefore, the needs of all policyholders to have sufficient information to make informed decisions will be met. FCIC agrees the word “provisions” should be deleted and has revised the definition accordingly. FCIC agrees an allowance should be made for years in which no changes are made and has revised the definition accordingly. FCIC does not agree that it is necessary to identify the entity making policy changes. Only FCIC has the authority to conduct the rulemaking necessary to revise the policies published in the Code of Federal Regulations.

Comment:

A commenter recommended adding the words “of this policy” at the end of the definition of “contract change date.”

Response:

FCIC has revised the definition to add the phrase “of these Basic Provisions.”

11. County:

Comment:

A commenter stated the definition of “county” does not refer to or allow for the addition of “added land” to a unit in a legal county that may be in another county.

Response:

Since no changes to this definition were proposed, no changes were required as a result of conforming amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

12. Coverage:

Comment:

A commenter suggested revising the definition of “coverage” by adding “or as we determine to be correct if your summary was based on the incorrect information supplied by you.”

Response:

Since no changes to this definition were proposed, no changes were required as a result of conforming amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

13. Crop:

Comment

: A commenter recommended adding the definition of “crop.”

Response

: The term “crop” has been used for many years and connotes many different types of agricultural commodities. It would be impossible to construct a definition that could encompass all possible agricultural commodities that could qualify as a “crop” without making it too broad to add any clarity to the policy. No change has been made.

14. Crop Year

:

Comment

: A commenter stated there was no need to add the new wording, “unless otherwise specified in the Crop Provisions,” to the definition of “crop year,” since the Crop Provisions override the Basic Provisions.

Response

: Since there are currently instances where the definition of “crop year” is changed by the Crop Provisions, the reader should be referred to the Crop Provisions. No change has been made.

Comment

: One commenter recommended revising the definition of “crop year” by stating the “period” is a “time period” and including the idea that fall and spring planted crops generally share the same crop year.

Response

: Since the only period that could be applicable is a time period, the change would have no practical effect. Further, there may be instances where spring and fall planted crops may not share the same crop year. No change has been made.

15. Damage, Notice of

:

Comment

: A commenter stated it was unclear why the definition of “damage, notice of” was deleted when notice is required in section 14. Some commenters added that retaining the definitions helps the insured read and understand his/her duties. Another commenter recommended not deleting the definition of “loss, notice of” but shortening it to refer the reader directly to section 14, “Your Duties.” A commenter stated if the definition of “loss, notice of” was deleted then “but not later that 15 days after the end of the insurance period” should be added in section 14, and asked what the effect on late notices and how late notices would be handled if this language is not added back in. Some commenters were concerned deleting the definitions would lead to an unlimited time frame for “initial discovery” in section 14, and that the reference to the end of insurance period in section 14 is effectively removed.

Response

: FCIC proposed to delete the definitions of “damage, notice of” and “loss, notice of” because the responsibilities associated with these terms are clearly defined in section 14 (Your Duties). Further, the definitions were inconsistent with the requirements of section 14. Therefore, FCIC does not agree the definitions should be retained. In response to other comments, FCIC has elected not to adopt the proposed revisions in section 14(a) and 14(a)(2), except as needed to remove the reference to notice of loss since that term is not used anywhere else in the section. As a result, the current provisions regarding the time frames will remain in effect, thereby negating the need to adopt the recommendations of the commenters.

16. Deductible

:

Comment

: A commenter stated the term “deductible” is not used in the provisions and does not need to be defined.

Response

: Since no changes to this definition were proposed, no changes were required as a result of conforming amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

17. Delinquent Account

:

Comment

: A commenter recommended revising the definition of “delinquent account” by adding the phrase “including payments for replants and prevented planting,” after “indemnities.” Another commenter recommended refining the definition to clarify that the term “indemnities” includes overpaid claims, replant payments and prevented planting payments, and to specify whether crop

hail and/or supplementary product premiums are included in “any account you have with us.”

Response

: FCIC has revised the definition, and all other applicable provisions, to include replanting and prevented planting payments, overpaid amounts and to specify that the provisions apply only to insurance issued under the authority of the Act. FCIC has also changed the term to “delinquent debt” to be consistent with the ineligibility regulations.

Comment

: A few commenters recommended changing the definition of “delinquent account” and the provisions of section 2 to not consider an account delinquent until completion of appeals.

Response

: FCIC does not agree with the recommended change. Unlike most other lines of insurance, premiums are not paid until after insurance has attached and in many cases not until the end of the insurance period. Therefore, policyholders have already received the benefit of insurance coverage. Further, accounting and program administration would be made more complex if producers are allowed to pay premium at various stages, depending on whether or not they have asked for arbitration, appeal, etc. It would also add program uncertainty if policyholders could be declared ineligible in the middle of the crop year. No changes have been made.

18. Discernible

:

Comment

: A few commenters recommended defining “discernible.”

Response

: Terms only need to be defined if they have meaning different from the common meaning of the term or there are multiple common meanings. FCIC intended the common meaning of the term “discernible” to apply, which refers to being able to perceive, detect or recognize as separate and distinct. Therefore, it is not necessary to define this term. No change has been made.

19. Disinterested Third Party

:

Several comments were received regarding the definition of “disinterested third party.” The comments are as follows:

Comment

: A commenter recommended making it clear an interest in the insured crop or policy constitutes an interest in the insured, and eliminating “other personal interests” or quantifying it in some manner. Other commenters asked what constitutes “other interest,” “other personal relationship” and “interest in the insured.”

Response

: FCIC agrees a person having an interest in the insured crop would not qualify as “disinterested” and has clarified the definition accordingly. The phrases “financial interest in the insured,” “other personal relationship” and “other interest” have been removed from the definition because these terms are vague and would be difficult to administer.

Comment

: A few commenters recommended the definition specify the subject the party must be disinterested in (the crop, the person, or what).

Response

: The definition has been clarified to indicate that the person must not have a familial relationship with the insured person or receive a financial benefit from the sale of the insured crop.

Comment

: A commenter recommended deleting the definition since the term is not used in the Basic Provisions.

Response

: FCIC does not agree that the definition should be deleted. The term is used in several Crop Provisions and defining it in the Basic Provisions avoids unnecessary duplication. No change has been made.

Comment

: A commenter recommended deleting the wording “such as familial or other personal relationship” and replacing with the word “crop.”

Response

: FCIC agrees that the terms “financial interest in the insured” and “personal relationships” should be removed because they would be difficult to administer. However, references to familial relationships are necessary because family members may also have an interest even though it may not be financial.

Comment

: A commenter stated the term “insured” is inconsistent and should be replaced with “you” or “your.”

Response

: FCIC agrees with the comment and has replaced “insured” with “you.”

Comment

: A commenter recommended using the following definition: “any financial, familial or other personal relationship with the insured.”

Response

: The suggested definition cannot be adopted because the phrase “other personal relationship” is vague and would be difficult to administer. Therefore, this term was removed.

Comment:

A commenter recommended using the following definition: “a person or entity that does not have any financial interest in the insured or disposition or transfer of ownership of the insured crop nor a familial interest in the insured.”

Response:

The suggested definition cannot be adopted because elevator employees authorized to pull samples and analyze the quality of the crops would have a financial interest in the disposition or transfer of ownership of the insured crop, creating a conflict within the policy. No change has been made.

Comment:

A commenter recommended identifying interest in terms of a “substantial beneficial interest” and doing so by specifying a percentage.

Response:

Not all interests are financial, such as familial relationships, and may not be measurable. No change has been made.

Comment:

Regarding the definition of “disinterested third party,” a commenter asked if the wording “financial interest” bars an elevator, gin or similar entity from making quality determinations. Another commenter asked if an elevator involved in the purchase of grain would be a disinterested third party.

Response:

The definition has been clarified to specify that persons authorized to conduct quality analyses of the crop can be considered as disinterested third parties.

20. Enterprise Unit:

A few comments were received regarding the definition of “enterprise unit.” The comments are as follows:

Comment:

A few commenters suggested considering if the change should be made. A few commenters recommended revising the second sentence in the definition of “Enterprise unit” as follows: “An enterprise unit must consist of planted acreage or acreage on which a prevented planting payment is made of the same insured crop in:”

Response:

FCIC has revised the definition so that enterprise units will consist of all acreage from the combined optional or basic units, as applicable, regardless of whether the acreage is planted or prevented from being planted as long as some acreage in at least two sections, section equivalents, FSA farm serial numbers, or units established by written agreement contain some planted acres. FCIC has also clarified in section 34 that the discount will only apply to acreage that has been planted. However, a unit containing only acreage that is prevented from being planted cannot be used to qualify for an enterprise unit.

Comment:

A commenter recommended adding “in the county” to paragraphs (1) and (2) of the definition of “enterprise unit” but also questioned why a policyholder with a basic unit in two counties could not combine them into an enterprise unit; and (4) A commenter recommended adding “units by written agreement or Unit Division Option” to references to sections, section equivalents, or FSA farm serial numbers, in the definition of “enterprise unit.”

Response:

The addition of “in the county” to paragraphs (1) and (2) of the definition is not necessary because the first sentence of the definition already specifies that an enterprise unit is all insurable acreage of the insured crop “in the county * * *” FCIC does not believe a policyholder with a basic unit in two counties should be allowed to combine them into one enterprise unit, because the policy specifies that all unit division (basic, optional, enterprise, and whole farm units), guarantees, and premium rates are determined on a county basis. No change has been made; and (4) FCIC has revised the definition to include written agreements as a means to establish basic or optional units as applicable.

21. Earliest Planting Date:

Comment:

Several commenters recommended defining the term “initial planting date” instead of “earliest planting date” to avoid introduction of a new term, and to be consistent with the term used in the Special Provisions. A few of the commenters stated it would be less cumbersome than changing all of the Special Provisions. Another commenter asked if all of the Special Provisions would be changed to be consistent with the new definition.

Response:

The term defined and used in the current regulations is the “earliest planting date.” Therefore, use of the term in the proposed provisions is not new. However, FCIC is aware that an “initial planting date” is listed in the Special Provisions. To reduce confusion and prevent the need to change the Special Provisions or to change all references to the “initial planting date” in the regulations, FCIC has revised the definition to change the reference to “calendar date” to the “initial planting date.”

22. Field:

A few comments were received regarding the proposed definition of “field.” The comments are as follows:

Comment:

A commenter recommended revising the definition of “field” so acreage within a field must be contiguous.

Response:

FCIC cannot accept the requested change. Acreage separated by a waterway would be considered two fields under the definition. However, the same acreage would be considered contiguous under the proposed definition of “non-contiguous.” Therefore, if the change were accepted, the definitions would be in conflict. No change has been made.

Comment:

A commenter suggested the phrase “Natural or artificial boundary” used in the definition of “field,” could be anything because everything is either natural or artificial.

Response:

FCIC agrees that all boundaries are either natural or artificial. The intent of the provision was to only require some type of permanent or semi-permanent boundary and clarify that the use of planting patterns or different crops cannot be used to create separate fields. The reference to both artificial and natural boundaries is to provide notice that either type of boundary is acceptable.

Comment:

A few commenters recommended retaining the current definition of “field.” One of the commenters stated the definition is inconsistent with the definition of “border” because the two definitions together would allow several “borders” within a “field.”

Response:

The definition requires revision because of the common perception that acreage planted to separate crops are separate fields. For the purposes of insurance, different planting patterns or planting different crops do not create separate fields because it would adversely affect program integrity by allowing producers to circumvent certain prevented planting provisions. Since, as stated above, FCIC is removing the definition of “border,” any conflict has been eliminated.

Comment:

A few commenters stated the new definition of “field” is an improvement, but stated there could be a problem if a boundary,

e.g.

, fence line, no longer exists and FSA still considers it to be two fields.

Response:

If a fence that separated two fields was removed, in accordance with the revised definition of “field,” the acreage would be considered one field regardless of whether or not FSA considers it as two fields. This requirement is needed to protect the integrity of the crop insurance program. No change has been made.

23. FCIC and RMA:

Comment:

A commenter recommended adding definitions of “FCIC” and “RMA” to alleviate confusion that exists among insured's and, to a lesser degree agents and loss adjusters. The commenter also recommended giving attention to their respective roles within the Federal crop insurance program.

Response:

Since these definitions were not proposed, no changes were required as a result of conforming amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

24. FCIC Procedures:

Comment:

A commenter recommended adding the definition of “FCIC procedures” and including “procedures approved by FCIC” in it.

Response:

FCIC has clarified in the preamble that procedures include handbooks, manuals, memoranda and bulletins. Therefore, a definition is not required.

25. Farming or Farmed:

Comment:

A few commenters recommended defining “Farming” or “Farmed.”

Response:

FCIC believes these terms are readily understood and that adding the suggested definitions would not improve or clarify the policy terms. No change has been made.

26. Household

:

Comment:

One commenter recommended defining “household” since the term is used in the definition of “substantial beneficial interest.”

Response:

The term has been removed from the definition of “substantial beneficial interest.” However, the term has been added to the definition of “limited resource farmer.” Therefore, FCIC has added a definition of “household.”

27. Indemnity:

Comment:

Several commenters recommended defining “indemnity.” A few of these commenters recommended defining “indemnity” to either include or exclude replant and prevented planting payments. Some of the commenters suggested including replant payments and prevented planting payments as indemnities. One commenter suggested including overpaid claims in the definition. Another commenter asked if the replant payment is a loss mitigation payment or an indemnity. An additional commenter suggested using the following definition: “The gross amount due to you from us as a result of a loss of yield or value of your insured crop as a direct result of an insured cause and in accordance with this policy.”

Response:

FCIC has clarified throughout this final rule that an indemnity is different from a replant payment or prevented planting payment. FCIC makes the distinction based on the fact that a replant payment is to reimburse for the costs of having to replant the crop, not indemnify for any crop losses. Further, a prevented planting payment is to reimburse for a portion of costs incurred when the producer was unable to plant the crop. It also is not intended to indemnify for any crop loss. Indemnities are intended to provide indemnification for crop losses. Overpayments are just indemnities, replant payments, or prevented planting payments that are

determined not to be due. Therefore, these terms are different and it should not be included in the definition. Indemnities are determined in accordance with the policy provisions and include the entire amount of the loss payable to the policyholder, regardless of whether any premium or other amounts due have been subtracted from that entire amount. Therefore, no definition is required for this term and the suggested definition has not been adopted.

28. Insurable Loss:

Comment:

A commenter recommended defining “insurable loss.”

Response:

FCIC has added a definition of “insurable loss.” In addition, section 14(d)(1) (Your Duties) has been revised to remove the requirement to reduce the first insured crop indemnity if the producer does not provide production records needed to determine a second crop indemnity. When records are not provided for a second crop loss, no indemnity can be paid for the second crop. Therefore, because no second crop indemnity can be paid, the first insured crop indemnity cannot be reduced.

29. Insurance Provider:

Comment:

A few commenters recommended defining “insurance provider.” One of the commenters suggested, as an alternative, replacing “crop insurance provider” in the text with “we,” “us,” or “our.”

Response:

FCIC agrees the better alternative is to replace the phrase “crop insurance provider” with “we,” “us,” or “our” and has revised the provisions accordingly.

30. Insured:

Comment:

A few commenters recommended including the spouse and children living at home in the definition of “insured” if RMA intends for the interest of the spouse and children to be included in determining insurable share.

Response:

FCIC does not intend to consider the spouse or children as the insured person. Spouses are only considered as having a substantial beneficial interest in the insured unless they can prove otherwise. Therefore, no changes have been made to the definition of “insured.”

31. Insured Crop:

Comment:

A commenter recommended revising the definition of “insured crop” by adding “and/or Special Provisions” after “Crop Provisions.”

Response:

The definition of “insured crop” was revised in response to other comments and now refers to the policy so the recommended change is no longer necessary.

32. Irrigated Practice:

Comment:

A commenter suggested adding “and quality” after “quantity” in the definition of “irrigated practice.”

Response:

Since no changes to this definition were proposed, no changes were required as a result of conforming amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

33. Liability:

Comment:

Several commenters recommended replacing “applicable crop” in the definition of “liability” with “agricultural commodity,” “insured product,” “insured agricultural commodity” or “insured crop or agricultural commodity.” One of the commenters recommended using the term “liability” throughout the policy to replace terms such as “maximum amounts of insurance” and “available coverage.” Another asked why there needed to be a reference to premium in the definition of liability.

Response:

FCIC has revised the definition of “liability” to include the term “agricultural commodity.” The term “liability” cannot be used to replace “maximum amount of insurance” or “available coverage” because in many instances the context in which these phrases are used is not consistent with the defined term. For example, maximum amount of insurance does not take into consideration coverage level, price election, number of acres, or share of the policyholder. However, liability would take these into consideration. The reference to “premium computation” is necessary because it provides notice that liability takes into consideration the price election, coverage level, number of acres, and share of the policyholder, which are used to compute premium.

34. Limited Resource Farmer:

Comment:

Some commenters recommended the following regarding the definition of “limited resource farmer:” (1) Propose the new definition under a general USDA rule to provide adequate time for comments; (2) Change the maximum gross farm sales amount from $100,000 to $250,000; (3) Delete the farm asset and household income tests in the first factor; (4) Change the second test from 75 percent of the median county income to 175 percent of the relevant poverty line; (5) Clarify the inconsistent use of the words “total,” “gross,” and “net,” particularly in subsection (b), which refers to “total gross household net income;” (6) Clarify whether “total operator household income” means gross or net (the commenter stated that net income is more relevant in determining the resources available to farmers); (7) Clarify “total farm assets” (the commenter stated equity value is a meaningful indicator); (8) Delete the requirement that the standards in subsection (a) be met for the past two years; (9) Eligibility rules for other Federal programs, such as the school lunch program and the CHIPS federal health program, may provide useful models, though they may need to be adjusted to the situations of land-rich, cash-poor farmers; and (10) A commenter recommended using the following definition rather than the proposed definition: “ A Limited Resource Farmer or Rancher: (1) Is an individual with gross farm sales less than $100,000, AND (2) has a total household income at or below a qualifying county income level (to be determined annually), in each of the previous two years.” The commenter stated the income level would be determined annually for each county based on two objective factors; the level would be the greater of the poverty level for a household of 4 or 50 percent of the median county income level; and a limited resource farmer would be limited to gross farm sales less than $100,000, which would be increased, beginning in fiscal year 2004, by the inflation percentage applicable to the fiscal year in which a benefit is being requested.

Response:

After publishing the request for public comments regarding the definition of “limited resource farmer/producer” (LRF) being considered for use by other USDA agencies, USDA determined that it would propose one definition of LRF to be applicable to all USDA programs. USDA proposed the definition in the

Federal Register

on February 10, 2003 (68 FR 6655), comments were received, and the final rule was published in the

Federal Register

on May 30, 2003 (68 FR 32337). In accordance with that directive, FCIC is adopting that definition in this rule. Further, to mitigate the impact of this change, any policyholder who previously had their administrative fees waived because they qualified as a LRF will still be considered a LRF. In addition, FCIC has added the definition of LRF to the Catastrophic Risk Protection Endorsement.

35. New Producer:

Comment:

A few commenters recommended defining “New producer.”

Response:

Since the term is never used in the proposed rule, no changes were required as a result of conforming

amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

36. Non-contiguous:

Several comments were received regarding the definition of “non-contiguous.” The comments are as follows:

Comment:

A few commenters recommended defining “farmed” so there is no confusion that certain acreage (

e.g.

, pastureland, golf courses, CRP acreage, summer-fallow acreage, etc.) would not be considered farmed, and so there is no confusion regarding policyholders who do not “farm” the land such as landlords.

Response:

The term “farmed” has been removed.

Comment:

A few commenters recommended separating the definition of “non-contiguous” into two sentences. Some of them suggested; (a) Eliminating the phrase “except that” or replacing the words with “Nonetheless” or “However,” or a similar term at the beginning of the second sentence; (b) adding “or significant beneficial interest holder” after “you” in “neither owned by you nor rented by you” (this would keep insureds from splitting up policies/units when it is not justified); and (c) inserting a period after “share.”

Response:

FCIC agrees that separate sentences would improve clarity and has revised the definition to accomplish this. However, adding “substantial beneficial interest” would not have any practical effect because in order to be able to farm the land of the person with the substantial beneficial interest, it is presumed that the policyholder will either need to lease or own the land.

Comment:

A few commenters recommended clarifying “non-contiguous” because it is confusing.

Response:

The definition has been revised to provide greater clarity.

Comment:

A commenter suggested changing “farmed by you” to “controlled by you.”

Response:

As previously stated, the term “farmed by you” has been removed.

Comment:

A few commenters recommended retaining the current definition of “non-contiguous.”

Response:

The current definition cannot be retained because FCIC has discovered that it is subject to multiple interpretations. One of those interpretations would have allowed policyholders with an insignificant amount of acreage between the fields of the insurable crop to obtain separate units. This creates a program integrity problem because policyholders could use this interpretation to circumvent the unit division requirements. No change has been made.

Comment:

A commenter recommended changing the definition of “non-contiguous” to read as follows: “Acreage owned or operated by you that is separated from other acreage that is owned or operated by you by land that is neither owned or operated by you, or acreage owned or operated by you that is only separated by a public or private right-of-way, waterway, or an irrigation canal will be considered as contiguous.”

Response:

FCIC has in effect implemented this change. However, the method suggested could not be used because the repetition of terms would only add confusion to the definition.

37. Offset:

Comment:

A commenter recommended defining the term “offset.”

Response:

FCIC has added a definition.

38. Perennial Crop:

Comment:

A commenter recommended revising the definition of “perennial crop” to add the phrase “to produce a crop or yield a commodity” at the end for greater clarity.

Response:

The recommended change would not significantly improve the clarity of the definition. However, FCIC agrees that it needs clarification and has revised “perennial crop” to be more consistent with the common meaning of the term.

39. Person/Entity:

Comment:

A few commenters recommended defining the term “person/entity” (as in the CIH) rather than “person” to clarify that this includes more than single individuals. Another commenter questioned whether a “group of individuals” needs to be added to the definition since they are being considered individuals (

i.e.

, spouse and children of a household).

Response:

Since no changes to this definition were proposed, no changes were required as a result of conforming amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

40. Policy:

Comment:

Several commenters recommended the following regarding the definition of “policy:” (1) The definition does not include handbooks, bulletins, and other FCIC writings and procedures that insurance providers are required by the SRA to use (policyholders are not held to standards in the handbooks,

etc.,

while SRA holders are)—references to the handbooks,

etc.,

should be removed from the preamble of the policy and removed from the SRA; (2) If the listing of handbooks,

etc.,

is retained in the policy preamble, the listing should be repeated in the definition; (3) Make certain this definition conforms to the definition of “contract” in 7 CFR 457.7; (4) Include the summary of coverage which lists the guarantees and liabilities as a part of the policy; (5) Clarify that a policy includes all of an entities crops insured with the same provider; and (6) Clarify the basis of the policy. The commenter questions whether it is on a crop/county basis, multiple crops on a county basis, or multiple crops on a multiple counties basis.

Response:

While the preamble states the procedures will be used to administer the policy, they have not been made a part of the policy. This reference cannot be deleted because it is necessary to put all participants on notice that procedures as issued by FCIC are applicable to the policy. Such procedures are needed to ensure that all policies are sold and serviced consistently. The procedures contain the responsibilities imposed on the insurance provider. The responsibilities of the policyholder are found in the policy, not the procedures. For example, the policy states that the policyholder must provide adequate records. The procedures assist the insurance provider in determining what records are adequate. FCIC has revised 7 CFR 457.7 to remove the definition of contract to avoid any conflict with the definition of “policy.” With respect to the other recommended changes to the definition of “policy,” FCIC has revised the definition to clarify that each agricultural commodity in each county constitutes a separate policy. In addition, this same change was made to last paragraph immediately preceding the “agreement to insure” section of the Group Risk Plan Common Policy.

41. Practical to Replant:

Several comments were received regarding the definition of “practical to replant.” The comments are as follows:

Comment:

Several suggested more direction with respect to whether or not it is practical to replant in the late planting period. One recommended a limit in time so it will not be considered practical to replant after fewer days remain to the end of the late planting period than have elapsed since the beginning of the late planting period, unless it would be a good farming practice with respect to the insured unit to replant.

Response:

The definition is silent regarding replanting within the late

planting period because of the extreme variation between crops, areas, and climatic conditions which affect the factors used to determine whether it is practical to replant, such as time to crop maturity. Determinations of the practicality of replanting must be made on a crop-by-crop, and area-by-area basis. Providing a fixed number of days in the late planting period during which replanting would be practical would not provide the flexibility needed by insurance providers to properly consider the factors contained in the definition. No change has been made in response to this comment.

Comment:

Some stated there is a conflict between requiring replanting in the late planting period as is required in the definition and no requirement to plant in the late planting period for the purposes of prevented planting coverage.

Response:

FCIC agrees the planting requirements are different during the late planting period depending on whether replanting or prevented planting is involved. However, such differences are needed in the fair and equitable administration of the policy. When acreage that is prevented from being planted is planted during the late planting period, the guarantee is reduced for every day that the crop is late planted. Such reductions do not apply to crops replanted during the late planting period. Further, prevented planting payments are based on the expected costs incurred in the preparation of planting and are usually limited to 60, 65 or 70 percent of the production guarantee for planted acreage. In contrast, once the crop is planted during the initial planting period, policyholders are eligible for payment based on 100 percent of the production guarantee. In addition, when it is practical to replant the crop, the policyholder does not have a loss other than the cost of replanting. The purpose of a replant payment, if available, is to cover a portion of such costs. Therefore, it is reasonable to require policyholders to replant in the late planting period because they will still receive the full benefit of insurance for which they paid the full premium. However, policyholders who are prevented from planting would receive reduced benefits if they were required to plant during the late planting period even though they paid a full premium. No change has been made.

Comment:

A few stated that clarification is needed for contracted crops when different acreage sometimes has to be replanted in order to fulfill the contract.

Response:

FCIC understands that there may be situations where acreage initially planted may not be available for replanting due to flooding,

etc.

, and other acreage not initially planted to the contracted crop may be planted to replace it. However, FCIC cannot adopt this recommendation at this time because it does not know the impact of the change on premium rates or other aspects of the program. No change has been made.

Comment:

A few recommended clarification or removal of “generally occurring” and “area,” and linking the definition to the definition of “good farming practice.” One stated the words “unless replanting is generally occurring in the area” are subject to second guessing and various interpretations and a possible solution would be for FCIC to declare, by area, at the time issues arise, its determinations as to the practicality of replanting.

Response:

FCIC has removed the requirement that it will not be considered practical to replant after the final planting date unless others in the area are replanting. Determinations of whether it is practical to replant the policyholder's acreage should be based on the objective factors stated in the definition, not whether others are replanting. FCIC has clarified the term “area” in a final rule published prior to this rule (Vol. 68, No. 122/Wednesday, June 25, 2003). FCIC does not agree that determination of “practical to replant” should be linked to the definition of “good farming practice.” The policy specifically states that replanting can be done under a practice that is not insurable. Therefore, adoption of this recommendation could cause a conflict in the policy.

Comment:

A few recommended revising the definition to specify the cost of seed or plants will be considered. One recommended a waiver mechanism be made available for exceptional cases when seed is extremely costly or unavailable.

Response:

FCIC does not agree with the recommendation. Crop insurance is not intended to cover the business practices of seed or plant suppliers, including their ability to maintain an adequate supply necessary to replant damaged crops. No change has been made.

Comment:

One recommended revising the definition to specify replanting is practical if it reduces the payable loss, and removing the requirement of the crop reaching maturity.

Response:

FCIC does not agree that practicality to replant should be dependent on mitigation of a payable loss. There is no practical method to determine whether replanting will mitigate the loss. There may be instances where the crop still fails and the policyholder is still eligible for a full indemnity in addition to the replant payment. FCIC also disagrees with removing the requirement that the crop should have time to reach maturity. If there is insufficient time for the crop to reach maturity, then it almost guarantees that the crop will fail and a full indemnity will be due. No changes have been made.

Comment:

One suggested passive language be made active (The high cost or unavailability of seed shall not determine the practicality of replanting).

Response:

The suggested change does not improve the clarity of the definition. No change has been made.

Comment:

A few recommended expanding the term “cost” to include components other than seed, such as irrigation.

Response:

FCIC agrees input costs other than seed should not impact whether or not it is considered practical to replant. The definition has been revised accordingly.

Comment:

One recommended removing “marketing window” from the definition because FCIC has taken positions counter to this wording in several cases.

Response:

FCIC cannot remove “marketing windows” because it is statutorily required to be considered. No change has been made.

Comment:

One stated the difficulty of comparing “geography, topography, soil types, and the weather conditions and exposure” from one farm to the next is significant, and the importance of taking all of these factors into account should be reflected in the definition of practical to replant.

Response:

FCIC agrees it is important to take geography, topography and other factors mentioned in the comment into consideration. There is nothing in the definition that precludes the consideration of these factors. The definition requires consideration of all factors that would impact the practicality of replanting, not just those listed. No changes have been made.

Comment:

One recommended providing for a review of determinations of whether it is practical to replant because the determination should be subject to reconsideration, mediation, and appeal.

Response:

Determinations of “practical to replant” cannot be included in the appeals process applicable to good farming practices. That process was statutorily created and states it is only applicable for good farming practice determinations. In

response to other comments, the arbitration process has been retained and policyholders can seek arbitration of findings that it is practical to replant because they are factual determinations. No changes have been made.

42. Premium:

Comment:

A commenter recommended defining “premium.”

Response:

Terms only need to be defined if they have meaning different from the common meaning of the term or there are multiple common meanings. FCIC intended the common meaning of the term “premium” to apply and the section on annual premium and administrative fees explains how premiums will be computed. Therefore, it is not necessary to define this term. No change has been made.

43. Premium Billing Date:

Comment:

A commenter recommended removing the restriction in the definition of “premium billing date” that does not allow the insurance provider to bill until a certain date, because the premium is payable at any time with an indemnity.

Response:

Since no changes to this definition were proposed, no changes were required as a result of conforming amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

44. Prevented Planting:

Many comments were received regarding the definition of “prevented planting.” The comments are as follows:

Comment:

Retain the current definition.

Response:

As stated in FCIC's response to comments on proposed prevented planting changes in section 17, FCIC will not incorporate the proposed definition of “prevented planting” in the final rule, but will defer revising the definition until FCIC has had an opportunity to further review the issue and possible solutions. The current definition will remain in effect.

Comment:

It is not clear if the producer must initially be prevented from planting by the final planting date to be eligible in the late planting period. It is not clear if planting has to be prevented until the end of the late planting period. It is unclear if the producer is required to plant within the late planting period.

Response:

See response to first comment under this heading.

Comment:

Rewrite the last sentence to require that planting be prevented by the final planting date before qualifying within the late planting period. Revise so planting must be prevented from the time planting may start until the end of the late planting period.

Response:

See response to first comment under this heading.

Comment:

Establish a date ten days after the final planting date and require planting be prevented until this date, or, as an alternative, allow prevented planting within the late planting period but reduce the prevented planting guarantee by one percent per day. Establish a date half way through the late planting period and require planting be prevented until this date. Establish a date 10 days past the end of the late planting period and require planting be prevented until this date.

Response:

See response to first comment under this heading.

Comment:

Add “with the proper equipment” after “inability to plant” in the first sentence.

Response:

See response to first comment under this heading.

Comment:

The phrase “* * * such that the seed would not be expected to germinate,” is ambiguous because it does not indicate who would expect germination, or if most, some or none of the seed is expected to germinate. A time element should be added to clarify if seed would be expected to germinate if it is very dry throughout the normal planting period, but rains an inch a day for two weeks prior to the final planting date.

Response:

See response to first comment under this heading.

Comment:

Add “designated in the Special Provisions” after “by the final planting date.” The reference to “You may also be eligible for a payment * * *” is inappropriate in this definition. Reference to “you may also be eligible for a payment” indicates the payment has been mentioned earlier in the definition. If the intent is “* * * germinate or produce a crop, or because you could not plant the insured crop with the proper equipment within the late planting period,” then that is what the definition should say. Does “unable to plant with the proper equipment” mean a disabled tractor could prevent planting. It is unclear if drought is intended to be an acceptable cause of loss for prevented planting.

Response:

See response to first comment under this heading.

Comment:

Revise to prevent producers from filing claims for drought losses in successive crop years. Although prevented planting coverage due to drought remains in the policy, no one can qualify for it under the proposed provisions and it (drought) should be removed.

Response:

See response to first comment under this heading.

Comment:

Incorporate the concept of “good farming practices” into the definition. Prevented planting payment amounts should be based on the late planting guarantee. Retain the last sentence of the current definition. The definition does not address the issue of two or more crops having the same planting period and which crop is actually the one that is prevented from being planted. Replace the proposed definition of “prevented planting” with the following: “The inability to plant the insured crop by the end of the late plant period for the crop, as specified in the Special Provisions, with the proper equipment, due to excess moisture or because weather conditions are such that it would not be expected to produce a crop.”

Response:

See response to first comment under this heading.

45. Replanting:

Comment:

A commenter stated the proposed definition is too restrictive if it requires the same crop variety to be replanted because later planting may require use of a different variety. Another commenter thought the proposed definition is too restrictive because it requires replanting the same crop in situations in which it might be a better choice and reduce losses if a different crop were planted.

Response:

The definition does not require the same variety or type to be replanted unless it is otherwise required under the policy. The definition has been clarified accordingly. However, under the common usage of the term, replanting has to mean planting the same crop. It cannot mean planting a different crop.

Comment:

Several commenters recommended not deleting “with the expectation of producing at least the yield used to determine the production guarantee” because the proposed language would appear to allow seeding at a reduced rate; could be interpreted to force a producer to replant in a manner that produces a loss; or could conflict with the definition of “good farming practices,” which includes the requirement to plant in a manner to produce the yield used to determine the guarantee.

Response:

FCIC acknowledges that the proposed language could result in the replanting of crops that would produce yields less than the guarantee. However, the requirement to replant is intended as a means of loss mitigation because without such a requirement, the insurance providers would be required to pay 100 percent of the liability. The requirement that the policyholder use good farming practices in the manner in

which the crop is planted is still applicable.

Comment:

A commenter stated the current requirement of planting with the “expectation of producing at least the yield used to determine the production guarantee” is too restrictive because it does not allow a producer to plant a shorter season variety that had greater potential of success, but may not have the same yield potential as the original seed.

Response:

FCIC agrees and that is why FCIC removed it in the proposed rule.

46. Second Crop:

Comment:

Some comments were received regarding the definition of “second crop.” One commenter stated the definition of “second crop” encroaches on the definition of “cover crop” by implying a cover crop could be hayed, grazed or harvested.

Response:

FCIC originally responded in the June 25, 2003, final rule that the provisions had been revised to consistently use the terms. However, subsequent queries have demonstrated that it is unclear whether or not a cover crop or volunteer crop can be harvested for grain after the crop year without consequence to the prevented planting payment for a first insured crop. There was never any intent to allow a cover crop or volunteer crop to be harvested for grain at any time without reducing a prevented planting payment for a first insured crop. The definition of “second crop” and the provisions in section 15(g)(3)(i) have been revised accordingly.

47. Substantial Beneficial Interest:

Many commenters disagreed with proposed changes in the definition of “substantial beneficial interest” (SBI) that would include children as having a SBI, and recommended removing the proposed changes. The reasons given and questions received are as follows:

Comment:

The definition is overly broad as it requires the social security number (“SSN”) for minor children who have no interest and do not participate in the farming operation. The requirement to obtain SSNs for children is extremely burdensome and places an unreasonable burden on insurance providers to verify and account for every member of a household.

Response:

For many of the reasons stated above, FCIC agrees the proposal to include children as having a substantial beneficial interest should not be retained, and has revised the definition accordingly.

Comment:

Insurance providers have no reasonable means to determine whether a SSN was provided for each person that “resides in the same household.” The commenter also questioned what assistance FCIC will provide and who is responsible to accurately report all members of a household. Including minor children as having a “substantial beneficial interest” raises questions regarding children's future eligibility if a father becomes ineligible and remains ineligible, and the children's responsibility for the father's debt. It is not fair for a child's eligibility to be affected by a parents failure to pay a debt. A child has no legal obligation to satisfy the debts of a parent and no legal right to any portion of an indemnity due the parent and the same is true from the parents' standpoint with regard to rights and obligations of the child, and a parent has no right to bind an adult child to a policy (the converse is also true). Because a minor may void any contract other than a contract for necessities, FCIC may not bind a minor to an insurance contract, even if the minor's parents are parties to the contract.

Response:

See response to first comment under this heading.

Comment:

The term “substantial beneficial interest,” as used in the Basic Provisions is a legal term of art and FCIC may not create such an interest out of whole cloth. The terms “household” and “children” should be defined and the commenter questioned whether it includes students who live at home 3 months per year, and how will “household” be determined when divorced parents have joint custody. Need to clarify if the new provisions pertain only to children who are actively participating in the farming operation. The phrase, “derive no benefit from the farming operation of the insured or applicant” is far too expansive and places an onerous burden on insured producers to prove spouses and children derive no material benefit from the farming operation; and needs substantial clarification to tell the insurance provider what proof will determine whether the spouse or household children derive benefit from the farming operation. Need to clarify if the definition is asking children to prove they have no beneficial interest in the farming operation.

Response:

See response to first comment under this heading.

Comment:

The recently implemented procedure requiring spousal SSNs should remain unchanged until FCIC, insurance providers and producers have developed clear and workable guidelines. With the revised definition of SBI, insurance providers now must go back to all policyholders and obtain SSNs for resident children after having gone through this process of obtaining spousal SSNs. RMA indicated previously that it would not impose a requirement to collect SSNs for children, but only for spouses. Requiring children's SSNs could be considered harassment. It is logical to assume that a spouse, especially one who is making an active contribution to the farming operation, would have a substantial beneficial interest in the operation and thus meet the SBI definition and need to have pertinent information on file, but it is not clear why the extension is made to automatically include children or other individuals that reside in a household as meeting this requirement. The new requirement to collect SSNs provides little opportunity to prevent fraud and abuse and will only provide more opportunity for inadvertent reporting mistakes to become future cause for denial of insurance applications, denial of coverage and/or collection of administrative fees and penalties without a finding of intentional wrongdoing. The whole process is very single and narrow-minded in order to trap a few renegades. Producers will be reluctant to provide children's SSNs and there are privacy concerns involved with collecting this information.

Response:

See response to first comment under this heading.

Comment:

If the concern is about ineligible parents who farm ground in their minor child's name, then require the parent's name be reported as a substantial beneficial interest. A commenter asked how anyone could propose a rule which would require the social security number of children as a prerequisite of participation in the program. This will be unacceptable to the American farmer, and in their opinion would be a violation of the farmer's rights to privacy under the Constitution. If an insured has a child born during a policy period and fails to notify his/her agent he/she would lose coverage the following year. The

Federal Register

explanation states the definition was revised “to clarify the status of spouses,” and if this is the intent, then the references to “children” and “children that reside in the same household” should be removed.

Response:

See response to first comment under this heading.

Comment:

A commenter stated the proposed definition of “substantial beneficial interest” greatly diminishes the chances for spouses to unfairly manipulate the system, and that requirements to provide SSNs for all entities with 10 percent or greater interests in an operation will help prevent fraud and abuse.

Response:

FCIC agrees with the commenter and has retained

requirements to collect social security numbers for spouses and all persons having a substantial beneficial interest in the applicant or insured.

Comment:

A commenter recommended clarifying that prenuptial agreements that specify spouse's interests override the requirements in this definition and stated that FCIC has previously not recognized the terms of a legal prenuptial agreement that stated the spouse had no interest in the farming operation.

Response:

Prenuptial agreements containing evidence indicating that a spouse does not have an interest in the acreage farmed by the applicant or policyholder during the course of the marriage can be used for the purpose of the definition. However, most prenuptial agreements involve the disposition of property after the dissolution of the marriage. They do not specify how such property will be utilized during the course of the marriage. In such cases, prenuptial agreements cannot be used to determine whether the spouse has an interest in the farming operation. No changes have been made.

Comment:

A commenter stated, as written and contrary to current procedure, only spouses residing in the same household are required to provide SSNs.

Response:

FCIC did not intend the provision to apply only to spouses residing in the same household. Provisions indicating the “same household” have been removed from the definition.

Comment:

A commenter stated that requiring SSNs of anyone who has a substantial beneficial interest in the applicant or insured could make acquiring coverage virtually impossible.

Response:

FCIC has clarified that only the individuals or persons other than individuals that have a substantial beneficial interest in the applicant or insured must report their SSNs. Individuals with an interest in the person with a substantial beneficial interest in the applicant or insured would not have to report their SSNs unless such persons have at least a 10 percent interest in the applicant or insured.

Comment:

A commenter stated the need to clarify how extensive the requirement to collect SSNs is when dealing with corporations as policyholders, bank trusts, Indian trusts, and other entities that do not have spouses or children.

Response:

FCIC agrees clarification is needed and has revised the definition to specify that only the spouses of the individual applicant or insured are required. If the applicant is an individual, then the requirement to report the SSN of the spouse would be applicable. However, if the applicant is an entity other than an individual, then it cannot have a spouse and the requirement to report the spouse's SSN is not applicable. Further, FCIC has clarified that the entities must report their EINs and the individuals who make up that entity whose interest in the applicant or insured, not the entity, is at least 10 percent must report their SSNs. For example, if the applicant is a trust, each beneficiary of the trust with at least a 10 percent interest in the trust must report his or her SSNs. If the applicant is a trust and the beneficiaries of the trust are two partnerships, each of the individuals participating in the partnerships with at least a 10 percent interest in the trust must report his or her SSN.

48. Surrounding Area:

Comment:

Several commenters recommended defining “surrounding area.”

Response:

FCIC added a definition of “area” in the final rule published on June 25, 2003 (68 FR 37697).

49. Summary of Coverage:

Comment:

A commenter stated units are determined by county but it is not clear in the definition of “summary of coverage,” if the contract is by county or multiple counties.

Response:

FCIC has revised the definition of “policy” to clarify that each agricultural commodity in each county constitutes a separate policy.

50. Timely Manner:

Comment:

A commenter recommended defining “timely manner.”

Response:

FCIC has revised certain provisions that reference “timely manner” so that a single common meaning of the term can apply, which refers to occurring within a reasonable amount of time.

51. Verifiable Records:

Comment:

Some commenters recommended defining “verifiable records.”

Response:

Verifiable records must be provided to support the production report that is used to establish the actual production history. The definition of “actual production history” references 7 CFR part 400, subpart G, which contains a definition of “verifiable records.” Therefore, it is not necessary to repeat the definition in the Basic Provisions. No change has been made.

52. Void:

Comment:

A commenter stated the definition of “void” is incomplete because there are other reasons that a policy may be voided. The commenter recommended replacing the proposed definition with: “When the policy is legally considered not to have existed,” or insert a comma after “fraud”, delete “or” and insert “or other justifiable reason” after “misrepresentation.” The commenter also recommended adding a definition of “Voidable.”

Response:

Since no changes to this definition were proposed, no changes were required as a result of conforming amendments, and the public was not provided an opportunity to comment on the recommended change, the recommendation cannot be incorporated in the final rule. No change has been made.

53. Whole Farm Unit:

Several comments were received regarding the definition of “whole farm unit.” The comments are as follows:

Comment:

Several commenters were opposed to the proposed definition of “whole-farm unit” for the following reasons: (a) Adding the phrase “no one crop can exceed 75 percent of the total liability” unnecessarily further complicates an already complex unit determination process; (b) the proposed definition effectively would make a producer growing 80 percent corn and 20 percent beans in a single county ineligible for whole farm unit treatment; (c) adding the “75 percent provision” makes it so eligibility cannot be determined until the acreage reporting date; and (d) the additional requirements will discourage producers from electing the whole-farm unit structure.

Response:

Because a whole farm unit gives the producer a premium discount, it is important to include some limitation so a policyholder will not try to qualify for a whole farm unit discount by planting a negligible amount of another crop. FCIC has determined that the crop mix percentages should be reduced to 10 percent to be consistent with other policies currently available that offer whole farm units, which will allow more producers to qualify. FCIC agrees eligibility for the whole farm unit cannot be determined until the acreage reporting date. This is consistent with the current policy language for all units, which states that units will be reported on the acreage report.

Comment:

A few commenters recommended the following revisions to clarify what happens when a person who elects a whole-farm unit does not qualify for it: (a) Add a sentence to the end of the proposed definition which reads, “If you do not qualify for a whole-farm unit, insurance will be provided on an enterprise unit basis;” (b) Add a sentence to the end of the proposed definition which reads, “If you do not

qualify for a whole-farm unit, we will assign the most similar eligible unit structure;” and (c) Clarify in the definition of “whole farm unit” what unit structure would be applicable when a producer does not qualify for a whole farm unit.

Response:

As proposed, section 34(a)(3)(iii) specifies if the producer does not qualify for the whole farm unit when the acreage is reported the basic unit structure will be assigned. There may be instances where producers would not qualify for enterprise units. Further, it would be impossible to determine what is the most similar unit since each different crop may have different shares or qualify for enterprise or optional units. Since the change is included in section 34, it does not need to be included in the definition.

Comment:

Some commenters recommended inserting a hyphen in the term “whole-farm” throughout the policy.

Response:

A hyphen is not necessary to clarify the term or make it more grammatically correct.

Comment:

A commenter asked how, and on what basis, the 75 percent level was determined in the definition of “whole-farm unit.”

Response:

The 75 percent level was revised to 10 percent to ensure consistency among policies that offer whole farm units.

54. Written Agreement:

Comment:

A commenter recommended adding “as submitted and approved by RMA” to the definition of “written agreement.”

Response:

FCIC has revised section 18 to specify that written agreements are approved by FCIC because only FCIC has the authority under the Act to offer written agreements.

Comment:

A few commenters stated the terms “policy,” “crop policy,” and “crop” are used inconsistently in section 2 and throughout the Basic Provisions.

Response:

FCIC has revised the Basic Provisions to change the references of “crop policy” to “policy” in each section it appears and has clarified the definition of “policy” to make it clear that each separate agricultural commodity insured under the Basic Provisions is considered as a separate policy.

Identity Collection Information—Section 2(b)

Many comments were received regarding the requirement in section 2(b)(1) to collect social security numbers for everyone with a substantial beneficial interest in the applicant. The comments received are as follows:

Comment:

A few commenters believe the proposed provisions which require social security numbers be collected for all persons with a beneficial interest, is another overreaching provision that requests the corporate veil to be pierced and requires insurance providers and agents to go back to all policyholders to obtain this information. Most producers question the purpose of collecting this information, and who will use the information. They are also concerned as to whether the insurance providers and agents will be held responsible for the accuracy of this information. Insurance providers and agents have no means of determining if the Social Security information is correct, or if all persons with a “beneficial interest” have been accounted for.

Response:

The requirement to provide SSNs of persons with a SBI in the applicant or insured is in the current provisions and this requirement remains. The requirement is necessary to prevent a person who is ineligible from receiving crop insurance benefits by simply becoming a part of an entity using a different identification number. Therefore, the SSNs will be used by FCIC and insurance providers to determine eligibility. It is the producer's responsibility to provide the correct information to the insurance provider. If the correct information is not reported for each person with a substantial beneficial interest, the penalties specified for failure to provide the SSN will apply.

Comment:

A commenter stated spouses and children's social security numbers are now required since the definition of substantial beneficial interest has been revised. They stated it is extremely hard to police or verify and this will increase workload for insurance providers. They asked whether FCIC considered and ruled out the possibility of merely requiring the names of family members. Their chief concern with the proposal is with how it will be implemented.

Response:

As previously stated, the requirement to collect children's SSNs has been removed. The amount of work required to obtain spouse's SSNs should not increase since this is already a program requirement and the policy provisions are only being clarified in this regard. FCIC did not consider only collecting the names of family members because many persons have the same name and tracking ineligibility in this manner would not be possible.

Comment:

A commenter suggested referencing “spouse, landlord, tenant, corporation/partnership members, etc.” when referring to “individuals with a substantial beneficial interest in the applicant.” They also stated this provision will likely lead to a number of major systems problems.

Response:

The proposed provisions in section 2(b)(1) (now section 2(b)) have been clarified to specify that any person with a substantial beneficial interest in the applicant must provide a SSN, which includes individuals and entities. Since SSNs and EINs must already be reported, FCIC is unsure of how this requirement will cause major systems problems.

Comment:

Several commenters stated the proposed language “* * * the application will not be accepted * * *” suggests that discovery of ineligibility or missing SBI information must take place before the first-year application is actually accepted. If it is intended to apply to discovery any time during the initial year, better wording might be “* * * the policy will be void and not considered to have been in effect * * *” or “* * * the application will be considered not to have been accepted * * *” Another commenter stated it is not practical to expect the verification process to be complete prior to acceptance of the application.

Response:

FCIC has revised the provision to specify that if the applicants SSN or EIN is not on the application, the application is not acceptable. With respect to the SSN or EIN of persons with a substantial beneficial interest who are eligible for insurance, failure to provide such SSN or EIN on the application will result in reducing coverage consistent with that person's interest in the applicant. If the person with the substantial beneficial interest is not eligible for insurance, the policy will be void and no payments will be due under such policy. If premium has been previously paid, the premium will be returned, less an amount to reimburse the insurance providers for their administrative costs already incurred. In those cases where the premium has not been paid, it would be too administratively difficult to determine whether the insurance providers have incurred the costs and to collect the portion of the premium owed. Therefore, if the premium has not been paid, the producer will not be required to pay the portion of the premium to reimburse the insurance providers for administrative costs they may have incurred.

Many comments were received regarding the requirement in section 2(b)(2) to collect social security numbers for everyone with a substantial beneficial interest in the applicant. The comments received are as follows:

Comment:

Many commenters stated it is unclear if a corporation having a 10

percent interest in an applicant or insured would have to provide SSNs for everyone in the corporation. The commenters indicated that if this is the case, the provision would be very difficult to administer. Many commenters stated the provisions will require huge numbers of SSNs to be collected and provided examples in which thousands of individuals would be required to submit SSNs. A few commenters suggested only the individuals with a 10 percent or greater interest in a privately held entity be required to report their SSNs. Many commenters stated the proposed provisions would make the entire corporation and thousands of shareholders ineligible even if only one of the shareholders were actually ineligible. The same concerns were provided with regard to corporate trustees, partnerships, Indian tribes and other types of insureds. These commenters stated that this aspect of the proposal either should be narrowed and clarified or not be adopted. Several commenters stated the proposed policy provision will create an untenable situation with respect to large farming organizations with numerous shareholders, and it will be difficult in many situations to determine if all shareholders have been accounted for. Commenters further stated that FSA documentation that identifies shareholders often does not coincide with the information contained in the corporate charter, and it is unclear how a conflict should be resolved and how far a insurance provider must go to verify that the information reported is accurate.

Response:

FCIC has revised the provision to only require those persons with a 10 percent or more interest in the applicant to report their EIN or SSNs, as applicable. This means that individuals who are part of corporations or other legal entities with a substantial beneficial interest in the applicant must only report their SSN if the individual has at least a 10 percent interest in the applicant. This will eliminate large corporations with many shareholders from having to provide each shareholder's SSN to the applicant. FCIC has also revised the provision to clarify that individuals must provide their SSNs and persons other than individuals must provide an EIN.

Comment:

Many commenters stated the provision creates a second layer of social security number collection and verification. Some of these commenters raised questions regarding privacy issues and the legality of requiring individuals with interests in a corporation to provide SSNs as this appears to pierce the corporate veil and limited liability protection provided by corporate law. A commenter further stated the following: the law recognizes corporations as independent, legal entities that have duties and rights different than the duties and rights of the shareholders. The law restricts the conditions upon which the corporate form may be disregarded because corporations, and to a lesser degree partnerships, often are formed to keep separate the liability of the entity from that of the persons that own the entity. If a corporation has a substantial beneficial interest in an insured and, as a result, the corporations incur liability either to them or FCIC, that liability may not taint the corporation's shareholders. The corporation's liability does not de jute result in liability for the corporation's shareholders, and unless they or FCIC satisfy the state law standards for piercing the corporate veil, the shareholders will not incur any liability. Corporate law notwithstanding, nothing in the Act, even as amended by ARPA, authorizes the changes set forth in section 2(b)(2). Specifically, the Act authorizes FCIC to collect the name only “of each individual that holds or acquires a substantial beneficial interest in the insured.” 7 U.S.C. 1506 (m)(3). The Act is concerned with only the top two rungs of potential liability, not the third. In sum, requiring them to collect the name and SSN of each person that has an interest in the individual that has a substantial beneficial interest in an insured or applicant adds another level of bureaucratic busy-work and expense that runs afoul of the law of corporations and that is not authorized by the Act or ARPA.

Response:

The purpose of collecting SSNs is not to pierce the corporate veil, affect the corporate structure or for the purposes of assessing liability. The purpose of such a collection is only to identify all the persons who are obtaining benefits under the Federal crop insurance program to ensure that such persons are eligible. Only reporting the names of persons with a substantial beneficial interest in the applicant would not have any meaning because there are many persons with the same name. Further, if only the EINs of entities were collected, many producers could form entities for the express purpose of hiding ineligibility. Interpreting the Act in this manner would thwart the purpose of the Act and render the language in section 506(m) of the Act ineffective. Therefore, to effectuate the purpose of the Act, FCIC has interpreted section 506(m) of the Act to allow for the collection of SSNs and EINs from all persons with a substantial beneficial interest.

Comment:

A commenter stated references to “social security numbers” should include “or employer identification numbers” as well.

Response:

FCIC has revised the provisions accordingly.

Comment:

A commenter stated the term “entity” is not a defined term.

Response:

The reference to entity has been removed from this final rule.

Comment:

Several commenters stated it is unclear who is responsible for discovery and what assistance will be provided in that discovery process. They thought this section would penalize those that do not, as a matter of practice, abuse the system. Some commenters asked how an agent or insurance provider is supposed to know if an entity is omitted, who is responsible for the verification of the required information and when the verification process must be completed, if the insurance provider must undertake its own independent investigation in each instance, and who would incur the additional cost.

Response:

The only responsibility of the agent or insurance provider is to explain the requirements of section 2(b) to the policyholder. No independent investigation is required. It is the policyholder's responsibility to obtain and report all the required information. In this final rule, FCIC has reduced the burden on policyholders to report this information. Further, this is not an issue of abuse. This is an issue of being able to identify all persons who are receiving benefits from the Federal crop insurance program. The reporting of such information is the only effective way of accurately identifying such persons.

Comment:

A commenter stated the new provision would require applications to be re-designed to routinely request information regarding relevant business and family arrangements. They further recommend that producers be required to sign new contracts with bold type or a larger font to draw attention to the new requirement.

Response:

Applications do not need to be redesigned because they already request the SSN or EINs from persons with a substantial beneficial interest. FCIC has revised the provisions to require policyholders to update their applications if the persons with a substantial beneficial interest have changed or where all the applicable information was not provided on a previous application. It is the responsibility of the insurance provider

and agent to explain this requirement to the policyholder.

Many comments were received regarding the sanctions provisions in proposed section 2(b)(3). The comments received are as follows:

Comment:

Many commenters stated the proposed penalty in this section was too harsh. Some of the commenters asked why the penalty is the same for those who are eligible and inadvertently omit a SSN and those who are ineligible and intentionally omit a SSN. Others thought it inappropriate to deny insurance for an entire entity when only a small share of the entity failed to provide a SSN, particularly when the small share is eligible for insurance. Additional commenters stated that the penalties should apply only to those who willfully or intentionally violate the requirement. These commenters agreed that if persons with substantial beneficial interests are omitted, and it is determined that the missing person is ineligible, then denying benefits to the insured entity is appropriate, but that denying benefits for simply omitting an SSN appears harsh. Another commenter stated that this surely is not the legislative intent and it should not be the regulatory result. Another of these commenters stated it would seem that if a SSN is left off the application and it is determined that the person omitted is not ineligible, there would not be any harm in correcting the SBI information.

Response:

FCIC agrees the proposed sanction is too harsh for those who omit a SSN and are eligible to receive insurance benefits. The provisions have been amended to only reduce the insured share by the percentage interest of the person who did not provide the SSN when such person would otherwise be eligible for insurance. It would be impossible to administer the provisions if the consequences were only applied if the omission was willful and intentional because it is difficult to prove willful or intentional. FCIC does not agree there is no harm in adding SSNs that are inadvertently left off the application. If allowed, it would reduce the incentive to initially properly identify all required persons with substantial beneficial interests.

Comment:

Some commenters stated the proposed provision is grossly unfair to absentee landlords, passive shareholders in farming corporations, persons who have given powers of attorney regarding crop insurance to tenants or insurance agents and others who reasonably rely on the active farm operators to do what is necessary to insure their interest in the crop. These commenters further stated that it is grossly unfair to insurance providers who have no reasonable means of ascertaining or verifying either the existence of significant business interests or the social security numbers provided by producers and agents, yet are put at risk by this section of the proposal of losing administrative and operating reimbursement and being unable to recover indemnity payments they could not have known were inappropriate under the proposal's standard.

Response:

As stated above, the burden is on the policyholder to correctly report the required information. FCIC has reduced the risk to insurance providers by allowing insurance for the persons with substantial beneficial interests that did provide SSNs, provided any other person whose interest in the applicant was not reported was eligible for insurance. However, as with all overpayments, insurance providers are at risk that they will not be able to collect the overpaid amount. While FCIC attempts to mitigate the effects on the insurance provider, there is no way to eliminate the effects. The use of specific consequences is one way to provide an incentive for policyholders to comply with program requirements. It is not unfair to absentee landlords, passive shareholders, or persons who have given powers of attorney, who rely on the operator to insure their share. Such landlords, passive shareholders, or persons who have given powers of attorney have expressly given permission for their share to be insured and should be held to the same standards as the policyholder with respect to the requirement to provide the applicable SSNs or EINs. If they have a substantial beneficial interest, they should provide the applicable information to the operator.

Comment:

Some commenters recommended denial of coverage apply only to those persons who knew or reasonably should have known of the requirement and failed to comply. These commenters further stated that insurance providers who implement and consistently follow realistic and responsible measures to obtain required information also should not suffer adverse consequences if those measures are defeated by those intent upon program abuse or fraud.

Response:

All policyholders are legally presumed to know the terms and conditions of insurance. Further, it would be difficult for insurance providers to determine which persons “knew or reasonably should have known” of the requirement. No change has been made.

Comment:

Some commenters stated the proposed section has no temporal element and provided the following example: If the existence of a 10 percent silent partner is first discovered years after the loss is paid, the provision requires the insurance provider to reimburse FCIC for the paid loss in the initial and all subsequent years, and the severe penalties would apply to the insured even though several years may have passed. Other commenters stated it would be reasonable to provide notice of deficiencies and a chance to correct applications in the first two crop years the requirement is enforced, unless there is evidence of willful or intentional deception. An additional commenter stated it is unclear whether the insured is required to repay an indemnity if an overlooked SSN is subsequently discovered.

Response:

Consequences that were in effect prior to the effective date of this final rule would apply to any instance of noncompliance in those prior years. The provisions contained in this final rule are only effective for violations that occur after its effective date. Further, after the effective date of this final rule, all policyholders are presumed to know of the requirement and, therefore, there is no basis for a two year period to allow for corrections. FCIC has revised the provision to require that policyholders that currently may not be in compliance amend their applications to provide the required information. In addition, this requirement is consistent with compliance findings. In many cases such investigations occur years after the crop year is over. In those cases, if non-compliance is discovered, appropriate adjustments must be made for the crop year in which the error occurred. FCIC has revised the provision to state that if an indemnity has been paid, the indemnity will be adjusted and the overpaid amounts must be repaid.

Comment:

Several commenters stated no premium should be due when no indemnity is paid. One of these commenters asked how they could charge an insured a premium if an insured is deemed ineligible. The commenter further stated that if a private insurance provider tried this scheme, they would be flooded with lawsuits.

Response:

FCIC is not requiring premiums be paid when the policy is voided. However, consistent with other administrative regulations, in certain cases, FCIC is simply requiring the policyholder to reimburse the insurance provider for the administrative expenses associated with the policy. Such amounts are not considered premium payments.

Comment:

Several commenters stated this provision is harsh because the

insured or applicant is penalized for the actions of others not subject to or under his/her control. Current procedure that reduces the share by the amount of the ineligible person's interest is fair.

Response:

The policyholder has the ability to choose with whom it does business. Therefore, it is fair to require the policyholder to obtain the compliance of those persons with whom it elects to do business. However, as stated above, in certain circumstances, the policy will allow the share insured to be reduced instead of the denial of all indemnities. FCIC has revised the policy to provide that the share can be reduced by the interest of an ineligible person as long as the required information is included on the application.

Comment:

A commenter stated many things are unclear regarding the 20 percent premium amount and asked if the 20 percent applies to the gross premium or farmer-paid premium, and what it will be based on if no acreage report is filed. The commenter stated that this penalty is inconsistent with other penalties in the proposed changes because the insured is required to pay 20 percent of the premium, but not the administrative fee, and elsewhere in the policy no indemnity is due and 100 percent of the premium is charged (section 21(e)(2), for example) and the administrative fee presumably is still due since it is not mentioned. The commenter further stated there does not appear to be any explanation or logical reasons for these differences. It also appears that the only penalty on CAT policies is no claim payment, as CAT policyholders do not pay premium, and this paragraph states that no administrative fee will be due. A commenter asked if the 20 percent “penalty” is not paid for a CAT policy, should the insurance provider report the entity as a debtor to the Ineligible Tracking System. Another commenter asked if the insurance provider keeps the 20 percent penalty since they have done the work on the policy.

Response:

The provision has been revised to clarify that it is based on the farmer paid portion of the premium. Further, FCIC has clarified that the 20 percent only applies to the premium if the premium has already been paid. If no acreage report has been filed, no premium can be paid. FCIC has revised the provisions to make them consistent within the Basic Provisions to the extent practicable. Further, the sanction for additional coverage policies has been made consistent with other administrative regulations published at 7 CFR chapter IV. In addition, since producers do not pay a premium for CAT coverage, the 20 percent sanction would not be applicable to them. However, they will still have their coverage reduced. FCIC recognizes that this results in disparate treatment but there is no basis to charge CAT producers a premium or allow administrative fees to be used to provide reimbursement for administrative costs. Sections 508(b)(5)(D) and 508(e)(2)(A) of the Act, respectively, specifically preclude the use of CAT fees to reimburse the insurance providers and required FCIC to subsidize 100 percent of the premium. With respect to buy-up policies, the insurance providers will be permitted to retain the 20 percent of the farmer paid premium.

Comment:

A commenter stated that investigation, enforcement, and implementation present significant issues, and one is whether individuals (those with any interest in an entity with an SBI in the insured) are placed on the Ineligible Tracking System.

Response:

If the issue is the failure or incorrect reporting of the individual's SSN, then the Ineligible Tracking System is not applicable because such persons would not be considered ineligible unless separate grounds exist. However, if the issue involves indebtedness or other basis for ineligibility, individuals with an interest in a person with a substantial beneficial interest in the applicant will not be placed on the Ineligible Tracking System unless it is currently permitted under the ineligibility regulations or grounds exist to pierce the corporate veil or other entity structure.

Comment:

A commenter stated “no indemnity” should be more explicit in either including or excluding replant and prevented planting payments, and that confusion could be eliminated with a definition of “indemnity.”

Response:

FCIC agrees with the commenter and has clarified that no indemnity, prevented planting payment, or replanting payment can be made.

Comment:

Some commenters stated this provision would seem to indicate that all instances of not reporting a SSN are deliberate.

Response:

The provisions are not based on whether or not the failure to provide SSNs is deliberate. Applicants are required to provide this information and it would be difficult for insurance providers to determine those instances in which omission of the SSN was deliberate. Therefore, the provisions are written to address the consequences of not providing the SSNs and do not depend on the insurance providers determination of whether or not the omission was deliberate.

Delinquent Debts—Proposed Section 2(e) and Redesignated Section 2(f)

Many comments were received regarding the sanctions provisions in proposed section 2(e). The comments received are as follows:

Comment:

A commenter recommended clarifying what “eligibility may be affected” means. Another commenter stated the second sentence refers to “benefits under USDA programs” and that it should be “crop insurance and other USDA programs.” Also, “may affect” is a far cry from the former “you will be determined to be ineligible.”

Response:

FCIC has moved certain provisions that were in section 2(e) and created a new section 2(f) for clarification, readability, and to address many of the following comments. FCIC has revised the provision to clarify that failure to make payment when it is due will make the policyholder ineligible for crop insurance. However, with respect to other USDA programs, it would be up to the agency that administers the particular program to determine whether ineligibility for crop insurance affects the eligibility for their applicable program. For this reason, FCIC can only state that eligibility may be affected.

Comment:

A commenter stated they believe the policy should not be terminated if a claim is pending because farmers who have suffered losses due to natural disasters may be extremely strapped for cash for farm operating and family living expenses until they receive their crop insurance indemnity payment, and they should not be penalized if payment is delayed or the disaster arrives shortly before a premium is due.

Res

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