Nursery Crop Insurance Regulations; and Common Crop Insurance Regulations; Nursery Crop Insurance Provisions

DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Parts 406 and 457

RIN 0563-AB65

Nursery Crop Insurance Regulations; and Common Crop Insurance

Regulations; Nursery Crop Insurance Provisions

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes

specific crop provisions for the insurance of nursery. The intended

effect of this action is to provide policy changes to better meet the

needs of nursery operators by adding new Nursery Crop Insurance

Provisions to be effective for the 1999 and subsequent crop years,

restricting the effectiveness of the current Nursery Crop Provisions

and the Nursery Frost, Freeze, and Cold Damage Exclusion Option to the

1999 crop year only and adding a new Peak Inventory Endorsement.

EFFECTIVE DATE: September 24, 1998.

FOR FURTHER INFORMATION CONTACT: Rob Cerda, Insurance Management

Specialist, Research and Evaluation Division, Federal Crop Insurance

Corporation, United States Department of Agriculture, 9435 Holmes Road,

Kansas City, MO 64131, telephone (816) 926-6343.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

to be not significant and, therefore, has not been reviewed by the OMB.

Paperwork Reduction Act of 1995

Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. chapter

35), the collections of information in this rule have been approved by

the Office of Management and Budget (OMB) under control number 0563-

0053 through April 30, 2001.

Unfunded Mandates Reform Act of 1995

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

establishes requirements for Federal agencies to assess the effects of

their regulatory actions on State, local, and tribal governments and

the private sector. This rule contains no Federal mandates (under the

regulatory provisions of title II of UMRA) for State, local, and tribal

governments or the private sector. Therefore, this rule is not subject

to the requirements of sections 202 and 205 of UMRA.

Executive Order 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. The amount of work required of

the insurance companies will not increase because the information used

to determine eligibility must already be collected under the present

policy. No additional work is required as a result of this action on

the part of either the insured or the insurance companies.

Additionally, the regulation does not require any action on the part of

small entities than is required on the part of large entities.

Therefore, this action is determined to be exempt from the provisions

of the Regulatory Flexibility Act (5 U.S.C. 605) and no Regulatory

Flexibility Analysis was prepared.

Federal Assistance Program

This program is listed in the Catalog of Federal Domestic

Assistance under No. 10.450.

Executive Order 12372

This program is not subject to the provisions of Executive Order

12372 which require intergovernmental consultation with State and local

officials. See the Notice related to 7 CFR part 3015, subpart V,

published at 48 FR 29115, June 24, 1983.

Executive Order 12988

This rule has been reviewed in accordance with Executive Order

12988 on civil justice reform. The provisions of this rule will not

have a retroactive effect. The provisions of this rule will preempt

State and local laws to the extent such State and local laws are

inconsistent herewith. The administrative appeal provisions published

at 7 CFR part 11 must be exhausted before any action for judicial

review of any determination made by FCIC may be brought.

Environmental Evaluation

This action is not expected to have a significant economic 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 duplicate

regulations and improve those that remain in force.

Background

On Thursday, January 29, 1998, FCIC published a notice of proposed

rulemaking in the Federal Register at 63 FR 4399-4403, to revise 7 CFR

457.114, Nursery Crop Insurance Provisions, delete 7 CFR 457.115,

Nursery Frost, Freeze and Cold Damage Exclusion Option and replace it

with a new Peak Inventory Endorsement, and restrict the effect of the

Nursery Crop Insurance Regulations (7 CFR part 406) to the 1995 and

prior crop years. The revised provisions will be effective for the 1999

and succeeding crop years.

Since the nursery crop insurance program is already in its sales

period, FCIC has elected to allow nursery producers the option of

insuring their nursery crop under the existing Nursery Crop Insurance

Provisions or these new Nursery Crop Insurance Provisions. As

[[Page 50966]]

a result, the existing Nursery Crop Insurance Provisions and the

Nursery Frost, Freeze, and Cold Damage Exclusion Option will be

restricted to the 1999 crop year only. These new Nursery Crop Insurance

Provisions will be published at 7 CFR 457.162.

Following publication of the proposed rule, the public was afforded

45 days to submit written and verbal comments and opinions. A total of

55 verbal and 138 written comments were received from an insurance

service organization, reinsured companies, agents, nursery

associations, producers, insurance company supervisors and loss

adjusters, and florists' associations. The comments received and FCIC's

responses are as follows:

Comment: A producer asked whether the changes in the proposed

nursery provisions are in effect or just proposed.

Response: The changes in the nursery provisions will not become

effective until publication of the effective date of this final rule in

the Federal Register.

Comment: A crop insurance agent asked whether insurable entities

are the same with the proposed policy as the current policy.

Response: The insurable entities are the same.

Comment: Two producers asked when the policy would be available.

Response: Upon publication of the final rule.

Comment: A crop insurance agent asked whether all states will be

covered under the proposed policy.

Response: FCIC will offer nursery insurance coverage in all states

except Alaska for the 1999 crop year.

Comment: A producer asked what is a marketable plant.

Response: A marketable plant is a plant that the insurance provider

determines may be offered for sale into the wholesale market. FCIC has

added a definition of ``marketable.''

Comment: An insurance service organization, two insurance

companies, two nursery associations, a florist organization, two crop

insurance agents and a producer expressed concerns with the eligible

plant list. The commenters stated that the coverage provided by the

nursery policy depends on the accuracy of the eligible plant list,

which should include, (1) plant genus, species, and cultivar; (2) the

plant's maximum insured value; (3) winter protection required and the

areas in which they apply; and (4) plant unit designation. Other

commenters stated that all nursery plants and cultivars that are hardy

in the zones in which they are produced should be eligible for crop

insurance. A commenter stated that producers will need a copy of the

plant listing in order to accurately submit their plant inventory

report.

Response: The eligible plant list includes the genus, species, and

often cultivar of insurable plants, the maximum insurable value for

those plants, the winter protection requirements for container material

in the areas in which they apply, the hardiness zone to which field

grown material is insurable, the designated hardiness zone for each

county, and unit classification for each plant on the list. The

definition of ``eligible plant list'' has been revised to include this

information. The eligible plant list will be available to producers in

each crop insurance agent's office. Each producer can also receive

computer software that will assist them or agents in estimating the

insurable value of the nursery inventory.

Comment: Two insurance companies and two crop insurance agents

suggested the proposed crop provisions do not appear to exclude plants

for retail sales. One commenter suggested that these sections should be

changed so only wholesale producers of plant materials and those plant

materials being grown for the wholesale market are covered. A commenter

stated the proposed definition of ``nursery'' states that a majority of

the plant materials must be sold in the wholesale market. The commenter

was concerned that insurance was available for nursery operations where

more than 50 percent of the plants may be sold retail. Another

commenter suggested there should be clarification on the issue of

insurability of field grown production of trees and vines grown for

commercial use versus grown for retail sales. The commenter stated some

nurseries growing for a commercial use sell to retailers, and there

needs to be requirements to separate the commercial from the retail

grower.

Response: FCIC's intentions are to insure wholesale producers of

nursery plant materials. In discussions with producers prior to writing

the proposed rule, FCIC became aware that wholesale producers of

nursery plant material also may have some retail sales. FCIC has

revised the definition of ``nursery'' to require at least 50 percent of

gross revenues come from the wholesale sale of plants.

Comment: One commenter suggested changing the definition in section

1 ``policy renewal date'' noting this is the equivalent to the sales

closing date.

Response: A sales closing date is the date by which all sales must

be completed. For nursery, sales are permitted until May 31. However,

FCIC wanted to have a fixed date by which the crop year will begin each

year for continuing policies regardless of the date of application. The

date is the policy renewal date.

Comment: A producer asked why the optional unit proposal had

different classes for annuals and perennials.

Response: Prior to writing the proposed rule, many producers

requested a division of units by type of plant material. Types of

plants listed as eligible for optional units in section 2(c) of the

policy are based on the classification system used by the American

Nursery and Landscape Association's Handbook on Nursery Standards. Many

producers recognize this as an authoritative source.

Comment: An insurance company asked whether container plants would

be a separate unit from field grown nursery plants.

Response: FCIC has added the definition for ``practice'' and

revised the provisions of sections 2(a) and 6(c) to clarify that

containerized and field grown nursery plant materials will be separate

basic units.

Comment: A producer asked whether units would be available on

irrigated acres and non-irrigated acres.

Response: The nursery policy requires all nurseries to be irrigated

to be insured unless otherwise specified in the actuarial documents.

Basic units will be established only by container and field grown

growing practices. Optional units will be available by plant types

listed in section 2 of the policy.

Comment: An insurance company supervisor asked if the proposed

Optional Unit Endorsement guidelines apply to catastrophic risk

protection (CAT) policies.

Response: FCIC has revised the policy to incorporate the Optional

Unit Endorsement into section 2. Optional units will now be available

to producers who elect either the limited or additional level of

coverage without the need to purchase an endorsement. Producers who

elect CAT coverage are not eligible for optional units.

Comment: An insurance company and a producer association expressed

concern with the plant price schedule compiled by FCIC. One commenter

was concerned that the plant price schedule is not subject to public

analysis and comment. Another commenter stated that producers must

revalue inventory for insurance purposes using prices set by FCIC. The

commenter stated that this requirement negates the simplification

created by removal of the requirement that the producer file a

projected inventory, and will cause an additional burden should the

producer's inventory change during the year.

[[Page 50967]]

Response: The plant price schedule is a listing of plant prices

determined by FCIC based on price information available from the

nursery industry. FCIC determined that a fixed plant price schedule was

essential to the continued offering of a nursery insurance program. A

number of public oversight agencies found that FCIC was exposing the

nursery program to potential abuse and litigation when it allowed

individual nurseries to set their own prices. The plant price schedule

will be available to producers and insurance companies by the contract

change date in the same manner used by FCIC to issue rates, price

elections, amounts of insurance and other information used to establish

insurance coverage and determine crop indemnities. It should not impose

any greater burden on producers to calculate the value of their

inventory since only the price used is changed. Therefore, no change

has been made.

Comment: An insurance company expressed a concern that plant size

is the sole determinant of price in the plant price schedule, and that

price variations caused by quality are not considered.

Response: The prices published in the plant price schedule

recognize the most important and common pricing factor, which is size,

at a standard level of quality. It would be impossible to include the

quality variables for each plant type. If the quality of the plants are

deficient, the insurance company can deny insurance on such plants.

Therefore, no change has been made.

Comment: Two crop insurance agents and a producer asked whether the

prices on the eligible plant list will be on a regional or national

level. One commenter had a concern that prices will not be

representative of regions. Another commenter asked whether all the

cultivars will be listed.

Response: FCIC determined that adequate price information was not

available on a regional basis. Therefore, the decision was made to

offer national prices as a means of insuring the largest number of

plants in all areas. For many plants, cultivars will be listed;

however, many cultivars will not be listed. In cases where the plant is

listed by genus and species but a specific cultivar is not listed, the

price for the unlisted cultivar will be the price shown for genus and

species of the plant.

Comment: A producer asked whether the value of the plants will be

adjusted annually as plants mature.

Response: The prices contained in the plant price schedule

recognize different sizes, which reflect different maturity levels. It

is the producer's responsibility to value the plant inventory during

and between crop years based on these prices.

Comment: A crop insurance agent asked when a producer may change

price elections, coverage elections, etc.

Response: The Basic Provisions require all changes in price

elections, coverage levels, etc., be made by the sales closing date.

Comment: A crop insurance agent asked whether there is a reduction

in the wholesale price for field grown tree plant material that is not

harvested. The commenter stated that the producers' costs for digging,

moving, burlapping, and tying of the tree could be substantial.

Response: FCIC is not considering a reduction for unharvested field

grown plant material at this time. FCIC recognizes that the cost for

harvest can be substantial, but it could not identify a uniform

percentage reduction that would be fair to all producers. FCIC will

continue its research in this area and may adjust prices when

sufficient information is available.

Comment: A producer association was concerned that a nationwide

plant price schedule listing the maximum amount payable for insured

plants would be inequitable. The commenter maintains that the best and

fairest method for valuing insurable plants is to use the wholesale

market value of the nursery inventory as stated in the producer's own

catalogs. The commenter recognized FCIC's need to establish a crop

insurance program that minimizes fraud potential. Nonetheless, the

commenter asserts that quality plants command a higher market price and

better producers will be penalized with the crop insurance program that

subjects them to a lower national average price. The commenter was also

concerned that substandard producers will be rewarded with a program

that provides them with a higher average value for their plants.

Response: FCIC recognizes that there can be variation in the

quality of plants produced, growing practices employed, and the prices

received by producers for their plant material. However, this problem

is no different from other crop insurance programs where actual market

prices may be higher than FCIC's announced expected market prices. Most

oversight organizations considered the pricing methodology employed in

the current nursery program a serious risk for program abuse. FCIC has

an obligation to protect its programs. FCIC has attempted to create an

accurate and fair price list, while meeting its mandate to provide an

actuarially sound nursery crop insurance program. Therefore, no change

has been made.

Comment: A crop insurance agent asked whether an insured could buy

a higher coverage level during the policy year.

Response: The producer must elect the coverage level for the crop

year at the time of application or by the policy renewal date for

subsequent crop years and any change the coverage level made after that

date will not be effective until the next crop year.

Comment: Two insurance companies and a crop insurance agent stated

that provisions contained in section 4(b) of the proposed rule would

present difficult data processing problems if implemented. A commenter

stated this provision allows insureds with a policy renewal date

between March 31 and June 30 to choose either the current or the

proposed nursery policy. The commenter stated, for example: If producer

A has a renewal date of July 1 and on March 31 FCIC publishes contract

changes that increase premiums and reduce indemnities, producer A will

be covered by that new policy or not at all. Producer B has a renewal

date of June 30. Producer B may pick either policy. The commenter

stated if FCIC changes the policy again the following year, producer B

will have another opportunity to pick the policy most disadvantageously

to the company. The commenter also stated that the insurance company

must maintain two systems for different policies and must track those

different policies under two different Standard Reinsurance Agreements

(SRA). Another commenter stated that many facets of the policies could

become very confusing, such as (1) which Special Provisions apply; (2)

which price listing is used; (3) which rates will apply; (4) what loss

adjustment will be used; (5) which SRA would this come under; and (6)

for what crop year.

Response: FCIC has revised specific provisions in section 9 of the

policy so that the nursery policy can only be sold through May 31 and

all continuing policies will have a common renewal date. The current

insurance periods ends on September 30, 1998. Producers will have the

option to insure their nursery crop under the existing Nursery Crop

Insurance Provisions (7 CFR 457.114) or the new Nursery Crop Insurance

Provisions (7 CFR 457.162) for the 1999 crop year only. Regardless of

the option chosen, coverage will not be effective before October 1,

1998. FCIC has also revised section 4 to specify that all policies will

have the same contract change date of June 30. After the 1999 crop

year, all nursery crop policies under 7 CFR 457.114 will be terminated

and producers will be required to apply

[[Page 50968]]

for insurance under 7 CFR 457.162 to maintain or obtain insurance

coverage.

Comment: A crop insurance agent asked what the difference is

between the 12 month nursery plant inventory and the Peak Inventory

Endorsement.

Response: The Peak Inventory Endorsement allows a producer to

increase coverage for specific months where the value of the inventory

may be higher than for the rest of the insurance period. Without this

endorsement, producers would have to carry higher coverage throughout

the insurance period, with unnecessary premium paid, or risk having

uncovered losses. The Peak Inventory Endorsement is designed to help

producers lower the premium cost by isolating peak amounts of inventory

value and charging premium only for the period the peak insurance

coverage is in effect.

Comment: A producer and a crop insurance agent asked whether plant

materials not on the plant price schedule would be insurable by written

agreement.

Response: Although FCIC is greatly expanding the number of

insurable plants by including field grown nursery plants under these

provisions, some plants may not be listed. To the extent that FCIC can

determine the proper cold weather storage requirements for the

container grown plant material, the cold hardiness zones for field

grown material, and a scheduled price for each plant according to size

and growing practice. Insurance by written agreement may be available.

Plants insured by written agreement will be included on the eligible

plant list in subsequent crop years.

Comment: A crop insurance agent stated that an inventory list of

plants was necessary to adjust a loss.

Response: When loss adjustment occurs, loss adjusters must

determine the value of the inventory just prior to and after the loss.

This is done by a visual examination of the plants. FCIC determined

that an examination of the existing plants on hand was more accurate

than a plant inventory list since the inventory changes so frequently.

If concerned, the policy permits insurance providers to require an

inventory list of plants. However, since most losses tend to occur

infrequently and as a result of catastrophic events, FCIC determined

that requiring all producers to annually report plant inventory lists

was too burdensome. Therefore, no change has been made.

Comment: A producer asked whether the dollar value of an inventory

can be a lower dollar value than the national price.

Response: The nursery policy permits producers to select less than

100 percent of the price listed in the plant price schedule. Producers

must make this election at the time of application or by the policy

renewal date for all plants covered under the policy but cannot select

different price percentages on individual plants or types of plants.

Comment: A producer asked why 100 percent of all the plants must be

insured.

Response: FCIC has always required that all acreage of a crop in

the county be insured under a policy. Nursery is no different. The

nursery policy requires that all insurable plants listed on the

eligible plant list in which the producer has a share in the county be

insured.

Comment: A loss adjuster asked whether the plant inventory value

report can be revised upward during the year.

Response: Section 6 of the Nursery Crop Insurance Provisions states

the Plant Inventory Value Report may be revised until May 31st to

reflect an increase in inventory value. Section 6 also states that

insurance will attach on any proposed increase in inventory value 30

days after a written request is received unless the insurer rejects the

proposed increase in your plant inventory value in writing.

Comment: An insurance company and a producer association stated

that section 6(b) is not clear and asked if the policy is continuous.

Response: FCIC has revised section 9 of the policy to provide a

date certain for the beginning and end of the insurance period to make

it clear that this is a continuous policy. Language was also added to

section 6 to make it clear that the plant inventory value report for

continuing policies must be submitted by September 1 if the producer

wants to change any inventory values.

Comment: An insurance company questioned whether section 6(c)

excludes new nurseries that may not have sales records from previous

years and what are the consequences of not having any sales records.

Response: Records of sales and purchases are not required as a

condition of insurance except for producers insured under the

catastrophic level of coverage. Since producers insured under the

catastrophic level of coverage are limited to an amount of coverage

based on previous year's sales, they may be required to submit such

records. For producers covered by limited or additional levels of

coverage, it is within the discretion of the insurance provider whether

such records are necessary. This provision was intended to allow

insurance providers to obtain additional information from high risk

producers and will not exclude new producers from obtaining insurance.

Comment: An insurance company had a concern that the definitions of

field market value A and B refer to the value ``in the unit'' before

and after occurrence of a loss. The commenter stated that it would be

helpful to state somewhere in section 6 that the value must be reported

by unit. The commenter stated that the last sentence in section 6(d),

which says errors in reporting may be corrected by us at loss

adjustment time, may not be clear to the policyholder.

Response: Section 6(c) requires the producer to report the

inventory value for each practice, which is the basic unit. Requiring

an inventory report for each optional unit would place an undue burden

on producers to accurately project inventory in multiple categories of

plants over the insurance period. The difficulty of this task would

likely result in numerous revisions of unit values or frequent

instances of misreported unit values. Therefore, no change has been

made.

Comment: An insurance company and a producer association suggested

that a clarification may be needed in section 6(f). The commenter feels

that this provision would allow shifting of plants between plant groups

at loss time since some plants fall into more than one group.

Response: Since plants will be assigned to plant groups on the

eligible plant list, there will be no opportunity for producers to

reassign plants to a different plant group.

Comment: An insurance company and a producer association suggested

FCIC consistently apply waiting periods. The proposed rule contains a

30-day waiting period for a Peak Inventory Endorsement, but only a 14-

day waiting period for an inventory increase. The commenter stated it

would be less confusing if the waiting period for a Peak Inventory

Endorsement and for an inventory increase would be the same. The

commenter stated the waiting period should be 14 days.

Response: FCIC has revised section 6 to require a 30 day waiting

period for an inventory increase to be consistent with the waiting

period for the Peak Inventory Endorsement.

Comment: An insurance company recommended changing section 6(h) to

read ``You must insure the full value in accordance with section 6(e)

of your insurable plant inventory.''

Response: FCIC has amended redesignated section 6(g) accordingly.

[[Page 50969]]

Comment: An insurance company and a producer association stated the

proposed policy confuses and complicates the relationship between

premiums and indemnities and thereby creates unnecessary work and

invites abuse. One commenter stated: (1) Premiums are determined based

on the plant inventory value report the producer prepares and the

values should be reported by unit, not growing location; and (2)

indemnities are determined by plant price schedule which lists the

maximum amount payable for insurable plants. If inventory is valued

according to the plant price schedule, producers need not separately

value inventory. The commenter stated all they need do is list

inventory and the insurers will calculate the premium from the plant

price schedule. Moreover, while it is pointless for producers to value

inventory above the maximum amount payable for the loss of that

inventory, as determined by the plant price schedule, it may be

profitable to overvalue inventory up to the price established by the

plant price schedule. For example, if the plant price schedule

establishes a price of $10 for a particular plant, a producer might

value such a plant at up to $10 when, if fact, its true value is only

$5. The commenters also asked how devalued (damaged) plants would be

handled; a detailed plant inventory listing is not required but is the

basis for determining the inventory value report. The commenter stated

that a detailed plant listing must be a requirement, not an option. It

is imperative that FCIC make available computer software that includes

the plant price schedule and includes the appropriate reports required

to determine the amount of insurance for the nursery by optional unit

if applicable.

Response: According to the terms of the policy, inventory values

are reported on the plant inventory value report by basic unit and the

location of the plants in each unit must also be reported. The nursery

plant prices on the plant price schedule will generally be close to the

average price. FCIC recognizes that there will be instances where

prices for a particular nursery may differ from the average price.

However, during the establishment of the plant price schedule, FCIC did

not encounter a high number of instances in which the producer's prices

were materially lower for a large portion of the inventory. Therefore,

FCIC does not perceive significant risk in producers being able to over

value their inventory. FCIC designed the nursery insurance product to

function efficiently using a minimum amount of paper for both the

insurance delivery system and the insured, while protecting program

integrity. Further, insurance providers who are concerned may require

detailed plant listings. FCIC will have computer software that will

assist producers and crop insurance agents in the valuation of the

insurable plant inventory.

Comment: An insurance company noted that under the current policy

the producer provides the insurance company with a listing of plants

that will be grown during the insurance period. Based on that list, the

company has the opportunity to determine if the cold protection

equipment or facilities can adequately meet the cold protection

requirements. The proposed policy does not require the producer to

provide a detailed plant list. The commenter stated that the inspector

may not know that the required cold protection is unavailable until a

notice of loss is filed by the insured. The commenter also stated that

the current inspection form provides a place to list the insurable

plants, but if the loss adjuster does not know what plants are

insurable, he or she will not be able to make that determination.

Response: A major objection to the current policy, voiced

repeatedly by producers, was the amount of paperwork involved to

establish coverage. It was FCIC's goal to provide an insurance product

that would meet the needs of producers and the insurance companies

while remaining actuarially sound. FCIC believes that detailed

inventory reports present a significant barrier to program

participation. When the application is first received, the nursery will

be inspected. The inspector will be able to see the plants and the cold

protection measures to determine if they meet the policy requirements.

Thereafter, the nursery will be inspected after a loss. The loss

adjuster will again inspect the plants and the cold protection measures

to ensure compliance with the policy requirements. A detailed list of

plants is not necessary to protect the program's integrity. Therefore,

no change has been made.

Comment: A producer association asked what effect a revised plant

inventory value report that decreases the amount of insurance would

have on the crop year deductible.

Response: Permitting producers to revise inventory values downward

on a regular basis is likely to create an excessive and unnecessary

administrative burden. Therefore, FCIC has revised section 6(f) of the

policy to specify that revisions in inventory value are only for

increasing reported values. The availability of the occurrence

deductible makes downward revisions to obtain a lower coverage

unnecessary.

Comment: A crop insurance agent asked whether the proposed policy

will have different premium rates based on classes of insured plants.

Response: At the present time, FCIC does not plan to offer

insurance at different premium rates based on plant types. Premium

rates may be adjusted in the future as actual experience is reviewed.

However, FCIC anticipates different premium rates for the container

grown and field grown nursery practices.

Comment: A crop insurance agent asked whether there will be an

additional rate for optional units.

Response: For an additional premium, section 2 of the policy allows

basic units to be divided into optional units by producers who elect

limited or additional coverage.

Comment: An insurance company expressed concern about rating for

the proposed policy. The commenter asked if the premium cost will

change from 1998 to 1999 for the same inventory.

Response: This policy is substantially different in many respects

from the current policy. FCIC is developing rates specific to the

provisions of the new nursery policy. FCIC anticipates changes in

rating structures across the country. In some regions, rates are likely

to be higher and other regions' rates may be lower. For the 1999 crop

year, producers with coverage under the existing nursery policy will be

charged rates for the coverage under that policy.

Comment: Insurance companies recommended adding in section 7 ``any

amount due us will be deducted from any loss payment.''

Response: FCIC has amended the provisions in section 7(c) to allow

the deduction of any amount due under a FCIC reinsured crop insurance

policy to be set off against any indemnity which may be due.

Comment: Insurance companies and a producer association had

concerns with sections 7(b)(2) and (3). The commenters recommended: (1)

The time frames as proposed for paying the premium in full be removed

and substituted with 6 months; and (2) the insured have at least 30

days to pay the premium before interest begins. With respect to the

requirement that 40 percent of the premium is due on the date the

insurance inventory is accepted, the commenter questions what was the

consequence if the amounts are miscalculated and an amount less than 40

percent of the premium is paid. The commenter asked whether coverage

would be postponed

[[Page 50970]]

until the 40 percent is paid. The commenter also asked the consequences

if damage occurs in the interim and would the amount of insurance be

prorated to the amount of a premium paid or would coverage be denied. A

commenter questioned, if a revised plant inventory value report is

submitted that increases the premium, whether the 40 percent must be

paid with the report or is this additional amount billed. The commenter

stated it would seem simpler to issue a billing after the amount of

insurance is established and require the full amount to be paid within

30 to 60 days.

Response: Based on the comments, FCIC finds no substantial benefit

in its original proposal to collect premiums in installments.

Therefore, FCIC has determined that it is in the best interest of the

nursery program to establish one premium billing date. Sections 7(b)

and (c) have been revised to use the premium provisions in the Basic

Provisions regarding premium billing dates and the offset of amounts

owed from indemnity payments. The billing date should be sufficiently

late in the crop year so that all premium adjustments for the purchase

of Peak Inventory Endorsements should have been made.

Comment: An insurance company asked whether FCIC will have a

separate document for the producer to sign, certifying that the

producer fully understands that only insurable plants are covered. The

commenter stated they would prefer that producers be required to submit

a list of their plants to their agent.

Response: Many crops have types or practices that are uninsurable

and certification is not required. Since the policy is clear that only

those plants listed on the eligible plant list are insurable and such

list is available to producers, certification is not required for

nursery. As stated above, FCIC found the requirement that all producers

annually submit plant lists to be too burdensome and that amount of

insurance, losses and indemnities could be determined without requiring

detailed inventory reports in advance of a loss. Therefore, no change

has been made.

Comment: An insurance company, a crop insurance agent and two

producers asked whether the policy covered nursery plants after they

are dug, balled and burlapped until the time they are sold. One

commenter suggested clarification on field grown production for

situations where plants are removed from the ground and damage occurs

while in storage.

Response: Section 9 is revised to specify that balled and burlapped

plant material is insurable until it is removed from the nursery

because FCIC considers the balling and burlapping of field grown plant

material a standard practice for field grown nursery material. It is

appropriate to continue insurance coverage after the nursery material

was balled. FCIC will specify management practices needed to care for

balled and burlapped plant material in the Special Provisions (For

example: FCIC may require shade and irrigation for balled and burlapped

plant material in some circumstances). Insurance coverage will end when

the plant material is removed from the nursery or at 11:59 p.m. on

September 30 of the crop year.

Comment: A crop insurance agent asked whether Christmas trees are

covered under the policy. The commenter stated that it seems they would

be covered if the tree is listed in the eligible plant list and there

were an established price. The commenter also asked whether insurance

would end once the trees are cut and sold as a wholesale crop.

Response: FCIC did not intend to insure Christmas trees. Specific

language was added to section 8 clarifying this exclusion. FCIC will

consider insuring Christmas trees under a separate policy.

Comment: A crop insurance agent asked whether the proposed rule

will cover seedbed and transplant beds.

Response: To be insurable, plants are required to be produced in

standard nursery containers or field grown and must be a size specified

in the eligible plant list. It is unlikely that seedbed or transplant

beds would meet these criteria. If they did, and all other requirements

for insurability are met, they may be insured.

Comment: An insurance service organization, a crop insurance agent,

and two producer associations expressed concern that the proposed

policy does not cover trays, cellpacks, and plant containers less than

3 inches in size, which form a significant part of the industry.

Response: In conducting research regarding insurability of small

containers (less than 3 inches), FCIC determined that these containers

presented a unique set of risks that would require special underwriting

considerations. FCIC does not have sufficient information to offer such

coverage. Further, FCIC has been informed that plants in containers

less than 3 inches are generally produced in greenhouses, where private

insurance is available. Therefore, no change has been made.

Comment: An insurance service organization had a concern that the

proposed policy states that plants must be grown under an irrigated

practice unless otherwise provided on the actuarial table or by written

agreement. The commenter asked how the written agreement would be

completed.

Response: The nursery policy requires that the insured crop be

irrigated. The policy also contains a provision that allows FCIC to

waive the irrigation requirement for field grown nursery plant material

if appropriate. FCIC will list any waiver of the irrigation requirement

in the Special Provisions. FCIC has included the procedures for

approval of written agreements.

Comment: Two producer associations had concerns with the provisions

of section 8 that state: (1) ``The insured nursery plants are those

determined by us to be acceptable'; and (2) ``the insured nursery

plants are those that are grown in an appropriate medium.'' The

commenters requested clarification of ``acceptable'' and

``appropriate.''

Response: This provision of the policy is designed to protect

insurance providers from accepting or being forced to accept plant

materials that are damaged or are growing in a soil medium,

particularly when containerized, that is inappropriate for the healthy

growth of nursery plants. Generally available horticulture reference

materials can be used to determine appropriate growing media. Such

references would include factors such as soil composition, soil pH,

drainage requirements for the particular plant material, etc. It is

impossible to cover the range of possibilities in the insurance

contract and, therefore, it will be within the loss adjusters'

authority to determine the acceptability of the plants and the

appropriateness of the growing medium in the event of loss.

Comment: An insurance company suggested adding to section 8(c)

``while the plant is located in the nursery'' at the end of the

sentence.

Response: FCIC has revised the provision accordingly.

Comment: An insurance company questioned whether it is required to

inspect the nursery for new applicants. The commenter stated it appears

there are four required inspections, each involving a great deal of

work, before coverage can be accepted: application, plant inventory

value report, inspection, and payment of 40 percent of the premium.

Response: The policy requires an inspection to determine the

acceptability of the nursery plant

[[Page 50971]]

materials and an inspection for determining the amount of any loss

claimed by the policyholder. No other inspections are implied or

required by the nursery policy. FCIC has removed the 40 percent premium

requirement and there is no more work required for a plant inventory

value report than there would be for an acreage report. Therefore, no

other changes have been made.

Comment: A producer asked when a plant is considered an insurable

plant (i.e., seedlings).

Response: Plants growing in containers that are at least 3 inches

across which are at least the minimum insurable size as specified in

the eligible plant list, for which a price can be determined from the

plant price schedule or approved written agreement, and are not

rejected as unacceptable are insurable.

Comment: Two insurance companies, an insurance agent, and two

producers asked about the policy renewal date.

Response: Based on the numerous complaints regarding the

complexities associated with administrative and operating procedures,

FCIC has determined that it is in the best interest of the insurance

delivery system to create a common renewal date for all policies. FCIC

has revised section 9 of the policy to provide a renewal date of

October 1. Although, producers will be permitted to purchase an initial

nursery policy after October 1, the policy will annually renew on

October 1.

Comment: A producer association asked if a producer who currently

does not have nursery coverage may buy a policy before October 1, 1998,

for the 1999 crop year.

Response: Once the final rule is published and FCIC files the

policy, rates, and other information, sales may begin. For the 1999

crop year only, producers can elect to obtain coverage under either the

existing nursery policy or this new nursery policy. However, although

either policy may be purchased prior to October 1, coverage will not

begin prior to October 1. With respect to the new nursery policy, to be

insured as of October 1 of any crop year, producers must submit an

application at least 30 days prior to that date.

Comment: An insurance company questioned the elimination of the

sales closing date. The commenter stated it could cause an insured to

wait until the producer could make a prediction as to the risk. For

example, a producer in Florida might purchase a nursery policy in June

or July, when there is a forecast for a high number of hurricanes or

the insured may use the forecasts to increase their level of coverage.

Response: FCIC has revised section 9 of the policy to state that no

policy may be purchased after May 31 to eliminate the ability to

purchase a policy for only those periods where a loss is more likely.

Further, the final rule states that coverage will begin 30 days after

the application is received by the crop insurance agent. Therefore, no

change has been made.

Comment: An insurance company stated that the movement to property

and casualty philosophy of ``no sales closing date'' causes

administrative issues that do not apply to other Federal crop insurance

programs. The commenter stated it appears that developmental and

assigned risk fund selections, premium due dates, premium billing

cycles, renewal dates, issuing provisions and inventory deadlines could

potentially occur each day of the year under the proposal, which

increases the burden on the processing companies. The commenter stated

if the ``no sales closing date'' concept is retained, a prorated

premium for the first year insured up to some renewal date that is

common to all policies would alleviate this problem.

Response: FCIC has revised section 9 of the final rule to state the

policy will be offered for sale until May 31st for the year of

application. After the year of application, if the policyholder has not

canceled or terminated, the policy will have a common renewal date of

October 1 with no 30 day waiting period. The premium will be prorated

for the year of application to reflect the risks from any reduction in

the coverage period until September 30.

Comment: An insurance company expressed a concern regarding the

determination of the reinsurance year, especially for applications

accepted after one reinsurance year ends and another begins.

Response: FCIC has revised section 9 of the policy to require all

initial policies be purchased by May 31. This will ensure that all

sales will occur in the same reinsurance year.

Comment: A producer asked whether the proposed nursery policy will

allow a producer to cancel in mid-year.

Response: A producer is not permitted to cancel a policy for the

crop year once the application is submitted unless the producer sells

or otherwise divests himself or herself of his or her share of the

nursery. The producer may cancel the policy at any time effective for

the next crop year.

Comment: A producer asked when insurance ends on bare root stock.

Response: Section 9 has been modified to specify that insurance

ends for bare root nursery stock with the removal of the nursery stock

from the field.

Comment: A crop insurance agent asked whether the proposed policy

will be on a 12-month basis from the date of sale.

Response: FCIC has revised section 9 of the policy to permit sales

throughout the crop year until May 31. The insurance period will end on

September 30 of each crop year, regardless of when the policy is

purchased. The premium will be prorated for the period of risk.

Comment: A crop insurance agent and a producer asked whether the

proposed policy is a continuous policy from year to year.

Response: The nursery policy is continuous from year to year

provided that the premium is paid in full.

Comment: A crop insurance agent asked if the proposed nursery

policy is released after July 1, 1998, whether a carryover insured can

buy insurance for protection under the new policy between July 1 and

September 30. The commenter also asked how this might affect a current

1998 policy.

Response: Once the final rule is published and FCIC files the

policy, rates, and other information, sales may begin. However, no

coverage will begin before October 1, 1998. For the 1999 crop year

only, producers will have the option to be covered under their existing

policy or the new nursery policy. Thereafter, only the new policy will

be available.

Comment: A producer asked whether it is possible to change the

effective date of the policy. The commenter stated this would require

insurers to short rate the nursery policy.

Response: The effective date of the policy will not be changed

since it corresponds with the effective date of the current nursery

policy. FCIC has revised the new nursery policy to specify a single

policy renewal date and a limited sales period. FCIC will prorate the

premium for partial year insurance periods.

Comment: An insurance company asked if a policy is canceled or

terminated, how soon could the policy be reinstated (since there are no

sales closing dates in the proposed provisions).

Response: Once a policy is terminated, it cannot be reinstated

unless allowed under 7 CFR part 400, subpart U. Under section 9 of the

policy as revised, producers can make new application for a policy

until May 31.

Comment: An insurance company questioned whether the price list,

rate changes, etc., take effect based on the date the application is

signed or the date

[[Page 50972]]

coverage begins (30 days later or when the insurance inventory is

accepted).

Response: For the 1999 crop year only, the plant price schedule,

rate changes, etc., take effect upon publication by FCIC of such

information for the existing policy and the new policy. Thereafter,

such policy terms will take effect on the date insurance attaches. The

terms of the policy will be fixed for the subsequent crop years by the

contract change date.

Comment: A producer association asked whether the proposed changes

provide payment for removal of the damaged plant materials.

Response: The Federal Crop Insurance Act only authorizes payment

for damage to insured plant material. There is no authority to provide

coverage for removal of damaged plant material.

Comment: A producer asked whether the proposed policy provides

coverage only against the ``death'' of the plants or whether the policy

also covered damage that leaves plants unmarketable.

Response: Damage from an insured cause of loss that renders a plant

unmarketable during the insurance period or substantially delays the

producers' ability to sell the plant would be covered. Losses will be

determined using FCIC approved loss adjustment procedures.

Comment: A producer asked what happens if the plants do not grow to

their expected size due to drought.

Response: The nursery policy does not guarantee the plant will

reach a producer's expectation. FCIC added a provision in section 10

that specifically excludes coverage for failure of the plant to reach

an anticipated size due to drought. FCIC considered such coverage but

could not accurately determine an amount of loss for failure of a plant

to reach an anticipated size. Drought is a covered cause of loss if the

plant is destroyed or damaged to the extent that it is unmarketable

during the insurance period.

Comment: A producer asked what the irrigation requirements are for

nursery producers.

Response: Section 8 of the nursery policy states that adequate

irrigation equipment and water to irrigate all insurable nursery plants

must be available at the time coverage begins and throughout the

insurance period, unless otherwise provided by the actuarial documents

or by written agreement. These determinations will be made during

inspections conducted prior to the acceptance of insurance by the

insurance provider and at the time of loss. It is not possible to

provide more detailed requirements because these will vary based on the

type of nursery operation and its location. The definition of

``irrigated practice'' has been revised to require sufficient water to

sustain the normal growth of the plant and provide cold protection for

applicable plants as described in the eligible plant list published by

FCIC.

Comment: A producer asked whether drought will be covered as a

cause of loss for field grown plants that are not irrigated because

most producers in their region do not irrigate field grown nursery

plants.

Response: The policy will only cover drought for non-irrigated

plants as an insurable cause of loss if the irrigation requirement is

waived by the actuarial documents or by written agreement.

Comment: A crop insurance agent asked whether earthquake is an

insurable cause of loss.

Response: Section 10 lists earthquake as an insured peril.

Comment: A crop insurance agent asked whether excessive rain would

be considered a cause of loss if the moisture causes a disease on the

plant.

Response: Excessive rain and its consequences are considered an

insurable cause of loss. However, disease for which control measures

exist is specifically excluded as a cause of loss in section 10.

Comment: A crop insurance agent questioned section 10(b)(4) and

recommends changing this section to read ``cold'' instead of frost and

freeze, because plant materials can be damaged at less than freezing

temperatures.

Response: FCIC has amended the provision accordingly.

Comment: A crop insurance agent, a producer association, and an

insurance company stated a need to identify criteria and procedures for

payments of disease or insect claims.

Response: Within the loss adjustment procedures, loss adjusters

will be given specific instructions for documenting claims for these

causes of loss. Therefore, no change has been made.

Comment: A producer asked whether the policy covered damage that

becomes apparent over time. For example, the commenter questioned, if

plants are damaged by flood and damage does not become apparent for a

year, whether the producer could make a claim for indemnity.

Response: The policy provides protection against causes of loss

that occur within the insurance period and that damage insured plants.

The insured may make a claim for damage that occurred during the time

the policy was in effect even if the insurance period has expired as

long as a claim for indemnity is filed within 60 days after the

insurance period has ended.

Comment: A producer questioned whether the policy would cover the

cost of replacement plants if those plants to be shipped in March and

April were underwater for 7 to 10 days in November and December and the

producer decided to buy replacement plants for shipment in March and

April due to concerns about the viability of the plants in inventory.

Response: The nursery policy covers damage to the insured nursery

stock from insured causes of loss. If the flooded plants were damaged

to the extent that they were unmarketable during the crop year,

indemnities would be paid in accordance with loss provisions of this

policy. There is no coverage provided for costs associated with

replacing stock.

Comment: An insurance company recommended that section 10(b)(4)(i)

be changed to indicate that proof of the repair or replacement of cold

protection equipment or facilities was not possible and would not be

required for the first 72 hours after failure of the equipment or

facilities.

Response: FCIC believes this section is stated clearly. Therefore,

no change has been made.

Comment: Two producers had concerns that the penalties for over and

under reporting the value of the plant inventory are extremely severe.

One commenter stated that the penalty for over reporting in particular

is inconsistent with other insurance products. Another commenter stated

the current policy establishes the amount of deductible on a percentage

basis, based on the value of the inventory at the time of loss, and the

proposed rule would fix the deductible as a percentage of the inventory

value reported at the beginning of the policy year.

Response: There is no penalty for under or over-reporting inventory

value. Producers are unlikely to over-report their inventory since it

would increase their premium and decrease the likelihood that they will

receive an indemnity since their crop year deductible will be higher.

However, there is an incentive for producers to under-report their

inventory value to reduce the amount of premiums owed. The claims

provisions adjust the amount of indemnity by the proportional amount of

the under-reported value to be commensurate with the amount of

liability for which the producer paid. Therefore, no change has been

made.

Comment: A crop insurance agent asked whether the deductible will

be prorated when the value of inventory reported by a producer is less

than the value found at the time of a loss.

[[Page 50973]]

Response: The policy requires the producer to report the full value

of the nursery plant inventory or a reduced indemnity will be received

in the event of a loss. As stated above, section 12 provides for

indemnity payments in proportion to the amount of insurance purchased

when the insured reports less than the full value of the insurable

nursery inventory. For example, a producer who declares inventory worth

sixty dollars when it is worth one hundred dollars will be paid 60

cents for each dollar that otherwise would have been paid as an

indemnity under the terms of the policy. FCIC believes the under

reporting provision of this policy is fairer to the producer than the

provisions of the current policy for this situation since the policy

provides producers with the insurance coverage for which a premium was

paid.

Comment: A crop insurance agent asked whether units have an

occurrence deductible or are all occurrence deductibles summed to meet

the crop year deductible. The commenter also asked whether there would

be any more occurrence deductibles for the crop year if the crop year's

deductible is met.

Response: If the occurrence deductible is met, an indemnity will be

paid on each affected unit. All losses reported in a timely manner will

be accumulated to meet the crop year deductible. After the crop year

deductible is reached, producers no longer face a deductible for

subsequent losses. However, it should be noted that the insurance

limits are reduced with each loss. For example, if a producer has an

amount of insurance of one hundred dollars and is paid a $30 loss, the

remaining amount of insurance on that policy is $70. Should the

producer restock lost plant material without reporting the increase to

the insurer as prescribed in section 6, a subsequent indemnity would be

calculated using the under report factor.

Comment: Two crop insurance agents had concerns that the proposed

rule contains changes that greatly diminish the value of the nursery

crop insurance program for producers who purchase the CAT level of

coverage. The ``monthly loss deductible'' contained in the current

program has been eliminated from the proposed rule. The commenter

stated the replacement ``occurrence deductible'' has been added as a

part of the Optional Unit Endorsement but it is not applicable for CAT

policies. The commenter also stated the ``crop year deductible,'' which

is applicable to CAT policies, penalizes producers if their inventory

varies either upward or downward from the ``accepted plant inventory

value report.'' An agent had a concern that the plant inventory values

of many nurseries will vary 10-40 percent between the highest and

lowest monthly inventories during the year. The commenter stated that

the current nursery crop provisions allow the producer to establish

maximum liability based on the highest monthly inventory value, but

establish the monthly loss deductible based on the inventory on hand at

time of loss. The commenter stated the proposed rule requires the

grower to furnish a single plant inventory value that sets the amount

of insurance liability and also the crop year deductible. The agent

also stated the crop year deductible will increase if the plant

inventory value, at the time of loss, is greater than the accepted

plant inventory value, but will not decrease if the plant inventory

value, at the time of loss, is less than the accepted plant inventory

value. The indemnity will be further reduced by a coinsurance factor if

the plant inventory value, at the time of loss, is greater than the

``accepted plant inventory value report.'' The commenter stated that

these deductible changes in the proposed rule will result in producers

not being indemnified for losses in excess of 50 percent damages if

their plant inventory value, at the time of loss, varies either upward

or downward from the accepted plant inventory value. An agent stated

that heavy sales in the spring and fall can result in 20-25 percent of

the annual sales occurring in one month. While these plants are

restocked, they may not be restocked on the same day they are sold,

resulting in significant plant inventory variations. The commenter

stated the nursery crop insurance program is the only crop insurance

program that requires producers to project plant inventory values for

the next 12 months and then penalizes the producer (insured under a CAT

policy without an occurrence deductible) if the plant inventory value

varies from that single projected plant inventory value. The inventory

reporting requirements in the proposed rule require the grower to

report one inventory amount even though the grower knows the inventory

varies throughout the year. The commenter also stated that those who

purchase CAT level policies are, in instances where they have over

reported their inventory, incapable of recouping 50 percent of their

inventory at 55 percent of its price, as mandated by the Federal Crop

Insurance Reform Act of 1994. The commenter suggests using the

deductible language being proposed in the Optional Unit Endorsement.

That would allow all policyholders to have benefit of a deductible.

Response: FCIC considered the large number of comments received

regarding its proposal to allow an occurrence deductible only to

insureds who purchase an Optional Unit Endorsement. However, the Act

does not allow optional units under CAT policies. CAT is only intended

to provide a basic level of coverage and admittedly the coverage

available is not as good as that available under limited or additional

coverage policies. Since limited and additional coverage policies

charge a premium, it is only equitable that the coverage provided be

better. It is up to the producer to determine which coverage best meets

his or her risk management needs.

Comment: An insurance company asked whether all units must be

adjusted before paying a loss, or only the units in a loss situation.

Response: An inventory of the nursery plant material in the basic

unit is required at the time of loss to determine the deductible and to

determine if the basic unit values have been correctly reported. While

this is a departure from other crops FCIC insures with optional units,

it is not different from the current policy. The current policy

requires the same determination to establish the monthly deductible and

compliance with the reporting requirements of the current policy.

Comment: An insurance company asked about the need for the proposed

policy provision that requires losses to be 1 percent or $250 once the

crop year deductible has been met.

Response: FCIC has deleted this provision.

Comment: An insurance company and a crop insurance agent questioned

section 12(e) which states, ``that the value of any insured plant

inventory will be determined on the basis of our appraisals.'' The

commenter stated that section 6(d) and (e) states the value of the

insured plant inventory is based on the plant price schedule. One

commenter suggested that, because of the lack of a mutually agreeable

method of determining salvage values and rehabilitation periods, a

default percentage of loss should be incorporated into the policy.

Response: FCIC has deleted section 12(e) from the proposed rule.

Comment: Two insurance companies recommended an example of a loss

calculation be included in the provisions.

Response: FCIC has included examples of loss calculations in

section 15.

Comment: An insurance company and a producer had concerns with

section 14(b)(1) and (3). The commenters stated

[[Page 50974]]

section 14(b)(1) indicates no written agreements for nursery will be

continuous, but would have to be requested again each subsequent year

if the situation still exists. The commenter stated section 14(b)(3)

refers to written agreements ``submitted after the application for

insurance or the policy renewal date * * *.'' should be changed to read

``a written agreement submitted after the application the initial year,

or after the policy renewal date in subsequent years * * *.''

Response: The written agreements are, by design, temporary and

intended to address unusual circumstances. If the condition for which a

written agreement is issued exists each crop year, the policy or

Special Provisions should be amended to reflect this condition.

Therefore, no change has been made.

Comment: An insurance company recommended changing the definition

of a peak amount of insurance from ``* * * elected under the crop

provisions * * *'' to read ``* * * elected for the crop and county. * *

*''

Response: Such a change may mislead producers into thinking that

they may select different coverage levels under the Peak Inventory

Endorsement than the Crop Provisions. Therefore, no change has been

made.

Comment: An insurance company asked whether the rate charged for

the Peak Inventory Endorsement will be the same as the annual rate,

prorated for the increase.

Response: The rate for the peak inventory endorsement will be the

same as the annual rate adjusted for seasonal changes in risk. These

adjustments will be contained in the actuarial documents.

Comment: An insurance company asked if the peak inventory value

report must be submitted ``on our form.'' The commenter asked whether

this will be the same as the regular plant inventory value report, or

whether a separate form necessary.

Response: The peak inventory value report is a separate form.

Comment: A producer group asked whether more than one Peak

Inventory Endorsement could be purchased during the course of the

insurance period.

Response: Section 2(b) of the Peak Inventory Endorsement allows the

purchase of up to two Peak Inventory Endorsements during the crop year

unless the producer has suffered an indemnified loss and restocked the

nursery. In such case, the producer could purchase an endorsement each

time the nursery is restocked after a loss in addition to the two other

Peak Inventory Endorsements authorized.

Comment: An insurance company and a producer association asked if

the occurrence deductible in the Optional Unit Endorsement is on an

optional unit basis and stated the occurrence deductible is confusing

particularly when the amount of insurance is greater than field market

value A. The commenter stated it appeared that the deductible has

decreased due to the endorsement. The commenter asked whether the crop

year deductible, as well as the occurrence deductible, must be

satisfied prior to any indemnity payment.

Response: The occurrence deductible applies on a unit basis,

optional or basic as appropriate. FCIC acknowledges that the occurrence

deductible adds a certain amount of complexity and, therefore, has

included a more detailed example. The occurrence deductible must be

satisfied before any indemnity is paid on a unit.

Comment: Insurance companies and a producer association observed

that there are 13 optional units based on plant types and asked when

the producer must select the plant type for their inventory. One

commenter asked whether the eligible plant list establishes the plant

type.

Response: The eligible plant list will contain all plants eligible

for insurance. Each plant will be assigned a plant type, which will be

its optional unit designation. Even though a plant may be classified in

more than one type, FCIC will assign each plant a single type for

insurance purposes.

Comment: An insurance company asked whether the ``premium rate for

optional units'' used in section 5 of the Optional Unit Endorsement is

the correct terminology, or whether it should be ``premium factor for

optional units.''

Response: FCIC has removed the Optional Unit Endorsement from the

policy. Section 7(a) allows for a premium adjustment for optional

units.

Comment: A producer asked whether the producer has to declare: (1)

The value of the plants within each unit grouping; and (2) the maximum

amount of insurance for each group. The producer also asked if the

value reported for each unit has to sum to the total insurance for each

basic unit.

Response: The policy requires the value reported for the basic

units are accurate for determining compliance with the insurance to

value provisions of the policy. The value reported for any unit cannot

exceed the total for the basic unit and at any given point in time, the

values for each unit should be approximately the same as the total

value for the basic unit to avoid paying unnecessary premium or being

subject to the underreporting provisions. When insurance to value

requirements are not met, losses are determined according to section

12(b).

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

editorial and format changes that did not change the terms of the

proposed provisions. FCIC also made the following revisions:

1. The definition of ``crop year'' is revised to clarify the day on

which the crop year would begin and to allow for a policy renewal date

common to all policies. The definition of ``crop year deductible'' is

revised to allow a deductible percentage multiplied by the sum of all

plant inventory value reports for a practice including peak inventory

reports. The definition of ``eligible plant list'' is revised to allow

FCIC to publish this document in electronic format. The definition of

``field market value A'' is revised to clarify its application to

undamaged insurable plants in the basic or optional unit. The

definition of ``field market value B'' is revised to clarify its

application to damaged insurable plants in the basic or optional unit.

The definition of ``irrigated practice'' is revised to provide cold

protection for applicable plants as specified in the eligible plant

list. The definition of ``nursery'' is revised to require a business

enterprise that derives at least 50 percent of its gross income from

the wholesale marketing of plants. The definition of ``plant price

schedule'' has been revised to allow FCIC to publish this document in

electric format. The definition of ``policy renewal date'' is

eliminated because a common renewal date has been established common to

most policies. The definition of ``price level'' is eliminated because

the price level is the equivalent of the price election. Although new

to the nursery program, this is a general program feature and FCIC

believes it does not require a separate definition. The definitions for

``field market value C,'' ``loss,'' ``occurrence deductible,'' ``under

reporting factor'' are added to allow FCIC to simplify section 12. A

definition for ``deductible percentage'' is added to improve policy

readability in the definition of ``crop year deductible'' and

``occurrence deductible.'' A definition for ``practice'' is added to

clarify separate insurable practices will be standard nursery

containers and field grown. A definition for ``price election'' is

added to improve policy readability in the definition of ``amount of

insurance''. The definitions of ``Act,'' and ``practice value,'' are

added for clarity.

[[Page 50975]]

2. Section 2(b) is revised to eliminate reference to the Optional

Unit Endorsement.

3. Section 5 is revised to eliminate the phrase the ``policy

renewal date'' and a cancellation and termination date of September 30

was added. This change was made in response to FCIC's decision to

create a single policy renewal date.

4. Section 6(b) is revised to require producers to submit a plant

inventory value report not later than September 1 preceding any

subsequent crop year to correspond with the change to a single policy

renewal date.

5. Section 6(c) was modified to add ``practice value'' to clarify

FCIC's decision to treat container and field grown nursery plant

material as separate units.

6. Section 6(f) was modified to clarify the intention of FCIC to

permit upward revisions to the plant inventory value report.

7. In section 6(g) of the proposed rule, the reference to the Peak

Inventory Endorsement has been deleted. Section 6(h) is redesignated

6(g).

8. Section 6(h) was added to limit the amount of insurance

available for catastrophic level policies in order to avoid over

reporting of inventories.

9. Section 7(a) is revised to delete the phrase ``* * * and by your

share'' because the amount of insurance uses the share in that

calculation. Also, the term ``for each basic unit'' has been added to

allow container and field grown nursery plant material to be insured as

separate basic units.

10. Section 7(b) has been revised to clarify the premium will be

adjusted for partial crop years. In addition, premium will be charged

for the entire month for any calendar month during which an amount of

coverage is provided under the nursery provisions.

11. Section 7(d) has been deleted since the interest provisions are

in the Basic Provisions.

12. Section 7(e) has been deleted because plant inventory values

can no longer be reduced.

13. Section 8(a) through (j) is reordered to improve readability.

The provisions regarding woody, herbaceous or foliage ornamental plants

are deleted because the insurable types of plants are specified in the

eligible plant list.

14. Section 9(a) is revised to state that for the year of

application, coverage begins 30 days after your application is received

by the agent unless it is rejected. Added provisions for the 1999 crop

year only, the 30 day delay in coverage will not apply to your

container nursery crop if it is currently insured under the present

policy and you elect to cancel such policy and you apply for the new

nursery policy by November 30, 1998.

15. Section 10(a)(1) is revised to permit restrictions on adverse

weather as a cause of loss.

16. Section 12 has been revised for clarification.

17. Section 14(a) of the proposed rule refers to 18(g). It has been

corrected to 18(a). Section 14(b)(3) refers to 18(c) and it has been

corrected to 18(e).

18. Section 15 was added to show examples of nursery calculations.

Good cause is shown to make this rule effective upon publication in

the Federal Register. It is imperative that these provisions be made

final as quickly as possible so that the reinsured companies and

insureds may have sufficient time to implement the new provisions in

time for sale for the 1999 crop year. The policy currently in effect is

limited to container plants and offers no protection to nursery

producers that produce field grown nursery plants. In order to expand

coverage to those producers of field grown nursery plants for the 1999

crop year, it is necessary to make these changes immediately. The

existing nursery policy will continue in effect for the 1999 crop year

and will be terminated at the end of the 1999 crop year.

List of Subjects in 7 CFR Parts 406 and 457

Crop insurance, Nursery, Reporting and record keeping requirements.

Final Rule

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

Insurance Corporation amends the Nursery Crop Insurance Regulations (7

CFR part 406) and revises and reissues the Common Crop Insurance

Regulations (7 CFR part 457), effective for the 1999 and succeeding

crop years, to read as follows:

PART 406--NURSERY CROP INSURANCE REGULATIONS

1. The authority citation for 7 CFR part 406 is revised to read as

follows:

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

2. The part heading is revised to read as set forth above.

3. The subpart heading is removed.

PART 457--COMMON CROP INSURANCE REGULATIONS

4. The authority citation for 7 CFR part 457 continues to read as

follows:

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

5. The introductory paragraph of Sec. 457.114 is revised to read as

follows:

Sec. 457.114 Nursery crop insurance provisions.

The Nursery Crop Insurance Provisions for the 1999 crop year only

are as follows:

* * * * *

6. Section 457.162 added to read as follows:

Sec. 457.162 Nursery crop insurance provisions.

The Nursery Crop Insurance Provisions for the 1999 and succeeding

crop years are as follows:

FCIC policies:

UNITED STATES DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

Reinsured policies:

(Appropriate title for insurance provider)

Both FCIC and reinsured policies:

Nursery Crop Insurance Provisions

If a conflict exists among the policy provisions, the order of

priority is as follows: (1) The Catastrophic Risk Protection

Endorsement, if applicable; (2) the Special Provisions; (3) these

Crop Provisions; and (4) the Basic Provisions with (1) controlling

(2), etc.

1. Definitions

Act. The Federal Crop Insurance Act, 7 U.S.C. 1501 et seq.

Amount of insurance. For each basic unit, your practice value

multiplied by the coverage level percentage you elect, multiplied by

your price election, and multiplied by your share. Your accumulated

paid losses during the crop year for each basic unit or the optional

units will not exceed your amount of insurance.

Crop year. The period beginning the day insurance attaches and

extending until 11:59 p.m. of the following September 30. Crop year

is designated by the calendar year in which it ends.

Crop year deductible. The deductible percentage multiplied by

the sum of all plant inventory values for each basic unit. The crop

year deductible will be increased for any increases in the inventory

value on the plant inventory value report or through the purchase of

a peak inventory endorsement, if in effect at the time of loss. The

crop year deductible will be reduced by any previously incurred

deductible if you timely report each loss to us.

Deductible percentage. An amount equal to 100 percent minus the

percent of coverage you select.

Eligible plant list. A list published by FCIC in electronic

format and available from your agent that includes the botanical and

common names of insurable plants, the winter protection requirements

for container material and the areas in which they apply, the

hardiness zone to which field grown material is insurable, the

designated hardiness zones for each county, and the unit

classification for each plant on the list. A paper copy of the

eligible plant list is also available from your agent.

[[Page 50976]]

Field grown. Nursery plants planted and grown in the ground

without the use of any artificial root containment device. In-ground

fabric bags are not considered an artificial root containment

device.

Field market value A. The value of undamaged insurable plants,

based on the prices contained in the plant price schedule, in the

basic or optional unit, as applicable, immediately prior to the

occurrence of any loss as determined by our appraisal. This allows

the amount of insurance under the policy to be divided among the

individual units in accordance with the actual value of the plants

in the unit at the time of loss for the purpose of determining

whether you are entitled to an indemnity for insured losses in the

unit, optional or basic, as applicable.

Field market value B. The value of the insurable plants, based

on the prices contained in the plant price schedule, in the basic or

optional unit, as applicable, following the occurrence of a loss as

determined by our appraisal plus any reduction in value due to

uninsured causes. This is used to determine the loss of value for

each individual unit so that losses can be paid on an individual

unit basis, optional or basic, as applicable.

Field market value C. The value of undamaged insurable plants

based on the prices contained in the plant price schedule for all

types within the basic unit immediately prior to the occurrence of

any loss as determined by our appraisal. This value is used to

calculate the actual value of the plants in the basic unit at the

time of loss to ensure that you have not underreported your plant

values.

In-ground fabric bag. (Also called a grow bag or a root control

bag). A porous fabric bag made of a non-biodegradable material such

as polypropylene that typically has a plastic bottom, and is used

for growing woody plants in the ground.

Irrigated practice. In lieu of the definition in the Basic

Provisions, the application of water, using appropriate systems and

at the proper times, to provide the quantity of water needed to

sustain normal growth of your insured plant inventory and provide

cold protection for applicable plants as specified in the eligible

plant list.

Loss. Field market value A minus field market value B.

Marketable. Of a condition that it may be offered for sale in

the market.

Nursery. A business enterprise that derives at least 50 percent

of its gross income from the wholesale marketing of plants.

Occurrence deductible. This deductible allows a smaller

deductible than the crop year deductible to be used when; (1)

Inventory values are less than the reported practice value, or (2)

you have elected optional units. The occurrence deductible is the

lesser of: (a) The deductible percentage multiplied by field market

value A multiplied by the under report factor; or (b) the crop year

deductible.

Plant inventory value report. Your report that declares the

value of insurable plants in accordance with section 6.

Plant price schedule. A schedule of insurable plant prices

published by FCIC in electronic format that establishes the value of

undamaged insurable plants and the maximum amount we will pay for

damaged insurable plants. A paper copy is available from your crop

insurance agent.

Practice. A cultural method of producing plants. Standard

nursery containers grown and field grown are considered separate

insurable practices.

Practice value. The full value of all insurable plants in each

basic unit on your plant inventory value report including any report

that increases the value of your insurable plant inventory. This

will be used to determine the amount of insurance under this policy.

Price election. The allowable percentage, as specified in the

actuarial documents, of the prices shown in the plant price schedule

that you elect and that is used to determine the amount of insurance

and any indemnity.

Standard nursery containers. Rigid containers not less than 3

inches in diameter at the widest point of the container interior and

that are appropriate in size and have drainage holes appropriate for

the plant. In-ground fabric bags, trays, cellpacks with individual

cells less than 3 inches in diameter at the widest point of the

container interior, and burlap are not considered standard nursery

containers under these Crop Provisions.

Stock plants. Plants used solely for propagation during the

insurance period.

Under report factor. The factor which adjusts your indemnity for

underreporting of inventory values. The factor is always used in

determining any indemnity. For each practice, the under report

factor is the lesser of: (a) 1.000 or; (b) the sum of all practice

values reported on all plant inventory value reports, including any

peak inventory value reports during the coverage term of the Peak

Inventory Endorsement minus the total of all previous losses, as

adjusted by any previous under report factor, divided by field

market value C.

2. Unit Division

(a) In lieu of the definition of ``basic unit'' contained in

section 1 of the Basic Provisions, a basic unit consists of all

insurable plants in which you have a share in the county for each

practice for which a separate rate is established in the actuarial

documents. Although the basic unit may be divided into optional

units in accordance with sections 2(b) and 2(c), you will still be

considered to have a basic unit that will be used to establish the

amount of insurance, crop year deductible, under report factor,

premium, and the total amount of indemnity payable under this

policy.

(b) In lieu of the optional unit provisions in the Basic

Provisions, if you elect either limited or additional levels of

coverage, for an additional premium, inventory that would otherwise

be one basic unit may be divided into optional units by plant type

as specified in section 2(c). If you elect optional units, your

amount of insurance will be divided among optional units in relation

to the actual value of plants in each optional unit. If, at the time

of loss, the aggregate value of the plants in all your optional

units exceeds your practice value, you will be subject to the under

report factor provisions.

(c) Plant Types contained on the eligible plant list.

1. Deciduous Trees (Shade and Flower);

2. Broad-leaf Evergreen Trees;

3. Coniferous Evergreen Trees;

4. Fruit and Nut Trees;

5. Deciduous Shrubs;

6. Broad-leaf Evergreen Shrubs;

7. Coniferous Evergreen Shrubs;

8. Small Fruits;

9. Herbaceous Perennials;

10. Roses;

11. Ground Cover and Vines;

12. Annuals;

13. Foliage; and

14. Other plant types listed in the Special Provisions.

(d) You must elect either basic units or optional units.

3. Insurance Guarantees, Coverage Levels, and Prices for Determining

Indemnities

(a) The production reporting requirements contained in section 3

of the Basic Provisions are not applicable.

(b) In addition to the requirements of section 3 of the Basic

Provisions, you must select one price election for all plants,

regardless of type, insured under this policy.

(c) Your amount of insurance will be reduced by the amount of

any indemnity paid under this policy. For losses occurring when a

Peak Inventory Endorsement is in effect, to determine the amount of

insurance remaining after the loss you must subtract the amount of

the indemnity from the peak amount of insurance, then subtract any

remaining amount of indemnity from the amount of insurance.

(d) If you restock your nursery plant inventory, you may

increase your amount of insurance in accordance with section 6(f).

4. Contract Changes

In accordance with section 4 of the Basic Provisions, the

contract change date is June 30 of each year.

5. Cancellation and Termination Dates

In accordance with section 2 of the Basic Provisions, the

cancellation and termination dates are September 30 preceding the

crop year.

6. Plant Inventory Value Report

(a) Section 6 of the Basic Provisions is not applicable.

(b) You must submit a plant inventory value report to us with

your application and for each subsequent crop year, not later than

September 1. If you do not submit a plant inventory value report by

September 1, your policy will continue using the reported inventory

values in effect as of August 31.

(c) The plant inventory value report must include all growing

locations, the practice value, and your share. At our option, you

will be required to provide documentation in support of your plant

inventory value report, including, but not limited to, a detailed

plant inventory listing that includes the name, the number, and the

size of each plant; sales and purchases of plants for the 3 previous

crop years in the amount of detail we require, and your ability to

properly obtain and maintain nursery stock. For catastrophic level

policies only, you must report your previous plant

[[Page 50977]]

sales on the plant inventory value report. You may be required to

provide documentation to support such sales.

(d) Your plant inventory value report, including any revised

report, and your peak inventory value report will be used to

determine your premium and amount of insurance.

(e) Your plant inventory value report must reflect your

insurable nursery plant inventory value according to prices

contained in the plant price schedule. In no instance will we be

liable for plant values greater than those contained in the plant

price schedule.

(f) You may revise your plant inventory value report to increase

the reported inventory value. Any revision must be made in writing

before May 31st of the crop year. We may inspect the inventory. Your

revised plant inventory value report will be considered accepted by

us and insurance will attach on any proposed increase in inventory

value 30 days after your written request is received unless we

reject the proposed increase in your plant inventory value in

writing. We will reject any requested increase if a loss occurs

within 30 days of the date the request is made.

(g) You must report the full value of your practice value in

accordance with section 6(e). Failure to report the full value of

your practice value will result in the reduction of any claim in

accordance with section 12(d).

(h) For catastrophic insurance coverage only: (1) Your plant

inventory value report for container grown nursery cannot exceed the

lesser of the actual value from section 6(e) or 150 percent of your

previous year's sales of container grown nursery; (2) Your plant

inventory value report for field grown nursery cannot exceed the

lesser of the actual value from section 6(e) or 250 percent of your

previous years' sale of field grown nursery; and if the above

restrictions cause you to under report the value of your inventory,

you may request a written agreement to waive this restriction.

7. Premium

(a) In lieu of section 7(a) of the Basic Provisions, we will

determine your premium by multiplying the amount of insurance by the

appropriate premium rate and by the premium adjustment factors

listed on the actuarial documents that may apply.

(b) In addition to the provisions in section 7 of the Basic

Provisions, the premium will be adjusted for partial crop years.

Premium will be charged for the entire month for any calendar month

during which any amount of coverage is provided under these

provisions or the peak inventory endorsement.

(c) Additional premium from an increase in the plant inventory

value report is due and payable when the revised plant inventory

value report is accepted by us.

8. Insured Plants

In lieu of the provisions of sections 8 and 9 of the Basic

Provisions, the insured nursery plant inventory will be all the

nursery plants in the county that:

(a) Are shown on the Eligible Plant List and meet all the

requirements for insurability (plant types, species and cultivars

not insurable under the eligible plant list may be insured by

written agreement, subject to FCIC's determination that the proper

storage requirements and an accurate insurable price for the plant

can be determined, and provided all other requirements, such as

plant and container size, are met);

(b) Are determined by us to be acceptable;

(c) Are grown in a county for which a premium rate is provided

in the actuarial documents;

(d) Are grown in a nursery inspected by us and determined to be

acceptable;

(e) Are irrigated unless otherwise provided by the Special

Provisions (You must have adequate irrigation equipment and water to

irrigate all insurable nursery plants at the time coverage begins

and throughout the insurance period);

(f) Are grown in accordance with the production practices for

which premium rates have been established;

(g) Are grown in an appropriate medium;

(h) Are not grown for sale as Christmas trees;

(i) Are not stock plants; and

(j) Produce edible fruits or nuts provided the fruit or nuts are

not intended for harvest while the plant is located in the nursery.

9. Insurance Period

(a) In lieu of the provisions of section 11 of the Basic

Provision: (1) For the year of application, coverage begins 30 days

after your crop insurance agent receives an application signed by

you, unless we notify you that your inventory is not acceptable; (2)

For subsequent crop years, the insurance period begins at 12:01 a.m.

each October 1st; (3) No application for insurance for any current

crop year will be accepted after May 31st of the crop year; (4) If

you apply for coverage after May 31st, coverage will not begin prior

to October 1st; and (5) For the 1999 crop year only, if you insured

your nursery under 7 CFR 457.114 and you elect to cancel such policy

by November 30, 1998, and obtain insurance under these Crop

Provisions by November 30, 1998, by simultaneous cancellation and

application, and if you select the same coverage level, the 30 day

delay in coverage will not apply to your container grown nursery

crop, and coverage for your container grown nursery crop will begin

on the date of application. If you change coverage levels, the 30

day delay in coverage on your container grown nursery crop specified

in section 9(a)(1) will apply and coverage under 7 CFR 457.114 will

continue until coverage under this policy begins.

(b) Insurance ends at the earliest of:

(1) The date of final adjustment of a loss when the total

indemnities due equal the amount of insurance;

(2) Removal of bare root nursery plant material from the field;

(3) Removal of all other insured plant material from the

nursery; or

(4) 11:59 p.m. on September 30.

10. Causes of Loss

(a) In accordance with the provisions of section 12 of the Basic

Provisions, insurance is provided for unavoidable damage caused only

by the following causes of loss that occur within the insurance

period:

(1) Adverse weather conditions, except as specified in section

10(b) or the Special Provisions;

(2) Fire, provided weeds and undergrowth in the vicinity of the

plants or buildings on your insured site are controlled by chemical

or mechanical means;

(3) Wildlife;

(4) Earthquake;

(5) Volcanic eruption; or

(6) Failure of the irrigation water supply due to a cause of

loss specified in sections 10(a)(1) through (5) that occurs within

the insurance period; or

(7) Delay in marketability of the plants, if such delay results

in a reduction in the value of the plants, due to a cause of loss

specified in section 10(a)(1) through (6) that occurs within the

insurance period.

(b) In addition to the causes of loss excluded in section 12 of

the Basic Provisions, we do not insure against any loss caused by:

(1) Disease or insect infestation, unless:

(i) A disease or insect infestation occurs for which no

effective control measure exists; or

(ii) Coverage is specifically provided by the Special

Provisions.

(2) A failure of, or a reduction in, the power supply, unless

such failure or reduction is due to an insurable cause of loss

specified in section 10(a);

(3) The inability to market the nursery plants as a direct

result of quarantine, boycott, or refusal of a buyer to accept

production;

(4) Cold temperatures, if cold protection is required in the

eligible plant list, unless:

(i) You have installed adequate cold protection equipment or

facilities and there is a failure or breakdown of the cold

protection equipment or facilities resulting from an insurable cause

of loss specified in section 10(a) (the insured plants must be

damaged by cold temperatures and the damage must occur within 72

hours of the failure of such equipment or facilities unless we

establish that repair or replacement was not possible between the

time of failure or breakdown and the time the damaging temperatures

occurred); or

(ii) The lowest temperature or its duration exceeded the ability

of the required cold protection equipment to keep the insured plants

from sustaining cold damage;

(5) Collapse or failure of buildings or structures, unless the

damage to the building or structures results from a cause of loss

specified in section 10(a); or

(6) Failure of plants to grow to an expected size due to

drought.

11. Duties in the Event of Damage or Loss

(a) In addition to your duties contained in section 14 of the

Basic Provisions,

(1) You must obtain our written consent prior to:

(i) Destroying, selling or otherwise disposing of any plant

inventory that is damaged; or

(ii) Changing or discontinuing your normal growing practices

with respect to care and maintenance of the insured plants.

(2) You must submit a claim for indemnity to us on our form, not

later than 60 days after the date of your loss, but in no event

later

[[Page 50978]]

than 60 days after the end of the insurance period.

(b) Failure to obtain our written consent as required by section

11(a)(1) will result in the denial of your claim.

12. Settlement of Claim

We will determine indemnities for any unit as follows:

(a) Determine the under report factor for the basic unit;

(b) Determine the occurrence deductible;

(c) Subtract field market value B from field market value A;

(d) Multiply the result of 12(c) by the under report factor;

(e) Subtract the occurrence deductible from the result in

section 12(d); and

(f) If the result of section 12(e) is greater than zero, and

subject to the limit of section 12(g), your indemnity equals the

result of section 12(e), multiplied by your price election, and

multiplied by your share.

(g) The total of all indemnities for the crop year will not

exceed the amount of insurance including any peak amount of

insurance during the coverage term of the peak inventory

endorsement.

13. Late and Prevented Planting

The late and prevented planting provisions in the Basic

Provisions are not applicable.

14. Written Agreements

(a) In lieu of section 18(a) of the Basic Provisions, for the

year of application you must request a written agreement in writing

with the application and not later than the cancellation date for

each subsequent crop year;

(b) In addition to the requirements of section 18 of the Basic

Provisions any written agreement is valid only until the end of the

insurance period; and

(c) In lieu of section 18(e) of the Basic Provisions, an

application for a written agreement submitted after the date of

application for the initial year and the cancellation date for all

subsequent crop years may be approved if you demonstrate your

physical inability to have applied timely and, after physical

examination of the nursery plant inventory, we determine the

inventory will be marketable at the value shown on the plant value

inventory report.

15. Examples

Single Unit Example

Assume you have a 100 percent share and the plant inventory

value reported by you is $100,000, your coverage level is 75

percent, and your price election is 75 percent. Your amount of

insurance is $56,250 ($100,000 x .75 x .75). At the time of

loss, field market value A is $125,000, field market value B is

$80,000, and field market value C is $125,000. The under report

factor is .80 ($100,000 divided by $125,000). The deductible

percentage is 25 percent (100-75), the crop year deductible is

$25,000 (.25 x $100,000) and the occurrence deductible is $25,000

(.25 x $125,000 x .80). Your indemnity would be calculated as

follows:

Step (1) Determine the under report factor

$100,000 x $125,000 = .80;

Step (2) Field market value A minus field market value B

$125,000 x $80,000 = $45,000;

Step (3) Result of step 2 multiplied by the under report factor

(step 1)

$45,000 x .80 = $36,000;

Step (4) Result of step 3 minus the occurrence deductible

$36,000-$25,000 = $11,000;

Step (5) Result of step 4 multiplied by your price election

$11,000 x .75 = $8,250;

Step (6) Result of step 5 multiplied by your share

$8,250 x 1.000 = $8,250 indemnity payment.

Peak Inventory Report Example

Assume you have a second loss on the same basic unit. Your

amount of insurance has been reduced by subtracting your previous

indemnity payment or $8,250 from your amount of insurance ($56,250-

$8,250 = $48,000). Your crop year deductible has been reduced to

zero by the previous loss ($25,000--$36,000, but not less than

zero). You purchase a Peak Inventory Endorsement and report $60,000

in inventory. Your peak amount of insurance is your reported

inventory times your coverage level times your price election

($60,000 x .75 x .75 = $33,750). The combined amount of

insurance for the coverage term of the peak endorsement is $48,000 +

$33,750 = $81,750. Your crop year deductible is increased by $15,000

($60,000 x .25). At the time of loss, field market value A is

$124,000, field market value B is $58,000, and field market value C

is $124,000. The under report factor is 1.00 [($160,000-$36,000)

$124,000]. The crop year deductible is $15,000 (.25 x

$60,000) and the occurrence deductible is $15,000 (the lesser of

field market value A x .25 or the crop year deductible). Your

indemnity would be calculated as follows:

Step (1) Determine the under report factor

($160,000-$36,000) $124,000 = 1.00;

Step (2) Field market value A minus field market value B

$124,000-$58,000 = $66,000;

Step (3) Result of step 2 multiplied by the under report factor

(step 1)

$66,000 x 1.00 = $66,000;

Step (4) Result of step 3 minus the occurrence deductible

$66,000-$15,000 = $51,000;

Step (5) Result of step 4 multiplied by your price election

$51,000 x .75 = $38,250;

Step (6) Result of step 5 multiplied by your share

$38,250 x 1.000 = $38,250 indemnity payment.

Your peak amount of insurance is reduced to zero. Your amount of

insurance is reduced by the amount the indemnity exceeds the peak

amount of insurance. $48,000-($38,250-$33,750) = $48,000-$4,500 =

$43,500

Multiple Unit Multiple Loss Example

Assume you have a 100 percent share and the plant inventory

value reported by you is $100,000, your coverage level is 75

percent, and your price election is 75 percent. You have elected

optional units and have two optional units, unit 1 and unit 2. Your

amount of insurance is $56,250 ($100,000 x .75 x .75). You have

a loss on unit 1 and no loss on unit 2. At the time of loss, field

market value A on unit 1 is $60,000, field market value B on unit 1

is $18,000, and field market value C is $125,000. The under report

factor is .80 ($100,000 $125,000). The deductible

percentage is 25 percent (100-75), the crop year deductible is

$25,000 (.25 x $100,000) and the occurrence deductible is $12,000

(.25 x $60,000 x .80). Your indemnity would be calculated as

follows:

Step (1) Determine the under report factor

$100,000 $125,000 = .80;

Step (2) Field market value A minus field market value B

$60,000-$18,000 = $42,000;

Step (3) Result of step 2 multiplied by the under report factor

(step 1)

$42,000 x .80 = $33,600;

Step (4) Result of step 3 minus the occurrence deductible

$33,600-$12,000 = $21,600;

Step (5) Result of step 4 multiplied by your price election

$21,600 x .75 = $16,200;

Step (6) Result of step 5 multiplied by your share

$16,200 x 1.000 = $16,200 indemnity payment.

Your crop year deductible is reduced to $13,000 ($25,000-$12,000).

Your amount of insurance is reduced to $40,050 ($56,250-$16,200). You

do not restock unit 1 after the first loss. Values on unit 2 do not

change from the those measured at the time of the loss on unit 1.

Assume you have a second loss during the crop year but this time on

unit 2. Field market value A on unit 2 is $65,000, Field market value B

on unit 2 is $ 0.00 and field market value C on the basic unit is

$83,000. Your loss would be determined as follows:

Step (1) Determine the under report factor

$100,000 $125,000 = .80;

Step (2) Field market value A minus field market value B

$65,000-$0.00 = $65,000;

Step (3) Result of step 2 multiplied by the under report factor

(step 1)

$65,000 x .80 = $52,000;

Step (4) Result of step 3 minus the occurrence deductible

$52,000-$13,000 = $39,000;

Step (5) Result of step 4 multiplied by your price election

$39,000 x .75 = $29,250;

Step (6) Result of step 5 multiplied by your share

$29,250 x 1.000 = $29,250 indemnity payment.

7. Section 457.163 is added as follows:

[[Page 50979]]

Sec. 457.163 Nursery peak inventory endorsement.

Nursery Crop Insurance

Peak Inventory Endorsement

This endorsement is not continuous and must be purchased for

each crop year to be effective for that crop year.

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In return for payment of premium for the coverage contained

herein, this endorsement will be attached to and made part of the

Nursery Crop Insurance Provisions, subject to the terms and

conditions described herein.

1. Definitions.

Coverage commencement date. The later of the date you declare as

the beginning of the coverage or 30 days after a properly completed

peak inventory value report is received by us.

Coverage term. A period of time that begins on the coverage

commencement date and ends on the coverage termination date.

Coverage termination date. The date you declare that the peak

amount of insurance will cease. This date cannot be after the end of

the crop year.

Peak amount of insurance. The additional inventory value

reported on the peak inventory value report for each basic unit

multiplied by the coverage level, price election you elected for the

crop and county, and by your share.

Peak inventory value report. A report that increases the value

of insurable plants over the value reported on the plant inventory

value report, declares the coverage commencement and coverage

termination dates, and the other requirements of section 6 of the

Nursery Crop Insurance Provisions.

Restock. Replacement of lost or damaged plants that increase the

value of your insurable inventory to an amount greater than your

remaining amount of insurance.

2. Eligibility

(a) You must have insurance under the Nursery Crop Insurance

Provision, 7 CFR 457.162, in effect for the crop year that this

endorsement applies;

(b) You must have elected either the limited or additional level

of coverage.

(c) You must submit a peak inventory value report which will

serve as the application for coverage under this endorsement. We may

reject the peak inventory value report if all requirements in this

endorsement and the Nursery Crop Insurance Provisions are not met.

(d) You may purchase no more than two Peak Inventory

Endorsements for each practice during the crop year unless you have

suffered insured losses and have restocked your nursery.

3. Coverage

(a) The amount of insurance provided under the Nursery Crop

Insurance Provisions is increased by the peak amount of insurance

for the coverage term.

(b) Except as provided herein, this endorsement does not change,

amend or otherwise modify any other provision of your Nursery Crop

Insurance Policy.

4. Peak Insurance Period

Coverage begins at 12:01 a.m. on the coverage commencement date

and ends at 11:59 p.m. on the coverage termination date.

5. Premium

(a) The premium for this endorsement is determined by

multiplying the peak amount of insurance by the appropriate

proration factor shown in the actuarial documents, and by the

coverage term.

(b) The premium for this endorsement is due and payable in

accordance with section 7 of the Nursery Crop Insurance Provisions.

6. Reporting Requirements

In addition to the reporting requirements of section 6 of the

Nursery Crop Insurance Provisions, you must submit a peak inventory

value report on our form.

7. Liability Limit

The peak amount of insurance is limited to the practice value

you declare under the Nursery Crop Insurance Provisions.

Signed in Washington, DC, on September 18, 1998.

Kenneth D. Ackerman,

Manager, Federal Crop Insurance Corporation.

[FR Doc. 98-25466 Filed 9-23-98; 8:45 am]

BILLING CODE 3410-08-P