[Federal Register Volume 62, Number 150 (Tuesday, August 5, 1997)]
[Rules and Regulations]
[Pages 42037-42044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20503]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 62, No. 150 / Tuesday, August 5, 1997 / Rules 
and Regulations  

[[Page 42037]]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400

RIN 0563-AB01


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

AGENCY: Federal Crop Insurance Corporation.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The regulations contained in this subpart are issued pursuant 
to the Federal Crop Insurance Act, as amended (7 U.S.C. 1501 et seq.) 
to prescribe the procedures for determining eligibility for program 
participation in any program administered under the Federal Crop 
Insurance Act, as amended, and administering and maintaining an 
ineligible tracking system. In addition, this rule sets out the 
criteria for reinstatement of program eligibility.

EFFECTIVE DATE: September 4, 1997.

FOR FURTHER INFORMATION CONTACT: Bill Smith, Supervisory Insurance 
Management Specialist, Research and Development, Product Development 
Division, Federal Crop Insurance Corporation, United States Department 
of Agriculture, 9435 Holmes Road, Kansas City, MO 64131, telephone 
(816) 926-7743.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

Cost-Benefit Analysis

    A Cost-Benefit Analysis has been completed and is available to 
interested persons at the address listed above. In summary, the 
analysis finds that the expected benefits of this action outweigh the 
cost to society. By allowing the efficient tracking of ineligible 
individuals, the Federal government will be able to collect about $6 
million annually in debts owed by crop insurance policyholders. No 
additional burden on policyholders will result through implementation 
of the tracking system. Information previously provided by 
policyholders and required to obtain benefits under the Federal crop 
insurance program will be used to establish and administer the tracking 
system. The tracking system will cause an additional burden for crop 
insurance companies for reporting and retrieving information to and 
from the tracking system, creating new data processing requirements. 
This burden is estimated to be $250,000 for the first year and $50,000 
annually thereafter. Federal costs for developing and maintaining the 
data processing systems and administrative processes for the tracking 
system are estimated to be $20,000 for the first year and $10,000 
annually for future years.

Paperwork Reduction Act of 1995

    Following publication of the proposed rule, the public was afforded 
60 days to submit written comments on information collection 
requirements under OMB number 0563-0047, through November 30, 1999. No 
public comments were received.

Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. This rule contains no Federal 
mandate (under the regulatory provisions of Title II of the UMRA) for 
State, local, and tribal governments or the private sector. Thus, this 
rule is not subject to the requirements of sections 202 and 205 of the 
UMRA.

Executive Order 12612

    It has been determined under section 6(a) of Executive Order 12612, 
Federalism, that this rule does not have sufficient Federalism 
implications to warrant the preparation of a Federalism Assessment. The 
policies and procedures contained in this rule will not have a 
substantial direct effect on States or their political subdivisions, or 
on the distribution of power and responsibilities among the various 
levels of government.

Regulatory Flexibility Act

    This regulation will not have a significant impact on a substantial 
number of small entities. The amount of work required of insurance 
companies should not increase because the information used to determine 
eligibility is already maintained at their office. The amount of work 
required of insurance companies may actually be reduced because 
verification with FCIC of a producer's compliance with the controlled 
substance regulations, currently done manually, will be automated. 
Therefore, this action is determined to be exempt from the provisions 
of the Regulatory Flexibility Act (5 U.S.C. 605) and no Regulatory 
Flexibility Analysis was prepared.

Federal Assistance Program

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

Executive Order 12372

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

Executive Order 12988

    The final rule has been reviewed in accordance with Executive Order 
12988. The provisions of this rule will preempt State and local laws to 
the extent such State and local laws are inconsistent herewith. The 
administrative appeal provisions published at 7 CFR part 11 must be 
exhausted before action for judicial review may be brought.

Environmental Evaluation

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

Background

    On Thursday, October 31, 1996, FCIC published a proposed rule in 
the Federal Register at 61 FR 56151-56155

[[Page 42038]]

to issue General Administrative Regulations (7 CFR part 400, subpart U) 
effective for the 1998 crop year (1999 for Texas and Arizona/California 
Production Citrus) and succeeding crop years. Following publication of 
that proposed rule, the public was afforded 60 days to submit written 
comments, data, and opinions. A total of 62 comments were received from 
the crop insurance industry, Farm Service Agency, and FCIC. The 
comments received, and FCIC responses, are as follows:
    Comment: Two comments received from the crop insurance industry 
questioned where provisions are to be found for the administration of 
the Ineligible Tracking System.
    Response: Provisions for the administration of the Ineligible 
Tracking System will be contained in FCIC procedures and will be issued 
when the Ineligible Tracking System is activated.
    Comment: One comment received from the crop insurance industry 
asked if the Ineligible Tracking System would be part of the existing 
Policyholder Tracking System or a separate tracking system.
    Response: The Ineligible Tracking System's purpose requires it to 
be separate from the Policyholder Tracking System. The Policyholder 
Tracking System is basically used for informational inquiries to FCIC's 
data systems containing insurance experience and related information 
for individual insureds. The Ineligible Tracking System's primary 
purpose is the validation of a person's eligibility to receive 
insurance program benefits based on records submitted by insurance 
providers and to accept or reject the person for insurance purposes 
based on that eligibility determination.
    Comment: One comment received from the crop insurance industry 
suggested the reference to ``makes a significant contribution'' 
contained in the definition of actively engaged in farming, was too 
broad and subjective, difficult to prove, and would work to 
disadvantage of insurance provider and program.
    Response: FCIC agrees and will change the definition from ``a 
significant contribution'' to ``a contribution,'' to avoid subjective 
determinations associated with ``significant.''
    Comment: One comment received from the crop insurance industry 
questioned if the definition of authorized person should include past 
as well as current individuals associated with FCIC or an insurance 
provider, since a former relationship would no longer require access to 
the Ineligible Tracking System.
    Response: An individual could be involved in judicial or 
administrative proceedings after they have left the employment of FCIC 
or the insurance provider and require access to protected information. 
For this reason, the definition must provide access for both current 
and past contractors, employees, or other types of individual or 
business associations. Therefore, no change will be made.
    Comment: One comment received from the crop insurance industry 
questioned if under the definition of controlled substances, drug 
related convictions not related to ``planting and harvesting'' 
prohibited drug producing plants would be a cause for ineligibility.
    Response: The violation of controlled substance provisions under 
this subpart is limited to the planting, harvesting, and storing of 
prohibited drug producing plants. Violations related to the sale or 
distribution of an illegal drug, for example, would not be covered 
under this definition unless the person was also convicted of growing 
the plants from which the drug was processed.
    Comment: Two comments received from FCIC stated that the spelling 
of the species names for marijuana and opium poppies is incorrect.
    Response: FCIC agrees and will correct the spelling.
    Comment: Two comments received from the crop insurance industry 
concerning the definition of debt questioned if an ``appropriate agency 
official'' would only apply to FCIC and if so the rule should specify 
position/title. Would the determination be made without regard to the 
appeal process, the judicial system, NAD, or the Board of Contract 
Appeals process.
    Response: The appropriate agency official will be an employee of 
the Risk Management Agency. However, FCIC believes that designating the 
responsible official in this subpart unnecessarily restricts 
administrative decisions of the agency. FCIC will clarify the 
definition of debt by stating any determination of debt by an agency 
official will be based on evidence provided by the insurance provider. 
Any determination will be subject to review, reconsideration, appeal, 
judicial process, or other actions in accordance with applicable 
regulations governing such matters.
    Comment: Three comments received from the Farm Service Agency and 
crop insurance industry recommended that administrative fees under the 
catastrophic risk protection (CAT) program be specifically excluded 
under the definition of debt and that the reference to ``ACT'' be 
changed to ``Act''.
    Response: FCIC agrees and will amend the definition accordingly.
    Comment: One comment received from the crop insurance industry 
questioned if the insured is responsible for repayment of an overpaid 
indemnity and does the reason for an overpayment affect the insured's 
responsibility to make repayment.
    Response: An overpayment is included under the definition of debt. 
If a determination of debt is made, the insured is responsible for 
repayment, whether the overpayment arose from an indemnity or replant 
payment and irrespective of the cause of the overpayment.
    Comment: One comment received requested FCIC describe the time 
frame in which it must determine that a debt is delinquent.
    Response: The crop insurance policy and 7 CFR part 400, subpart K 
provides the procedure and time frames for determining when a debt is 
delinquent.
    Comment: One comment received from the crop insurance industry 
suggested that if scheduled installment payment agreement is entered 
into after termination date, insurance coverage is automatically 
reinstated even though the policy had been terminated because, ``The 
debt is not considered delinquent.'' (For example, the debt is not paid 
for 1996 crop year and the policy is terminated for the 1997 crop year; 
a payment agreement is set up after the termination date; insurance 
coverage is reinstated for the 1997 crop year).
    Response: Once the policy has been terminated for failure to pay a 
debt, the policy remains terminated for the entire crop year, 
regardless of whether the producer subsequently pays the debt or enters 
into an installment payment plan. Reinstatement of eligibility simply 
means that the producer may apply for, and receive, insurance for the 
next crop year. It does not mean reinstatement of the policy. The 
corporation cannot be placed in the position of having to reinstate a 
policy after a loss has occurred.
    Comment: One comment received from the crop insurance industry 
stated that the definition of delinquent debt did not adequately 
address bankruptcy and establish that a premium unpaid on the 
termination date is a prefiling debt under the Chapter 12 umbrella and 
is not a delinquent debt. Unless clarified, there would be uncertainty 
about the eligibility status for insurance coverage for persons under 
these circumstances and after discharge of applicable debts under 
bankruptcy proceedings.
    Response: The definition of delinquent debt states that such debt

[[Page 42039]]

does not include debts discharged in bankruptcy and other debts which 
are legally barred from collection. If a premium unpaid on the 
termination date is considered a debt meeting either condition, it 
cannot be considered in making a determination of ineligibility. It is 
also clear, that any debt discharged in bankruptcy proceedings is not a 
delinquent debt and will not limit a p erson's eligibility under this 
subpart. Therefore, no change will be made.
    Comment: One comment received from the crop insurance industry 
recommended the definition of insurance provider be changed by 
replacing ``private insurance company approved by FCIC'' with 
``reinsured company approved by FCIC.''
    Response: FCIC has amended the definition to specify ``A reinsured 
company.''
    Comment: One comment received from the crop insurance industry 
questioned if, under the definitions of scheduled installment payment 
agreement and settlement, FCIC would enter into an agreement or 
settlement with a person with a crop insurance policy with a reinsured 
company.
    Response: FCIC will only enter installment payment agreements with 
persons with policies directly insured by FCIC. Where the insurance 
provider is a reinsured company, the agreements will be between the 
reinsured company and its insureds.
    Comment: One comment received from the crop insurance industry 
recommended the definition of substantial beneficial interest be 
changed by replacing ``Any person having'' with ``An interest of at 
least ten percent.'' As currently written, the interest is defined as 
person instead of an amount of interest.
    Response: FCIC agrees and will clarify the definition.
    Comment: One comment received from the crop insurance industry 
recommended specific language be added to Sec. 400.678 that would make 
the Ineligible Tracking System apply to any program developed privately 
and reinsured by FCIC.
    Response: FCIC agrees and will revise Sec. 400.678 to add paragraph 
(c) which will clearly state that privately developed products 
reinsured by FCIC are subject to this subpart.
    Comment: One comment received from the crop insurance industry 
recommended eliminating the second sentence that is contained in 
paragraphs (a), (b), and (c) of Sec. 400.679 or consolidating it with 
the opening sentence of the section. Also, the respondent suggested 
that the sentence, ``Delinquent debts are limited to those that arise 
from crop insurance programs administered by FCIC under the Act'' 
contained in paragraph (a) be moved and combined with the definition of 
delinquent debt.
    Response: FCIC does not believe the suggested changes in 
Sec. 400.679 (a), (b), and (c) improve the structure or clarity of the 
subpart. Therefore, no changes will be made. FCIC agrees that the 
requirement that delinquent debts arise under the Act be included in 
the definition of ``delinquent debt'' and has amended the provision 
accordingly.
    Comment: One comment received from the crop insurance industry 
suggested that ``A person * * *'' contained in the opening sentence of 
the section be changed to ``Any person * * *''; references to ``* * * 
all programs * * *'' be changed to ``* * * any program * * *''; and the 
plural case for `` their'' in the next to the last sentence of 
paragraph (c) be corrected.
    Response: FCIC agrees and will amend the section accordingly.
    Comment: One comment received from the crop insurance industry 
questioned if a person indebted to FCIC or an approved insurance 
provider disputes the debt and can ``demonstrate that the amount of 
debt is in dispute, the person's application will be accepted or their 
insurance will remain in effect but no indemnity will be made until the 
dispute is resolved.'' Will there be similar language in the proposed 
rule if the debt delinquency is disputed by the producer or insured.
    Response: The provision stated above is contained in 7 CFR part 
400, subpart R. FCIC has amended Sec. 400.679 paragraph (a) to 
reference subpart R to ensure consistency between the subparts.
    Comment: One comment received from the Farm Service Agency stated 
that 7 CFR part 796 referenced in Sec. 400.679(b) has been replaced by 
7 CFR part 718.
    Response: FCIC agrees and will amend the section accordingly.
    Comment: One comment received from the crop insurance industry 
suggested that Sec. 400.680 entitled ``Determinations of 
ineligibility'' should be changed to Notification of ineligibility.
    Response: FCIC will change the section's title to ``Determination 
and notification of ineligibility.''
    Comment: One comment received from the crop insurance industry 
questioned if this subpart would apply to all delinquent debts and 
violations or only those which occur after the effective date of this 
subpart.
    Response: This subpart applies to all delinquent debts and 
violations that occur after the effective date of this subpart. If this 
subpart is made effective in the middle of a crop year for a crop, 
those persons with delinquent debts or violations will be ineligible 
effective for the next crop year. For persons affected by a delinquent 
debt or violation that arose prior to the effective date of this 
subpart, the insurance provider must follow all procedures outlined in 
this subpart before such persons may be placed on the ineligible list.
    Comment: Three comments received from the crop insurance industry 
asked that the term ``evidence'' be defined and the title or office to 
which ineligibility evidence is submitted be listed in Sec. 400.680.
    Response: FCIC will develop and issue procedures which describe the 
evidence requirements and provides other information and instructions 
necessary to administer this subpart.
    Comment: One comment received from the crop insurance industry 
asked does the failure to make installment payments in accordance with 
a scheduled installment payment agreement have the potential of causing 
the individual to become ineligible.
    Response: The failure to pay installments under an approved payment 
agreement will result in a determination of ineligibility for the 
person in accordance with the terms of the agreement. The insurance 
provider must notify FCIC of the person's payment default in order for 
this determination to be made.
    Comment: Two comments received from the crop insurance industry 
suggested that this section does not make it clear that FCIC is solely 
responsible for placing the policyholders name on the Ineligible 
Tracking System because of a delinquent debt and that the reinsured 
company should be protected from state law in such determinations.
    Response: FCIC is not solely responsible. It is the insurance 
provider's responsibility to ensure that the policyholder meets the 
criteria for placement on the Ineligible Tracking System and provide 
sufficient information to support its determination. FCIC's 
responsibility is to verify the information submitted supports that the 
criteria have been met and issue a Notice of Ineligibility. FCIC is 
only responsible for the determinations involving persons insured 
through local Farm Service Agency offices.
    Comment: One comment received from the Farm Service Agency 
questioned whether the Notice of Ineligibility will specify the crop 
year

[[Page 42040]]

(or reinsurance year) for which the person is determined ineligible.
    Response: The notice will specify the crop year ineligibility will 
become effective and the terms, if applicable.
    Comment: Two comments received from FCIC and the crop insurance 
industry concerned whether an insurance provider will receive a copy of 
the Notice of Ineligibility, inquired if the debtor appealed the 
ineligibility determination would the company be notified, and 
recommended that copies of all notices be provided to the insurance 
provider.
    Response: When the insurance provider submits evidence of 
ineligibility and upon verification of the evidence, FCIC will send the 
Notice of Ineligibility to the policyholder and the insurance provider. 
Section 400.680 will be amended to include the insurance provider for 
notification purposes. With respect to notices of appeal, producers 
will only be able to challenge the placement on the ineligibility list 
under this subpart. If the reason for placement on the list is debt to 
a reinsured company, the company will be notified of the appeal hearing 
and may be given the opportunity to participate if permitted by 7 CFR 
part 11.
    Comment: One comment received from the crop insurance industry 
questioned how a determination of ineligibility would be affected if 
the person does not receive a Notice of Ineligibility and whether any 
responsibility for such failure would be borne by the insurance 
provider.
    Response: FCIC will implement a notification process employing 
reasonable steps to assure notification of affected persons, including 
documentation of those efforts. However, receipt of the notice by the 
person cannot be guaranteed and is not required in order to enforce a 
determination of ineligibility. Insurance providers are not responsible 
or accountable for successfully notifying persons under this subpart 
unless they did not provide accurate name and address information to 
FCIC which was available to them.
    Comment: One comment received from the crop insurance industry 
suggested that Sec. 400.680 incorrectly states that reconsideration of 
a determination of ineligibility will be made to the reinsured company. 
It also suggests that the 30-day period to request a reconsideration or 
file an appeal was inconsistent with time allowed under the regulation 
for disputed determinations.
    Response: FCIC agrees that any appeal of a determination of 
ineligibility should not be made to the reinsured company. Only appeals 
related to whether the person is correctly identified as ineligible 
will be accepted. Any challenge to the existence or amount of the debt 
must be appealed under the terms of the policy or 7 CFR part 400, 
subpart K.
    Comment: One comment received from the crop insurance industry 
recommended the term ``provider of insurance'' used to identify the 
party to which reconsiderations are submitted be changed to ``insurance 
provider.''
    Response: FCIC will correct this section to state that appeals will 
be submitted to the National Appeals Division.
    Comment: One comment received from the crop insurance industry 
stated that conflicts exist between the reconsideration and appeals 
provisions under this subpart and applicable provisions contained in 7 
CFR part 400, subpart J and part 780. Also determinations made by 
reinsured companies are erroneously subject to reconsideration and 
appeal provisions of this subpart.
    Response: This subpart specifies that all appeals are governed by 7 
CFR part 11. Therefore, the requirements of subpart J and part 780 are 
not applicable. Therefore, no conflict exists.
    Comment: One comment received from the crop insurance industry 
suggested that the National Appeals Division (NAD) notify the reinsured 
company of appeal proceedings so that it could participate and asked 
what the effect to the company will be if the debt is overturned.
    Response: Only the listing on the ineligible list is appealable to 
NAD under this subpart, not the underlying debt. However, the company 
will be given notice of the appeal and may be given an opportunity to 
participate if permitted by 7 CFR part 11.
    Comment: One comment received from the Farm Service Agency asked 
how individuals insured under provisions contained in the CAT 
endorsement for tobacco and undivided interest landowners would be 
affected under this subpart if the named insured for such policies did 
not pay the premium.
    Response: There is no premium for CAT. If the administrative fee is 
not paid by the acreage reporting date, the policy terminates for the 
crop year for which the fee is not paid. Eligibility for the following 
year is not affected.
    Comment: Two comments received from the crop insurance industry 
stated that removing the ineligible person from a policy and reducing 
the policyholder share as provided in Sec. 400.681(a) (3) and (4) will 
result in entities creating false share arrangements. A recommendation 
to determine the corporation or other business entity ineligible based 
on the ineligibility of one of the individual members was made.
    Response: Removing an ineligible person from the policy will not 
create false share arrangements. The share of the ineligible person is 
simply not insurable and all other shares remain the same. Therefore, 
no changes will be made.
    Comment: One comment received from the crop insurance industry 
asked when must the declared overpayment referenced in 
Sec. 400.681(a)(5) be paid.
    Response: The crop insurance policy states that an overpayment is 
considered a delinquent debt if not paid within 30 days of the date a 
notice is issued to the insured. Once the debt is determined 
delinquent, all provisions of the policy related to its repayment 
apply.
    Comment: Two comments received from the crop insurance industry 
suggested that Sec. 400.681(a)(6) provides that a portion of the 
premium should be retained to cover administrative costs rather than 
refund the entire premium.
    Response: FCIC agrees that retention of a portion of the producer 
paid premium by the insurance provider to cover administrative costs is 
consistent with 7 CFR 400.47 and will amend the provision accordingly.
    Comment: One comment received from the crop insurance industry 
expressed concern under Sec. 400.681(b)(1) that the spouse had to have 
a separate farming operation prior to marriage to maintain it 
separately for purposes of ineligibility was contrary to existing FCIC 
procedure and would be impractical to verify.
    Response: FCIC agrees that it is not necessary that the spouse have 
had a separate farming operation prior to marriage since there are many 
instances where the spouses legitimately maintain separate farming 
operations. Insurance providers will still be required to verify that 
the farming operations are legitimately separate. The provision is also 
created to clarify that transfer of a farming operation from one spouse 
to another is not considered a separate farming operation
    Comment: One comment received from the crop insurance industry 
recommended section 400.681(c), which describes a minor, be added to 
Sec. 400.677 Definitions.
    Response: FCIC agrees and will amend the provision accordingly. 
Further, FCIC will revise the definition to allow persons who are under 
18 years of age but have been emancipated by the courts, not to be 
considered a minor.

[[Page 42041]]

    Comment: One comment received from the crop insurance industry 
recommended that Sec. 400.681 (d) and (e) be combined and the word 
``devise'' in paragraph (e)(2) be changed to ``device.''
    Response: FCIC agrees and will amend the section accordingly.
    Comment: One comment received from the crop insurance industry 
questioned the distinction between ``adopting a material scheme or 
device'' and ``fraud or misrepresentation'' contained in 
Sec. 400.681(e)(2) and (3), and does the insurance provider decide the 
period of time for disqualification.
    Response: FCIC has removed the references to scheme and device from 
this subpart since the penalty for such device is ineligibility to 
receive benefits only for the crop year in which the abuse occurred. It 
does not affect future eligibility. These provisions will now be 
treated under disqualifications under section 506(n) of the Act which 
encompasses fraud, misrepresentation, and scheme and device. FCIC will 
determine the length of disqualifications through the administrative 
process.
    Comment: One comment received from the crop insurance industry 
objected to the different periods of ineligibility between a CAT 
policyholder and a policyholder with limited or additional coverage 
provided under section 400.681 (e) (3).
    Response: The periods of ineligibility are specified in Act and 7 
CFR part 400, subpart R. Therefore, no change will be made.
    Comment: One comment received from the crop insurance industry 
stated the ``scheduled installment payment agreements'' between private 
insurance provider and policyholder as referenced in the definition of 
``delinquent debt'' are presently not reported to FCIC and asked 
whether payment agreements need to be reported to FCIC.
    Response: If a person is listed in the Ineligible Tracking System 
due to a delinquent debt, notification will be required if the person 
enters into a payment agreement in order for the person's name to be 
removed from the system and eligibility for insurance coverage 
reinstated. If the person fails to perform under the agreement, the 
reinsured company will have to notify FCIC in order for ineligibility 
to be reinstated. No notification to FCIC is required if the payment 
agreement is approved by the company by the termination date.
    Comment: One comment received from the crop insurance industry 
pointed out under Sec. 400.682 that the second sentence of paragraph 
(a) refers to ``reinstated'' while the second sentence of paragraph (c) 
refers to ``restored'' and that the first sentence of each paragraph 
could be shortened. Also, the use of the words ``may have'' in the 
opening sentence of this section and paragraph (c) versus ``will be'' 
in paragraphs (a) and (b) as related to reinstating eligibility was 
questioned.
    Response: FCIC will change ``restored'' to ``reinstated'' and 
``will be'' to ``may be.'' The latter change will eliminate any 
possible conflict in reinstating eligibility for the person if more 
than one criteria for ineligibility applies.
    Comment: One comment received from the crop insurance industry 
stated the timing of reinstatement of insurance coverage is a critical 
issue and suggested procedures be developed to allow a person to obtain 
immediate coverage even after the applicable sales closing date.
    Response: Section 400.682 (d) states that if eligibility is 
reinstated after the applicable sales closing date for the crop year, 
insurance coverage can not be obtained until the following crop year. 
The purpose of this provision is to encourage insureds to pay their 
debt and prevent the payment of a debt only when the insured suspects a 
loss is likely. Policies will only be reinstated effective at the 
beginning of the crop year if the producer prevails on appeal. 
Therefore, no change will be made.
    Comment: Two comments received from the crop insurance industry 
stated that Sec. 400.682 (d) and (e) could be combined, perhaps in 
reverse order.
    Response: FCIC agrees and will combine paragraph (e) with paragraph 
(d).
    Comment: One comment received from the crop insurance industry 
concerned whether all substantial beneficial interest information 
currently collected by insurance providers will have to be transmitted 
to FCIC in establishing the Ineligible Tracking System.
    Response: The insurance providers will submit all substantial 
beneficial interest information to FCIC to establish a tracking system 
capable of properly identifying persons who are ineligible to 
participate in the crop insurance program.
    Comment: One comment received from the crop insurance industry 
questioned if FCIC is going to track the dates of conviction for 
controlled substance provision and fraud and misrepresentation 
violations and for purposes of determining future eligibility.
    Response: The date of conviction and future date of eligibility 
will be entered into the Ineligible Tracking System and when the period 
of ineligibility has expired, the person's name will be removed from 
the system's active ineligibility records.
    Comment: One comment received from the Farm Service Agency stated 
that, ``In case of controlled substance violations, FSA would notify 
FCIC of our determination and FCIC would notify FSA of determinations 
by reinsured companies, if applicable.''
    Response: FCIC agrees and will develop procedures to facilitate the 
interagency notification of controlled substance violators.
    Comment: Two comments received from the crop insurance industry 
recommended that references to ``private companies'' contained in 
Sec. 400.683(a) (2) and (3) be replaced with ``insurance provider.''
    Response: Since the Farm Service Agency is encompassed by ``Federal 
agencies,'' FCIC will amend paragraphs (a) (2) and (3) to use the term 
``reinsured company.
    Comment: One comment received from the crop insurance industry 
questioned whether the information contained in the Ineligible Tracking 
System would be available to others outside of the crop insurance 
program.
    Response: Section 400.683 (a) (2) states that information contained 
in the system may be furnished to users, both for purposes of 
administering programs under the Act and for other purposes determined 
appropriate or required by law or regulation. The release, use, and 
protection of such information will be in accordance with these and 
other appropriate laws and regulations.
    Comment: One comment received from the crop insurance industry 
concerned what is considered ``supporting documentation'' that will be 
maintained by FCIC for affected persons under Sec. 400.683 (a) (3).
    Response: Paragraph (a) (3) provides that supporting documentation 
regarding a determination of ineligibility may be maintained by FCIC, 
FSA, reinsured companies, or others. Such information will be described 
in procedures developed by FCIC and issued to insurance providers and 
will indicate the parties responsible for maintaining such 
documentation.
    In addition to the changes described above, FCIC has made the 
following changes to this subpart:
    1. Changed the effective year for this subpart to 1998 crop year 
(1999 for Texas and Arizona and California Production Citrus).
    2. Section 400.677. Add a definition of ``CAT'' and ``minor'' for 
clarification. Amend definition of ``insurance provider'' to refer to a 
``reinsured company'' instead of a ``private

[[Page 42042]]

insurance company reinsured by FCIC'' to avoid the redundancy with the 
definition of ``reinsured company.''
    3. Revise Sec. 400.681 to add a new subsection (a) to clarify when 
the period of ineligibility commences and combine it with subsection 
(d) to clarify the term of ineligibility. Redesignate the other 
subsections accordingly.

List of Subjects in 7 CFR Part 400

    Administrative practice and procedure, Claims, Crop insurance; 
Fraud, Reporting and recordkeeping requirements.

    Accordingly, as set forth in the preamble, the Federal Crop 
Insurance Corporation adds a new subpart U to 7 CFR part 400, to read 
as follows:

PART 400--GENERAL ADMINISTRATIVE REGULATIONS

Subpart U--Ineligibility for Programs Under the Federal Crop 
Insurance Act

Sec.
400.675  Purpose.
400.676  OMB control numbers.
400.677  Definitions.
400.678  Applicability.
400.679  Criteria for ineligibility.
400.680  Determination and notification of ineligibility.
400.681  Effect of ineligibility.
400.682  Criteria for reinstatement of eligibility.
400.683  Administration and maintenance.

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


Sec. 400.675  Purpose.

    This rule prescribes conditions under which a person may be 
determined to be ineligible to participate in any program administered 
by FCIC under the Federal Crop Insurance Act, as amended. This rule 
also establishes the criteria for reinstatement of eligibility.


Sec. 400.676  OMB control numbers.

    The collecting of information requirements in this subpart has been 
approved by the Office of Management and Budget and assigned OMB 
control number 0563-0047.


Sec. 400.677  Definitions.

    Act. The Federal Crop Insurance Act, as amended (7 U.S.C. 1501 et 
seq.).
    Actively engaged in farming. Means a person who, in return for a 
share of profits and losses, makes a contribution to the production of 
an insurable crop in the form of capital, equipment, land, personal 
labor, or personal management.
    Applicant. A person who has submitted an application for crop 
insurance coverage under the Act.
    Authorized person. Any current or past officer, employee, elected 
official, general agent, agent, contractor, or loss adjuster of FCIC, 
the insurance provider, or any other government agency whose duties 
require access to the Ineligible Tracking System to administer the Act.
    CAT. The catastrophic risk protection plan of insurance.
    Controlled substance. Any prohibited drug-producing plants 
including, but not limited to, cacti of the genus (lophophora), coca 
bushes (erythroxylum coca), marijuana (cannabis sativa), opium poppies 
(papaver somniferum), and other drug-producing plants, the planting and 
harvesting of which is prohibited by Federal or state law.
    Debt. An amount of money which has been determined by an 
appropriate agency official to be owed, by any person, to FCIC or an 
insurance provider under any program administered under the Act based 
on evidence submitted by the insurance provider. The debt may have 
arisen from an overpayment, premium non-payment, interest, penalties, 
or other causes but does not include non-payment of CAT coverage 
administrative fees.
    Debtor. A person who owes a debt and that debt is delinquent.
    Delinquent debt. Any debt owed to FCIC or the insurance provider, 
that arises under any program administered under the authority of the 
Act, that has not been paid by the termination date specified in the 
applicable contract of insurance, or other due date for payment 
contained in any other agreement or notification of indebtedness, or 
any overdue debt owed to FCIC or the insurance provider which is the 
subject of a scheduled installment payment agreement which the debtor 
has failed to satisfy under the terms of such agreement. Such debt may 
include any accrued interest, penalty, and administrative charges for 
which demand for repayment has been made, or unpaid premium including 
any accrued interest, penalty and administrative charges (7 CFR 
400.116). A delinquent debt does not include debts discharged in 
bankruptcy and other debts which are legally barred from collection.
    EIN. An Employer Identification Number as required under section 
6109 of the Internal Revenue Code of 1986.
    FCIC. The Federal Crop Insurance Corporation, a wholly owned 
government corporation within the United States Department of 
Agriculture.
    FSA. The Farm Service Agency or a successor agency.
    Ineligible person. A person who is denied participation in any 
program administered by FCIC under the Act.
    Insurance provider. A reinsured company or FSA providing crop 
insurance coverage to producers participating in any Federal crop 
insurance program administered under the Act.
    Minor. Any person under 18 years of age. Court proceedings 
conferring majority on an individual under 18 years of age will result 
in such persons no longer being considered as a minor.
    Person. An individual, partnership, association, corporation, 
estate, trust, or other legal entity, and wherever applicable, a State, 
political subdivision, or an agency of a State.
    Policyholder. An applicant whose properly completed application for 
insurance under the crop insurance program has been accepted by FCIC or 
an insurance provider.
    Reinsurance agreement. An agreement between two parties by which an 
insurer cedes to a reinsurer certain liabilities arising from the 
insurer's sale of insurance policies.
    Reinsured company. A private insurance company having a Standard 
Reinsurance Agreement, or other reinsurance agreement, with FCIC, whose 
crop insurance policies are approved and reinsured by FCIC.
    Scheduled installment payment agreement. An agreement between a 
person and FCIC or the insurance provider to satisfy financial 
obligations of the person under conditions which modify the terms of 
the original debt.
    Settlement. An agreement between a person and FCIC or the insurance 
provider to resolve a dispute arising from a debt or other 
administrative determination.
    SSN. An individual's Social Security Number as required under 
section 6109 of the Internal Revenue Code of 1986.
    Standard Reinsurance Agreement (SRA). The primary reinsurance 
agreement between the reinsured company and FCIC.
    Substantial beneficial interest. An interest held by any person of 
at least 10 percent or more in the applicant or policyholder.
    System of records. Records established and maintained by FCIC and 
FSA containing SSN or EIN data, name, address, city and State, 
applicable policy numbers, and other information related to Federal 
crop programs as required by FCIC, from which information is retrieved 
by a personal identifier including the SSN, EIN, name, or other unique 
identifier of a person.


Sec. 400.678  Applicability.

    This subpart applies to any program administered by FCIC under the 
Act, including:

[[Page 42043]]

    (a) The catastrophic risk protection plan of insurance;
    (b) The limited and additional coverage plans of insurance as 
authorized under sections 508(c) and 508(m) of the Act; and
    (c) Private insurance products authorized under section 508(h) of 
the Act and reinsured by FCIC.


Sec. 400.679  Criteria for ineligibility.

    Any person may be determined to be ineligible to participate in any 
program administered by FCIC under the authority of the Act, if the 
person meets one or more of the following criteria:
    (a) Has a delinquent debt on a crop insurance policy, issued or 
reinsured by FCIC, or any delinquent debt due FCIC under the Act. Any 
person with a delinquent debt owed to FCIC or to the insurance provider 
shall be ineligible to participate in any program administered under 
the authority of the Act. Such determinations will be in accordance 
with 7 CFR 400.459. The existence and delinquency of the debt must be 
verifiable.
    (b) Has violated the controlled substance (7 CFR part 718) 
provisions of the Food Security Act of 1985, as amended. Any person who 
violates the controlled substance provisions of the Food Security Act 
of 1985, as amended, shall be ineligible to participate in any program 
administered under the Act.
    (c) Has been disqualified under section 506(n) of the Act and 7 CFR 
part 400, subpart R. Any person who is disqualified in any 
administrative proceeding shall be ineligible to participate in any 
program administered under the Act. Ineligibility determinations 
resulting from administrative proceedings will not be stayed pending 
review. However, reversal of the determination will date back to the 
time of determination.


Sec. 400.680  Determination and notification of ineligibility.

    (a) The insurance provider must send a written notice of the debt 
to the person, including the time frame in which the debt must be paid, 
and provide the person with a meaningful opportunity to contest the 
amount or existence of the debt. After the insurance provider has 
evaluated the person's response, if any, and determined that the debt 
is owed and delinquent, the insurance provider should submit the 
documentation establishing the existence and amount of the debt to 
FCIC, including any response by the person.
    (b) If an insurance provider or any other authorized person has 
evidence that a person meets any other criteria set forth in 
Sec. 400.679, they must submit the evidence to FCIC.
    (c) After FCIC verifies that the person has met one or more of the 
criteria stated in Sec. 400.679, FCIC will issue a Notice of 
Ineligibility and mail such notice to the person's last known address 
and to the insurance provider.
    (d) The Notice of Ineligibility will state the criteria upon which 
the determination of ineligibility has been based, a brief statement of 
the facts to support the determination, the time period of 
ineligibility, and the persons right to an appeal of the ineligibility 
determination.
    (e) Within 30 days of receiving the Notice of Ineligibility, any 
person receiving such a notice may appeal the determination of 
ineligibility to the National Appeals Division in accordance with 7 CFR 
part 11.
    (f) If the person appeals the determination of ineligibility to the 
National Appeals Division, the insurance provider will be notified and 
provided with an opportunity to participate in the proceeding if 
permitted by 7 CFR part 11.


Sec. 400.681  Effect of ineligibility.

    (a) The period of ineligibility will be effective:
    (1) For ineligibility as a result of a delinquent debt, the date 
the debt has been determined to be delinquent until the debt has been 
paid in full, discharged in bankruptcy, or the person has executed a 
scheduled installment payment agreement;
    (2) For ineligibility as a result of a violation of the controlled 
substance provisions of the Food Security Act of 1985, at the beginning 
of the crop year in which the producer was convicted and the four 
subsequent consecutive crop years; and
    (3) For ineligibility as a result of a disqualification under 
section 506(n) of the Act, the date that the Administrative Law Judge 
signs the order disqualifying the person until the period specified in 
the order of disqualification has expired.
    (b) Once the person has been determined to be ineligible:
    (1) All policies in which the ineligible person is the sole insured 
will be void for the period specified in Sec. 400.681(a);
    (2) If the ineligible person is a general partnership, all partners 
will be individually ineligible and any policy in which a partner has a 
100 percent interest will be void for the period specified in 
Sec. 400.681(a). The partnership and all partners will be removed from 
any policy in which they have a substantial beneficial interest, and 
the policyholder share under the policies will be reduced commensurate 
with the ineligible person's share;
    (3) If the applicant or policyholder is a corporation, partnership, 
or other business entity, and an ineligible person has a substantial 
beneficial interest in the applicant or policyholder, the application 
may be accepted or existing policies remain in effect, although the 
ineligible person will be removed from the policies and the 
policyholder share under the policies will be reduced commensurate with 
the ineligible person's share;
    (4) If the applicant or policyholder is a corporation, partnership, 
or other business entity that was created to conceal the interest of a 
person in the farming operation or to evade the ineligibility 
determination of a person with a substantial beneficial interest in the 
applicant or policyholder, the corporation, partnership or other 
business entity will be disregarded, the individual shareholders or 
partners will be personally responsible, and any shareholder or partner 
that is ineligible will be removed from the policy and the policyholder 
share under the policies will be reduced commensurate with the 
ineligible person's share;
    (5) Any indemnities or payments made on a voided policy, or on the 
portion of the policy reduced because of ineligibility, will be 
declared overpayments and must be repaid; and
    (6) If the policy is voided, all producer paid premiums may be 
refunded, or if an ineligible person is removed from a policy, the 
portion of the producer paid premium commensurate with the ineligible 
person's share may be refunded, less a reasonable amount for expense 
and handling in accordance with 7 CFR 400.47.
    (c) The spouse and minor children of an individual are considered 
to be the same as the individual for purposes of this subpart except 
that:
    (1) The spouse who was actively engaged in farming in a separate 
farming operation will be a separate person with respect to that 
separate farming operation so long as that operation remains separate 
and distinct from any farming operation conducted by the other spouse 
(Transfers of interest in a farming operation from one spouse to 
another will not be considered as a separate farming operation.);
    (2) A minor child who is actively engaged in farming in a separate 
farming operation will be a separate person with respect to that 
separate farming operation if:
    (i) The parent or other entity in which the parent has a 
substantial beneficial interest does not have any interest in the

[[Page 42044]]

minor's separate farming operation or in any production from such 
operation;
    (ii) The minor has established and maintains a separate household 
from the parent;
    (iii) The minor personally carries out the farming activities with 
respect to the minor's farming operation; and
    (iv) The minor establishes separate accounting and record keeping 
for the minor's farming operation.


Sec. 400.682  Criteria for reinstatement of eligibility.

    A person who has been determined ineligible may have eligibility 
reinstated as follows:
    (a) A delinquent debt owed on a crop insurance policy insured or 
reinsured by FCIC or any delinquent debt due FCIC. Eligibility may be 
reinstated after the debt is paid in full or discharged in bankruptcy, 
or the person has executed a scheduled installment payment agreement 
accepted by FCIC or the insurance provider. Eligibility may be 
reinstated as of the date the debt is paid, the date the agreement is 
accepted, or the date the debt is discharged in bankruptcy.
    (b) Violations of the controlled substance provisions of the Food 
Security Act of 1985, as amended. Eligibility may be reinstated after 
the period of ineligibility stated in Sec. 400.681 has expired.
    (c) Disqualification under section 506(n) of the Act. Eligibility 
may be reinstated when the period of disqualification determined in the 
administrative proceedings has expired and payment of all penalties and 
overpayments have been completed.
    (d) Timing of reinstatement of eligibility. After eligibility has 
been reinstated, the person must complete a new application for crop 
insurance coverage on or before the applicable sales closing date. If 
the date of reinstatement of eligibility occurs after the applicable 
sales closing date for the crop year, the person may not participate 
until the following crop year. If the National Appeals Division 
determines that the person should not have been placed on the 
Ineligible Tracking System, reinstatement will be effective at the 
beginning of the crop year for which the producer was listed on the 
Ineligible Tracking System and the person will be entitled to all 
applicable benefits under the policy.


Sec. 400.683  Administration and maintenance.

    (a) Ineligible producer data will be maintained in a system of 
records in accordance with the Privacy Act, 5 U.S.C. 552a.
    (1) The Ineligible Tracking System is a record of all persons who 
have been determined to be ineligible for participation in any program 
pursuant to this subpart. This system contains identifying information 
of the ineligible person including, but not limited to, name, address, 
telephone number, SSN or EIN, reason for ineligibility, and time period 
for ineligibility.
    (2) Information in the Ineligible Tracking System may be used by 
Federal agencies, FCIC employees, contractors, and reinsured companies 
and their personnel who require such information in the performance of 
their duties in connection with any program administered under the Act. 
The information may be furnished to other users including, but not 
limited to, FCIC contracted agencies; credit reporting agencies and 
collection agencies; in response to judicial orders in the course of 
litigation; and other users as may be appropriate or required by law or 
regulation. The individual information will be made available in the 
form of various reports and notices produced from the Ineligible 
Tracking System, based on valid requests.
    (3) Supporting documentation regarding the determination of 
ineligibility and reinstatement of eligibility will be maintained by 
FCIC and FSA, or its contractors, reinsured companies, and Federal and 
State agencies. This documentation will be maintained consistent with 
the electronic information contained within the Ineligible Tracking 
System.
    (b) Information may be entered into the Ineligible Tracking System 
by FCIC or FSA personnel.
    (c) All persons applying for or renewing crop insurance contracts 
issued or reinsured by FCIC will be subject to validation of their 
eligibility status against the Ineligible Tracking System. Applications 
or benefits approved and accepted are considered approved or accepted 
subject to review of eligibility status in accordance with this 
subpart.

    Signed in Washington, D.C., July 30, 1997.
Kenneth D. Ackerman,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 97-20503 Filed 8-4-97; 8:45 am]
BILLING CODE 3410-08-U