[Federal Register Volume 63, Number 185 (Thursday, September 24, 1998)]
[Rules and Regulations]
[Pages 50965-50979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25466]



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 Rules and Regulations
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  Federal Register / Vol. 63, No. 185 / Thursday, September 24, 1998 / 
Rules and Regulations  

[[Page 50965]]


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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.
----------------------------------------------------------------------
    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