Common Crop Insurance Regulations; Basic Provisions; and Various Crop Insurance Provisions

SUMMARY: The Federal Crop Insurance Corporation (FCIC) amends the

Common Crop Insurance Regulations to delete the late and prevented

planting provisions currently contained in many Crop Provisions,

incorporate revised late and prevented planting provisions into the

Common Crop Insurance Policy Basic Provisions, and add definitions and

provisions that are common to most crops. The intended effect of this

action is to provide policy changes that meet the needs of the insured,

are easier to administer, and to delete repetitive provisions contained

in various Crop Provisions.

EFFECTIVE DATE: This rule is effective December 4, 1997.

FOR FURTHER INFORMATION CONTACT: Louise Narber, 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)

926-7730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

The Office of Management and Budget (OMB) has determined this rule

to be significant, and therefore, this rule has been reviewed by OMB.

Paperwork Reduction Act of 1995

Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3507),

those collections of information have been approved by the Office of

Management and Budget (OMB) under control number 0563-0053.

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 the rule makes several major changes in the

implementation of prevented planting provisions. Specifically, the

rule: (1) Eliminates substitute crop benefits, largely to reduce the

likelihood of fraud; (2) increases prevented planting for cover crop or

black dirt situations, providing better protection to producers who are

truly unable to plant a crop for harvest; and (3) simplifies the

payment method by making payments on an acre-by-acre basis in all cover

crop and black dirt situations. These provisions are designed to

improve the protection provided to producers in adverse prevented

planting situations, and simplify program operation.

Since this rule is expected to be implemented in an actuarially

sound manner, there are no associated excess losses that will be

incurred by the Federal government in the aggregate. Two provisions--

the increase in coverage in black dirt and cover crop situations

provision and the ``separate payment'' provision--are expected to

result in an increase in indemnities and an increase in rates. The

elimination of substitute crop provisions will result in reduced

indemnities, and a rate decrease in the aggregate. The net effect of

these changes is likely to be small in terms of the rate impact, and

will vary according to crop and geographical location. As a result of

the small expected average rate impact, any changes in reimbursements

to private companies for delivery or any underwriting gains are

expected to be minimal. The amendments made to these regulations will

simplify program operations, benefit producers, FCIC, and reinsured

companies, and conform with the Federal Crop Insurance Act.

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

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

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

provisions 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 economic impact on a

substantial number of small entities. New provisions included in this

rule will not impact small entities to a greater extent than large

entities. The amount of work required of insurance companies will not

increase because the information to determine eligibility is already

maintained in their office and the other required information is

already being collected under the present policy. No additional actions

are required as a result of this rule on the part of the producer or

the insurance companies. 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 retroactive effect. 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 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.

National Performance Review

This regulatory action is being taken as part of the National

Performance Review Initiative to eliminate unnecessary or duplicative

regulations and improve those that remain in force.

Background

On Tuesday, August 12, 1997, FCIC published a proposed rule in the

Federal Register at 62 FR 43236 to

[[Page 65131]]

amend the Common Crop Insurance Regulations, Basic Provisions (Basic

Provisions) (7 CFR part 457) and the Crop Provisions (7 CFR

Secs. 457.101-457.157) effective for the: (1) 1998 and succeeding crop

years for wheat, barley and oats in counties with a December 31

contract change date; flax, cotton, ELS cotton, sunflowers, and sugar

beets in counties with a November 30 contract change date; and corn,

grain sorghum, soybeans, raisins, fresh market tomatoes (guaranteed

production plan), rice and dry beans; (2) 1999 and succeeding crop

years for wheat, barley and oats in counties with a June 30 contract

change date; rye, Texas citrus tree, Florida citrus fruit, sugar beets

in counties with an April 30 contract change date; and figs, pears,

nursery, sugarcane, forage production, walnuts, almonds, safflowers,

fresh market sweet corn, macadamia trees, cranberry, onion, grapes,

fresh market tomatoes (dollar plan), fresh market peppers, forage

seeding, peaches and plums; and (3) 2000 and succeeding crop years for

Texas citrus fruit, Arizona-California citrus, and macadamia nuts. This

rule deletes the late and prevented planting provisions, certain

definitions and other provisions that are applicable to most crops and

are currently contained in the Crop Provisions and incorporates these

definitions and provisions into the Basic Provisions to better meet the

needs of the insured.

Following publication of the proposed rule, the public was afforded

30 days to submit written comments and opinions. Comments were received

from an insurance service organization, reinsured companies, farm

organizations, a crop insurance agent, national commodity groups, state

commodity groups, a regional commodity group, a congressional office,

and legal counsel for reinsured companies. The comments and FCIC's

responses are as follows:

Comment: Legal counsel for a reinsured company and an insurance

service organization stated that thirty days was not sufficient time to

review and comment on the proposed rule. One comment urged FCIC to

leave the comment period open for another 90 days to allow additional

time for analysis, testing, further comment, and the promulgation of

needed procedures.

However, a reinsured company urged implementation of these

provisions for the 1998 crop year. The commenter stated that the

revised language for prevented planting coverage is a major step in the

right direction. Many hours have been spent in developing these

provisions and the commenter strongly supports approval of the changes.

The changes bring simplicity to what has been a very complicated

coverage.

Farm organizations supported efforts to expedite these changes by

using a 30-day comment period. There should be adequate time for agent

training and producer education prior to policy sign-up for spring

planted crops. One of the problems with prevented planting coverage in

the past has been the lack of understanding by producers of their

coverage.

Response: Based on the number of comments received, FCIC believes

that for most crops 30 days provided an adequate comment period.

However, due to the number of comments received regarding the prevented

planting percent for cotton and ELS cotton, this rule will be made

effective for these two crops for the 1998 crop year only. FCIC will

solicit additional comments regarding prevented planting coverage

levels for these crops for the 1999 and succeeding crop years in a

future rule. The proposed changes are necessary for the simplification

of the program and any extension of the comment period would result in

a delay in the implementation of this rule until the 1999 crop year. To

best meet the needs of producers the revised coverage should be

implemented for spring planted crops in 1998.

Comment: An insurance service organization felt that the amount of

time stated in the preamble under the Paperwork Reduction Act for the

completion of an acreage report is underestimated since all farm data,

including APH and unit arrangement, must be incorporated into the

process.

Response: FCIC had to estimate the amount of time needed to

complete each form. The average time needed to complete each form

represents an average of producers with only one crop and one unit,

larger operations with several crops and units, and producers who

insure a crop but do not plant (which would generate a zero acreage

report and only a yield descriptor on the APH form, etc.). The average

time stated for all forms is as accurate as is possible.

Comment: Reinsured companies and an insurance service organization

questioned the provisions in 7 CFR 457.2. They stated that sections 7

CFR 457.2(b) and (c) specify that FCIC may offer the catastrophic level

of coverage directly to the insured through the local Farm Service

Agency (FSA) offices. They suggested removing this language because,

effective for the 1998 crop year, FSA offices will no longer deliver

crop insurance.

Response: Although the catastrophic risk protection program is no

longer delivered through local FSA offices, the authority for such

delivery still exists. However, FCIC has modified the language to

reflect the decision of the Secretary to only offer coverage through

reinsured companies unless the Secretary determines that the

availability of local agents is not adequate.

Comment: A reinsured company stated that it supported FCIC's

decision to incorporate certain regulations into the Basic Provisions

but cautioned that providing too much detail in the policy could make

it difficult for the producer to understand and may drive producers

away from the crop insurance program. The commenter stated that it is

apparent that FCIC is attempting to provide producers with underwriting

rules and procedures. The commenter believes that the insurance policy

should simply state definitions for clarity and coverages for loss

payments. They stated that insureds do not need to know how to

underwrite a risk, they are the risk. They need to be aware of what the

coverages are, when the premium is due, what constitutes a loss, when

it will be paid, and what must be done in the event of questions. The

commenter stated that section 457.2(b) is unnecessary because it is a

statement of underwriting rules. A producer who has received the crop

insurance policy has already chosen an insurance carrier and has made a

decision regardless of whether FSA can still issue CAT coverage. The

insurance agent should have discussed multiple contract procedures with

the producer prior to completing a crop insurance application. The

commenter further stated that section 457.2(d) determines eligibility

for coverage and is also unnecessary. If the producer received the

policy information, the producer's eligibility has already been

determined. Otherwise the producer would not receive the policy.

Response: The policy must contain the information necessary for the

producer to make informed decisions. Removing as much repetitious

information as possible from each individual crop provision and placing

it in the Basic Provisions will make each individual crop policy

shorter and easier to understand. It will also eliminate any

inadvertent discrepancies that may have existed between such

information that was previously in each individual crop policy but is

now stated only once in the Basic Provisions. The provisions are

regulatory and eligibility and other requirements for participants must

be published where compliance is mandatory. No change has been made.

Comment: Reinsured companies commented on and questioned the

[[Page 65132]]

language in 7 CFR 457.2(d), which states that if more than one contract

exists, all contracts are void unless proven to be inadvertent. If

found to be inadvertent, the contract with the earliest signature date

will be valid and no indemnity or premium will attach to the canceled

contract. The commenters posed these questions. What happens to crop

acres reported on the canceled contract, and what impact do these crop

acres have on the contract determined to be in force. Whether the crop

acres on the canceled contract will be uninsured or will such acres be

added to the contract found to be in force. If the latter, have all

policy conditions regarding filing actual production history and an

acreage report been met. If the contract in force has higher levels of

coverage than the canceled contract, whether the insured owes the

additional premium based on the contract in force. It has been

permissible for a producer of hybrid seed corn who contracts with

different seed corn companies to have more than one insurance contract

for hybrid seed corn. Whether this will be permissible.

Response: The contract in effect will not be impacted by the

canceled contract. When multiple contracts exist and are inadvertent

and without the fault of the insured, all timely reporting done by the

producer (e.g., actual production history reports and acreage reports)

will be considered reported under the active contract. If the active

contract has higher levels of coverage than the canceled contract, the

insured will owe the additional premium based on the active contract.

FCIC has revised the Basic Provisions to allow producers of hybrid seed

corn with more than one contract with different seed companies to

insure the acreage under each contract with a different reinsured

company.

Comment: A reinsured company and an insurance service organization

commented on the language in section 457.8(b). The reinsured company

stated that the provision is not consistent with the Standard

Reinsurance Agreement (SRA) because the SRA does not allow rejection of

applications for insurance by a reinsured company. The commenter also

stated that the phrase ``authorized to sell'' should be defined. The

insurance service organization stated that the first sentence of these

provisions has eliminated the company's prerogative to make

determinations on excessive risk situations by eliminating the words

``or the reinsured company's'' determination that the insurance risk is

excessive. This commenter questioned the effect of the proposed

language since ``direct written'' federal policies are no longer

applicable. The commenter also stated that the reinsured company must

retain some prerogatives in the case of excessive risk. The FCIC should

review possible options such as removing the cap on the Assigned Risk

Fund or other ``escape hatch'' in the event of significant change in

the risk of a large area.

Response: FCIC believes that the authority to sell the policies is

clearly specified in other regulations and agreements, and those

provisions should not be duplicated in this rule. Under sections

508(b)(8) and 508(c)(9) of the Act, only FCIC has the authority to

limit insurance on any farm, county or area as a result of excessive

risk. Information available in the Federal Register informs the public

that applications may not be accepted if FCIC determines that excessive

risk exists. If such a situation were found to exist, no insurance

coverage will be provided. If the reinsured company believes that the

risk is excessive under a policy, it can seek a determination from

FCIC. Provisions regarding referral to agents selling FCIC policies are

no longer applicable and they have been removed.

Comment: An insurance service organization suggested that a

definition be added to include both ``production guarantee'' for APH

crops and ``amount of insurance'' for dollar plan crops. This would

shorten several long sentences that currently refer to these terms.

Response: Adding a term which combines both of the definitions of

``production guarantee'' and ``amount of insurance'' would make the

provisions less clear because three terms would be in use rather than

two. No change has been made.

Comment: An insurance service organization suggested that

``actuarial documents'' be defined instead of ``actuarial table''

because not all information is provided in table format. The commenter

stated that the reference to ``forms'' in the definition suggests that

the application and options are included. The commenter also questioned

why ``prices for computing indemnities'' are specified since prices are

used for premium calculation as well.

Response: FCIC has determined that ``prices for computing

indemnities'' should not be included in this definition since those

prices are now contained in the Special Provisions. Accordingly, the

term ``Actuarial Table'' has been revised to ``actuarial documents''

and the definition of ``actuarial documents'' has been clarified.

Comment: An insurance service organization suggested that the

definition of ``application'' be modified. The commenter stated that

since suspension, debarment and violation of the controlled substance

provisions would result in placement on the ineligibility list, it does

not seem necessary to list these specific causes. The definition as

written suggests that a break in coverage is always the result of some

adverse action.

Response: FCIC has revised the definition to refer to both

cancellation and termination to mitigate any connotation of adverse

action.

Comment: An insurance service organization suggested deleting the

phrase ``made on our form'' from the definition of ``assignment of

indemnity.'' The commenter stated that companies may accept and include

a lienholder without completion of a form entitled assignment of

indemnity. The lienholder's name can be entered on the application,

acreage report, or loss form as ``Loss payable to me and ________.''

Response: Since the Standard Reinsurance Agreement requires that

all forms used by the reinsured company be approved by FCIC, the phrase

``our form'' refers to any form that has been approved by FCIC. The

reinsured company can effectuate an assignment of indemnity through any

form approved for such purpose. Use of an unapproved form by the

reinsured company is prohibited. No change has been made.

Comment: A reinsured company and an insurance service organization

commented on the definition of ``basic unit'' which states'' * * * No

further unit division may be made after the acreage reporting date for

any reason.'' The commenter stated that basic units may be corrected

effective for the current crop year, which could result in more units

than were reported. An insurance service organization suggested that a

brief ``unit'' definition be provided in conjunction with a more

detailed basic and optional unit section for easier reference,

especially since the basic unit definition varies for some crops. The

commenter stated that the phrase ``Units will be determined when the

acreage is reported * * *'' leads to questions and difficulties about

the actual deadline for determining optional units. Qualification for

optional units for APH crops depends on filing production reports to

match those units by the production reporting date, which is now

earlier than the acreage reporting date for many crops. The commenter

suggested rewriting the sentence to read ``Units will be determined

when the acreage is reported (subject to other

[[Page 65133]]

requirements).'' The commenter also questioned if the last two

sentences of the definition should be included in the definition or in

the ``optional unit'' section.

Response: Adding the phrase ``subject to other requirements'' or a

simplified definition of ``unit'' and a detailed section on basic and

optional units would not make these provisions more clear. FCIC has

moved the last two sentences of the definition to the ``Unit Division''

section.

Comment: A reinsured company suggested adding ``for all units of

the insured crop'' at the end of the definition ``claim for

indemnity.'' Often a unit with damage may be harvested earlier than

other units of the crop. It is customary to finalize all loss units at

the same time, so the beginning of the 60-day period should commence

after harvest is completed on all units.

Response: Because individual units may have different end of

insurance period dates (e.g., differing harvest dates, different

calendar dates for the end of the insurance period, prevented planting

acreage, etc.), FCIC does not believe it is in the best interest of the

insured to delay finalization of claims until all units are harvested.

No change has been made.

Comment: An insurance service organization commented on the

definition of ``contract'' which is (See ``policy''). The commenter

stated that the definition of ``contract'' is integral in the language

of the SRA where it is defined. The [current draft] SRA, however, does

not define ``policy.'' The proposed Basic Provisions defines ``policy''

but not ``contract.'' The commenter stated that the terms should be

consistent between both documents.

Response: The definition of ``policy'' and ``contract'' are the

same and are not inconsistent with the provisions in the SRA. The

definition in the SRA is intended to accommodate differences among

reinsured companies in the manner by which a policyholder's interests

are identified. Some reinsured companies issue separate contract

numbers for each county and crop; others include multiple crops and

counties under the same contract number. Since the purpose of the

definitions is not identical, the definitions cannot be identical. No

change has been made.

Comment: An insurance service organization recommended changing the

definition of ``county'' by replacing the word ``the'' at the beginning

of the sentence with the word ``any.'' This would recognize the

possibility of multi-county applications. Multi-county applications,

with adoption of appropriate management procedures, would permit a

policyholder to insure a farm in another county, if it was acquired

after the sales closing date.

Response: The provision has been clarified to recognize that more

than one county may be shown on the application. However, an insured

may not add acreage in another county after the sales closing date

unless such addition results from the transfer of insurance from a

previous insured.

Comment: An insurance service organization questioned why the word

``deductible'' is defined since it is not used in the Basic Provisions.

Response: The word ``deductible'' is used in some Crop Provisions.

It is defined in the Basic Provisions so it will only have to be

defined once. No change has been made.

Comment: Reinsured companies commented on the definition of ``final

planting date.'' The commenters stated that the final planting dates

are too late for some crops and counties, especially with the 25 day

late planting period. The commenters voiced their concern regarding the

impact the late planting provisions will have in extending coverage

beyond a time period that will allow for the normal maturity of the

late planted crop. The commenters also questioned if an effort is being

made to assure that all final planting dates are as accurate as

possible, and if reinsured companies will be involved in that process.

Response: The Basic Provisions contain provisions that are

generally applicable to most crops. If individual crops or areas

require a late planting period shorter than 25 days, it will be

specified in the Crop Provisions or the Special Provisions, which

control the Basic Provisions. FCIC will continue to study and change

final planting dates as necessary and always welcomes comments and

recommendations from all interested parties, including reinsured

companies and producers.

Comment: A reinsured company and an insurance service organization

stated that the definitions of ``FSA'' and ``FSA farm serial number''

should be deleted because there is no need for reliance on FSA

information in the crop insurance program.

Response: The FSA farm serial number is used to qualify for

optional unit division in certain crop policies. Further, FSA

information may be used in the crop insurance program. No change has

been made.

Comment: A reinsured company, an insurance service organization,

and legal counsel for a reinsured company made comments regarding the

definition of ``good farming practices.'' The definition does not

recognize how fact sensitive and cost sensitive good farming practices

are. If the practices ``generally'' used in the county and recognized

by the Extension Service are the ``ideal'' practices or are the

practices geared to the higher yield farms, beginning producers, highly

leveraged producers, or producers of poorer soil will be discriminated

against and, perhaps, ineligible for an indemnity. For example, three

applications of a herbicide may be ideal and may be applied by

producers with a high yield history. Two applications, however, may be

all that a producer with a low yield history or insufficient funds may

be able to afford. For that producer, two applications are a good

farming practice. Whether a producer is a ``good'' producer or a

``bad'' producer may depend on what he or she can afford. The rule must

be amended to accommodate the circumstances of the particular farm and

producer. The reference to ``Cooperative State Research, Education, and

Extension Service,'' should be deleted from the definition of ``good

farming practices'' or the definition must acknowledge that there may

exist acceptable cultural practices that are not necessarily recognized

by the CSREE. A producer using practices that differ from the norm for

the county probably would not be eligible to insure. The practices used

should be compared to those of the area in which the farm is located,

not the county. Perhaps a producer is located in a microclimate within

the county where practices legitimately differ from the county norm.

Response: FCIC recognizes that certain circumstances for particular

farms and producers may differ (e.g. types, varieties, farming

practices, soil types, etc.), and should be considered when determining

if good farming practices were followed. However, the producer's

inability to afford necessary inputs to produce the crop should not be

a consideration in the determination of good farming practices. FCIC

believes that the Cooperative State Research, Education, and Extension

Service (CSREES) recognizes farming practices that are considered

acceptable for producing a crop. If a producer is following practices

not currently recognized as acceptable by the CSREES, there is no

reason why such recognition cannot be sought by interested parties.

Comment: A reinsured company stated that the definition of

``interplanted'' is too restrictive for interplanted perennials such as

almonds and walnuts which are maintained separately and harvested

separately,

[[Page 65134]]

unless such will be acknowledged in the appropriate Crop Provisions.

Response: The definition of ``interplanted'' contained in the Basic

Provisions does not adequately suit perennial crops. Perennial crop

provisions will contain an appropriate definition. No change has been

made.

Comment: A reinsured company suggested adding the word

``initially'' between the words ``acreage'' and ``planted'' in the

definition of ``late planted.''

Response: FCIC agrees with the suggestion and has amended the

definition accordingly.

Comment: A reinsured company, farm organization, a state commodity

group, and an insurance service organization commented on the 25 day

period in the definition of ``late planting period.'' The commenters

state that producers will have more incentive to plant the insured crop

during the late planting period. The 25 day period is consistent with

producer comments expressed during USDA public hearings held last

summer. The commenters support a reduction of 1 percent per acre per

day for the full 25 day late planting period, or a maximum reduction of

25 percent. The phrase ``unless otherwise specified in the Special

Provisions'' should be deleted because it could lead to program

complexity and checkerboard application.

Response: Although FCIC recognizes the need to mitigate program

complexity, removal of the exception for Special Provisions would

remove the flexibility needed to recognize those individual crops or

areas that require a shorter late planting period. No change has been

made.

Comment: A reinsured company questioned if the definition of ``non-

contiguous'' is intended to permit two acreages of the same crop that

are separated by a different crop to qualify for separate optional

units. If so, this may generate a large number of additional optional

units for crops for which ``non-contiguous'' is a criterion for

optional unit division.

Response: The definition of ``non-contiguous'' is not intended to

allow two tracts of the same crop that are only separated by a

different crop to be considered two separate optional units. Units must

be separated by land that the insured person does not own or have an

interest in.

Comment: Legal counsel for a reinsured company stated that the

definition of ``planted acreage'' sets forth requirements that are

inherent in the concept of ``good farming practice.'' This definition

is redundant.

Response: FCIC agrees that some of the information is redundant but

believes that the term should be defined since it is used in the

provisions. No change has been made.

Comment: Reinsured companies, an insurance service organization,

and legal counsel for a reinsured company expressed concern with the

definition of ``practical to replant.'' The commenters asked whether

marketing windows should be a factor in determining whether a crop

should be replanted. They state that the intent of the policy is to

insure yield, not that the crop can be marketed during an optimum

marketing window. They also state this change in the insurance policy

represents a change in long standing public policy. They state that the

Administrative Procedure Act requires FCIC to disclose in detail the

thinking that animated this proposal. FCIC has not done this,

therefore, this definition should be re-proposed for public comment.

The commmenters also expressed concern that marketing windows are

unrelated to losses from natural disaster and FCIC has long opposed

insuring such windows simply because of the opportunity for fraud. The

introduction of lost marketing windows as an insured cause of loss

makes FCIC's policy a ``business interruption'' policy that will

dramatically increase loss ratios and premiums. The commenters were

also concerned moisture availability, marketing window, condition of

the field, and time to crop maturity are all subjective determinations

that add unnecessary complexity to the program. The policy should deem

that it is practical to replant through the late planting period.

Further, the commenters were concerned with the provision that states,

``unavailability of seed or plants will not be considered a valid

reason for failure to replant'' will substantially add to producers'

costs. Often it is possible to replant the insured crop only if a

different, faster growing seed is used. There are often shortages of

such seeds when there is a widespread disaster and those farmers who

can least afford new seed, e.g., beginning producers, will wait until

they are certain the original seed cannot germinate before investing

again in seed. By that time, seed is sometimes unavailable. Clearly, if

it is impossible to replant, it should not be practical to replant by

law. They state that FCIC's rule will require all producers in general,

and beginning producers in particular, to invest in seed that they may

not need. While this may be a boom to seed companies, they are not the

intended beneficiaries of the Act. In addition, the commenters state

that a crop cannot be appraised and released for another use until it

is no longer practical to replant. Making the determination that it is

no longer practical to replant has been problematic since it may be

practical to replant in some regions yet not in others within the late

planting period. They state that policy language has been weak in this

regard and there is no attempt in this rule to strengthen it. They

requested that consideration be given to counting the ``salvage value''

against the insured crop if an insured chooses to plant an alternate or

replacement crop when it is practical to replant the original. Two

possible concerns are that the alternate crop is not an insured crop

and, therefore, the value is difficult to determine, and the alternate

crop is insured with a different company, causing administrative

difficulties. Nevertheless, the approach could put the industry in the

cooperative position of ``staying with the insured'' regardless of the

insured's replanting choice, while limiting exposure to the guarantee

that was originally established.

Response: The Federal Agriculture Improvement and Reform Act of

1996 mandated FCIC to consider marketing windows in determining whether

it is feasible to require planting during a crop year. Therefore, the

change implements statute and does not require detailed justification.

Many factors other than the end of the late planting period enter into

the decision of whether it is practical to replant. The definition of

``practical to replant'' is only applicable to planting acreage to the

originally planted crop. If it is considered practical to replant, the

Crop Provisions may authorize a replanting payment. If the crop is

damaged by an insurable cause of loss, an appraisal will be completed

to see if the crop qualifies for a replanting payment. However, this

appraisal is used solely as a qualifier.

Planting a different crop following the failure of an originally

planted crop is not replanting. If an alternative crop is planted when

it is still practical to replant to the originally planted crop, the

originally planted crop is not insured. No change has been made.

Comment: Several comments were received regarding the definition of

``prevented planting.'' Farm organizations stated strong support for

the new definition, which includes acreage prevented from planting by

the final planting date or by the end of the late planting period due

to any insured cause of loss. Reinsured companies questioned the phrase

``majority of producers in the surrounding area.''

[[Page 65135]]

There will be instances where land characteristics of a few producers

or a single producer prevent planting of the insured crop. Possibly the

phrase ``with similar land characteristics'' should be inserted after

``majority of producers'' to address this situation. The commenters

also suggested that the sentence ``You must have failed to plant * *

*'' be changed to ``You must have been prevented from planting. * * *''

Legal counsel for a reinsured company recommended clarifying the

definition of ``prevented planting'' The definition should make clear

that if a majority of producers did replant but had losses that

exceeded what would have been their claims for prevented planting,

then, indeed, a majority were prevented from planting. The comment also

indicated that the term ``surrounding area'' is confusing. The

commenter believes the term describes the entire area in which the

insured cause occurs, even if it occurs across state lines. Also, the

term ``majority'' was troublesome to the commenter. A reinsured company

has no way of knowing whether a majority of uninsured producers or

another reinsured company's policyholders were prevented from planting.

Suppose an insured lives on a line, north of which all farmers,

numbering 100, were not prevented from planting and south of which all

farmers, numbering 101, were prevented from planting. The commenter

asked whether the definition is satisfied.

Response: The phrase, ``majority of producers'' has been removed.

The definition of ``prevented planting'' has been amended to include

the phrase ``You must have been prevented from planting'' as suggested.

FCIC has also clarified that a crop will be considered to have been

prevented from being planted if most producers are also prevented from

planting on acreage with similar characteristics in the surrounding

area.

Comment: A reinsured company questioned the definition of

``prevented planting, notice of.'' The commenter stated that notice can

be given by telephone but must be confirmed in writing within 15 days.

The commenter asked if it was the intent that multiple notices be given

if the county had multiple final planting dates.

Response: Based on this and other comments, the definition has been

deleted.

Comment: An insurance service organization suggested that the

phrase ``in the actuarial documents'' replace the phrase ``in the

Special Provisions or an addendum thereto'' in the definition of

``price election.'' The commenter stated that the term creates

confusion because it refers variously to the established (or

preliminary) price, a market price, or to the value resulting from

multiplying a percentage chosen by the insured by either of the first

values cited. It would be helpful either to create a new term or to

assure that this term is used consistently in policy and procedure.

Dollar plan crops may have an amount of insurance instead of a ``price

percentage,'' but does ``price election'' apply any better?

Response: Since the price election is an integral part of the

contract, the insured must receive notification of the price election

each year. Insureds receive the Special Provisions each year. They do

not receive the actuarial documents. No change has been made.

Comment: An insurance service organization stated that the words

``replace'' and ``replacing'' in the definition of ``replanting'' can

be read to mean another crop is being substituted for the originally

planted crop.

Response: The definition makes it clear that the land must be

prepared to replace the damaged or destroyed crop. However, FCIC has

clarified that the land must be prepared to replace the insured crop.

Comment: A reinsured company questioned what the phrase ``in

certain instances'' means in the definition of ``representative

sample.''

Response: The phrase is intended to provide the reinsured company

with the discretion to allow the producer to harvest the crop and only

leave samples of the residue. Certain circumstances may be when an area

has widespread comparable losses. No change has been made.

Comment: A reinsured company suggested that the definition of

``state'' be modified to read, ``The state where the crop is grown, as

shown on your accepted application.''

Response: There may be instances in which a crop insured by written

agreement may be under the actuarial documents of a county in a state

other than where it is grown. In this case, the state listed on the

accepted application would be the state from which the actuarial

documents originate. No change has been made.

Comment: A reinsured company suggested including language in the

definition of ``summary of coverage'' that acknowledges that other

names also apply to this document.

Response: The definition of ``summary of coverage'' defines the

term as used in the policy. A form with a different name would be

considered a summary of coverage so long as it meets the criteria

contained in the definition. No change has been made.

Comment: Several comments were received with regard to section

2(b). A reinsured company and an insurance service organization

questioned whether an incomplete application must be rejected, or

whether reinsured companies can allow a short amount of time to obtain

the missing information. The commenters asked about alternatives for

the applicant and the reinsured company if the sales closing date has

passed before the omission is discovered. An insurance service

organization questioned whether companies have the authority to alter

the named insured by deleting any part that is incomplete, as implied

in the second sentence. The commenter asked whether this provision

could be in procedure rather than the policy. Legal counsel for a

reinsured company asked if the next to the last sentence in section

2(b) should indicate that coverage will be reduced by ``that person's

share'' rather than to ``that person's share?'' Also, in the last

sentence of the same section, the commenter asked whether the

``person'' refusing to supply a tax identification number is the same

person or a different person than the ``entity'' to whom insurance will

not be available.

Response: The intent of the section 2(b) is to advise the applicant

that all required information must be provided and that the social

security number or the employer identification number, as appropriate,

for all persons having a substantial beneficial interest in the insured

crop always must be included on the application. The application must

be rejected if all necessary information is not provided by the sales

closing date. It is the insured's and agent's responsibility to ensure

that no information is omitted. Reinsured companies will delete those

persons from the application who refuse to provide the necessary

information. The next to last sentence in section 2(b) should indicate

that coverage will be reduced by that person's share. The sentence has

been amended accordingly. The last sentence has been revised to clarify

that if a person refuses to provide identification information,

insurance will not be available for that person and any entity in which

that person has a substantial beneficial interest.

Comment: Several comments were received with regard to section

2(e). An insurance service organization stated that the second sentence

is unclear as to its effect. The commenter stated that, as written, a

person could not be eligible until all payments are made in accordance

with an agreement to pay, a fact that would not be known until the

[[Page 65136]]

last payment is made. If eligibility is intended to be restored once a

payment schedule is established, the phrase should be clarified. Legal

counsel for reinsured companies stated that section 2(e) is illegal,

unenforceable and in conflict with FCIC's own regulations and

procedures. The commenter also stated that unpaid debts alone do not

create ineligibility because the policyholder's name must be placed on

an ineligible list after certain procedural requirements are satisfied

and that list must be given to insurers before the action is effective.

The commenter suggested that FCIC should conform this paragraph to

section 23, 62 Fed. Reg. at 43248, which states that your insurance

policy will be canceled if you are determined, by the appropriate

Agency, to be ineligible by reason of debt. The commenter also

expressed concern that the proposed language is unclear as to which

termination date triggers delinquency, the one contained in the current

year crop policy or the one applicable to next year's crop. The

commenter also stated that the provision fails to state who determines

ineligibility and the exact date ineligibility begins. The policy

language should state whether ineligibility begins on the date the

producer fails to pay the premium by the termination date, the date the

reinsured company notifies the producer of the debt and a meaningful

opportunity to contest the same, after the producer fails to respond to

the written notice by the reinsured company, the date the FCIC verifies

that the person has met the criteria for ineligibility, the date the

FCIC mails notice to the producer's last known address, or the date

that the producer receives notice from the FCIC of ineligibility. The

commenter also stated that the proposed regulation should set forth the

standards, if any, for reinstatement of producer eligibility and for

removal of the producer's name from the ineligible tracking system. The

provisions should clarify whether ineligibility as a result of failure

to timely pay premiums will result in the FCIC voiding all the

producer's policies or only the policy for which the producer is

delinquent in paying premiums. The provisions should clearly state that

the insured is solely responsible for any indemnities or payments made

by the reinsured company on a policy voided by FCIC. The provisions

should state that FCIC expressly pre-empts all claims arising by

placement of the producer's name on the ineligible tracking system.

Response: This provision was intended to allow a producer to become

eligible for insurance once the producer repays the debt, enters into

an agreement for repayment and the payments are timely made, or files a

petition in bankruptcy to discharge the debt. Therefore, the producer

who executes an agreement for repayment is eligible while making

payments. However, if the producer fails to timely make a payment, the

producer is again ineligible and will not become eligible until the

debt is paid in full or the producer files a petition to have the debt

discharged in bankruptcy. The bankruptcy provisions have also been

clarified. Unpaid debts do result in ineligibility in accordance with 7

CFR Sec. 400.459. Section 2(e) relates to eligibility as described in

Sec. 400.459 and also describes when crop insurance policies are

terminated when unpaid debts are overdue. Therefore, the provision is

not illegal, unenforceable or in conflict with the regulations and

procedures. Delinquency of any amount due arises on the termination

date that the amount was due. This is the date that triggers

ineligibility. An example has been added for clarification.

Determinations of ineligibility are made in accordance with 7 CFR part

400, subpart U. Policies can only be reinstated if it is determined

that the termination was in error. If the producer fails to repay any

amount owed by the termination date, the policy is terminated, and the

producer later becomes eligible, the producer must submit a new

application for insurance. FCIC believes that the provisions clearly

indicate that all policies will be terminated in the event a debt is

delinquent for any crop. Each application requires the applicant to

provide information on prior and existing insurance. The reinsured

company has the capacity to verify eligibility, which would result from

these questions. It is possible that under some circumstances a replant

payment or early loss could be paid before the person is made

ineligible and any existing policies voided. For example: The producer

is indebted to company A but currently insured with company B. Company

A is late certifying the producer as ineligible (after the termination

date by 6 months). In the meantime, insurance attaches with company B

and a loss is paid. The policy will be voided and the insured will be

required to repay any amounts paid under the voided contract.

Comment: A reinsured company and an insurance service organization

questioned if section 2(g) should be deleted. The commenter stated that

it should be the company's discretion to terminate a policy if no

premium is earned for 3 consecutive years. This provision is counter to

the concept of enrolling all crops that the producer may grow, at least

at the catastrophic risk protection level.

Response: FCIC has modified the language to state that reinsured

companies may terminate policies that have not earned premium for 3

consecutive years.

Comment: Comments were received with regard to section 3(c). A

reinsured company suggested that these provisions be modified to

facilitate future streamlining of the APH process that has been

discussed, specifically referencing the concept of optional yield

updating. The commenter suggested that the sentences ``If you do not

provide the required production report, we will assign a yield for the

previous crop year'' and ``The yield assigned by us will not be more

than 75 percent of the yield used by us to determine your coverage for

the previous crop year'' be removed from these provisions and put in

the Special Provisions. The commenter also suggested that the first

sentence be modified to read, ``Your production report must be provided

to us by the earlier of the acreage reporting date or 45 days after the

cancellation date.'' The sentence ``Production and acreage for the

prior crop year must be reported for each proposed optional unit by the

production reporting date'' should be modified to allow for added land

and use of another person's records until the acreage reporting date,

which is allowable under the Crop Insurance Handbook. An insurance

service organization suggested clarifying the provisions to specify

that production reports are required for some crops but not for all

crops. Also, consider if the fifth sentence should read ``* * * unless

otherwise specified in the policy'' instead of ``* * * by FCIC.''

Response: There is nothing in these provisions that preclude

streamlining the APH process and since the APH regulations are separate

from this policy, reference to optional yield updating will be more

appropriately located in the APH regulations. Further, since the

consequences of not providing a production report is universal to all

crops requiring production reports and do not vary by county, these

provisions are more appropriately located in the Basic Provisions.

Requirement in the first sentence that the producer provide the

previous year's production should not be removed because if removed, it

could cause confusion. However, FCIC has amended the first sentence by

adding the phrase ``unless otherwise stated in the Special Provisions''

to

[[Page 65137]]

allow for any future changes. FCIC never intended to allow use of

another producer's records in determining optional units and it is only

permitted by the APH regulations and the Crop Insurance Handbook when

such records are from another person who shares in the same acreage.

Since the producer must also share in the acreage, nothing in the

existing provisions preclude this practice. The Crop Provisions will

specify when production reports are not required. Further, in the fifth

sentence, since the requirement that the amount of production used to

determine a claim for indemnity constitutes the production report is

contained in the APH regulations, the requirement can only be modified

by FCIC.

Comment: Commenters questioned if the fifteen days specified in

section 3(e) allowed enough time between announcement of an additional

price election or amount of insurance and the sales closing date. A

reinsured company suggested a minimum of not less than 25 days. An

insurance service organization stated that the proposed rule refers to

``maximum'' and ``additional'' price elections for what are referenced

elsewhere as ``preliminary'' (or ``established'') and ``projected

market'' price elections. It could cause confusion to be able to have a

price higher than the ``maximum'' price election. The commenter

suggested either replacing these terms, or adding them to the

definitions (perhaps as sub-entries under the ``price election''

definition).

Response: Although reinsured companies and producers may not have

much advance notice, an expected market price will be published by the

contract change date. Since contract change dates are usually months

before the sales closing date, this provision simply allows FCIC

additional time to determine the most accurate expected market price to

be used as the price election. Generally, the additional price election

or amount of insurance will be on file long before the 15 day deadline.

Therefore, the 15 day requirement has not been changed to 25 days as

suggested. FCIC has clarified the provision to eliminate confusion

between the maximum and additional price elections.

Comment: Several comments were received with respect to section 4.

A reinsured company and an insurance service organization stated that

section 4 indicates that policyholders will receive written

notification of all changes, including the ``additional price

elections,'' at least 30 days before the cancellation date, although

according to section 3(e) those prices may not be available for another

15 days. A reinsured company stated that it is impossible for the

company to comply with the sentence which reads, ``You will be

notified, in writing, of these changes not later than 30 days prior to

the cancellation date for the insured crop'' because it includes all

changes in policy provisions, price elections, amounts of insurance,

premium rates, and program dates. The Special Provisions are provided

to the insured but the actuarial documents are not. It is impossible to

notify the insured of a rate change that will affect that person

because this rate depends on the insured's APH, and the production

reporting date occurs after the date of this notice. The commenter

suggested that the section be modified to indicate that price elections

(including price addendum bulletins), amounts of insurance, and premium

rates are available at the agent's office. An insurance service

organization stated that it would simplify the program if companies and

agents could include all changes in one piece of correspondence rather

than several. Legal counsel for a reinsured company recommended that

section 4 of the policy should state that all contract changes are made

pursuant to the FCIC's rulemaking authority and are subject to public

comment.

Response: The section has been clarified to specify that insureds

may review or receive copies of all the documents containing the rate,

price elections, amounts of insurance, etc. The section has also been

clarified to state that the insured will be notified in writing of any

changes in the Basic Provisions, Crop Provisions, or the Special

Provisions. Introductory language in the Basic Provisions clearly

indicates that provisions of the policy are published in the Federal

Register. However, not all contract changes are made by rulemaking.

Changes in terms such as rates and price elections are not subject to

public comment.

Comment: Legal counsel for a reinsured company stated that his

client is compelled to include provisions in its policies regarding the

liberalization provisions contained in section 5. The commenter stated

that the liberalizations allowed by these provisions have increased the

reinsured company's work and costs, and that inclusion of the clause

does not constitute, imply, and should not be inferred by FCIC as a

waiver or other relinquishment of the reinsured company's right under

the Administrative Procedures Act or common law.

Response: Inclusion of section 5 in policies sold by a reinsured

company does not waive any rights of the company it has not already

otherwise waived. No change has been made.

Comment: Legal counsel for a reinsured company suggested that

program dates be reviewed since the proposed language in section

6(a)(2) causes the acreage reporting dates for some crops to be very

close to the premium billing date. For example, in some cases, the

acreage reporting date for forage production policies will be June 15

and the current billing date is July 1.

Response: FCIC will review the program dates as necessary to

determine whether adjustments are needed.

Comment: An insurance service organization commented on section

6(a)(3)(ii) and recommended deleting the phrase ``the acreage reporting

date contained in the Special Provisions since this is included in the

date determined according to 6(a)(1) and (2). They questioned whether

this refers to both of these sections, or if there are no fall crops

with a late planting period. This would then be easier to follow as,

``* * * the acreage reporting date will be the later of the date

determined in accordance with sections 6(a)[(1)&] (2) or 5 days after

the end of the late planting period for the insured crop.''

Response: The date contained in the Special Provisions for section

6(a)(3) may be different than the date referred to in sections 6(a)(1)

and (2). FCIC has clarified that the date may be determined in

accordance with both sections 6(a)(1) and (2).

Comment: Comments were received with regard to section 6(f). An

insurance service organization recommended consolidating the last two

sentences as follows: ``If we deny liability for the unreported units,

your share of any production from the unreported units will be

allocated, for loss purposes only, as production to count to the

reported units in proportion to the liability on each reported unit.''

This avoids need to reference ``the yield for actual production

history'' (which does not apply to all crops) and ``7 CFR'' (which is

not provided with the policy provisions). Legal counsel for a reinsured

company stated that section 6(f) should specifically set forth that the

reinsured company's decision to determine the insurable crop, acreage,

share, type, and practice, or to deny liability, is conclusive upon the

producer and FCIC. Alternatively, the regulation and policy language

should set forth the standards upon which acreage, share, type, and

practice are to be determined by the reinsured company.

[[Page 65138]]

Response: FCIC has consolidated the two sentences as recommended.

Provisions in section 20 indicate that disagreement on factual

determinations will be resolved in accordance with the rules of the

American Arbitration Association. Making the company's determinations

conclusive would conflict with those provisions. Standards applicable

to determination of insurance in these situations where the insured

fails to file an acreage report for one or more units are currently

contained in FCIC's approved procedure.

Comment: A reinsured company, legal counsel for reinsured

companies, and an insurance service organization commented on the

provisions in section 6(g). They asked whether the premium remains the

same if the production guarantee or amount of insurance on the unit is

reduced to an amount consistent with the correct information. The

commenters expressed concern that the provisions do not address the

current year, only subsequent years. More importantly, there must be

sanctions in the current year. The commenters also asked how and when

do the insurers adjust current year's coverage. They state that there

should be a cross-reference to section 27 that requires the

policyholder to reimburse the indemnity or be subject to voidance of

the contract. The commenters also stated that language should be added

to emphasize that it is essential for the producer to provide accurate

acreage information and that the insurer is relying upon the producer's

certification to [these] material facts to establish premium and

liability. The commenters were also concerned that section 6(g)(2) does

not relate what action the insurer may take upon discovering the

incorrect information, which is particularly important if it is

discovered while preparing a claim. For example, they ask what bona

fides, if any, must an acreage measurement service possess, how can a

company test such a service's credibility and impartiality, and what

authority does the client company have to reject a service's

measurements. The commenters also asked what acreage measurement

service will be considered acceptable, whether reinsured companies be

allowed to charge insureds for performing this service, what

documentation is needed, and who makes the determination. The

commenters also asked whether there is any tolerance for error and what

``support your report'' means. The commenters state that procedure is

needed to ensure that if business is transferred and the receiving

company discovers that the insured misreported acreage in any prior

year, that the insured is required to provide the documentation

specified in section 6(g)(2). In this regard, section 6(g)(2) may

prompt transfers. The commenters ask what is the reinsured company's

obligation and liability without pertinent procedures and state that

section 6(g)(2) should state that the producer will be solely liable

for any overstated liability resulting from the incorrect information

or from fraud, misrepresentation, or concealment. The regulation should

also make clear that the reinsured company is not liable to the FCIC

for any overpayment of indemnity or other payments on a policy

resulting from incorrect producer certified information or producer

fraud, misrepresentation, or concealment. Any liability of a reinsured

company for such acts should be governed by the criteria set forth in a

previous Manager's Bulletin, which should be expanded to include the

aforementioned situations. The proposed regulation states that

reinsured companies must verify information pertaining to crop, share,

entity, and acreage. The regulation should clearly set forth the

sources that the reinsured companies may utilize to verify this

information, especially in the absence of information at local FSA

offices.

Response: If the correct information results in a lower premium,

the lower premium will be charged to the producer and liability reduced

commensurately. Sanctions are available if the insured misreports

information. If the insured has intentionally misrepresented or

concealed any material fact, the policy may be voided under section 27

and the insured may be disqualified under section 508(n) of the Act. If

the error or omission is inadvertent, no sanctions are available. The

insured simply receives only the coverage to which he is entitled. No

cross reference is necessary since sections 27 and 6 are under the same

policy. Further, there is sufficient language in the policy to put the

producer on notice that information must be accurately reported. The

crop insurance industry recommends that the burden of certifying

acreage report information should be placed on the insured. FCIC

assumes that a typical insured will provide accurate information.

Therefore, documentation to support the report of acreage that

includes, but is not limited to, an acreage measurement service at the

producer's own expense, has been required only if the insured

materially misreported acreage in a prior year. It is the reinsured

company's responsibility to verify that the information used to settle

a claim is correct. The insured selects the acreage measurement

service. The reinsured company should use its business judgment to

determine whether the acreage measurement service was reputable,

competent, etc. Since it is the insured's responsibility to procure the

acreage measuring service, they bear the cost. Documentation should

include the report from the acreage measurement service stating the

measured acres. FCIC has revised the provision to refer to

``substantiate'' the reported acres. The intent of this provision is to

protect the integrity of the program by increasing the reliability of

the information reported. The reinsured company can reject any

information reported by the insured that is not accurate, including any

information provided by the insured from an acreage reporting service.

FCIC has revised the provisions to allow the reinsured company to

require the insured to substantiate acreage if the insured misreports

information in any crop year. Since the Federal crop insurance program

is operated with public funds, FCIC cannot make payments that are not

authorized by law. Therefore, if there is an overpayment of an

indemnity for any reason, the reinsured company must reimburse FCIC for

its share of the overpayment. If the reinsured company fails to follow

approved procedures with respect to the verification of information,

FCIC may take other actions in accordance with the SRA. FCIC, in

cooperation with reinsured companies, will identify sources that may be

used to verify acreage and other information. However, since these are

procedural matters and the sources may change, the sources should not

be included in the policy.

Comment: A reinsured company questioned if the provisions in

section 7(a) were consistent with the notification requirements in the

ineligibility (for debt) procedures, particularly when there is a short

time between billing for one crop year and sales closing for the next.

The commenter stated that some companies plan to send a billing earlier

than the date specified in the Special Provisions to assure that

insureds are aware of the amount due in time to meet the notification

requirements associated with the ineligible for debt procedures.

Response: Section 7(a) is consistent with the provisions in section

2, which state that premium is considered delinquent when not paid by

the termination date. This is the date that triggers ineligibility, not

the billing date.

[[Page 65139]]

Reinsured companies will still be required to send the premium bills to

the insured no earlier than the date stated in the Special Provisions.

This is to ensure that all insureds are treated fairly and equitably.

FCIC will review the premium billing dates and make any necessary

adjustments. The provision has also been revised to clarify that the

premium due will be considered delinquent if the premium is not paid by

the termination date.

Comment: Comments were received regarding section 7(b). An

insurance service organization suggested modifying the provisions to

allow companies to make replanting payments to insureds who may need

that money to cover the immediate costs of replanting the insured crop.

Reinsured companies and an insurance service organization questioned

the provision that reads ``Any delinquent amount may be deducted from

any amount owed to you by any United States Government agency or by

us.''

Response: The Department of Treasury has opined that part of the

amount the producer owes a reinsured company for any crop insured under

the authority of the Act that has been paid by the United States may be

deducted from any amount owed to the producer by any United States

Government agency. However, this provision has been deleted since it is

redundant with sections 24(a) and 24(e). Since the replant payment is

intended to provide funds to the insured to replant the crop, it will

not be used to offset other amounts that are owed.

Comment: An insurance service organization questioned whether

companies have the authority to ``assign'' a price election or an

amount of insurance as specified in section 7(d). If not, the last

phrase is not necessary, and the rest of this could be incorporated

into 7(c).

Response: The reinsured company does not have the authority to

``assign'' a price election or amount of insurance when such

information is omitted from the application. The producer must elect a

price election or amount of insurance or the application will be

rejected. However, if in future years the price election or amount of

insurance changes and the producer does not elect another price

election or amount of insurance, the reinsured company will assign the

producer a new price election or amount of insurance as stated in

section 7(d). No change has been made.

Comment: Comments were received regarding section 8(b). A reinsured

company questioned whether the intent of section 8(b)(1) was to deny

insurance on all units of a crop if a producer did not perform

acceptable farming practices on one unit of the crop instead of

charging an uninsured cause of loss on such unit as was done in the

past. An insurance service organization stated that sections 8(b)(4)

and (5) provide the possibility of insuring what is normally

uninsurable if permitted by the Crop Provisions, Special Provisions, or

written agreement. The commenter was concerned because sections

8(b)(1), (2), (3), and (6) make no mention of possible exceptions, yet

written agreements are allowed to insure practices or types not listed

in the actuarial documents. The commenter suggested that some reference

is needed for subsections (1) and (2) as well, or these terms could be

moved to the opening phrase (though requests would be denied for

volunteer crops and crops left for wildlife). An insurance service

organization questioned section 8(b)(6), which states that a crop

``used for wildlife protection or management'' is not insured. They

stated that questions have been raised in the past about whether all

acreage in a wildlife preserve is uninsurable or only the portion of

the acreage that will not be harvested. The commenter asked, if the

latter, whether the insured acreage should have a different coverage or

rate since there is a higher risk of wildlife damage.

Response: Section 8(b) has been revised to clarify that any unit

will be uninsurable if the conditions in paragraphs (1) through (6)

exist, but that such uninsurability will not affect other acreage of

the crop. FCIC agrees that a written agreement should be allowed for

the circumstances contained in section 8(b)(1) and has amended that

section accordingly. A farming practice may be acceptable, but a

premium rate previously was not established due to lack of demand. The

written agreement will alleviate this situation. If the crop is not

adapted to the area, it should not be insurable and there will be no

exceptions. Section 8(b)(6) is revised to clarify that a crop used

solely for wildlife protection or management will not be insured. Some

crop land leases require the lessee to leave a specified number of

acres or a percent of the crop for wildlife. For leases that state a

specific amount of acreage to be left unharvested, the stated acreage

is not insurable. For leases that specify that a percentage of the crop

must be left unharvested, the insured person's share will be reduced by

that percentage.

Comment: An insurance service organization stated that section

9(a)(1) refers to ``crop provisions'' as an exception, section 9(a)(2)

refers to ``written agreement'' as an exception, section 9(a)(4) refers

to ``crop provisions'' as an exception, section 9(a)(5) refers to

``crop provisions or Special Provisions'' as an exception and section

9(a)(6) refers to ``the policy provisions'' or a ``written agreement''

as exceptions. The commenter stated that the exceptions in section 9(a)

(and elsewhere in the policy) might be preferable as ``policy

provisions'' rather than switching between ``Crop Provisions,''

``Special Provisions,'' and ``written agreement.''

Response: The exceptions are only stated in the specifically

referenced documents. There is no reason to require the insured to

search all documents for exceptions that were previously identified. No

change has been made.

Comment: Reinsured companies, a state commodity group, an insurance

service organization, and a member of the Congress opposed the language

in section 9(a)(1) that specifies that acreage will not be insurable if

it has not been planted and harvested within one of the three previous

calendar years. The commenters are concerned that this precludes

acreage from being insurable when adverse weather conditions prevent

planting or harvesting. They also stated that to bar coverage when a

producer was unable to plant and harvest a crop or in instances when

the producer lost the crop after planting defeats the purpose of having

prevented planting coverage. They stated that this provision would be

impossible to administer and that requiring that the crop be both

planted and harvested within one calendar year excludes any crop

planted in the fall and harvested the following year. This provision

also excludes any perennial crop because such crops are not planted

every year. Although the intent of this provision was to prevent the

coverage of acres that are outside the definition of productive

cropland, this provision will also prevent coverage for many acres that

still carry the capacity to grow viable crops. The commenter suggested

that a reference should be made to section 9(a)(1) in the prevented

planting section to define acreage eligible for prevented planting.

Response: FCIC has revised section 9(a)(1) to specify that acreage

not planted in the three prior crop years because they were prevented

from planting or where a perennial crop was previously grown should be

considered insurable acreage. Additionally, insurable acreage that had

been planted in any of the three prior crop years and was not harvested

due to an insured cause of loss should be considered insurable. Section

9(a)(1) has also been amended to delete the word ``calendar''

[[Page 65140]]

to recognize crop acreage planted in the fall and harvested the next

calendar year. Referencing section 9(a)(1) in section 17 of this rule

is not necessary because, if the acreage is not insurable, no payment

can be made on such acreage, including a prevented planting payment.

Comment: A reinsured company and an insurance service organization

questioned the provisions in section 9(a)(2). The reinsured company

stated that the section would be impossible to administer, although

they did not disagree with the concept. The commenter questioned how

the reinsured company would determine if crops produced for food or

fiber had been harvested from the acreage for at least five consecutive

crop years after acreage had been strip mined. An insurance service

organization stated that food or fiber must be defined beyond the

exclusion of cover and forage crops. Tobacco is not a food or a fiber,

but the commenters question whether it would qualify the acreage. The

commenters also state that if food refers to production for human

consumption, then corn for silage does not qualify acreage. If the term

includes feed for animals, the commenters ask why forage is excluded.

The commenter also asks about tree crops. The commenter also

recommended deleting the word ``consecutive.''

Response: Section 9(a)(2) has been revised to refer to agricultural

commodities other than a cover, hay, or forage crop (except for corn

silage) that have been harvested from the acreage for at least five

crop years after the strip mined land was reclaimed. A definition of

agricultural commodity has also been added.

Comment: A reinsured company suggested adding the sentence ``In the

event that it is common practice to plant a crop relying on water to be

delivered by a third party at a later date, only those acres for which

adequate water may reasonably be expected may be reported as

irrigated,'' to section 9(b).

Response: Section 9(b) has been revised to clarify that if the

insured has a reasonable expectation of having adequate water, the

acreage will qualify for an irrigated practice. However, if the insured

knew or had reason to know that the insured's water could be reduced,

no reasonable expectation exists.

Comment: A reinsured company stated that the phrase ``you may

either report and insure the irrigated acreage as non-irrigated, or

report the irrigated acreage as not insured'' should be deleted from

section 9(c). They stated that allowing the irrigated acreage to not be

insured in cases where there is not an irrigated practice sets up a

situation for no coverage to be in place if a disaster occurs, and

raises questions about noninsured crop disaster assistance program

(NAP) coverage. Irrigated acreage in areas without an irrigated

practice should be required to be insured; the insured will benefit

from a higher APH yield.

Response: It is not appropriate to require a producer to obtain

coverage for a non-irrigated practice, with its higher premiums, when

the acreage has an irrigated practice. However, since insurance on such

acreage was available, the insured will not be eligible for NAP

benefits on the irrigated acreage. No change has been made.

Comment: Comments were made regarding section 10(b). A reinsured

company suggested that this provision be deleted because it creates

problems with tracking and confusion over tax numbers, tax liabilities,

etc. If this provision is retained, the commenter states that procedure

must be established. An insurance service organization stated that the

second sentence of section 10(b) suggests the company may not know that

a landlord (or tenant) is insuring the other's share until the acreage

report is submitted. The commenter stated that if this information

affects the insured entity or who needs to be on the substantial

beneficial interest (SBI) list, the reinsured company must determine

whether this information is needed by the sales closing date. The

commenter was concerned because no procedure has ever been developed

for this possibility and it is difficult to determine what should be

specified in the policy provisions until procedure is developed and

distributed.

Response: FCIC understands that some reinsured companies are

currently using these provisions with satisfactory results. FCIC has

amended the provisions to clarify that insurance of another person's

share must be indicated on the application before it is reported on the

acreage report.

Comment: An insurance service organization questioned whether it

will be necessary to store the date that the insurer accepts the

producer's application since section 11(a)(1) has been changed from

``the date you submit your application'' to the ``date we accept,'' a

term that needs clarification. The commenter questioned what would

happen if a loss is submitted before a timely signed and submitted

application is ``accepted'' and processed by the company.

Response: The date the application is accepted must be stored by

the reinsured company the same as the date of application was

previously stored. The provision has been revised to clarify that the

application is considered accepted on the date that the insured submits

a properly executed application containing all the information required

in section 2. This change was made to clarify when insurance begins

when an incomplete application is received.

Comment: A reinsured company suggested adding the phrase ``or

facilities controlled by you,'' at the end of section 12(d) to clarify

that failure or breakdown of facilities or equipment controlled by a

third party, could be considered a covered loss.

Response: The intent of this provision is to cover failure of the

irrigation water supply, not failure of equipment or facilities,

regardless of who controls them. No change has been made.

Comment: A reinsured company questioned why the phrase ``as

determined on the final planting date'' was included in section 13(a)

because it is not uncommon for acreage planted during the late planting

period to be damaged to the extent that replanting is necessary or

practical.

Response: FCIC has revised this provision to allow this

determination to be made within the late planting period.

Comment: Legal counsel for a reinsured company had questions

regarding provisions in section 14(a)(2), which require a producer to

notify the reinsured company within 72 hours of the initial discovery

of damage (but not later than 15 days after the end of the insurance

period). The commenter asked what the reinsured company's obligation is

to the insured if the insured gives notice 80 hours after the initial

discovery of damage. The commenter asked whether the reinsured company

would reject the claim in this case or is it liable for liquidated

damages to FCIC if it does not. The commenter also stated that

supposing extenuating circumstances exist, e.g., a death in the

insured's family, whether the reinsured company has discretion in light

of the proposed SRA. The commenter recommended that the policy give the

reinsured company some discretion to accept or reject a notice of loss

based on the facts of each case and the ability of the company to

appraise the loss in the context of those facts. That is the test a

court would apply and the FCIC should not have a different standard.

Also, the policy should specifically permit reinsured companies to

delay an indemnity payment to any insured who is under investigation by

the Inspector General or the Department of Justice involving wrongful

claims for indemnities.

[[Page 65141]]

Response: These notice provisions are intended to protect the

integrity of the program by ensuring that the reinsured company

received notice in sufficient time to accurately adjust the loss. The

provision is revised to provide the reinsured companies with the

authority to accept a delayed notice of loss as long as their ability

to adjust the loss has not been adversely affected. FCIC approved

procedure allows acceptance of delayed notices provided the delay does

not prevent the insurer from properly adjusting the claim. Therefore,

the reinsured company does have the discretion to accept or reject a

notice as requested in the comment and no policy change is necessary.

There is no authority to delay the payment of a claim simply because

the insured is under investigation.

Comment: A reinsured company stated that the word ``settlement'' in

section 14(a)(4) should be defined.

Response: The word ``settlement'' is self-explanatory. No change

has been made.

Comment: An insurance service organization commented on section

14(b)(4) that the last sentence should apply to sections 14(b)(1)

through (4), as in the current Basic Provisions.

Response: The sentence applies to sections 14(b)(1)-(4) and FCIC

has revised the sentence accordingly.

Comment: Comments were received regarding section 14(c). One

reinsured company suggested adding the phrase ``for all units of the

insured crop'' after ``insurance period.'' Another reinsured company

questioned if the intent was to require that the proof of loss be

completed within 60 days after the end of the insurance period.

Response: Since insurance is provided on a unit basis, claim

settlement should be administered on that same basis. Addition of the

suggested language could result in delayed payments for units with

early season losses. FCIC considers the claim for indemnity to be

synonymous with the proof of loss and requires that it be submitted

within 60 days after the end of the insurance period. No change has

been made.

Comment: An insurance service organization commented on section

14(f) and stated that since the only other reference to notice within

72 hours is in section 14(a)(2), FCIC should consider combining the

provisions by adding the phrase ``notice may be made by telephone or in

person to your crop insurance agent, but must be confirmed in writing

within 15 days'' at the end of section 14(a)(2). If (f) remains

separate, the commenter questioned whether it should refer to ``this

paragraph'' or ``this section.''

Response: Since the provisions in section 14(f) are applicable to

the notices required in sections 14(a)(2) and 14(b), it has not been

combined with section 14(a)(2). FCIC has revised section 14(f) to refer

to the ``section'' rather than the ``paragraph.''

Comment: An insurance service organization questioned if section

14(d) of ``Our Duties'' should be modified since future procedures may

be based on FCIC's standards rather than ``established or approved'' by

FCIC.

Response: Under the 1998 SRA, reinsured companies must use FCIC's

loss adjustment procedures. In the future, FCIC will always require

that all procedures be approved by FCIC before used. No change has been

made.

Comment: Some reinsured companies and an insurance service

organization suggested deleting the reference to Form FCI-78 in section

15(c). A company also suggested deleting the reference to ``a form

approved by the Federal Crop Insurance Corporation'' and adding a

provision that states how appraisals will be made if hail and fire are

excluded as insured causes of loss.

Response: FCIC determined the procedures to be used to conduct such

appraisals and included them in Form FCI-78. If FCIC wants to make

changes in the procedures, it can revise the form. No change has been

made.

Comment: A reinsured company and an insurance service organization

commented regarding the provisions in section 16(b). The reinsured

company questioned if acreage is insurable when planted after the late

planting period for any reason, except for an insurable cause of

prevented planting. The insurance service organization stated that the

last sentence which states, ``Such acreage must have been prevented

from being planted by an insurable cause occurring within the insurance

period for prevented planting coverage'' is confusing since the acreage

was planted, but too late for timely or late-planted coverage. Perhaps

this should say, ``* * * prevented from being planted timely or during

the late planting period * * *''

Response: Acreage planted after the final planting date or the late

planting period, if applicable, is not insurable unless the acreage was

prevented from being planted or it was practical to replant. FCIC has

amended section 16(b) to clarify that planting on such acreage must

have been prevented by the final planting date or during the late

planting period by an insurable cause occurring within the insurance

period for prevented planting coverage.

Comment: Comments were received regarding section 17(a)(2). An

insurance agent opposed the 72 hour mandatory notice of loss

requirement after the final planting date if the producer is prevented

from planting by such date. The commenter stated that if the substitute

crop option is eliminated, this provision is not necessary and it is a

cumbersome rule that will necessitate a tremendous amount of effort on

the part of the agent to make certain that a producer does not miss

this deadline. The commenter also stated that in a year such as 1995

when adverse weather prevented many producers over a large area from

planting, an agent must communicate with the producers, explaining the

provisions to them, and encouraging them to continue planting, rather

than assuring that all of the insureds give notice within 72 hours. The

commenter claims that notice would only be beneficial in an area with

few prevented planting claims because in an area with a large amount of

prevented planting, inspections probably would not even be made. The

commenter was also concerned because any time there is a specific date,

it forces the agent and companies to have a tracking system to protect

clients, which adds to the already burdensome amount of processing that

is required. The commenter was concerned that having a prevented

planting reporting date during a time span that may be feasible for

planting sends a strong psychological signal to producers that they

have reached a point that it is time to stop planting, regardless of

what the conditions are in the field. The commenter also stated that

reinsured companies would be over-loaded with loss notices that may or

may not be necessary, possibly becoming expensive and burdensome for a

company; and that this would be a new regulation for 1998 that is not

necessary. Legal counsel for a reinsured company and the agent

questioned what the ramifications would be if an insured notified the

reinsured company more than 72 hours after the final planting date. A

state commodity group stated that the 72 hour proposal will cause

hardships on producers. Many producers plant 10 to 15 different crops,

with varying final planting dates. During the planting season,

producers who plant a variety of crops are simply too busy to contact

their reinsured company. The commenter suggested changing the 72 hours

to two weeks. A reinsured company stated that it trusted that such

notice would not be considered the same as a ``notice of loss,''

requiring a visit by an adjuster, especially if the

[[Page 65142]]

land was located in an area where known prevented planting conditions

exist and, if the acreage report did not include prevented planting,

the earlier notice would be void. Another reinsured company stated that

the issue of the number of required notices should be addressed. An

insurance service organization recommended changing the loss notice

requirement to 72 hours after the latest final planting date on the

policy.

Response: The 72 hour notice requirement could become burdensome

and cause hardships on producers. Therefore, the provision has been

deleted.

Comment: Comments were received regarding section 17(b). A

reinsured company and an insurance service organization stated that, if

circumstances were favorable, increased coverage on unplanted acreage

could allow a profit because the only expenses may be the fixed cost of

ownership or rent. Input expenses other than those would not be

necessary. Therefore, with 65 or 70 percent prevented planting

coverage, it may become more economical for the producer to leave land

idle rather than incur the expense of attempting to plant. A reinsured

company, national commodity group, and farm organizations supported the

10 percentage point increase in the level of prevented planting

coverage. The commenters supported the concept that prevented planting

levels should be crop specific and should closely reflect a percentage

of the pre-plant production inputs to total costs for each crop. One of

the farm organizations stated that differentiation by crop is important

but that the program's overall complexity should also be considered. An

insurance agent, national commodity group, reinsured company, farm

organizations, and a state commodity group commended FCIC for making

higher levels of coverage available for prevented planting if producers

choose to elect them. The commenters stated that optional coverage

levels allow producers to tailor their risk management programs to

individual financial realities. The national commodity group stated

that coverage at the 60 percent level with an option to increase the

coverage to 65-70 percent should be adequate, provided prevented

planting losses are indemnified for each acre that is not planted (once

the threshold of 20 acres or 20 percent of the insurable crop acreage

in the unit is met). The current adjustment procedure tended to

penalize producers who planted a portion of a unit to the intended

crop. A state commodity group urged an increase in the maximum

available prevented planting coverage level to 75 percent, particularly

if the substitute crop provision is eliminated. An insurance agent,

national commodity group, state commodity group, and regional commodity

group were apposed to the lower prevented planting coverage available

for cotton. An insurance agent and national commodity group expressed a

concern that, in certain market conditions, the producer may shift

prevented planting from cotton to corn or soybeans due to the

possibility of a higher payment for prevented planting and

significantly lower premium for corn and soybeans. A national commodity

group stated that the percent of variable cost borne by cotton

producers in planting a crop is not unlike the percent of variable cost

borne by corn producers to plant a crop in the same states especially

when seed company technology fees and Boll Weevil Eradication

Assessments are taken into account. The commenter further stated that

FCIC relied only on USDA regional cost data, not county data. The

commenter also stated that any justification for this discriminatory

treatment that is based upon a ``cost of production'' rationale is out

of place under this program because crop insurance coverage is based on

actual production history and price election, not cost of production.

On several occasions, the commenters have challenged FCIC's claim that

cotton's cost of production is highest for post-planting activities. A

national commodity group and state commodity group stated that cotton

producers deserve equitable prevented planting coverage without any

rate increase since the ratio of cotton's insurance indemnities to its

fixed and variable costs are far below those of other crops. The

commenters stated that this disparity is even more glaring when

indemnities' net of premium as a percent of variable cost or as a

percent of a fixed cost are considered. A state commodity group stated

that a rolling average of a producer's normal crop rotation should be

used to determine losses. The previous year's total crop indemnity

divided by prevented planting acres at this year's prices could be used

to determine an average. An insurance service organization stated that

although offering different prevented planting coverage levels may be

more actuarially sound, this will make processing more complex. The

commenter was concerned that it could also result in questions from

policyholders when the level of coverage they actually have may differ

from what they thought they had.

Response: Numerous issues are raised by these comments. In light of

the comments regarding the disparity of prevented planting coverage

between cotton and most other crops, FCIC is making this rule effective

for the Cotton Crop Provisions and the Extra Long Staple Cotton Crop

Provisions for the 1998 crop year only. FCIC will solicit additional

comments regarding the prevented planting coverage level percentage for

these crops for the 1999 and succeeding crop years in a future rule.

Some commenters allege that the differences in coverage will

encourage shifts among crops, notably from cotton since the coverage is

lower. Based on the national average liability, the average payment

rate for cotton at 45 percent of the guarantee is $125 per acre ($0.68

average price election) while the payment for corn is $103 per acre

($2.25 price election). Even if the price election for corn were

increased to $2.50 per bushel the payment still would be less than

cotton ($115 per acre). Some commenters state that the prevented

planting returns net of crop insurance premiums should be considered.

However, based on additional (buy-up) business for 1996, the difference

in producer-paid premium between the two crops is about $9 per acre.

Therefore, even on this basis, there is no marked disparity in bottom

line dollars to the producer and there should be no impact upon

cropping decisions.

Some commenters challenged the concept of basing the prevented

planting indemnity upon costs of production, stating that the insurance

plan is based on yield and market price. The intent of the prevented

planting provisions is to permit producers to recoup some of their

costs when it is impossible for the producer to generate income from

the insured crop. These provisions were never intended to allow

producers to make a profit. To permit profit is to introduce

unmanageable and undesirable risks of fraud.

Some of the commenters dispute the use of regional data to

establish costs of production, arguing instead that the costs should be

developed county by county. Such an approach is impractical and

unwieldy due to lack of credible data and is contrary to the law, which

directs FCIC to seek administrative efficiencies in its programs to

minimize burdens upon producers and reinsured companies.

Comment: Comments were received regarding the proposed removal of

prevented planting coverage when a substitute crop is planted. A

national commodity group recommended that, after the final planting

date for a

[[Page 65143]]

prevented planting crop has passed, producers be allowed to collect a

prevented planting payment and then plant any crop but that such crop

not be insurable. This would allow maximum returns from the land

without providing any windfall benefits from the insurance program. The

commenter stated that most producers are required to have a crop of

some type on the land for conservation purposes and, since it will not

carry any insurance coverage, production should be allowed. Another

national commodity group and a state commodity group stated that they

recognize the inherent problems with the substitute crop provisions and

that they approve the elimination of the 25 percent coverage when a

substitute crop is planted, provided there is adequate coverage when

acreage is left unplanted. Farm organizations stated that it is

difficult to argue against elimination of the substitute crop

provisions; however, long term crop rotations, marketing decisions,

delivery commitments, preplant application of inputs, and estimated

economic returns from competing crops do enter into planting decisions.

The farm organization and a reinsured company stated that weather

induced planting changes often represent added costs to producers and,

therefore, it may be appropriate to allow some level of coverage if the

original crop cannot be seeded. These commenters stated that to reduce

the potential for abuse, the provisions should specify a significant

reduction in prevented planting benefits (40-60 percent) if an

alternative crop is ultimately planted. Another farm organization and a

reinsured company recommended that some level of coverage be allowed

when a substitute crop is planted because weather induced planting

changes may represent a real cost to the producer. Often times the

producer has prepared the land for one crop, including the application

of fertilizer and herbicides that will not be used by the new crop, and

this expense cannot be recouped. A regional commodity group recommended

that the provisions be amended so that a producer is able, at the very

least, to forego crop insurance protection and plant a follow up crop

for harvest after acreage is prevented from planting. The commenters

stated that producers who miss the opportunity to plant their crop of

first choice still need to retain the ability to create income from

their land to cover any fixed costs they incur such as taxes, land

payments, equipment payments and living expenses. They feel it is

imperative that producers retain the right to keep their land

productive.

Response: This ``substitute crop'' coverage has been provided for

producers with coverage greater than catastrophic risk protection since

the 1995 crop year. During the three crop years this provision has been

effective, FCIC has received numerous complaints from agents, reinsured

companies, commodity groups, and producers, including allegations of

abuse, difficulty in establishing ``intent'' as required under those

provisions, and other problems.

If a producer is prevented from planting the ``intended'' crop, it

is the producer's choice to leave the acreage idle, plant a cover crop,

or plant another crop for harvest. Prevented planting coverage should

be provided only if the acreage is idle or planted to a cover crop not

for harvest. Based on the numerous complaints received, the

administrative problems and hazards associated with the substitute crop

coverage, and the fact that only one crop is normally produced per

acre, per crop year, prevented planting coverage should not be provided

when the producer chooses to plant another crop on the acreage for

harvest. No change has been made.

Comment: Comments were received regarding section 17(d). A national

commodity group and a regional commodity group commended FCIC for

including drought as an insurable risk for prevented planting. The

national commodity group further recommended that such a determination

be made on a field-by-field basis rather than on an area wide basis.

This is consistent with the per acre unit change proposed for the

prevented planting determination. Legal counsel for a reinsured company

stated that proposed section 17(d)(1)'s requirement of inclusion of the

Palmer Drought Severity Index (Index) as a condition precedent to the

receipt of a prevented planting payment on non-irrigated acreage is

arbitrary, impractical and exposes reinsured companies to potential

litigation or arbitration. Though the Index surely measures a drought's

severity, even those droughts that are not classified as severe or

extreme may be sufficiently devastating to prevent planting. The

commenter stated that when facing a drought, a producer's decision to

invest the financial resources necessary to produce a viable crop is

based on economics, not whether the Index classifies the drought as

severe or extreme. In addition, a drought may, over time, become severe

or extreme. The commenter asked what if, at the acreage reporting date

a drought is not, according to the Index, severe or extreme, but is

later classified as such by the Index. The commenter was concerned

because the reinsured company already has denied the producer a

prevented planting payment, and the drought's subsequent appearance on

the Index is of little benefit to the producer. Forced reliance on the

Index causes another problem if the Index is not available when the

acreage is reported. The commenter questioned whether the reinsured

company must delay its determinations until after it obtains the Index

and what liability befalls the reinsured company if it is delayed.

Response: Current as well as the proposed prevented planting

provisions specify that all prevented planting causes of loss must be

general in the area. It is important to provide a reliable source such

as the Index to provide consistency when verifying drought as an

insured cause of loss in an area. FCIC does not believe that prevented

planting payments should be allowed unless other producers in the area

were also prevented from planting.

Most drought severe enough to prevent planting will be classified

by the Index as severe or extreme by the final planting date. The Index

is readily available to interested parties and is updated frequently.

Therefore, the Index should be available to all reinsured companies

prior to the acreage reporting date. FCIC expects few cases in which a

drought that develops into a severe or extreme drought after normal

planting times will actually prevent planting. To allow for exceptions

would increase the complexity and subjectivity of these determinations,

the administrative burdens on reinsured companies, and the litigative

risks resulting from these subjective decisions.

Comment: A reinsured company stated that in section 17(e) the word

``base'' should be eliminated in all cases.

Response: The use of the word ``base'' in section 17 can be

confused with the term ``base acreage'' used by FSA in the past.

Therefore, FCIC deleted the word ``base'' as suggested.

Comment: Comments were received regarding section 17(e)(1). A crop

insurance agent disagreed with the provisions in the proposed rule that

exclude from eligibility any acreage prevented from being planted that

was planted to a substitute crop. The producer should not be penalized

a second time for not being able to plant a specific crop. A reinsured

company questioned if the determination of eligible acres in the chart

is done on a county basis. The commenter also questioned how a company

is to obtain previous year's records of prevented planting acres when

policies are gained by transfer. A reinsured company stated

[[Page 65144]]

that written agreements will only be allowed if the insured has not

produced any crop for which insurance was available in any of the four

most recent crop years. The commenters indicated that a written

agreement may be the only way to provide coverage in many cases. An

insurance service organization questioned whether section 17(e)(4),

which notes that eligible acreage may be increased to account for added

land, is considered a ``written agreement.'' The commenters also stated

that the provisions in the table would be clearer if reorganized. Since

17(e)(1)(i) is the only one of the three subsections in which (B) and

(C) differ, this table may not be necessary. Combine 17(e)(2) with

17(e)(1)(i)(C) since this is the only situation allowing written

agreements and combine 17(e)(4) and (5) with 17(e)(1)(i)(B) to avoid

the impression that eligible acreage does not include added land. Add

17(e)(3) to the opening sentence in 17(e)(1). The commenter also stated

that 17(e)(1)(i)(B) must be clarified because the heading makes (B)

apply to producers who have produced ``any'' insurable crop in any of

the last four years, but then limits eligible acres to the maximum

acres certified or reported in those years for ``the crop.'' The

commenter stated that a producer may have produced corn in at least one

of the last four crop years, but who planned to plant grain sorghum

this year for the first time, would not have any eligible acres for

grain sorghum and a written agreement could not be obtained. The

commenter recommended changing the heading above section 17(e)(1)(i)(B)

to read, ``if you have produced the crop in any of the four most recent

crop years'' instead of ``* * * any crop for which insurance was

available * * *'' The commenter also suggested that the heading above

section 17(e)(1)(i)(C) be changed to reference ``the crop'' instead of

``any crop for which insurance was available'' to accommodate producers

who decide to start producing a crop for the first time.

Response: Section 17(e)(1)(i)(B) of the proposed rule excludes

acreage reported as prevented planting in a prior year but that was

planted to a substitute crop so that the same acres do not qualify two

crops in the same crop year. This provision is consistent with the

removal of the prevented planting substitute crop coverage.

Eligible acres defined in section 17(e)(1) are determined on a

county crop basis. When policies are gained by transfer, reinsured

companies can obtain previous years' records of prevented planting

acres from the insured, the ceding company, or the FCIC policyholder

tracking system.

FCIC agrees that the table contained in section 17(e)(1) should be

rearranged, duplicate provisions removed and combined with sections

17(e)(2) and (4), and has revised the table accordingly. FCIC has also

revised section 17(e)(1) to incorporate section 17(e)(3) for clarity.

Proposed section 17(e)(1)(i)(C) (redesignated 17(e)(1)(i)(B)) has

been amended to indicate that an intended acreage report must be

submitted to the insurance provider to provide prevented planting

eligible acreage only for a person who has not in any of the four most

recent crop years produced any crop for which insurance was available.

Intended acreage reports are not necessary for other producers. Any new

insured who has produced any crop in any of the 4 most recent crop

years for which insurance was available will qualify for prevented

planting coverage for those crops and acres for which past acreage and

production records are provided in accordance with APH procedures. A

provision to increase acreage for new producers has been added that is

consistent with the requirements for other insureds.

In most instances, the proposed provisions allow prevented planting

coverage based on planting history. If a producer has planted only one

crop in the past four crop years, for instance corn, and intended to

plant and insure grain sorghum in the current crop year, the producer

would be eligible for prevented planting coverage based on a corn

production guarantee only. Once the producer plants grain sorghum, the

producer will be eligible for prevented planting coverage based on a

grain sorghum production guarantee.

Comment: A reinsured company questioned the impact and

acceptability of intended acreage reports concerning eligible prevented

planting acres. The commenter questioned the guidelines for approval of

written agreements, and who has the authority to approve or disapprove

such agreements.

Response: The provisions have been amended so that the use of a

written agreement is no longer required to establish eligible acreage.

Instead, intended acreage reports will be used. However, the reinsured

company will be required to verify that the acreage reported does not

exceed the number of acres of cropland in the producer's farming

operation at the time the intended acreage report is submitted. The

reinsured company will have the authority to accept or reject any

intended report.

Comment: Comments were received regarding section 17(e)(2). An

insurance service organization asked whether ``requests for written

agreement under this section must be submitted to us on or before the

sales closing date'' is intended to supersede section 18(e), which

allows written agreements requested after the sales closing date only

if an inspection determines no loss has occurred. The commenter asked

if this provision prohibits consideration of a request made shortly

after the sales closing date. Legal counsel for a reinsured company

asked if section 17(e)(2) pertains to all crops or only to those with

increased acreage. A crop insurance agent stated that any new producer

who has a viable policy for a crop and who has the ability to produce

that crop should be eligible for prevented planting on all cropland

acres. The commenter also stated that the sales closing date is a

completely unreasonable deadline for a new producer who is trying to

start a farming operation. The insurance program should be as liberal

as is prudent with new producers and allow them to add to their

operation until acreage reporting time without penalty.

Response: As indicated in the response above, written agreements

are no longer required. Since the producer is making all other

insurance decisions by the sales closing date, it is not unreasonable

to require the producer to specify the number of acres that the

producer intends to plant by the sales closing date. New producers may

be eligible for prevented planting acreage on all crop acreage if the

requirements in section 17(e)(1)(i)(B) have been met.

Comment: An insurance service organization suggested that the

provision contained in proposed section 17(e)(3) that states, ``the

total number of acres requested for all crops cannot exceed the number

of acres of cropland in your farming operation for the crop year'' be

revised to allow for double-cropping, as in section 17(f)(5).

Response: This provision, now located in section 17(e)(1) is

revised to account for double cropped acreage.

Comment: Comments were received regarding section 17(e)(4). A

reinsured company asked if all land added by the insured after the

sales closing date was ineligible for prevented planting coverage. An

insurance agent disagreed with requiring the producer to provide

documentation on or before the sales closing date for newly added land

because a March 15 deadline is not realistic and land changes hands

into the planting season for many legitimate reasons including

retirement, health, another career, financial considerations, etc. The

commenter stated that the new producer should not be denied coverage

[[Page 65145]]

just because the farming operation changed hands after March 15. The

commenter was also concerned that it is difficult to obtain form 423

from FSA to determine eligible acres and whenever a farming operation

is changed and the farm is reconstituted by FSA, there can be weeks of

delay before the form is completed. The commenter stated that this rule

again imposes an unnecessary burden on agents. It will force them to

spend a great deal of time putting a process in place that attempts to

make certain that none of their insureds miss an imposed deadline. The

commenter was concerned that this is the time of year that agents need

every available minute to be working with their clients concerning

their coverage. Producers should be focused on sound decisions

concerning their risk management, not focusing on what new deadline

they have to meet. The commenter also stated that with the substitute

crop provision eliminated, there is no need to have any other deadline

in place other than acreage reporting. There is no date that is

acceptable and crop insurance should not be in the business of trying

to dictate to producers a date by which all changes in a farming

operation must take place. The commenter stated that this rule directly

conflicts with the farm program objectives of farming for the market.

If the market dictates that a producer needs larger acreage to be

effective, that should be allowed by our rules. The converse is also

true. If a producer decides to reduce the size of the farm, it still is

eligible for acres over and above the size of the farm, under the

proposed rule. The commenter stated that eligible acres should be

determined at planting time by the total cropland acres. The limitation

to the number of acres previously planted to a crop is prudent;

however, newly added land should be eligible for prevented planting up

to the newly established cropland acres on any crop that the producer

has insured. This is a common sense approach that would eliminate

burdensome paperwork and eliminate a deadline that will cause problems.

Legal counsel for a reinsured company stated that land rented or bought

after the sales closing date might be ineligible for prevented planting

coverage under the proposed provisions in section 17(e)(2) and (4).

While the acreage reporting date may improperly permit insureds to

state with the benefit of hindsight, what their intent was, the use of

written agreements in the fashion proposed is not an adequate solution.

The commenter suggested that the actual production history deadline

date could be used.

Response: These provisions, now included in section 17(e)(1)(i),

have been revised to allow an increase in eligible prevented planting

acres provided the producer submits proof that additional acreage was

purchased, leased, or released from any USDA program in time to plant

it for the insured crop year. No cause of loss that will or could

prevent planting may be evident at the time the acreage is purchased,

leased, or released from the USDA program.

Comment: Comments were received regarding section 17(f)(1). A

reinsured company suggested that the section be modified to read ``* *

* 20 contiguous acres...'' The commenter suggested changing the phrase

``whichever is less'' to read ``whichever is larger'' and also

suggested that the term ``insurable crop acreage in the unit'' be

defined. Another reinsured company questioned if 20 acres or 20 percent

was the correct acreage limitation for the unit. The commenter

recommended a minimum figure be established for the entire farming

operation based on cropland acres. Legal counsel for a reinsured

company recommended that section 17 be amended to exclude prevented

planting payments when the producer is prevented from planting a small

number of acres. For example, if a producer is prevented from planting

five acres on a 100 acre farm, the producer should not be entitled to a

prevented planting payment for the five acres. The commenter stated

that failure to incorporate such a change will increase indemnity

payments and overall administrative costs of the program. Another legal

counsel for a reinsured company indicated that the phrase ``within a

field'' contained in section 17(f)(1) is not defined or used elsewhere

in the section.

Response: Provisions are necessary to avoid prevented planting

claims when only a small number of acres are prevented from being

planted. FCIC has amended section 17(f)(1) to require that at least one

contiguous block of land equal to 20 contiguous acres or a contiguous

area constituting 20 percent of the insurable crop acreage in the unit,

whichever is less, be prevented from being planted in order to qualify

for a prevented planting payment. This change will reduce prevented

planting payments for pot-holes and other small portions of fields that

are wet in most years although planting occasionally may be possible.

The phrase ``whichever is less'' is appropriate. There is no reason to

define the phrase ``insurable crop acreage in the unit'' since units,

insured crop, and insured acreage are defined elsewhere in the policy.

Once the minimum acreage threshold has been met, all acres should

be indemnified. A minimum figure should not be established for the

entire farming operation based on cropland acres because in very large

farming operations, that could result in a substantial number of acres

ineligible for prevented planting coverage.

FCIC has defined the term ``field'' for clarity. FCIC has also

amended section 17(f)(1) to specify that all acreage in a field will be

presumed to have been intended to be planted to the same crop that is

planted on the field unless the prevented planting acreage constitutes

at least 20 acres or 20 percent of the insurable acreage in the field

and the producer can prove that both crops were previously planted in

the same field in the same crop year.

Comment: A reinsured company questioned if the phrase ``in which

the insured crop was grown on the acreage'' in section 17(f)(4) allows

rotation of double-cropping so that the acreage need not be double-

cropped each of the last four years to be eligible for prevented

planting.

Response: The double-cropped acreage would qualify for prevented

planting as long as the insured crop was double-cropped in each of the

last four years that it was grown.

Comment: Legal counsel for a reinsured company stated that the

terms of FCIC's proposed coverage for prevented planting are inherently

inconsistent. On the one hand, FCIC is eliminating its substitute crop

provisions, while on the other hand the FCIC would require written

agreements to be submitted by sales closing dates on base eligible

acres on which the insured has not produced any crop for which

insurance was available in any of the four most recent crop years. This

requirement effectively forecloses producers, particularly those in the

northern plains states, from responding to market signals. Similarly,

section 17(e)(3), which indicates the number of acres requested cannot

exceed the amount of cropland, conflicts with section 17(f)(4), which

appears to permit double cropping.

Response: The comment misinterprets the proposed provisions.

Section 17(e)(1) requires only those producers who have not produced

any crop in any of the four most recent years for which insurance was

available to establish eligible acres in writing. In all other

instances, either the number of contracted acres (for contracted crops)

or the greatest number of acres of the insured crop planted or insured

in any

[[Page 65146]]

of the four most recent years serves as the basis to determine eligible

prevented planting acres. No provision contained in this rule restricts

a producer from responding to market signals and planting, or

attempting to plant, any amount of any crop he or she desires. However,

in most instances, prevented planting compensation will be based on the

number of acres of an insured crop that was planted in the past. As

stated above, FCIC has revised the provisions of section 17(e)(3) (now

in section 17(e)(1)) to account for double-cropped acreage.

Comment: Comments were received regarding section 17(f)(5). A

reinsured company questioned how a company would know if any crop from

which a benefit is derived under any program administered by the USDA

is planted and fails. The commenter also suggested modifying the

sentence from may be hayed or grazed ``* * * after the final planting

date for the insured crop * * *'' to ``* * * 60 days after the final

planting date for the insured crop * * *'' An insurance service

organization stated that this section refers to ``other than a cover

crop which may be hayed or grazed after the final planting date for the

insured crop.'' The commenter questioned whether acreage that has a

cover crop that is ready to be hayed or grazed would ever qualify for

prevented planting.

Response: Reinsured companies must question insureds to determine

if any crop was planted for the crop year on the acreage being claimed

for prevented planting. Producers should not be denied grazing or

haying benefits for 60 days after being prevented from planting. In

many instances, cover crops are grown until preparation for planting

occurs in the spring. If the producer was unable to remove the cover

crop and plant a crop, such a cover crop could be hayed or grazed soon

after the final planting date and a prevented planting payment would

still be owed.

Comment: A reinsured company questioned how the insurer will know

if a cash lease payment is also received for use of the same acreage in

the same crop year as specified in section 17(f)(6), particularly if it

occurs after the prevented planting payment has already been received.

Response: Reinsured companies must question insureds to determine

if a cash lease payment is, or will be, received for the acreage being

claimed for prevented planting. Any insured who claims prevented

planting on acreage they have cash leased would be misrepresenting a

material fact and could be subject to civil and false claim penalties.

Comment: A reinsured company stated that they did not disagree with

the concept of section 17(f)(7) but that it is inconsistent with

freedom to farm and is unenforceable.

Response: The requirement that prevented planting coverage will not

be provided for any acreage for which planting history or conservation

plans indicate that the acreage would have remained fallow for crop

rotation purposes is necessary to protect the integrity of the program.

FCIC is charged with establishing an actuarially sound insurance

program, and relying upon ``intentions,'' without evidence to support

such intentions, is not an appropriate manner of achieving actuarial

soundness. For example, if half the acreage in a farm has remained

fallow every other year for the past ten years to maintain a

summerfallow rotation, this is evidence that this is a normal practice.

If such patterns exist, this provision is easier to administer than if

the reinsured companies were forced to determine whether the producer

actually intended to plant a crop. Since coverage for prevented

planting now begins on the previous crop year's sales closing date for

carry-over policies, producers could decide to claim an intent to plant

acreage where the cause occurred months earlier in order to profit from

the insurance program when they never planned to plant a crop. While

the denial of prevented planting coverage may adversely affect some

producers who genuinely intended to plant a crop, given the inability

to prove intent to plant and in order to protect the integrity of the

program, FCIC must retain the provision. No change has been made.

Comment: Comments were received regarding proposed section 17(f)(9)

(redesignated 17(f)(10)). A reinsured company stated that they did not

disagree with the concept of section 17(f)(9) but that it is an

unenforceable provision. The commenter asked if capital on hand was

considered proof that inputs were available. An insurance service

organization stated that the burden of proof is placed on the producer

to demonstrate ``he or she had the inputs available to plant and

produce a crop.'' The commenter asked what guidelines have been

developed to determine that an insured has ``inputs available to plant

and produce a crop'' and what evidence will be considered acceptable

for the ``proof.'' The commenter believes that instead of reducing the

costs associated with prevented planting, FCIC has put forth an

indefensible proposal that will only add to the administrative expense

of the program.

Response: Since the prevented planting period could begin on the

sales closing date for the previous crop year for many producers, many

producers could know that they were prevented from planting prior to

the sales closing date and planting period. These producers would be in

a position to claim the intent to plant higher valued crops than they

normally plant. FCIC has revised the provision to clarify that proof of

inputs is only necessary where there is a deviation from normal

planting practices. For example, the producer has rotated crops between

corn and soybeans in alternate years and this was the year the

rotational pattern showed that corn would normally be planted, if the

producer seeks a prevented planting payment for corn, the reinsured

company does not have to determine whether the insured had sufficient

inputs. However, if the producer seeks a prevented planting payment for

soybeans, the reinsured company would be required to determine whether

the producer has sufficient inputs. Capital on hand would not be

considered proof of inputs. If the producer could not produce receipts

for seed, fertilizer, herbicides, etc., the lease of equipment or

labor, or specific land preparation, it will be presumed that the crop

usually planted by the producer was the crop that the producer intended

to plant. While this provision may preclude a producer from receiving

benefits for a crop that he genuinely intended to plant, the producer

would still be eligible for a benefit on the crop usually planted and

the need to protect program integrity outweighs its disadvantages.

Since this situation should be rare, it should not impose an undue

burden on the reinsured company.

Comment: A reinsured company stated that proposed section 17(f)(11)

(redesignated 17(f)(12)) is contrary to the freedom to farm concept.

The commenter also questioned how the insurer would know if the crop

was planted in one of the last four years.

Response: Prevented planting coverage will not be provided for any

acreage based on a price election, amount of insurance or production

guarantee for a crop type the insured person did not plant in one of

the four most recent years. As stated above, FCIC has a responsibility

to protect the integrity of the program. Allowing producers to claim

prevented planting payments for crops for which there is no evidence

that they intended to plant would adversely affect program integrity.

While this may result in some

[[Page 65147]]

producers not receiving benefits, it would be impossible to maintain

actuarial soundness when such exposure to unnecessary risk exists.

Since most crops have a production guarantee based on actual production

history, records are an integral requirement. Use of such records would

seem the proper way to verify previous crops produced. However, FCIC

has created an exception for new producers that qualify for coverage

under section 17(e)(1)(i)(B).

Comment: Comments were received regarding section 17(g). A

reinsured company stated that this section may generate a moral as well

as a morale hazard, since producers may claim prevented planting for

marginal land never intended for planting. This is contrary to the

intent of this policy, which is to provide disaster based insurance

coverage, not acre by acre coverage. Legal counsel for a reinsured

company stated that proposed provisions allowing a prevented planting

payment on a per acre basis add incalculable costs to the loss

adjustment process. The commenter stated that loss adjusters must find

the acres that are prevented from being planted, measure them, verify

inputs and calculate the loss. Also, under the proposal, insureds can

``buy-up'' their coverage which permits producers to be indemnified as

much for prevented planting as for failed planting. Neither the Cost-

Benefit Analysis or the narrative in the Federal Register provide the

level of detail needed to permit meaningful comment on FCIC's

conclusion that higher rates will not be needed. The commenter further

stated that paying prevented planting claims on a per acre basis will

result in software problems equal in magnitude to the so-called ``year

2000'' problem. Loss records are kept by unit and to pay claims by acre

will require a complete revision of the reinsured company's and FCIC's

loss adjustment programs. In this regard, those programs will need to

deduct from final claims paid on a unit basis the amount paid for

prevented planting on an acre basis. Accordingly, the commenter stated

that FCIC has no basis in fact to conclude, as it did in its 1997 Cost-

Benefit Analysis, that its proposal will simplify program operation. A

national, two state and a regional commodity group stated that they

commend FCIC's decision to pay prevented planting acres on a ``per

acre'' basis. Another national commodity group stated that they

strongly support the change from computing the prevented planting

indemnification on a unit basis to a per acre basis after the

deductible of the lesser of 20 acres or 20 percent of the eligible

acreage in a unit is met. This change provides the producer the

opportunity to more closely recover his actual losses associated with

prevented planting on a limited number of acres within a unit without

indirectly penalizing him for efforts to plant the balance of a unit in

a timely, profit maximizing fashion. An insurance service organization

stated that they received one comment recommending prevented planting

coverage be provided on a unit basis rather than on an acre-by-acre

basis. The commenter stated that prevented planting coverage on a unit

basis will encourage the insured to plant the acres if at all possible.

The commenter asked why separate units for planted and prevented

planting acres should be established when units by planting dates are

not otherwise allowed.

Response: The other requirements of section 17 must also be met

before a prevented planting payment is made. If the producer cannot

prove that inputs were available to plant any acreage, then no

prevented planting payment will be made. If the producer has previously

planted marginal acreage, any prevented planting payment will be based

on the lower yield for such acreage. No change has been made.

As noted in both the Cost-Benefit Analysis and Federal Register

narrative, recent prevented planting data indicate that the net costs

are expected to be small because the cost and liability associated with

substitute crops, which will be reduced when that provision is

eliminated, offset the additional cost and liability associated with

adding a per-acre basis for payment. Experience data for 1996

demonstrate that 77 percent of declared prevented planted acres

occurred in circumstances in which no acreage of that same crop was

planted within the unit. Similar results appear in 1995. The

implication is that most producers who are prevented from planting have

not been able to plant any acreage in the unit and, therefore, already

have received the equivalent of acre-by-acre payments. Added outlays

would be associated with prevented planted acres where some acreage in

the unit is planted, but realized production exceeds the guarantee. In

1996, about 178,000 acres fell in this category, accounting for about

$5.6 million in indemnities. Data for 1996 also indicate that some

acreage that did not receive an indemnity under the prior regulation

would receive a payment under this rule. The increased indemnity is

estimated to be about $7-8 million. These data clearly indicate that

the effect is small.

Even with the ``buy-up'' provisions, prevented planting

compensation under this rule cannot equal compensation given in the

event of a failed crop as stated in the comment from the legal counsel.

The maximum coverage offered is 70 percent of the guarantee for timely

planted acres. Therefore, the maximum compensation the producer could

receive is 70 percent of the indemnity paid if all acreage of the crop

had failed.

Maintaining loss records for prevented planting payments will be no

more complex than maintaining records for any unit. It will not be

necessary to deduct the amount of a prevented planting payment from the

amount of a final claim. This calculation is not required by this rule.

No change has been made.

Comment: An insurance agent recommended that the CAT level of

coverage for prevented planting be limited to a payment based upon

basic units, and that the buy up coverage should be eligible for acre

by acre payments. Too much coverage at the CAT level encourages the

producer to ``take a chance'' rather than make an informed decision

based upon sound risk management principles. There is more incentive

for the producer with many acres to elect CAT coverage, particularly if

the payment is made on each acre, the major risk is prevented planting,

and there is no premium impact. The producer who elects additional

coverage should receive additional benefits to compensate for the fact

that the producer no longer has substitute crop provisions.

Response: The argument presupposes that the chance of prevented

planting is the dominate consideration regarding choice of coverage

level. If this is the case, and producers can continue in business over

the long term with the catastrophic level of coverage, the interests of

a majority of producers in the county may be best served by this

choice. No change has been made.

Comment: A reinsured company recommended that, in the prevented

planting provisions, FCIC remove the crop specific nature of the

proposal and consider only those acres that cannot be planted to any

crop as eligible for a prevented planting payment. The commenter also

suggested that FCIC establish a non-disappearing deductible as a

percentage of cropland acreage that must be exceeded to qualify for a

prevented planting payment. Additionally, the commenter suggested that

FCIC determine a per-acre payment amount based on average production

costs in the county.

Response: The recommended changes, which result in a totally

[[Page 65148]]

different concept for prevented planting coverage than in the proposed

rule, could not be accomplished without the benefit of public comment.

FCIC has reviewed the recommended coverage and determined this concept

requires more study to determine if it is acceptable to all interested

parties. No change has been made.

Comment: An insurance service organization commented that crop

insurance industry representatives had developed a total cropland

prevented planting proposal based on acres not planted after the

planting windows for all crops had expired. Industry representatives

believed this proposal was consistent with the intent of the Federal

Agriculture Improvement and Reform Act of 1996 (1996 Act) in that the

coverage did not induce crop specific behavior. The proposal advanced

by FCIC differs materially. Due to the short comment period and the

complexity of the subject, there was inadequate time to develop a full

response, including actuarial analysis and total cost of

administration, to FCIC's proposal. FCIC must provide companies with

the necessary support to defend against challenges to the enforcement

of the ``intent'' and ``proof of intent'' clauses, from the additional

loss adjusting expenses incurred by companies in implementing this

program, and from compliance issues that arise out of confusion

generated by this rule. Further, FCIC has consistently under-estimated

the costs associated with its prevented planting provisions. FCIC has

not addressed the matter of increased costs incurred by private

companies or the potential for private companies to suffer excessive

underwriting losses associated with this rule. Instead, it has only

expressed in its analysis that because of the small expected average

rate impact, any changes in reimbursements to private companies for

delivery or any underwriting gains are also expected to be small. At a

time when the administrative subsidy to private companies for delivery

of the federal program has been reduced by FCIC, there is no room for

and FCIC should not anticipate that private companies will bear the

cost of this proposal.

Response: FCIC reviewed the insurance service organization's

prevented planting proposal prior to publication of this rule, as well

as other proposals. This rule incorporates many elements or concepts of

those proposals. The total cropland concept is inherent to this rule in

that eligible acres are defined by the producer's history. The

provisions contained in this rule simplify program administration and

will reduce administrative costs compared to current prevented planting

provisions (e.g., removal of the substitute crop coverage,

simplification of determining eligible acreage, reduction in the number

of agreements in writing to determine eligible acreage, etc.).

Therefore, reinsured companies should not need additional resources,

nor should they incur additional costs to implement the overall

prevented planting changes contained in this rule.

Comment: An insurance service organization stated that the proposed

rule for prevented planting is built, in part, around the ``intent'' of

the farmer to plant. Industry calls into question the defensibility of

determining ``intent'' from a legal and managerial standpoint. The

commenter provided data published by the National Agricultural

Statistics Services (NASS) showing that the differences between

intended and planted acreage (total cropland) at the state-level are

relatively stable. However, the data demonstrate that crop-specific

differences between intended and planted acres are magnified within a

state. The commenter stated that the differences will be even greater

at the farm level. This indicates the difficulty associated with

monitoring the prevented planting proposal. It will require additional

dollars to deliver this type of program in order to maintain the

integrity of the program.

Response: Without examining the intent of a producer to plant a

crop, producers could collect indemnities even when they did not intend

to plant a crop or claim an intent to plant a higher valued crop in

order to maximize their payments. Therefore, intent must be examined to

protect the integrity of the program. The provisions have been revised

to only require an examination of intent when the producer deviates

from previous planting practices. Therefore, the additional costs

associated with the program should be minimal. No change has been made.

Comment: An insurance service organization stated that the crop

specific nature of the prevented planting provisions contained in this

rule are inconsistent with Freedom to Farm.

Response: The comments presupposes that producers select the crop

to plant based on available insurance coverage. This supposition is

contrary to the intent of the 1996 Act, which is to allow producers to

maximize their profits through the use of available markets and prices.

It is possible that producers may be denied prevented planting coverage

when they genuinely intended to plant the crop. However, to protect the

integrity of the program, such provisions are necessary and reduce the

administrative burdens on the reinsured companies, which would

otherwise have to ascertain the intent of the producers. The rule

authorizes payments for prevented planting in a sound insurance manner.

No change has been made.

Comment: An insurance service organization stated that problems

will be encountered with this rule because of the degree of the over-

lap of the planting windows for the various crops by state. Absent from

this rule is any discussion or analysis of the impact of final planting

dates in relation to the prevented planting coverage. Final planting

dates are crucial in determining eligibility for prevented planting

benefits. If final planting dates are too early, then a producer may be

able to claim prevented planting benefits even though the producer is

still able to plant within standard practice for the crop and location.

This will lead to higher than expected delivery expense compared to the

industry proposal because more claims will be processed.

Response: FCIC will review final planting dates and revise them as

necessary. However, to maximize coverage and a potential for revenue,

most producers will elect to plant some other crop if land becomes

plantable after the final planting date for one crop, and thereby

establish 100 percent of a crop insurance guarantee. No change has been

made.

Comment: An insurance service organization stated that, in certain

situations, previous land use and pre-plant input decisions will narrow

the set of crop choices and substitution among crops. Industry will be

required to manage additional information and data in order to

implement the proposed rule and maintain program integrity. Within the

context of the Paperwork Reduction Act and program simplification,

requiring companies to obtain, verify and retain additional paperwork

and information from producers does not make sense.

Response: FCIC has revised the provisions to narrow the cases in

which reinsured companies must examine evidence of inputs. Since the

examination of inputs was required in previous prevented planting

provisions, this change will reduce the burden on reinsured companies.

No change has been made.

Comment: Reinsured companies and an insurance service organization

commented on the provisions of section 18. They state that there are

legitimate reasons for written agreements to be valid for more than one

year, especially

[[Page 65149]]

if no substantive changes occur from one year to the next. Limiting

written agreements to one year only increases administrative cost,

complexity and opportunity for misunderstanding and error, and flies in

the face of efforts to simplify the program and reduce its

administrative expense. The commenter also stated that written

agreements should be effective for more than one year because there is

already an exception since written agreements to establish units are

continuous (unless the farming operation changes significantly). The

commenters also question how often written agreements are incorporated

into the actuarial documents within one year. Often, policyholders and

reinsured companies must duplicate their efforts to request reissuance

of written agreements because this does not happen. The commenters

state that FCIC's legal counsel objects to the concept of written

agreements, which purportedly allows exceptions for those ``in the

know,'' while others may not be aware the possibility exists. The

commenters asked whether these provisions can be revised to simplify

renewals. The commenters suggested that the policy should require the

insured to pay the cost of inspections necessary to obtain a written

agreement because there are many instances where there is no economic

reason or incentive for a company to pursue such agreements. The

commenters also suggested that sections (a) and (e) be combined since

both deal with deadlines for written agreement requests. They stated

that the response to this comment in prior final rules has been that

the sales closing date is intended to be the deadline with only limited

exceptions. However, 7 of the 13 written agreement types listed in the

1998 Crop Insurance Handbook allow requests at acreage reporting time

and one allows the request after acreage reporting. Of the 6 types with

a sales closing date deadline, 4 are specific cases of a practice or

type not listed in the actuarial materials, which is curious since the

general type of unrated practice, type or variety can be requested at

acreage reporting time. So, the exceptions seem to outnumber the rule.

Many of the situations calling for written agreements do not become

apparent until the acreage report is received. Therefore, the commenter

again suggests this provision might be less misleading if the acreage

reporting date exception noted in (e) were incorporated into (a). The

commenters stated that the provisions in section 18 that specify timing

and content of the FCI-2 written agreement should not be part of the

insurance policy. New insureds would not have this information until it

is too late to request a written agreement. They state that this should

have been reviewed by the insurance agent prior to acceptance of the

application or issuance of the crop insurance policy. The commenters

also stated that some of the written agreement provisions need to be

carefully considered and compared to current procedures and comments to

the Written Agreement proposed rule before the deadlines and annual

status of written agreements are mandated in the Basic Provisions.

Response: Written agreements are intended to change policy terms or

permit insurance in unusual situations. If such practices continue year

to year, they should be incorporated into the policy or Special

Provisions. It is important to keep non-uniform exceptions to a minimum

and to insure that the insured is well aware of the specific terms of

the policy. There are no exceptions to the timing or duration of

written agreements except as provided in section 18. The provisions

have been amended to indicate that written agreements may be submitted

after the sales closing date only if the producer demonstrates that he

or she was physically unable to apply prior to the sales closing date

or in accordance with any regulation which may be promulgated under 7

CFR part 400. FCIC will be more vigilant in incorporating changes to

the policy made by written agreement into the actuarial documents.

FCIC does not believe that a producer should bear the cost

associated with any inspection done for the purposes of a written

agreement. Such costs are a part of servicing the policy and therefore,

are already compensated by the expense reimbursement under the Standard

Reinsurance Agreement.

Section 18 was added to the Basic Provisions so that this

duplication of information could be eliminated from all Crop

Provisions. This information is necessary to provide authority for

policies to be altered where the policy specifically allows the use of

a written agreement.

Comment: Legal counsel for a reinsured company stated that FCIC's

authorization of reinsured companies to use written agreements to alter

the terms of published regulations is illegal and unwise. The commenter

stated that Congress conferred on the FCIC, not on dozens of insurance

companies, the rule-making power to define the terms and conditions for

insurance. Congress did not confer upon the FCIC the authority to

delegate its exclusive rulemaking authority to private contractors. The

commenter also stated that neither the FCIC nor its contractors may

amend rules and regulations in the Federal Register by private written

agreement. The comment also indicated belief that the provisions of

this section are prohibited by the Office of Management and Budget

``Policy Letter on Inherently Governmental Functions,'' 57 FR 45096,

45100, para. 5 (September 30, 1992). The commenter stated that this

section will result in written agreements being used as marketing

gambits for agents and policyholders by inviting them to compete with

lenient agreements that will permit the sale of insurance by a variety

of devices after the sales closing date. Finally, the commenter stated

that section 18 is a trap for reinsured companies. On one hand, the

salutary purposes of the freedom to farm legislation must be

accommodated by allowing insureds to react to market signals. On the

other hand, the timing of those signals may invite moral hazards. Faced

with two mutually exclusive and equally unhappy alternatives, FCIC has

decided to abdicate responsibility. The commenter states that section

18 gives each insurer the choice of rejecting a written agreement and

declining coverage (thereby causing potential for uninsured losses of

the policyholder) or accepting a written agreement and exposing itself

to the hindsight of FCIC's Compliance Division.

Response: FCIC has not delegated its rulemaking authority to the

reinsured companies. In many cases, reinsured companies must still get

FCIC approval before providing insurance by written agreement such as

in cases involving unrated land. Further, even if the reinsured company

has the authority to approve written agreements, criteria published by

FCIC still must be met. Therefore, reinsured companies do not have the

authority to revise or modify the terms of the policy except as

provided by FCIC. All reinsured companies are doing is applying such

criteria to their insureds' situation. The use of written agreements

should not provide any competitive advantage since they must

specifically be authorized in the policy and are available to all

producers of the crop. No change has been made.

Comment: Reinsured companies, an insurance service organization,

and legal counsel for a reinsured company commented on section 20. The

commenters questioned whether using the rules of the American

Arbitration Association (AAA) for resolution of disagreements has been

satisfactory and

[[Page 65150]]

whether utilization of the intermediate ``two appraisers, umpire,

etc.'' has been considered. The commenters also stated that the

language ``for FCIC policies'' can be deleted because, effective with

the 1998 crop year, FSA offices are no longer delivering crop insurance

policies. Section 20(a) states that disagreements on any factual

determination between the insured and the company will be resolved in

accordance with the rules of the AAA. The commenters state that this

must be clarified so that this only means the association's rules will

be followed, not that its personnel will be involved in the arbitration

since they are expensive and are not familiar with crop insurance.

Section 20(b) reads ``No award determined by arbitration can exceed the

amount of liability established or which should have been established

under the policy.'' The commenters stated that this should read

``arbitration or appeal'' since both are mentioned in 20(a). The

commenters stated that section 20 and section 25 are at odds with each

other. Under these two sections, arbitrators have jurisdiction over

questions of fact and the courts have jurisdiction over questions of

law. Moreover, under the policy, both can grant monetary relief.

Bifurcated proceedings are costly and unnecessary. The commenters

stated that the policy should provide for mandatory, binding

arbitration. Such alternative dispute resolution is consistent with

public policy. At most, legal action should be an alternative route,

with insureds able to select one, but not both actions.

Response: In most instances, arbitration by the rules of the AAA

has been a satisfactory and desirable solution to policy disputes. FCIC

has not received any recommendations providing alternatives. The

provisions are clear that only the rules of AAA will be used. Since the

authority for FCIC to deliver policies directly to insureds still

exists, provisions referencing FCIC policies will be retained in case

they are needed in the future. FCIC has revised section 20(b) to

reference ``arbitration or appeal.'' The provisions clearly state that

disagreement on any factual determination will be resolved by

arbitration. However, if arbitration does not result in agreement, FCIC

believes the insured producer should be able to seek resolution through

legal action as authorized in section 25.

Comment: An insurance service organization questioned whether

section 21(b)(3) should specify that ``optional units'' may be combined

rather than just ``units.''

Response: Section 21(b)(3) should refer to optional units and has

been amended accordingly.

Comment: An insurance service organization stated that, under

section 23, the amount the reinsured company is allowed to retain

should be increased from 20 percent to 40 percent due to the increased

costs and paperwork.

Response: 7 CFR Sec. 400.47 limits the amount to 20 percent of the

premium. No change has been made.

Comment: A reinsured company and an insurance service organization

had comments regarding section 24. They stated that the phrase ``For

FCIC Policies'' should be deleted since all MPCI policies will be with

reinsured companies beginning in 1998. They also stated that the

phrase, ``or any part thereof'' after ``per calendar month'' in the

first sentence of section 24(a) under ``For Reinsured Policies,'' that

presently is in the regulations should be retained. The commenters were

concerned that the second sentence states ``interest will start on the

first day of the month following the premium billing date'' but does

not address subsequent months. The commenters also suggested that the

following provisions should be incorporated ``For Reinsured Policies:''

``Any amount illegally or erroneously paid to you or that is owed to us

but is delinquent will be recovered by us through offset by deducting

it from any loan or payment due you under any Act of Congress or

program administered by any United States Government Agency, or by

other collection action. No insurance will be available until the debt

is paid or a collection plan is implemented.''

Response: The 1996 Act still authorizes FCIC to offer insurance

directly to insureds under certain conditions. Therefore, these

provisions must remain. FCIC agrees that reinsured companies should be

able to collect interest for a portion of a month and has revised the

provision. The phrase ``interest will start on the first day of the

month following the premium billing date'' refers to the date interest

begins to accrue. The provision has been clarified. In certain

circumstances, part of a debt owed by an insured under a reinsured

policy may be collected by offset from payments made by other United

States government agencies. However, such recovery is limited to the

amount of the debt that was paid by FCIC.

Comment: An insurance service organization stated that section

25(c) is entirely too vague and may not be given any effect by a court.

It must be rewritten to read ``You may not recover compensatory or

punitive damages or attorney's fees under this contract. Your right to

recover damages of any kind or attorneys' fees is limited or excluded

by Federal regulations.''

Response: Section 25(c) is only intended to notify the insured that

Federal Regulations and other sections of the policy, such as section

26(a), may provide for limitations or exclusions on the recovery of

damages, interest, fees or costs. The provision is clearly stated and

has not been changed.

Comment: An insurance service organization stated that section

26(a) conflicts with section 25(c) unless rewritten as suggested above.

Response: These provisions are complementary, not in conflict.

Comment: Comments were received regarding section 27(a). A

reinsured company questioned whether it is the intent of this provision

that voidance would occur only after the legal system determined fraud.

An insurance service organization stated that this provision should be

rewritten to read ``This policy and all other policies reinsured by the

USDA shall be void in the event you have concealed the fact that you

are ineligible to receive benefits under the Act, or if you are in fact

ineligible (or action is pending which would make you ineligible), even

if you are not aware of it at the time this policy is written. This

policy may also be voidable, in our sole discretion, if you or anyone

assisting you has intentionally concealed or misrepresented any

material fact relating to this or any other policy reinsured by USDA.''

The commenters state that the Standard Reinsurance Agreement voids any

policy with ineligible persons from the time of ineligibility.

Concealment makes no difference. It is unfair to hold the companies to

liability under a policy when FCIC controls eligibility determinations

and will not stand behind the companies. The commenters also state that

the last sentence should read ``voidable'' and not ``void,'' since, in

most cases, a company cannot be placed at risk in determining whether

someone should be banned from what remains an entitlement program.

Furthermore, in many instances, it is better to let the company simply

reduce the amount of the indemnity. Lastly, the commenter suggested

that a sanction short of voiding the policy would be better than

declaring someone ineligible. One example might be to require repayment

of any overpayment to the reinsured company by the policy termination

date with interest and, if not repaid, to allow the company to cancel

the policy. Legal counsel for a reinsured company stated that FCIC

[[Page 65151]]

must understand that no reinsured company may void a policy for fraud

or misrepresentation as provided in section 27 since no reinsured

company can provide the due process that is a requisite for such a

finding. Further, no reinsured company is imbued with the

constitutional or statutory authority to bar a participant from an

entitlement program. The commenter also states that a reinsured company

cannot be held responsible for collection of indemnities that should

not have been paid in a prior year for policies that are retroactively

voided, particularly if the current reinsured company was not the

insurer in the year for which the policy was voided. The commenter

stated that the proposed language creates no duty to the FCIC to engage

in such an effort and, vis-a-vis the insured, does not supplant the

government's role and responsibility.

Response: Reinsured companies cannot bar a participant from the

crop insurance program. The section will be revised to specify that

fraud or misrepresentation may subject the insured to sanctions

authorized in 7 CFR part 400, subpart R. However, when violations such

as concealment, misrepresentation or fraud are found after the

appropriate due process, it is the reinsured company that must deny

insurance or void a policy for an ineligible person because FCIC lacks

privity with the insured. The reinsured company that insured the policy

for the year an indemnity should not have been paid will be responsible

for collecting the overpayment. Since whenever the insured receives an

overpayment it must be repaid, to only require this in the cases of

fraud would not protect the program from such conduct in the future.

Further, cancellation of the policy would only have a prospective

effect and allow insureds to benefit from their misconduct. FCIC must

protect the integrity of the program.

Comment: An insurance service or

This text is long and has been trimmed here. Open the source document for the complete record.