General Administrative Regulations; Ineligibility for Programs Under the Federal Crop Insurance Act

DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400

RIN 0563-AB01

General Administrative Regulations; Ineligibility for Programs

Under the Federal Crop Insurance Act

AGENCY: Federal Crop Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The regulations contained in this subpart are issued pursuant

to the Federal Crop Insurance Act, as amended (7 U.S.C. 1501 et seq.)

to prescribe the procedures for determining eligibility for program

participation in any program administered under the Federal Crop

Insurance Act, as amended, and administering and maintaining an

ineligible tracking system. In addition, this rule sets out the

criteria for reinstatement of program eligibility.

EFFECTIVE DATE: September 4, 1997.

FOR FURTHER INFORMATION CONTACT: Bill Smith, Supervisory Insurance

Management Specialist, Research and Development, Product Development

Division, Federal Crop Insurance Corporation, United States Department

of Agriculture, 9435 Holmes Road, Kansas City, MO 64131, telephone

(816) 926-7743.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be significant for the purposes of

Executive Order 12866, and, therefore, 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 address listed above. In summary, the

analysis finds that the expected benefits of this action outweigh the

cost to society. By allowing the efficient tracking of ineligible

individuals, the Federal government will be able to collect about $6

million annually in debts owed by crop insurance policyholders. No

additional burden on policyholders will result through implementation

of the tracking system. Information previously provided by

policyholders and required to obtain benefits under the Federal crop

insurance program will be used to establish and administer the tracking

system. The tracking system will cause an additional burden for crop

insurance companies for reporting and retrieving information to and

from the tracking system, creating new data processing requirements.

This burden is estimated to be $250,000 for the first year and $50,000

annually thereafter. Federal costs for developing and maintaining the

data processing systems and administrative processes for the tracking

system are estimated to be $20,000 for the first year and $10,000

annually for future years.

Paperwork Reduction Act of 1995

Following publication of the proposed rule, the public was afforded

60 days to submit written comments on information collection

requirements under OMB number 0563-0047, through November 30, 1999. No

public comments were received.

Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public

Law 104-4, 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

mandate (under the regulatory provisions of Title II of the UMRA) for

State, local, and tribal governments or the private sector. Thus, this

rule is not subject to the requirements of sections 202 and 205 of the

UMRA.

Executive Order 12612

It has been determined under section 6(a) of Executive Order 12612,

Federalism, that this rule does not have sufficient Federalism

implications to warrant the preparation of a Federalism Assessment. The

policies and procedures contained in this rule will not have a

substantial direct effect on States or their political subdivisions, or

on the distribution of power and responsibilities among the various

levels of government.

Regulatory Flexibility Act

This regulation will not have a significant impact on a substantial

number of small entities. The amount of work required of insurance

companies should not increase because the information used to determine

eligibility is already maintained at their office. The amount of work

required of insurance companies may actually be reduced because

verification with FCIC of a producer's compliance with the controlled

substance regulations, currently done manually, will be automated.

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

The final rule has been reviewed in accordance with Executive Order

12988. The provisions of this rule will preempt State and local laws to

the extent such State and local laws are inconsistent herewith. The

administrative appeal provisions published at 7 CFR part 11 must be

exhausted before action for judicial review may be brought.

Environmental Evaluation

This action is not expected to have any 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

On Thursday, October 31, 1996, FCIC published a proposed rule in

the Federal Register at 61 FR 56151-56155

[[Page 42038]]

to issue General Administrative Regulations (7 CFR part 400, subpart U)

effective for the 1998 crop year (1999 for Texas and Arizona/California

Production Citrus) and succeeding crop years. Following publication of

that proposed rule, the public was afforded 60 days to submit written

comments, data, and opinions. A total of 62 comments were received from

the crop insurance industry, Farm Service Agency, and FCIC. The

comments received, and FCIC responses, are as follows:

Comment: Two comments received from the crop insurance industry

questioned where provisions are to be found for the administration of

the Ineligible Tracking System.

Response: Provisions for the administration of the Ineligible

Tracking System will be contained in FCIC procedures and will be issued

when the Ineligible Tracking System is activated.

Comment: One comment received from the crop insurance industry

asked if the Ineligible Tracking System would be part of the existing

Policyholder Tracking System or a separate tracking system.

Response: The Ineligible Tracking System's purpose requires it to

be separate from the Policyholder Tracking System. The Policyholder

Tracking System is basically used for informational inquiries to FCIC's

data systems containing insurance experience and related information

for individual insureds. The Ineligible Tracking System's primary

purpose is the validation of a person's eligibility to receive

insurance program benefits based on records submitted by insurance

providers and to accept or reject the person for insurance purposes

based on that eligibility determination.

Comment: One comment received from the crop insurance industry

suggested the reference to ``makes a significant contribution''

contained in the definition of actively engaged in farming, was too

broad and subjective, difficult to prove, and would work to

disadvantage of insurance provider and program.

Response: FCIC agrees and will change the definition from ``a

significant contribution'' to ``a contribution,'' to avoid subjective

determinations associated with ``significant.''

Comment: One comment received from the crop insurance industry

questioned if the definition of authorized person should include past

as well as current individuals associated with FCIC or an insurance

provider, since a former relationship would no longer require access to

the Ineligible Tracking System.

Response: An individual could be involved in judicial or

administrative proceedings after they have left the employment of FCIC

or the insurance provider and require access to protected information.

For this reason, the definition must provide access for both current

and past contractors, employees, or other types of individual or

business associations. Therefore, no change will be made.

Comment: One comment received from the crop insurance industry

questioned if under the definition of controlled substances, drug

related convictions not related to ``planting and harvesting''

prohibited drug producing plants would be a cause for ineligibility.

Response: The violation of controlled substance provisions under

this subpart is limited to the planting, harvesting, and storing of

prohibited drug producing plants. Violations related to the sale or

distribution of an illegal drug, for example, would not be covered

under this definition unless the person was also convicted of growing

the plants from which the drug was processed.

Comment: Two comments received from FCIC stated that the spelling

of the species names for marijuana and opium poppies is incorrect.

Response: FCIC agrees and will correct the spelling.

Comment: Two comments received from the crop insurance industry

concerning the definition of debt questioned if an ``appropriate agency

official'' would only apply to FCIC and if so the rule should specify

position/title. Would the determination be made without regard to the

appeal process, the judicial system, NAD, or the Board of Contract

Appeals process.

Response: The appropriate agency official will be an employee of

the Risk Management Agency. However, FCIC believes that designating the

responsible official in this subpart unnecessarily restricts

administrative decisions of the agency. FCIC will clarify the

definition of debt by stating any determination of debt by an agency

official will be based on evidence provided by the insurance provider.

Any determination will be subject to review, reconsideration, appeal,

judicial process, or other actions in accordance with applicable

regulations governing such matters.

Comment: Three comments received from the Farm Service Agency and

crop insurance industry recommended that administrative fees under the

catastrophic risk protection (CAT) program be specifically excluded

under the definition of debt and that the reference to ``ACT'' be

changed to ``Act''.

Response: FCIC agrees and will amend the definition accordingly.

Comment: One comment received from the crop insurance industry

questioned if the insured is responsible for repayment of an overpaid

indemnity and does the reason for an overpayment affect the insured's

responsibility to make repayment.

Response: An overpayment is included under the definition of debt.

If a determination of debt is made, the insured is responsible for

repayment, whether the overpayment arose from an indemnity or replant

payment and irrespective of the cause of the overpayment.

Comment: One comment received requested FCIC describe the time

frame in which it must determine that a debt is delinquent.

Response: The crop insurance policy and 7 CFR part 400, subpart K

provides the procedure and time frames for determining when a debt is

delinquent.

Comment: One comment received from the crop insurance industry

suggested that if scheduled installment payment agreement is entered

into after termination date, insurance coverage is automatically

reinstated even though the policy had been terminated because, ``The

debt is not considered delinquent.'' (For example, the debt is not paid

for 1996 crop year and the policy is terminated for the 1997 crop year;

a payment agreement is set up after the termination date; insurance

coverage is reinstated for the 1997 crop year).

Response: Once the policy has been terminated for failure to pay a

debt, the policy remains terminated for the entire crop year,

regardless of whether the producer subsequently pays the debt or enters

into an installment payment plan. Reinstatement of eligibility simply

means that the producer may apply for, and receive, insurance for the

next crop year. It does not mean reinstatement of the policy. The

corporation cannot be placed in the position of having to reinstate a

policy after a loss has occurred.

Comment: One comment received from the crop insurance industry

stated that the definition of delinquent debt did not adequately

address bankruptcy and establish that a premium unpaid on the

termination date is a prefiling debt under the Chapter 12 umbrella and

is not a delinquent debt. Unless clarified, there would be uncertainty

about the eligibility status for insurance coverage for persons under

these circumstances and after discharge of applicable debts under

bankruptcy proceedings.

Response: The definition of delinquent debt states that such debt

[[Page 42039]]

does not include debts discharged in bankruptcy and other debts which

are legally barred from collection. If a premium unpaid on the

termination date is considered a debt meeting either condition, it

cannot be considered in making a determination of ineligibility. It is

also clear, that any debt discharged in bankruptcy proceedings is not a

delinquent debt and will not limit a p erson's eligibility under this

subpart. Therefore, no change will be made.

Comment: One comment received from the crop insurance industry

recommended the definition of insurance provider be changed by

replacing ``private insurance company approved by FCIC'' with

``reinsured company approved by FCIC.''

Response: FCIC has amended the definition to specify ``A reinsured

company.''

Comment: One comment received from the crop insurance industry

questioned if, under the definitions of scheduled installment payment

agreement and settlement, FCIC would enter into an agreement or

settlement with a person with a crop insurance policy with a reinsured

company.

Response: FCIC will only enter installment payment agreements with

persons with policies directly insured by FCIC. Where the insurance

provider is a reinsured company, the agreements will be between the

reinsured company and its insureds.

Comment: One comment received from the crop insurance industry

recommended the definition of substantial beneficial interest be

changed by replacing ``Any person having'' with ``An interest of at

least ten percent.'' As currently written, the interest is defined as

person instead of an amount of interest.

Response: FCIC agrees and will clarify the definition.

Comment: One comment received from the crop insurance industry

recommended specific language be added to Sec. 400.678 that would make

the Ineligible Tracking System apply to any program developed privately

and reinsured by FCIC.

Response: FCIC agrees and will revise Sec. 400.678 to add paragraph

(c) which will clearly state that privately developed products

reinsured by FCIC are subject to this subpart.

Comment: One comment received from the crop insurance industry

recommended eliminating the second sentence that is contained in

paragraphs (a), (b), and (c) of Sec. 400.679 or consolidating it with

the opening sentence of the section. Also, the respondent suggested

that the sentence, ``Delinquent debts are limited to those that arise

from crop insurance programs administered by FCIC under the Act''

contained in paragraph (a) be moved and combined with the definition of

delinquent debt.

Response: FCIC does not believe the suggested changes in

Sec. 400.679 (a), (b), and (c) improve the structure or clarity of the

subpart. Therefore, no changes will be made. FCIC agrees that the

requirement that delinquent debts arise under the Act be included in

the definition of ``delinquent debt'' and has amended the provision

accordingly.

Comment: One comment received from the crop insurance industry

suggested that ``A person * * *'' contained in the opening sentence of

the section be changed to ``Any person * * *''; references to ``* * *

all programs * * *'' be changed to ``* * * any program * * *''; and the

plural case for `` their'' in the next to the last sentence of

paragraph (c) be corrected.

Response: FCIC agrees and will amend the section accordingly.

Comment: One comment received from the crop insurance industry

questioned if a person indebted to FCIC or an approved insurance

provider disputes the debt and can ``demonstrate that the amount of

debt is in dispute, the person's application will be accepted or their

insurance will remain in effect but no indemnity will be made until the

dispute is resolved.'' Will there be similar language in the proposed

rule if the debt delinquency is disputed by the producer or insured.

Response: The provision stated above is contained in 7 CFR part

400, subpart R. FCIC has amended Sec. 400.679 paragraph (a) to

reference subpart R to ensure consistency between the subparts.

Comment: One comment received from the Farm Service Agency stated

that 7 CFR part 796 referenced in Sec. 400.679(b) has been replaced by

7 CFR part 718.

Response: FCIC agrees and will amend the section accordingly.

Comment: One comment received from the crop insurance industry

suggested that Sec. 400.680 entitled ``Determinations of

ineligibility'' should be changed to Notification of ineligibility.

Response: FCIC will change the section's title to ``Determination

and notification of ineligibility.''

Comment: One comment received from the crop insurance industry

questioned if this subpart would apply to all delinquent debts and

violations or only those which occur after the effective date of this

subpart.

Response: This subpart applies to all delinquent debts and

violations that occur after the effective date of this subpart. If this

subpart is made effective in the middle of a crop year for a crop,

those persons with delinquent debts or violations will be ineligible

effective for the next crop year. For persons affected by a delinquent

debt or violation that arose prior to the effective date of this

subpart, the insurance provider must follow all procedures outlined in

this subpart before such persons may be placed on the ineligible list.

Comment: Three comments received from the crop insurance industry

asked that the term ``evidence'' be defined and the title or office to

which ineligibility evidence is submitted be listed in Sec. 400.680.

Response: FCIC will develop and issue procedures which describe the

evidence requirements and provides other information and instructions

necessary to administer this subpart.

Comment: One comment received from the crop insurance industry

asked does the failure to make installment payments in accordance with

a scheduled installment payment agreement have the potential of causing

the individual to become ineligible.

Response: The failure to pay installments under an approved payment

agreement will result in a determination of ineligibility for the

person in accordance with the terms of the agreement. The insurance

provider must notify FCIC of the person's payment default in order for

this determination to be made.

Comment: Two comments received from the crop insurance industry

suggested that this section does not make it clear that FCIC is solely

responsible for placing the policyholders name on the Ineligible

Tracking System because of a delinquent debt and that the reinsured

company should be protected from state law in such determinations.

Response: FCIC is not solely responsible. It is the insurance

provider's responsibility to ensure that the policyholder meets the

criteria for placement on the Ineligible Tracking System and provide

sufficient information to support its determination. FCIC's

responsibility is to verify the information submitted supports that the

criteria have been met and issue a Notice of Ineligibility. FCIC is

only responsible for the determinations involving persons insured

through local Farm Service Agency offices.

Comment: One comment received from the Farm Service Agency

questioned whether the Notice of Ineligibility will specify the crop

year

[[Page 42040]]

(or reinsurance year) for which the person is determined ineligible.

Response: The notice will specify the crop year ineligibility will

become effective and the terms, if applicable.

Comment: Two comments received from FCIC and the crop insurance

industry concerned whether an insurance provider will receive a copy of

the Notice of Ineligibility, inquired if the debtor appealed the

ineligibility determination would the company be notified, and

recommended that copies of all notices be provided to the insurance

provider.

Response: When the insurance provider submits evidence of

ineligibility and upon verification of the evidence, FCIC will send the

Notice of Ineligibility to the policyholder and the insurance provider.

Section 400.680 will be amended to include the insurance provider for

notification purposes. With respect to notices of appeal, producers

will only be able to challenge the placement on the ineligibility list

under this subpart. If the reason for placement on the list is debt to

a reinsured company, the company will be notified of the appeal hearing

and may be given the opportunity to participate if permitted by 7 CFR

part 11.

Comment: One comment received from the crop insurance industry

questioned how a determination of ineligibility would be affected if

the person does not receive a Notice of Ineligibility and whether any

responsibility for such failure would be borne by the insurance

provider.

Response: FCIC will implement a notification process employing

reasonable steps to assure notification of affected persons, including

documentation of those efforts. However, receipt of the notice by the

person cannot be guaranteed and is not required in order to enforce a

determination of ineligibility. Insurance providers are not responsible

or accountable for successfully notifying persons under this subpart

unless they did not provide accurate name and address information to

FCIC which was available to them.

Comment: One comment received from the crop insurance industry

suggested that Sec. 400.680 incorrectly states that reconsideration of

a determination of ineligibility will be made to the reinsured company.

It also suggests that the 30-day period to request a reconsideration or

file an appeal was inconsistent with time allowed under the regulation

for disputed determinations.

Response: FCIC agrees that any appeal of a determination of

ineligibility should not be made to the reinsured company. Only appeals

related to whether the person is correctly identified as ineligible

will be accepted. Any challenge to the existence or amount of the debt

must be appealed under the terms of the policy or 7 CFR part 400,

subpart K.

Comment: One comment received from the crop insurance industry

recommended the term ``provider of insurance'' used to identify the

party to which reconsiderations are submitted be changed to ``insurance

provider.''

Response: FCIC will correct this section to state that appeals will

be submitted to the National Appeals Division.

Comment: One comment received from the crop insurance industry

stated that conflicts exist between the reconsideration and appeals

provisions under this subpart and applicable provisions contained in 7

CFR part 400, subpart J and part 780. Also determinations made by

reinsured companies are erroneously subject to reconsideration and

appeal provisions of this subpart.

Response: This subpart specifies that all appeals are governed by 7

CFR part 11. Therefore, the requirements of subpart J and part 780 are

not applicable. Therefore, no conflict exists.

Comment: One comment received from the crop insurance industry

suggested that the National Appeals Division (NAD) notify the reinsured

company of appeal proceedings so that it could participate and asked

what the effect to the company will be if the debt is overturned.

Response: Only the listing on the ineligible list is appealable to

NAD under this subpart, not the underlying debt. However, the company

will be given notice of the appeal and may be given an opportunity to

participate if permitted by 7 CFR part 11.

Comment: One comment received from the Farm Service Agency asked

how individuals insured under provisions contained in the CAT

endorsement for tobacco and undivided interest landowners would be

affected under this subpart if the named insured for such policies did

not pay the premium.

Response: There is no premium for CAT. If the administrative fee is

not paid by the acreage reporting date, the policy terminates for the

crop year for which the fee is not paid. Eligibility for the following

year is not affected.

Comment: Two comments received from the crop insurance industry

stated that removing the ineligible person from a policy and reducing

the policyholder share as provided in Sec. 400.681(a) (3) and (4) will

result in entities creating false share arrangements. A recommendation

to determine the corporation or other business entity ineligible based

on the ineligibility of one of the individual members was made.

Response: Removing an ineligible person from the policy will not

create false share arrangements. The share of the ineligible person is

simply not insurable and all other shares remain the same. Therefore,

no changes will be made.

Comment: One comment received from the crop insurance industry

asked when must the declared overpayment referenced in

Sec. 400.681(a)(5) be paid.

Response: The crop insurance policy states that an overpayment is

considered a delinquent debt if not paid within 30 days of the date a

notice is issued to the insured. Once the debt is determined

delinquent, all provisions of the policy related to its repayment

apply.

Comment: Two comments received from the crop insurance industry

suggested that Sec. 400.681(a)(6) provides that a portion of the

premium should be retained to cover administrative costs rather than

refund the entire premium.

Response: FCIC agrees that retention of a portion of the producer

paid premium by the insurance provider to cover administrative costs is

consistent with 7 CFR 400.47 and will amend the provision accordingly.

Comment: One comment received from the crop insurance industry

expressed concern under Sec. 400.681(b)(1) that the spouse had to have

a separate farming operation prior to marriage to maintain it

separately for purposes of ineligibility was contrary to existing FCIC

procedure and would be impractical to verify.

Response: FCIC agrees that it is not necessary that the spouse have

had a separate farming operation prior to marriage since there are many

instances where the spouses legitimately maintain separate farming

operations. Insurance providers will still be required to verify that

the farming operations are legitimately separate. The provision is also

created to clarify that transfer of a farming operation from one spouse

to another is not considered a separate farming operation

Comment: One comment received from the crop insurance industry

recommended section 400.681(c), which describes a minor, be added to

Sec. 400.677 Definitions.

Response: FCIC agrees and will amend the provision accordingly.

Further, FCIC will revise the definition to allow persons who are under

18 years of age but have been emancipated by the courts, not to be

considered a minor.

[[Page 42041]]

Comment: One comment received from the crop insurance industry

recommended that Sec. 400.681 (d) and (e) be combined and the word

``devise'' in paragraph (e)(2) be changed to ``device.''

Response: FCIC agrees and will amend the section accordingly.

Comment: One comment received from the crop insurance industry

questioned the distinction between ``adopting a material scheme or

device'' and ``fraud or misrepresentation'' contained in

Sec. 400.681(e)(2) and (3), and does the insurance provider decide the

period of time for disqualification.

Response: FCIC has removed the references to scheme and device from

this subpart since the penalty for such device is ineligibility to

receive benefits only for the crop year in which the abuse occurred. It

does not affect future eligibility. These provisions will now be

treated under disqualifications under section 506(n) of the Act which

encompasses fraud, misrepresentation, and scheme and device. FCIC will

determine the length of disqualifications through the administrative

process.

Comment: One comment received from the crop insurance industry

objected to the different periods of ineligibility between a CAT

policyholder and a policyholder with limited or additional coverage

provided under section 400.681 (e) (3).

Response: The periods of ineligibility are specified in Act and 7

CFR part 400, subpart R. Therefore, no change will be made.

Comment: One comment received from the crop insurance industry

stated the ``scheduled installment payment agreements'' between private

insurance provider and policyholder as referenced in the definition of

``delinquent debt'' are presently not reported to FCIC and asked

whether payment agreements need to be reported to FCIC.

Response: If a person is listed in the Ineligible Tracking System

due to a delinquent debt, notification will be required if the person

enters into a payment agreement in order for the person's name to be

removed from the system and eligibility for insurance coverage

reinstated. If the person fails to perform under the agreement, the

reinsured company will have to notify FCIC in order for ineligibility

to be reinstated. No notification to FCIC is required if the payment

agreement is approved by the company by the termination date.

Comment: One comment received from the crop insurance industry

pointed out under Sec. 400.682 that the second sentence of paragraph

(a) refers to ``reinstated'' while the second sentence of paragraph (c)

refers to ``restored'' and that the first sentence of each paragraph

could be shortened. Also, the use of the words ``may have'' in the

opening sentence of this section and paragraph (c) versus ``will be''

in paragraphs (a) and (b) as related to reinstating eligibility was

questioned.

Response: FCIC will change ``restored'' to ``reinstated'' and

``will be'' to ``may be.'' The latter change will eliminate any

possible conflict in reinstating eligibility for the person if more

than one criteria for ineligibility applies.

Comment: One comment received from the crop insurance industry

stated the timing of reinstatement of insurance coverage is a critical

issue and suggested procedures be developed to allow a person to obtain

immediate coverage even after the applicable sales closing date.

Response: Section 400.682 (d) states that if eligibility is

reinstated after the applicable sales closing date for the crop year,

insurance coverage can not be obtained until the following crop year.

The purpose of this provision is to encourage insureds to pay their

debt and prevent the payment of a debt only when the insured suspects a

loss is likely. Policies will only be reinstated effective at the

beginning of the crop year if the producer prevails on appeal.

Therefore, no change will be made.

Comment: Two comments received from the crop insurance industry

stated that Sec. 400.682 (d) and (e) could be combined, perhaps in

reverse order.

Response: FCIC agrees and will combine paragraph (e) with paragraph

(d).

Comment: One comment received from the crop insurance industry

concerned whether all substantial beneficial interest information

currently collected by insurance providers will have to be transmitted

to FCIC in establishing the Ineligible Tracking System.

Response: The insurance providers will submit all substantial

beneficial interest information to FCIC to establish a tracking system

capable of properly identifying persons who are ineligible to

participate in the crop insurance program.

Comment: One comment received from the crop insurance industry

questioned if FCIC is going to track the dates of conviction for

controlled substance provision and fraud and misrepresentation

violations and for purposes of determining future eligibility.

Response: The date of conviction and future date of eligibility

will be entered into the Ineligible Tracking System and when the period

of ineligibility has expired, the person's name will be removed from

the system's active ineligibility records.

Comment: One comment received from the Farm Service Agency stated

that, ``In case of controlled substance violations, FSA would notify

FCIC of our determination and FCIC would notify FSA of determinations

by reinsured companies, if applicable.''

Response: FCIC agrees and will develop procedures to facilitate the

interagency notification of controlled substance violators.

Comment: Two comments received from the crop insurance industry

recommended that references to ``private companies'' contained in

Sec. 400.683(a) (2) and (3) be replaced with ``insurance provider.''

Response: Since the Farm Service Agency is encompassed by ``Federal

agencies,'' FCIC will amend paragraphs (a) (2) and (3) to use the term

``reinsured company.

Comment: One comment received from the crop insurance industry

questioned whether the information contained in the Ineligible Tracking

System would be available to others outside of the crop insurance

program.

Response: Section 400.683 (a) (2) states that information contained

in the system may be furnished to users, both for purposes of

administering programs under the Act and for other purposes determined

appropriate or required by law or regulation. The release, use, and

protection of such information will be in accordance with these and

other appropriate laws and regulations.

Comment: One comment received from the crop insurance industry

concerned what is considered ``supporting documentation'' that will be

maintained by FCIC for affected persons under Sec. 400.683 (a) (3).

Response: Paragraph (a) (3) provides that supporting documentation

regarding a determination of ineligibility may be maintained by FCIC,

FSA, reinsured companies, or others. Such information will be described

in procedures developed by FCIC and issued to insurance providers and

will indicate the parties responsible for maintaining such

documentation.

In addition to the changes described above, FCIC has made the

following changes to this subpart:

1. Changed the effective year for this subpart to 1998 crop year

(1999 for Texas and Arizona and California Production Citrus).

2. Section 400.677. Add a definition of ``CAT'' and ``minor'' for

clarification. Amend definition of ``insurance provider'' to refer to a

``reinsured company'' instead of a ``private

[[Page 42042]]

insurance company reinsured by FCIC'' to avoid the redundancy with the

definition of ``reinsured company.''

3. Revise Sec. 400.681 to add a new subsection (a) to clarify when

the period of ineligibility commences and combine it with subsection

(d) to clarify the term of ineligibility. Redesignate the other

subsections accordingly.

List of Subjects in 7 CFR Part 400

Administrative practice and procedure, Claims, Crop insurance;

Fraud, Reporting and recordkeeping requirements.

Accordingly, as set forth in the preamble, the Federal Crop

Insurance Corporation adds a new subpart U to 7 CFR part 400, to read

as follows:

PART 400--GENERAL ADMINISTRATIVE REGULATIONS

Subpart U--Ineligibility for Programs Under the Federal Crop

Insurance Act

Sec.

400.675 Purpose.

400.676 OMB control numbers.

400.677 Definitions.

400.678 Applicability.

400.679 Criteria for ineligibility.

400.680 Determination and notification of ineligibility.

400.681 Effect of ineligibility.

400.682 Criteria for reinstatement of eligibility.

400.683 Administration and maintenance.

Authority: 7 U.S.C. 1506(1), 1506(p).

Sec. 400.675 Purpose.

This rule prescribes conditions under which a person may be

determined to be ineligible to participate in any program administered

by FCIC under the Federal Crop Insurance Act, as amended. This rule

also establishes the criteria for reinstatement of eligibility.

Sec. 400.676 OMB control numbers.

The collecting of information requirements in this subpart has been

approved by the Office of Management and Budget and assigned OMB

control number 0563-0047.

Sec. 400.677 Definitions.

Act. The Federal Crop Insurance Act, as amended (7 U.S.C. 1501 et

seq.).

Actively engaged in farming. Means a person who, in return for a

share of profits and losses, makes a contribution to the production of

an insurable crop in the form of capital, equipment, land, personal

labor, or personal management.

Applicant. A person who has submitted an application for crop

insurance coverage under the Act.

Authorized person. Any current or past officer, employee, elected

official, general agent, agent, contractor, or loss adjuster of FCIC,

the insurance provider, or any other government agency whose duties

require access to the Ineligible Tracking System to administer the Act.

CAT. The catastrophic risk protection plan of insurance.

Controlled substance. Any prohibited drug-producing plants

including, but not limited to, cacti of the genus (lophophora), coca

bushes (erythroxylum coca), marijuana (cannabis sativa), opium poppies

(papaver somniferum), and other drug-producing plants, the planting and

harvesting of which is prohibited by Federal or state law.

Debt. An amount of money which has been determined by an

appropriate agency official to be owed, by any person, to FCIC or an

insurance provider under any program administered under the Act based

on evidence submitted by the insurance provider. The debt may have

arisen from an overpayment, premium non-payment, interest, penalties,

or other causes but does not include non-payment of CAT coverage

administrative fees.

Debtor. A person who owes a debt and that debt is delinquent.

Delinquent debt. Any debt owed to FCIC or the insurance provider,

that arises under any program administered under the authority of the

Act, that has not been paid by the termination date specified in the

applicable contract of insurance, or other due date for payment

contained in any other agreement or notification of indebtedness, or

any overdue debt owed to FCIC or the insurance provider which is the

subject of a scheduled installment payment agreement which the debtor

has failed to satisfy under the terms of such agreement. Such debt may

include any accrued interest, penalty, and administrative charges for

which demand for repayment has been made, or unpaid premium including

any accrued interest, penalty and administrative charges (7 CFR

400.116). A delinquent debt does not include debts discharged in

bankruptcy and other debts which are legally barred from collection.

EIN. An Employer Identification Number as required under section

6109 of the Internal Revenue Code of 1986.

FCIC. The Federal Crop Insurance Corporation, a wholly owned

government corporation within the United States Department of

Agriculture.

FSA. The Farm Service Agency or a successor agency.

Ineligible person. A person who is denied participation in any

program administered by FCIC under the Act.

Insurance provider. A reinsured company or FSA providing crop

insurance coverage to producers participating in any Federal crop

insurance program administered under the Act.

Minor. Any person under 18 years of age. Court proceedings

conferring majority on an individual under 18 years of age will result

in such persons no longer being considered as a minor.

Person. An individual, partnership, association, corporation,

estate, trust, or other legal entity, and wherever applicable, a State,

political subdivision, or an agency of a State.

Policyholder. An applicant whose properly completed application for

insurance under the crop insurance program has been accepted by FCIC or

an insurance provider.

Reinsurance agreement. An agreement between two parties by which an

insurer cedes to a reinsurer certain liabilities arising from the

insurer's sale of insurance policies.

Reinsured company. A private insurance company having a Standard

Reinsurance Agreement, or other reinsurance agreement, with FCIC, whose

crop insurance policies are approved and reinsured by FCIC.

Scheduled installment payment agreement. An agreement between a

person and FCIC or the insurance provider to satisfy financial

obligations of the person under conditions which modify the terms of

the original debt.

Settlement. An agreement between a person and FCIC or the insurance

provider to resolve a dispute arising from a debt or other

administrative determination.

SSN. An individual's Social Security Number as required under

section 6109 of the Internal Revenue Code of 1986.

Standard Reinsurance Agreement (SRA). The primary reinsurance

agreement between the reinsured company and FCIC.

Substantial beneficial interest. An interest held by any person of

at least 10 percent or more in the applicant or policyholder.

System of records. Records established and maintained by FCIC and

FSA containing SSN or EIN data, name, address, city and State,

applicable policy numbers, and other information related to Federal

crop programs as required by FCIC, from which information is retrieved

by a personal identifier including the SSN, EIN, name, or other unique

identifier of a person.

Sec. 400.678 Applicability.

This subpart applies to any program administered by FCIC under the

Act, including:

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(a) The catastrophic risk protection plan of insurance;

(b) The limited and additional coverage plans of insurance as

authorized under sections 508(c) and 508(m) of the Act; and

(c) Private insurance products authorized under section 508(h) of

the Act and reinsured by FCIC.

Sec. 400.679 Criteria for ineligibility.

Any person may be determined to be ineligible to participate in any

program administered by FCIC under the authority of the Act, if the

person meets one or more of the following criteria:

(a) Has a delinquent debt on a crop insurance policy, issued or

reinsured by FCIC, or any delinquent debt due FCIC under the Act. Any

person with a delinquent debt owed to FCIC or to the insurance provider

shall be ineligible to participate in any program administered under

the authority of the Act. Such determinations will be in accordance

with 7 CFR 400.459. The existence and delinquency of the debt must be

verifiable.

(b) Has violated the controlled substance (7 CFR part 718)

provisions of the Food Security Act of 1985, as amended. Any person who

violates the controlled substance provisions of the Food Security Act

of 1985, as amended, shall be ineligible to participate in any program

administered under the Act.

(c) Has been disqualified under section 506(n) of the Act and 7 CFR

part 400, subpart R. Any person who is disqualified in any

administrative proceeding shall be ineligible to participate in any

program administered under the Act. Ineligibility determinations

resulting from administrative proceedings will not be stayed pending

review. However, reversal of the determination will date back to the

time of determination.

Sec. 400.680 Determination and notification of ineligibility.

(a) The insurance provider must send a written notice of the debt

to the person, including the time frame in which the debt must be paid,

and provide the person with a meaningful opportunity to contest the

amount or existence of the debt. After the insurance provider has

evaluated the person's response, if any, and determined that the debt

is owed and delinquent, the insurance provider should submit the

documentation establishing the existence and amount of the debt to

FCIC, including any response by the person.

(b) If an insurance provider or any other authorized person has

evidence that a person meets any other criteria set forth in

Sec. 400.679, they must submit the evidence to FCIC.

(c) After FCIC verifies that the person has met one or more of the

criteria stated in Sec. 400.679, FCIC will issue a Notice of

Ineligibility and mail such notice to the person's last known address

and to the insurance provider.

(d) The Notice of Ineligibility will state the criteria upon which

the determination of ineligibility has been based, a brief statement of

the facts to support the determination, the time period of

ineligibility, and the persons right to an appeal of the ineligibility

determination.

(e) Within 30 days of receiving the Notice of Ineligibility, any

person receiving such a notice may appeal the determination of

ineligibility to the National Appeals Division in accordance with 7 CFR

part 11.

(f) If the person appeals the determination of ineligibility to the

National Appeals Division, the insurance provider will be notified and

provided with an opportunity to participate in the proceeding if

permitted by 7 CFR part 11.

Sec. 400.681 Effect of ineligibility.

(a) The period of ineligibility will be effective:

(1) For ineligibility as a result of a delinquent debt, the date

the debt has been determined to be delinquent until the debt has been

paid in full, discharged in bankruptcy, or the person has executed a

scheduled installment payment agreement;

(2) For ineligibility as a result of a violation of the controlled

substance provisions of the Food Security Act of 1985, at the beginning

of the crop year in which the producer was convicted and the four

subsequent consecutive crop years; and

(3) For ineligibility as a result of a disqualification under

section 506(n) of the Act, the date that the Administrative Law Judge

signs the order disqualifying the person until the period specified in

the order of disqualification has expired.

(b) Once the person has been determined to be ineligible:

(1) All policies in which the ineligible person is the sole insured

will be void for the period specified in Sec. 400.681(a);

(2) If the ineligible person is a general partnership, all partners

will be individually ineligible and any policy in which a partner has a

100 percent interest will be void for the period specified in

Sec. 400.681(a). The partnership and all partners will be removed from

any policy in which they have a substantial beneficial interest, and

the policyholder share under the policies will be reduced commensurate

with the ineligible person's share;

(3) If the applicant or policyholder is a corporation, partnership,

or other business entity, and an ineligible person has a substantial

beneficial interest in the applicant or policyholder, the application

may be accepted or existing policies remain in effect, although the

ineligible person will be removed from the policies and the

policyholder share under the policies will be reduced commensurate with

the ineligible person's share;

(4) If the applicant or policyholder is a corporation, partnership,

or other business entity that was created to conceal the interest of a

person in the farming operation or to evade the ineligibility

determination of a person with a substantial beneficial interest in the

applicant or policyholder, the corporation, partnership or other

business entity will be disregarded, the individual shareholders or

partners will be personally responsible, and any shareholder or partner

that is ineligible will be removed from the policy and the policyholder

share under the policies will be reduced commensurate with the

ineligible person's share;

(5) Any indemnities or payments made on a voided policy, or on the

portion of the policy reduced because of ineligibility, will be

declared overpayments and must be repaid; and

(6) If the policy is voided, all producer paid premiums may be

refunded, or if an ineligible person is removed from a policy, the

portion of the producer paid premium commensurate with the ineligible

person's share may be refunded, less a reasonable amount for expense

and handling in accordance with 7 CFR 400.47.

(c) The spouse and minor children of an individual are considered

to be the same as the individual for purposes of this subpart except

that:

(1) The spouse who was actively engaged in farming in a separate

farming operation will be a separate person with respect to that

separate farming operation so long as that operation remains separate

and distinct from any farming operation conducted by the other spouse

(Transfers of interest in a farming operation from one spouse to

another will not be considered as a separate farming operation.);

(2) A minor child who is actively engaged in farming in a separate

farming operation will be a separate person with respect to that

separate farming operation if:

(i) The parent or other entity in which the parent has a

substantial beneficial interest does not have any interest in the

[[Page 42044]]

minor's separate farming operation or in any production from such

operation;

(ii) The minor has established and maintains a separate household

from the parent;

(iii) The minor personally carries out the farming activities with

respect to the minor's farming operation; and

(iv) The minor establishes separate accounting and record keeping

for the minor's farming operation.

Sec. 400.682 Criteria for reinstatement of eligibility.

A person who has been determined ineligible may have eligibility

reinstated as follows:

(a) A delinquent debt owed on a crop insurance policy insured or

reinsured by FCIC or any delinquent debt due FCIC. Eligibility may be

reinstated after the debt is paid in full or discharged in bankruptcy,

or the person has executed a scheduled installment payment agreement

accepted by FCIC or the insurance provider. Eligibility may be

reinstated as of the date the debt is paid, the date the agreement is

accepted, or the date the debt is discharged in bankruptcy.

(b) Violations of the controlled substance provisions of the Food

Security Act of 1985, as amended. Eligibility may be reinstated after

the period of ineligibility stated in Sec. 400.681 has expired.

(c) Disqualification under section 506(n) of the Act. Eligibility

may be reinstated when the period of disqualification determined in the

administrative proceedings has expired and payment of all penalties and

overpayments have been completed.

(d) Timing of reinstatement of eligibility. After eligibility has

been reinstated, the person must complete a new application for crop

insurance coverage on or before the applicable sales closing date. If

the date of reinstatement of eligibility occurs after the applicable

sales closing date for the crop year, the person may not participate

until the following crop year. If the National Appeals Division

determines that the person should not have been placed on the

Ineligible Tracking System, reinstatement will be effective at the

beginning of the crop year for which the producer was listed on the

Ineligible Tracking System and the person will be entitled to all

applicable benefits under the policy.

Sec. 400.683 Administration and maintenance.

(a) Ineligible producer data will be maintained in a system of

records in accordance with the Privacy Act, 5 U.S.C. 552a.

(1) The Ineligible Tracking System is a record of all persons who

have been determined to be ineligible for participation in any program

pursuant to this subpart. This system contains identifying information

of the ineligible person including, but not limited to, name, address,

telephone number, SSN or EIN, reason for ineligibility, and time period

for ineligibility.

(2) Information in the Ineligible Tracking System may be used by

Federal agencies, FCIC employees, contractors, and reinsured companies

and their personnel who require such information in the performance of

their duties in connection with any program administered under the Act.

The information may be furnished to other users including, but not

limited to, FCIC contracted agencies; credit reporting agencies and

collection agencies; in response to judicial orders in the course of

litigation; and other users as may be appropriate or required by law or

regulation. The individual information will be made available in the

form of various reports and notices produced from the Ineligible

Tracking System, based on valid requests.

(3) Supporting documentation regarding the determination of

ineligibility and reinstatement of eligibility will be maintained by

FCIC and FSA, or its contractors, reinsured companies, and Federal and

State agencies. This documentation will be maintained consistent with

the electronic information contained within the Ineligible Tracking

System.

(b) Information may be entered into the Ineligible Tracking System

by FCIC or FSA personnel.

(c) All persons applying for or renewing crop insurance contracts

issued or reinsured by FCIC will be subject to validation of their

eligibility status against the Ineligible Tracking System. Applications

or benefits approved and accepted are considered approved or accepted

subject to review of eligibility status in accordance with this

subpart.

Signed in Washington, D.C., July 30, 1997.

Kenneth D. Ackerman,

Manager, Federal Crop Insurance Corporation.

[FR Doc. 97-20503 Filed 8-4-97; 8:45 am]

BILLING CODE 3410-08-U