[Federal Register Volume 69, Number 153 (Tuesday, August 10, 2004)]
[Rules and Regulations]
[Pages 48652-48752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18056]



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Part III





Department of Agriculture





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Federal Crop Insurance Coporation



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7 CFR Parts 400, 402, 407 and 457



General Administrative Regulations, Catastrophic Risk Protection 
Endorsement; Group Risk Plan of Insurance Regulations for the 2004 and 
Succeeding Crop Years; and the Common Crop Insurance Regulations, Basic 
Provisions; Final Rule

  Federal Register / Vol. 69, No. 153 / Tuesday, August 10, 2004 / 
Rules and Regulations  

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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Parts 400, 402, 407 and 457

RIN 0563-AB94


General Administrative Regulations, Catastrophic Risk Protection 
Endorsement; Group Risk Plan of Insurance Regulations for the 2004 and 
Succeeding Crop Years; and the Common Crop Insurance Regulations, Basic 
Provisions

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes the 
Group Risk Plan of Insurance Regulations (GRP Provisions); and the 
Common Crop Insurance Regulations, Basic Provisions (Basic Provisions) 
to make revisions that will reduce program vulnerabilities and clarify 
existing policy provisions to better meet the needs of the insured. 
Further, FCIC is making conforming amendments to the General 
Administrative Regulations, Subpart L--Reinsurance Agreement--Standards 
for Approval; Regulations for the 1997 and Subsequent Reinsurance Years 
and Subpart P--Preemption of State Laws and Regulations, and the 
Catastrophic Risk Protection Endorsement. The changes will apply for 
the 2005 and succeeding crop years for all crops with a contract change 
date on or after the effective date of this rule, and for the 2006 and 
succeeding crop years for all crops with a contract change date prior 
to the effective date of this rule. In addition, FCIC is finalizing the 
interim rule published on June 30, 2000, implementing statutory 
mandates of the Agricultural Risk Protection Act of 2000 (ARPA).

EFFECTIVE DATE: August 30, 2004.

FOR FURTHER INFORMATION CONTACT: For further information or a copy of 
the Cost-Benefit Analysis, contact Janice Nuckolls, Insurance 
Management Specialist, Research and Development, Product Development 
Division, Risk Management Agency, United States Department of 
Agriculture, 6501 Beacon Drive, Stop 0812, Room 421, Kansas City, MO, 
64133-4676, telephone (816) 926-7730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

Cost-Benefit Analysis

    A Cost-Benefit Analysis has been completed and is available to 
interested persons at the Kansas City address listed above. In summary, 
the analysis finds that changes in the rule will have positive 
potential benefits for insureds who do not engage in program abuse. 
Increased penalties for misreporting information affecting insurance 
liability should reduce the incidence of misreporting and should reduce 
the cost and amount of work needed to administer the program. 
Misreporting can result in increased indemnities and higher premium 
rates resulting from these higher than necessary payments. When 
misreporting is reduced, there will be fewer instances of fraud, waste 
and program abuse. The changes in this final rule will, over time, 
assist in (1) maintaining actuarial soundness as required by the Act, 
(2) protect the taxpayer dollar by reducing APH errors and other 
instances in which insurance liability is misstated and (3) reduce 
instances in which ineligible persons can obtain insurance benefits. 
Over time, if program abuse is decreased, premium rate reductions may 
result. Such reductions would be beneficial to producers who do not 
abuse the program. However, because the amount of abuse that currently 
occurs cannot be measured with existing data, immediate rate 
adjustments are not appropriate. Rather, such adjustments should be 
made when adequate loss experience is available to support actuarial 
calculations that satisfy appropriate credibility standards.
    The analysis also examines changes made by the interim rule 
published on June 30, 2000. The analysis finds that the benefits 
provided outweigh associated costs. The crop insurance policy changes 
were required under ARPA. The analysis finds that the increases in the 
administrative fees for the catastrophic risk protection level of 
coverage from $60 per crop per county to $100 per crop per county, for 
additional coverage from $20 per crop per county to $30 per crop per 
county, and for limited coverage from $50 per crop per county, not to 
exceed $200 per county, and $600 for all counties, to $30 per crop per 
county with no limits may modestly increase the costs to producers but 
they will also reduce the overall costs of the program to taxpayers. 
The analysis also finds that giving producers the option of replacing 
certain yields in their actual production history (APH) with 60 percent 
of the transitional yield for the county will result in greater 
coverage for producers who have been impacted by multiple year 
disasters. Based on the cost benefit analysis and the requirements of 
the ARPA, FCIC finds this regulation is in the best interest of the 
overall crop insurance program.

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 February 28, 2005. Government Paperwork Elimination Act 
(GPEA) Compliance.
    FCIC is committed to compliance with the GPEA, which requires 
Government agencies, in general, to provide the public with the option 
of submitting information or transacting business electronically to the 
maximum extent possible. FCIC requires that all reinsured companies be 
in compliance with the Freedom to E-File Act and section 508 of the 
Rehabilitation Act.

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 the UMRA) for State, local, and 
tribal governments or the private sector. Therefore, this rule is not 
subject to the requirements of sections 202 and 205 of UMRA.

Executive Order 13132

    It has been determined under section 1(a) of Executive Order 13132, 
Federalism, that this rule does not have sufficient implications to 
warrant consultation with the States. The provisions contained in this 
rule will not have a substantial direct effect on States, or on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.

Regulatory Flexibility Act

    FCIC certifies this regulation will not have a significant economic 
impact on a substantial number of small entities. This rule affects 
insurance for approximately 1,200,000 crop policies, of which 503,000 
are held by individual farmers who generally independently own and 
operate their farms. The other crop policies are held by partnerships, 
trusts, corporations and various other types of entities. Based on the 
size

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standards specified in 13 CFR 121.201, almost all of the individual 
policyholders would be considered a small entity or business (revenue 
of $0.75 million per crop per year).
    New provisions included in this rule will not significantly 
increase costs to small entities or significantly change the amount of 
work required to have an insurance policy, nor will the changes impact 
small entities to a greater extent than large entities. The provisions 
in this rule focus on several program integrity issues, including, the 
consequences of failing to pay required premiums or other amounts owed, 
attempts to conceal identity when a person is ineligible to receive 
program benefits, failing to report accurate information needed to 
determine insurance liability and premium, etc., and such changes will 
do very little, if anything, to increase costs to small entities or 
large entities. Insurance program requirements are the same for all 
producers regardless of the size of the farming operation. For example, 
producers are required to submit historical yield information to 
compute insurance coverage and premium amounts. These requirements are 
the same whether a producer has 10 or 10,000 acres and there is no 
difference in the kind of information collected.
    Further, the Federal Crop Insurance Act (7 U.S.C. 1501 et seq.) 
provides the authority to waive collection of administrative fees for 
``limited resource farmers.'' FCIC believes this extra consideration 
helps assure certain small entities (those that meet USDA's definition 
of a ``limited resource farmer'') can obtain insurance that might not 
otherwise be able to afford it. 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. With respect to any direct action taken by FCIC 
or to require the insurance provider to take specific action under the 
terms of the crop insurance policy, the administrative appeal 
provisions published at 7 CFR part 11 and 7 CFR part 400, subpart J for 
the informal administrative review process of good farming practices, 
as applicable, must be exhausted before any action against FCIC for 
judicial review may be brought.

Environmental Evaluation

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

Background:

    This rule finalizes changes to the Catastrophic Risk Protection 
Endorsement, Group Risk Plan of Insurance Regulations and the Common 
Crop Insurance Regulations; Basic Provisions mandated by ARPA, that 
were published by FCIC on June 30, 2000, as a notice of interim 
rulemaking in the Federal Register at 65 FR 40483-40486. The public was 
afforded 60 days to submit written comments after the regulation was 
filed in the Office of the Federal Register. No comments were received.
    This rule also finalizes certain changes FCIC published on 
September 18, 2002, as a proposed rule in the Federal Register at 67 FR 
58912-58933 to amend the General Administrative Regulations, subpart T-
Federal Crop Insurance Reform, Insurance Implementation; the Group Risk 
Plan of Insurance Regulations; and the Common Crop Insurance 
Regulations, Basic Provisions to implement program changes mandated by 
the Federal Crop Insurance Act (Act), as amended by ARPA, and make 
other changes and clarify existing policy provisions to better meet the 
needs of the insureds, effective for the 2003 and succeeding crop years 
for all crops with a contract change date of November 30, 2002, or 
later.
    Following publication of the proposed rule on September 18, 2002, 
the public was afforded 30 days to submit written comments and 
opinions. Based on comments received and specific requests to extend 
the comment period, FCIC published a notice in the Federal Register at 
67 FR 65732 on October 28, 2002, extending the initial 30-day comment 
period for an additional 15 days, until November 12, 2002.
    A total of 3,407 comments were received from 209 commenters. The 
commenters were reinsured companies, attorneys, trade organizations, 
commodity associations, State agricultural associations, regional 
agricultural associations, agents, insurance service organizations, 
universities, producers, USDA agencies, State Departments of 
Agriculture, grower associations, and other interested parties.
    Due to the large number of comments received and the significant 
impacts of the changes being made, FCIC finalized certain provisions of 
the proposed rule in a final rule that was published in the Federal 
Register on June 25, 2003, and is finalizing all of the remaining 
provisions in this final rule. To the maximum extent practicable, any 
changes made in response to comments have been applied to both the 
Group Risk Plan (part 407) and the Basic Provisions (part 457) even 
though the comment may have been directed at only one of these 
policies.
    Below is a summary of the major issues addressed in this rule, the 
general theme of the public comments received in response to the major 
issues and the changes, if any, made to address those comments. 
Following this summary of the major issues identified are the specific 
comments and FCIC's more detailed responses:
    Summary of Major Issues:
    (1) Identification Information Collection: The proposed rule 
included the requirement to collect identification numbers (SSNs, EINs) 
from additional persons, including the children of insured persons. The 
proposed provisions also required policy voidance if the required 
identification numbers were not provided.
    Commenters indicated the penalty was much too harsh and that 
children's SSNs should not be required.
    In response to the comments, FCIC has eliminated the requirement to 
report children's identification numbers unless the child has a 
separate legal interest in the insured. Additionally, FCIC has 
eliminated the provisions requiring the policy to be voided for failure 
to provide the required identification numbers unless the person whose 
identification numbers is not provided is ineligible to receive 
insurance benefits and maintained the current provisions regarding the 
reduction of insurable share in cases where the person whose 
identification number was not reported is eligible for insurance;
    (2) Establishment and Adjustment of Approved Yields: Proposed 
provisions

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provided for the adjustment of insurance guarantees when past yield 
history for a unit is inconsistent with other comparable insurance 
units, when the history is based on small acreage and is being applied 
to larger acreage, or when the history is based on a farming practice 
that is being changed.
    Commenters agreed with the need for such provisions but asked 
several questions regarding administration of the provisions, including 
how comparable units would be determined and how inconsistent yields 
would be defined.
    In response to the comments, provisions regarding ``inconsistent 
yields'' were removed and provisions pertaining to changes in farming 
practices and yield history based on small acreages were clarified to 
provide specific criteria to determine when the difference in yields 
will be adjusted and to provide exceptions;
    (3) Misreporting of Information: The proposed rule included 
provisions intended to decrease misreporting of information necessary 
to determine insurance coverage. The proposed provisions would have 
denied an indemnity if misreporting exceeded a five percent tolerance, 
and would have still required the insured person to pay the premium.
    Commenters stated the penalty was too harsh and that many 
inadvertent errors would exceed the five percent tolerance. Additional 
comments indicated the provisions made the policy coverage unreliable 
to producers and to lenders.
    In response to those comments, the provisions related to denial of 
an indemnity were removed, a new sanction was added that would reduce 
the amount of indemnity paid commensurate with the amount misreported, 
and the tolerance was increased to 10 percent. The provisions were also 
clarified to specify the new penalty would not apply if the insurance 
provider or USDA employee was responsible for the error, or if the 
insured person had reported a preliminary acreage amount while waiting 
for an acreage measurement;
    (4) Removal of Arbitration Provisions: The arbitration provisions 
were removed in the proposed rule and instead any dispute would have to 
be resolved through the judicial process.
    Commenters were split between retaining, removing or replacing the 
arbitration provisions with provisions that would allow mediation or 
other means of dispute resolution. Commenters challenged FCIC's basis 
for removal, claiming the problems cited should be fixed or that the 
reasons were not justified. Commenters also indicated the judicial 
process is time consuming and expensive.
    In response to these comments, arbitration provisions have been 
retained in this final rule. FCIC has addressed the concerns expressed 
by requiring that FCIC provide any policy or procedure interpretations 
to prevent disparate treatment of producers and having such 
interpretation be binding unless appealed to the National Appeals 
Division, clarifying when arbitration must be commenced, eliminating 
any conflicts of interest, requiring more detailed statements of 
arbitrator's decisions, allowing mediation, clarifying that arbitration 
is not binding, allowing only contractual damages unless FCIC 
determines the insurance provider failed to follow approved policy or 
procedure, and adding provisions specifying that when FCIC directly 
participates in the adjustment of a claim, the dispute is against FCIC, 
not the insurance provider;
    (5) Verification of Production Records: The proposed rule included 
provisions requiring insurance providers to verify production records 
for the previous three years for any loss unit and added a penalty that 
failure to maintain such records would result in no indemnity due and 
the producer would still be required to pay the premium.
    Commenters stated the penalty was too extreme, would substantially 
increase costs and delay claims, and that the work force is 
insufficient to accomplish the increased workload.
    In response to the comments, the proposed change is not 
incorporated in the final rule. The policy provisions already contain 
record retention requirements and FCIC has determined the same effect 
could be achieved by having the insurance providers conduct reviews to 
ensure the producer is properly retaining records and that such records 
reflect the production reported;
    (6) Combining Insured Entities: The proposed rule required that all 
entities composed of the same people be insured under one policy to 
avoid producers creating new entities to avoid the application of 
existing policy or procedure, such as the use of past production 
records.
    Commenters stated the proposed change violates entities that are 
legally separate and protected and that the proposal is inconsistent 
with IRS and FSA rules.
    In response to the comments, the proposed change is not 
incorporated in the final rule. Instead, FCIC has revised its 
procedures to require that past records be used anytime an insured 
received a share of the insured crop production or was a member of or 
had a substantial beneficial interest (SBI) in an entity that received 
a share in the insured crop production. This change results in the 
inability to drop past production history simply by creating a new 
entity.
    Due to the number and complexity of the comments received, FCIC has 
provided a list of the issues covered in this rule and headings so that 
the reader can better determine the subject of the comments.

List of the Issues Covered in This Rule

    In General--Burdens Imposed in Administering the Policy:

1. Burden on Producers; and
2. Burden on Insurance Providers;
    Application of Rule;
    Elimination of Good Faith Reliance Provisions;
    Revisions to the Preamble;
    General Comments to the Definitions;

    Revisions to Specific Definitions:

1. Actuarial Documents;
2. Agent;
3. Agricultural Commodity;
4. Annual Crop;
5. Another use, notice of;
6. Application;
7. Border;
8. Code of Federal Regulations;
9. Contract;
10. Contract Change Date;
11. County;
12. Coverage;
13. Crop;
14. Crop Year;
15. Damage, Notice of;
16. Deductible;
17. Delinquent Account;
18. Discernible;
19. Disinterested Third Party;
20. Enterprise Unit;
21. Earliest Planting Date;
22. Field;
23. FCIC and RMA;
24. FCIC Procedures;
25. Farming or Farmed;
26. Household;
27. Indemnity;
28. Insurable Loss;
29. Insurance Provider;
30. Insured;
31. Insured Crop;
32. Irrigated Practice;
33. Liability;
34. Limited Resource Farmer;
35. New Producer;
36. Non-contiguous;
37. Offset;
38. Perennial Crop;
39. Person/Entity;
40. Policy;
41. Practical to Replant;
42. Premium;
43. Premium Billing Date;
44. Prevented Planting;
45. Replanting;
46. Second Crop;
47. Substantial Beneficial Interest;
48. Surrounding Area;

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49. Summary of Coverage;
50. Timely Manner;
51. Verifiable Records;
52. Void;
53. Whole Farm Unit; and
54. Written Agreement;
    Identity Collection Information--Section 2(b);
    Delinquent Debts--Proposed Section 2(e) and Redesignated Section 
2(f);
    Clarification of Insurance Guarantees, Coverage Levels, 
Verification of Records,
    Establishment and Adjustment of Approved Yields--Section 3;
    Contract Changes--Section 4;
    Eliminating the Liberalization Provisions--Section 5;
    Revisions to Acreage Reports and Misreporting of Information--
Section 6;
    Clarification of Premium and Administrative Fees--Section 7;
    Clarification of Insured Crop--Section 8;
    Clarification of Insurable Acreage--Section 9;
    Clarification of Share Insured--Section 10;
    Clarification of Causes of Loss--Section 12;
    Clarification of Replanting Payments--Section 13;
    Clarification of the Insured's and Insurance Provider's Duties--
Section 14;
    Clarification of Production Included in Determining an Indemnity 
Provisions--Section 15;
    Clarifications of the Prevented Planting Provisions--Section 17;
    Clarifications to the Written Agreement Provisions--Section 18;
    Elimination of the Arbitration Provisions--Section 20;
    Clarification of Access to Insured Crop and Records, and Record 
Retention--Section 21;
    Clarification Regarding Other Insurance--Section 22;
    Clarification of the Amounts Due Us Provisions--Section 24;
    Limitation of the Right to Collect Extra Contractual Damages--
Section 25;
    Clarification of the Interest Provisions--Section 26;
    Policy Voidance Provisions--Section 27;
    Transfer of Coverage and Right to an Indemnity Provisions--
Section 28;
    Clarification of the Subrogation Provisions--Section 30;
    Applicability of State and Local Statutes--Section 31;
    Notice Provisions--Section 33;
    Clarification of the Unit Division Provisions--Section 34; and
    New Provisions for Beginning and New Producers.

    The specific comments received and FCIC's responses are as follows:

In General--Burdens Imposed in Administering the Policy

    1. Burden on Producers:
    Comment: Several commenters were concerned by what they perceive as 
unreasonable compliance requirements on producers' reporting procedures 
and agricultural practices.
    Response: To protect program integrity, stronger provisions 
regarding misreporting and changes in farming practices are necessary. 
New provisions in this final rule should reduce errors and program 
abuse that can adversely affect premiums and indemnities. In this final 
rule, FCIC has attempted to limit the information collection burden and 
implements only those changes needed to properly administer the program 
and minimize waste and abuse.
    Comment: (1) Many general comments were received regarding added 
program complexity, severe reporting requirements and associated 
penalties, increased workloads and program delivery cost, unclear 
definitions and terms and conditions, legality of certain changes, 
unpredictability of coverage, reduction in confidence by producers and 
lenders, customer dissatisfaction, conflicts with Congressional intent, 
etc.; (2) Some of the commenters agreed program integrity issues needed 
to be addressed. However, the commenters stated that the approaches 
presented in the proposed rule were far too harsh, could not be 
administered, and would result in an unreliable, unsaleable product. 
The commenters recommended focusing penalties on those who are abusing 
the program as Congress has directed rather than the Draconian measures 
and overly broad approach presented by FCIC in the proposed rule. 
Commenters stated that while it may be reasonable to have some 
penalties associated with unintentional errors, the severest penalties 
should be reserved for willful and intentional deception, as intended 
by Congress; (3) Several commenters stated the proposed changes would 
result in reduced participation, which is directly in conflict with 
Congressional efforts and direction.
    Response: Most of the general comments received are repeated in 
greater detail in comments to specific proposed changes and are 
responded to later in this section.
    2. Burden on Insurance Providers:
    Comment: A commenter noted FCIC stated the amount of work required 
of the insurance providers delivering and servicing these policies will 
not increase significantly from the amount of work currently required. 
They believe this is incorrect, as they believe more auditing, 
verifying, etc., is being required from insurance providers and if more 
is being required of the insurance providers, they need to be 
compensated accordingly.
    Response: FCIC agrees some additional work will be required to 
administer new provisions contained in this final rule. However, such 
changes are necessary to protect program integrity and should 
ultimately result in savings to the insurance providers. Further, it is 
anticipated that the new provisions regarding misreporting of 
information used to determine liability, and improper use of Actual 
Production History (APH) yields, etc., will reduce some of the work 
insurance providers must do because there will be fewer errors to 
correct.
    3. Application of Rule:
    Comment: A commenter noted that FCIC stated the provisions of this 
rule would not have a retroactive effect. However, they believe this 
will have a retroactive effect because of the way things are stated in 
this proposal. The commenter stated that if it is true that it is not 
retroactive, then it needs to be stated that the rules will only apply 
from this point forward and not penalize anyone for not keeping 
records, etc.
    Response: FCIC agrees the record-keeping provisions contained in 
the proposed rule would have had a retroactive effect. As stated more 
fully below, these provisions have been revised in this final rule to 
eliminate this effect.
    Comment: Other commenters were concerned with inclusion of ``FCIC'' 
in so many places in the policy because the contract is between the 
producer and the insurance provider, and recommended minimizing the 
visibility of ``FCIC.''
    Response: FCIC agrees the insurance contract is between the 
producer and insurance provider. However, to place the insured on 
notice that procedures issued by FCIC will be used in administering the 
policy and to denote other areas in which FCIC involvement is required, 
it is necessary to reference FCIC.
    Comment: Some commenters stated FCIC unilaterally developed the 
proposed provisions without input from insurance providers, producer 
groups, etc., and recommended all work together to develop any new 
provisions.
    Response: Over the past few years, insurance providers and producer 
groups provided input on the Basic Provisions and this input was 
utilized to prepare many of the proposed provisions, and many of the 
proposed provisions dealing with program integrity issues were 
developed based on past litigation, arbitration and appeal cases 
involving insurance providers.
    Comment: Some commenters also recommended not finalizing any of the 
proposed changes without publishing another proposed rule, and allowing 
for additional comments.
    Response: Interested parties were provided adequate time to provide 
comments and to allow an additional

[[Page 48656]]

comment period would delay the implementation of needed changes. FCIC 
has given consideration to all comments received on all proposed 
changes and has revised the provisions in this final rule accordingly.
    Comment: A few commenters requested their comments to the Basic 
Provisions be considered for the GRP Provisions where applicable.
    Response: FCIC has considered all the comments to the Basic 
Provisions as if they are applicable to the GRP Provisions. Where 
applicable, FCIC has made the same or similar changes in both the GRP 
Provisions and the Basic Provisions.

Elimination of Good Faith Reliance Provisions

    Comment: A commenter stated the deletion of the ``good faith and 
reliance on misrepresentation'' provisions will definitely not meet the 
needs of the insured. The commenter believes the reasons given for the 
deletion are wholly one sided and inadequate. They cited one reason 
given for the deletion was ``because of the confusion surrounding the 
applicability of the provisions.'' They believe this is a language 
problem and not a reason to delete the provision. They cited another 
reason, which was to ``avoid the perception that FCIC was waiving the 
protection against the applicability of estoppel against it and 
permitting employees to bind FCIC with their errors,'' does not provide 
a reason to delete the provision. The commenter believes the purpose of 
this provision is to clarify how to equitably resolve problems that 
occur when a producer relies in good faith upon misinformation given to 
the person by FCIC, by an insurance provider or by an agent. The 
commenter believes sometimes agents or insurance providers give wrong 
information to an insured, and sometimes it is so grossly erroneous 
that it can almost be considered intentional. They believe producers 
need some sort of equitable protection against that occurrence. The 
commenter believes if this provision is deleted, producers will have no 
way to protect themselves from even intentional and malicious 
misinformation. They believe deletion of this provision would indicate 
that FCIC believes it has no responsibility for its errors, but at the 
same time requires that producers be fully responsible for their 
errors. The commenter believes that perhaps rewording the provision for 
clarification is appropriate, but that deletion is not appropriate.
    Response: FCIC agrees that policyholders should be able to rely on 
the advice provided by government employees, insurance providers and 
agents. FCIC uses considerable resources to ensure that these persons 
have the correct information to provide to policyholders. It publishes 
policies in the Federal Register and on its Web site to ensure that all 
employees, agents, insurance providers, and policyholders have access 
to policy terms and conditions. However, even if a government employee 
provides erroneous advice the authority to provide equitable relief 
against the government is extremely limited. Only the Secretary has the 
authority to provide equitable relief on behalf of the government and 
such relief can only be granted when the producer and employee do not 
know that the advice provided is contrary to the Act or regulations. 
The Supreme Court has held that all FCIC personnel, insurance 
providers, agents and producers are presumed to know the provisions of 
the Act and the regulations, including all policy provisions, and are 
bound by the language even when a government employee had provided 
erroneous advice. Further, most of the advice given to policyholders is 
provided by agents. Therefore, the interests of insureds are protected 
because any erroneous advice would be covered by the agents' errors and 
omissions insurance. In addition, the preamble to the policy specifies 
that no policy provisions may be waived or varied in any way by an 
insurance provider, agent or any other contractor or employee of the 
insurance provider or USDA unless the policy specifically authorizes a 
waiver or modification by written agreement. To allow for equitable 
relief could permit government employees, insurance providers or agents 
to modify or waive policy provisions, which would conflict with the 
preamble. No change has been made.

Revisions to the Preamble

    Comment: A commenter asked how the first statement in the preamble, 
that reads, ``The provisions of the policy are published in the Federal 
Register * * *'' applies to pilot programs that are not published in 
the Federal Register.
    Response: FCIC agrees certain policy documents for pilot crop 
insurance programs and some policies submitted to FCIC under section 
508(h) of the Act are not published in the Federal Register. Language 
indicating the policy provisions are published in the Federal Register 
and codified has been removed.
    Comment: A commenter believes that in view of the legislative 
initiatives made by ARPA, FCIC has done the right thing in expanding 
the list of persons who may not waive or vary any terms of the policy 
to include RMA and FSA. The commenter stated this portion of the first 
paragraph, however, also substitutes the term ``crop insurance 
provider'' for ``insurance provider,'' and this may introduce some 
confusion, because neither the current version of the Basic Provisions 
nor the proposed one defines these terms. The commenter believes that 
because agricultural producers are familiar with usage of the term 
``insurance provider'' and since it is used elsewhere in the Basic 
Provisions, including the very next paragraph of the preamble, it is 
appropriate to use that term (even if undefined) in the first 
paragraph. They believe an alternative would be to define ``crop 
insurance provider'' as the ``insurance provider'' in the definitions 
portion.
    Response: FCIC agrees that the term ``crop insurance provider'' is 
undefined. The term has been replaced with ``we,'' ``us'' or ``our,'' 
as applicable to be consistent with the rest of the policy, which 
refers to the insurance company as ``we,'' ``us,'' and ``our.'' 
However, the term ``insurance provider'' is still used when referring 
to other than insurance companies.
    Comment: A commenter stated the preamble paragraph inaccurately 
states that the policy cannot be waived or varied in any way when, in 
fact, written agreements that modify the insurance offer, rates, 
actuarials (all a part of the policy) are allowed.
    Response: FCIC agrees the policy specifically allows for 
modification by written agreements. FCIC has revised the provision to 
state that the terms of the policy may not be waived or modified unless 
a written agreement is specifically authorized by the policy.
    Comment: A commenter believes FCIC is proposing a useful addition 
to the preamble by adding the sentence regarding handbooks, manuals, 
and directives.
    Response: FCIC agrees it is important to provide notice to 
policyholders that the procedural materials issued by FCIC will be used 
to administer the crop insurance program.
    Several comments were received regarding language in the policy 
preamble as it relates to the roles of RMA and the insurance providers. 
The comments are as follows:
    Comment: Some commenters stated the proposed language overlooks the 
fact that this is a privately delivered product and implies the policy 
is a Federal contract or that a producer should take up policy 
conflicts directly with RMA.

[[Page 48657]]

    Response: While this may be a privately delivered product, 
policyholders must be made aware that they are participating in a 
Federal program. It is in no way intended to imply that the government 
is a party to the contract. The agreement to insure clearly indicates 
that the contract is between the producer and the insurance provider 
through its reference to ``we,'' which is defined in the previous 
paragraph as the insurance provider. However, the government still has 
regulatory control over the program. Further, there is nothing in the 
preamble regarding disputes. Provisions regarding resolution of 
disputes are contained in section 20 of the Basic Provisions and 
section 16 of the GRP Provisions. Those provisions make clear which 
disputes are properly brought against FCIC and those that must be 
brought against the insurance provider. No changes have been made.
    Comment: A few commenters recommended revising the language to 
indicate procedures approved by FCIC will be used rather than those 
issued by FCIC. Some of these commenters stated that it appears the new 
language would require private insurance providers to issue FCIC policy 
forms and use FCIC handbooks as opposed to National Crop Insurance 
Services (NCIS) forms and handbooks.
    Response: The reference to procedures as issued by FCIC is 
appropriate. This is to ensure that the same procedures are applicable 
to all producers regardless of the insurance provider. The procedures 
allow the insurance providers to create their own forms, in accordance 
with the procedures.
    Comment: A commenter stated a reference to NCIS publications as 
authoritative guidance should be added, for the consultative process 
and studied professionalism of those publications frequently is the 
most complete, consistent and meaningful treatment of key program 
issues. The commenter stated the terms ``procedures'' and 
``provisions'' in the fourth sentence are not defined, and they believe 
are ambiguous and open to infinite interpretations, many of which are 
equally reasonable. The commenter stated the proposal appears to 
attempt distinguishing between these two terms, but because it defines 
neither that attempt fails. They also noted the proposal states that 
procedures and provisions ``will be used'' but does not say by whom, 
when or in what manner.
    Response: While NCIS may put out procedures under its own name, 
those procedures must be the same as those issued by FCIC. Even NCIS 
forms must contain, at a minimum, the information contained in FCIC's 
procedures. Therefore, it would be inappropriate to refer to NCIS 
because it would imply that NCIS is a regulator of the program. The 
proposed language referencing ``provisions'' is clearly modified by the 
phrase ``of the policy.'' Therefore, further clarification of this term 
is not needed. However, FCIC has revised the provision to specify that 
``procedures'' refer only to handbooks, manuals, memoranda and 
bulletins. This will prevent infinite interpretations. FCIC has also 
revised the provisions to specify that the insurance provider will use 
the procedures as issued by FCIC in the administration of the policy.
    Several comments were received regarding order of precedence of 
documents referred to in the policy preamble (the Act, regulations, 
policy, and procedures). The comments are as follows:
    Comment: Several commenters stated the proposed preamble is rather 
confusing as to conflicts between the policy, the Act and/or the 
regulations. They stated the preamble needs to address the order in 
which each takes precedence.
    Response: FCIC agrees the preamble needs to address the order of 
precedence of the referenced documents and has revised the language 
accordingly.
    Comment: Some commenters indicated the ``agreement to insure'' 
section establishes an order of precedence among policy documents but 
omits the Act, Regulations, etc. They recommend this paragraph be 
reconciled with the changed initial paragraph of the preamble. One of 
the commenters stated the policy must clearly state what action is to 
be taken when one of the listed documents is inconsistent with one or 
more other Agency publications.
    Response: FCIC also agrees that there should be one section that 
sets the order of precedence for all documents and has moved all the 
provisions to the ``agreement to insure'' section.
    Comment: Some commenters stated the policy provisions should take 
highest precedence since the policy is what is given to the 
policyholder to serve as the ``contract'' between insurance provider 
and policyholder.
    Response: FCIC agrees that between the policy regulations and the 
administrative regulations, the policy regulations should take 
precedence. However, the policy provisions cannot override the Act.
    A few comments were received regarding references to agents in the 
policy preamble. The comments are as follows:
    Comment: A commenter stated that the paragraph seems to reinforce 
that the agent is separate and apart from the insurance provider. The 
commenter added that the agent is defined by an agency agreement 
between the insurance provider and the person or entity acting as an 
agent for the insurance provider. They believe the proposed language 
may be interpreted as stating the agent is a broker for the 
policyholder or some sort of third party.
    Response: FCIC has revised the provision to clarify that the 
``agent'' refers to the insurance agent and that the insurance agent is 
affiliated with the insurance provider.
    Comment: A commenter stated that the term ``agent'' as used twice 
in the third sentence is not clear. They believe the key phrase should 
be reworded to read ``* * * by the crop insurance provider, any 
insurance agent or any agent or employee of FCIC, the Risk Management 
Agency * * *''
    Response: FCIC has revised the third sentence to clarify that the 
first reference to ``agent'' refers to the insurance agent and has 
replaced the second reference to ``agent'' with ``contractor'' to 
encompass managing general agents, loss adjusters and other contractors 
of the insurance provider.
    Comment: A commenter believes the words ``insurance provider 
providing insurance'' in the second paragraph of the policy preamble 
should be replaced with the words ``insurance provider providing you 
insurance'' less there be confusion between all providers and this 
policy.
    Response: Since no changes to this paragraph were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    Comment: A commenter stated it is not clear from the Federal 
Register whether the following definitions remain in the proposed Basic 
Provisions: ``Throughout this policy, `you' and `your' refer to the 
named insured shown on the accepted application and `we,' `us,' and 
`our' refer to the insurance provider providing insurance. Unless the 
context indicates otherwise, use of the plural form of a word includes 
the singular and use of the singular form of the word includes the 
plural.'' The commenter believes these definitions are extremely 
valuable and helpful in understanding a number of the subsequent 
sections of the policy,

[[Page 48658]]

and therefore, they believe these definitions should remain a part of 
the policy.
    Response: As stated in the proposed rule, FCIC has only revised the 
first paragraph of the preamble. Therefore, the second paragraph 
remains unchanged.
    Comment: A commenter noted that FCIC proposed to remove section 
14(d), which states that the insurance provider adjusts losses in 
accordance with FCIC-approved loss adjustment procedures. The commenter 
added that to retain this concept in the Basic Provisions, they 
recommend that FCIC amend the fourth sentence of the preamble as 
follows: ``Procedures, including, but not limited to, handbooks, 
manuals and directives, issued or approved by FCIC and published on the 
RMA Web site at http://rma.usda.gov/ or a successor Web site will be 
used in the administration of this policy and in the adjustment of any 
loss or claim submitted hereunder.''
    Response: FCIC has revised the fourth sentence of the preamble to 
specify that procedures as issued by FCIC will be used in the 
adjustment of any loss or claim.
    Comment: A commenter noted the policy indicates ``us'' refers to 
the insurance provider providing insurance. However, the commenter 
states the term is also used in the context of FCIC.
    Response: Under ``FCIC Policies,'' the term ``us'' refers to FCIC. 
Under ``Reinsured Policies,'' the term ``us'' refers to the insurance 
provider providing insurance. Therefore, it will depend on who is 
offering the insurance as to which ``us'' is actually referenced. For 
reinsured policies, it will only be the insurance provider. For FCIC 
policies, it will only be FCIC.
    A few comments were received regarding the phrase ``cannot pay your 
loss.'' The comments received are as follows:
    Comment: A commenter stated that it is anticipated that the soon-
to-be negotiated Standard Reinsurance Agreement (``SRA'') will contain 
provisions implementing section V.P. of the SRA, including language 
that provides for the assumption by FCIC and insurance providers of 
liability of an insurance provider that has become insolvent or is 
otherwise unable to perform its duties under the SRA. The commenter 
noted that currently, the Basic Provisions state only: ``In the event 
we cannot pay your loss, your claim will be settled in accordance with 
the provisions of this policy and paid by the FCIC.'' They believe this 
statement may not accurately reflect the disposition of policies in the 
event that an insurance provider becomes insolvent, because in such a 
scenario, insureds may be transferred in bulk to other insurance 
providers. The commenter stated that transfer of policies from an 
insolvent insurance provider to other insurance providers affects the 
rights and duties of insureds, and FCIC should amend the Basic 
Provisions to provide: ``In the event we cannot pay your loss, your 
claim will be settled and paid in accordance with the provisions of the 
Standard Reinsurance Agreement and this policy.''
    Response: FCIC has clarified that in the event an insurance 
provider cannot pay the policyholder's loss, FCIC will be responsible 
for the amount of such loss. This applies regardless of whether FCIC 
assumes the policy or it is transferred to another insurance provider.
    Comment: A commenter recommended the words ``cannot pay your loss'' 
be clarified. They presume it means to address a case where the 
provider is insolvent, but it does not say that.
    Response: FCIC has clarified that the phrase ``cannot pay your 
loss'' means an insurance provider has become insolvent or is otherwise 
unable to perform its duties under the SRA.
    Comment: A commenter believes the proposed language in the policy 
preamble seems to preclude FCIC/RMA from making any changes to 
provisions, procedures, etc. They asked if this is RMA's intent. The 
commenter stated that for example, it would seem the language would 
preclude the issuance of bulletins.
    Response: FCIC has revised the provision to specify that changes 
may not be made to the policy except as authorized by the policy. 
However, bulletins are usually used for the purpose of clarification, 
interpretation or to fill a gap that may exist in the policy or 
procedures. Under this revised preamble provision, FCIC may only revise 
the policy through a bulletin if specifically authorized in the policy. 
There is nothing in the preamble that affects or restricts the manner 
in which FCIC revises its procedures. The preamble only specifies that 
such procedures, which include bulletins, will be used to administer 
the policy.
    Comment: A commenter asked if the availability on the referenced 
Web site is intended to preclude the need to issue actual policy 
documents or change notifications to insureds.
    Response: The Web site address included in the policy tells the 
reader where all crop insurance materials can be found. Some of these 
documents are not provided to the policyholder even though they may 
affect the terms and conditions of insurance such as the actuarial 
documents and the manuals and handbooks. Nothing in this rule affects 
the requirement that insurance providers provide policy information to 
insureds or the notification requirements. Such information must still 
be provided to producers.
    Comment: A commenter asked why, in the added language, is a 
specific reference to ``FSA'' made, rather than ``USDA.''
    Response: FCIC has revised the provision to refer to employees of 
USDA.
    Comment: A commenter stated that handbooks, manuals, and directives 
should not be used to circumvent rulemaking. They stated the policy 
preamble would add a reference to handbooks, manuals and directives, 
and that while the use of some interpretive handbooks is common in 
administrative agencies today, they should not be used to avoid notice 
and comment rulemaking when promulgating or changing substantive rules. 
The commenter believes these handbooks must be made readily available 
to farmers if they are to be relied upon by insurance providers.
    Response: Since the policies published in the Code of Federal 
Regulations have the force of law, procedures cannot be used to modify 
the terms of the policy. However, they have always been used to 
administer the policy through interpretations, clarifications or to 
fill gaps that may exist because of situations that arise that were not 
contemplated in the policy or procedures. Any change to the policy must 
be made through the rulemaking process unless otherwise authorized in 
the policy. Procedures are readily available to the public on RMA's Web 
site.
    Comment: A commenter stated it appears items (1) and (2) in the 
agreement to insure statement in the preamble are reversed from what 
they should be.
    Response: Since no changes to this paragraph were proposed and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. 
Any modification to this paragraph in this final rule was the result of 
a conforming amendment.

General Comments to the Definitions

    Comment: A few commenters made the following general statements 
regarding section 1 (Definitions): (1) Removing ambiguous language and 
definitions will strengthen the integrity of the Federal crop insurance 
program; (2) Loosely defined terms such as

[[Page 48659]]

``prevented planting'' could be refined to help reduce disputes, and 
confusion; (3) Some definitions use terms such as ``normally'' which 
causes vagueness; (4) There are some definitions which reference 
language that is not in the policy itself but is part of the FCIC Act 
(Act) and many producers do not have access to the Act or consider it 
burdensome to find and interpret it; and (5) A producer should not need 
an attorney to interpret the policy.
    Response: FCIC agrees terms used in the policy should be as clear 
as possible and readers should be able to make interpretations without 
assistance. The terms referred to in this comment have been modified as 
indicated in response to specific comments included later in this 
section. In some instances it is necessary to refer readers to other 
documents such as the Act. However, such references are only used to 
provide the reader with information regarding the authority for 
specific actions and it is not necessary to access the Act to interpret 
the policy or determine the terms and conditions of insurance.
    Comment: Some commenters recommended capitalizing words that are 
used as defined terms throughout the policy to help clarify when a 
given definition applies.
    Response: Capitalization of specific words in the document that is 
contrary to the general rules of grammar tends to make the document 
more difficult to read. No change has been made.

Revisions to Specific Definitions

    1. Actuarial Documents:
    Comment: A commenter stated the word ``type'' is ambiguous in the 
definition of ``actuarial documents.'' They stated if the intent is to 
describe the current actuarial documents, the phrase should be 
``particular types and varieties of the crop which may be insured.''
    Response: FCIC has clarified the definition to specify that 
``type'' refers to the particular type or variety of the insurable 
crop.
    Comment: Several commenters recommended the first sentence in the 
definition of ``actuarial documents'' be modified to read ``* * * 
agent's office and/or published * * *'' to cover circumstances where 
the agent may not have the documents in question.
    Response: Actuarial documents are necessary to provide the 
policyholder with information regarding premium rates. Therefore, 
insurance agents must have this information to be able to advise 
policyholders. No change has been made.
    Comment: A commenter stated that the reference to RMA's Web site in 
the definition of ``actuarial documents,'' and throughout the 
provisions, leave it unclear as to whether certain documents are 
required in the agent's office or not.
    Response: The definition of ``actuarial documents'' clearly 
indicates the materials are available in the agent's office and on 
RMA's Web site. Sections 4(b) and (c) of the Basic Provisions also 
indicate the ``actuarial documents'' will be available in both 
locations. However, insurance agents with offices that have access to 
the actuarial documents from the Web site are considered to have the 
documents available for public inspection in their office. No change 
has been made.
    Comment: A commenter stated the reference to the agent's office in 
the definition of ``actuarial documents'' is archaic and should be 
broadened to include agent Web sites, insurance provider offices and 
Web sites, RMA offices and Web sites, etc.
    Response: These provisions are intended to notify the policyholder 
where the actuarial documents can be found. If FCIC were to make the 
requested change, it would require that all insurance agents and 
insurance providers have Web sites that have links to the actuarial 
documents. This would impose an unnecessary burden. Further, this 
information must be available in the agent's office in order to be able 
to respond to policyholder queries. No change has been made.
    Comment: A commenter asked if availability of actuarial documents 
on the Web site is intended to relieve the responsibility to notify 
policyholders of changes, and if the Web site is now to be considered a 
part of the policy.
    Response: The Web site is just intended to provide a convenient 
place to find all materials related to crop insurance. While the policy 
references the Web site, the content of the Web site has not been 
incorporated into the policy nor does the Web site revise any 
requirements in the policy for the insurance provider to notify 
policyholders of all policy changes in writing.
    Comment: A commenter stated the definition of ``actuarial 
documents'' indicates production guarantees are contained in the 
actuarial documents. They indicated the guarantees are not in the 
documents now, and asked if this would work since the APH and insurance 
guarantees change yearly.
    Response: FCIC agrees that production guarantees are not included 
in the actuarial documents. Therefore, FCIC has revised the definition 
by deleting the reference to production guarantees.
    Comment: Some commenters recommended changing ``your agent's 
office'' to ``the policy servicing agent's office'' in the definition 
of ``actuarial documents.''
    Response: FCIC is unsure of what this change is intended to 
accomplish. FCIC does not see the distinction between an agent and a 
policy-servicing agent. Therefore, the recommended change does not 
appear to clarify or improve the definition. No change has been made.
    Comment: Several commenters recommended using a consistent 
reference to RMA's Web site in the definition of ``actuarial 
documents'' and throughout the rule.
    Response: FCIC has been unable to determine how the references are 
inconsistent but it will check references to the Web site to be certain 
they are consistent.
    2. Agent:
    Comment: Some commenters recommended adding the definition of 
``agent.'' A commenter recommended defining ``agent'' as ``agent of the 
insurance provider.''
    Response: To the extent that the commenter was concerned that the 
policy was confusing as to who the agent is affiliated with, FCIC has 
clarified the preamble to specify that the agent is affiliated with the 
insurance provider. This clarification avoids the need to add a 
separate definition.
    3. Agricultural Commodity:
    Comment: A few commenters suggested expanding the definition of 
``agricultural commodity.'' One stated expansion was necessary to 
include livestock and aquatic programs, and the other recommended 
including any crop or other commodity, whether or not it is insured.
    Response: Agricultural commodity is a very broad term and the Act 
allows it to encompass almost any commodity. FCIC is reluctant to put 
qualifiers in the definition that could exclude certain commodities in 
future years. As drafted, the definition includes livestock and aquatic 
programs through its reference to other commodities. No change has been 
made.
    Comment: A few commenters stated the definition of ``agricultural 
commodity'' is expanded to include commodities other than crops, yet in 
most cases, the Basic Provisions reference ``crop.'' The comments 
recommended changing some of these references to ``agricultural 
commodity.''
    Response: FCIC has already revised those provisions where it has 
determined it is appropriate to refer to agricultural commodity instead 
of crop. However, there are still many places

[[Page 48660]]

where the reference should remain as ``crop.''
    4. Annual Crop:
    Comment: One commenter recommended changing the definition of 
``annual crop'' to show the contrast between annual, perennial, and 
volunteer crops.
    Response: The purpose of having separate definitions is to show 
their contrast. Therefore, it is not necessary to repeat this in each 
individual definition. No change has been made.
    5. Another use, notice of:
    Comment: A commenter recommended removing the definition of 
``another use, notice of'' since definitions of ``loss, notice of'' and 
``damage, notice of'' were deleted.
    Response: FCIC has removed the definition accordingly.
    6. Application:
    Comment: A commenter recommended the definition of ``application'' 
be modified to recognize the application process can be an electronic/
paperless process, and not necessarily requiring a ``form.'' The 
commenter also suggested adding language indicating a new application 
must be filed once the producer again becomes eligible.
    Response: Since no changes to this definition were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    7. Border:
    Comment: A commenter stated a change from 36,000 to 20,000 plants 
per acre would be a ``border'' within the meaning of the proposal's 
definition, yet it would not constitute a ``discernible break'' as 
required by established Agency procedures. The commenter stated use of 
the term ``border'' appears to be an attempt to replace ``discernable 
break,'' which they believe is a recognized term that is currently 
generally understood and consistently applied. They suggested the text 
of the proposal be revised wherever the term ``border'' now appears to 
state whatever FCIC intends.
    Response: FCIC agrees borders created by different plant densities 
may not be readily discernible and that the proposed definition of 
``border'' is too subjective and overly broad. FCIC believes the 
current provisions contained in section 34 that require ``a clear and 
discernible break in the planting pattern at the boundaries of each 
optional unit'' is a more definitive requirement that has been 
generally consistently applied. Therefore, all references to ``border'' 
have been removed from the final rule.
    Comment: Several commenters recommended revising the definition by 
removing the words ``plant density.'' A few of the commenters stated 
the term ``plant density'' is too liberal. Other commenters stated 
``plant density'' is not readily identifiable or readily discernable, 
and therefore FCIC should consider deleting plant densities and adding, 
``no crop is planted or the planted crop is destroyed by the acreage 
reporting date.''
    Response: See response to the first comment.
    Comment: A few commenters stated the definition is unclear. Some 
commenters recommended deleting ``etc.'' and ``distinction'' because of 
the possibility of different interpretations. A few commenters stated 
the term ``readily identifiable'' in the definition is too vague and is 
subject to differing interpretations. A commenter recommended defining 
``readily identifiable distinction.''
    Response: See response to the first comment.
    Comment: A commenter stated the definition is overly broad, vague 
and permits virtually any differentiation between land areas to be 
deemed a ``border.'' They stated FCIC should amend the definition to 
limit subjectivity or, at a minimum, state the insurance provider 
shall, in its sole discretion, determine whether a difference 
constitutes ``a readily identifiable distinction.''
    Response: See response to the first comment.
    Comment: A few commenters recommended changing the definition to 
read as follows: ``A readily identifiable discernable break between two 
areas of land (e.g. different planting patterns or area where no crop 
is planted).''
    Response: See response to the first comment.
    Comment: A commenter suggested border be defined as an ``unplanted 
area,'' and that planting it then disking or tilling to create a 
``border'' should not qualify. The commenter stated the subjectivity of 
the proposed wording makes it impossible for an agent to properly 
explain and sell, and it puts the adjuster in a difficult situation.
    Response: See response to the first comment.
    Comment: A commenter stated the definition conflicts with the 
definition of field. A few commenters stated the proposed definition is 
inconsistent with current procedure in the Crop Insurance Handbook 
which requires a break in the planting pattern.
    Response: See response to the first comment.
    Comment: A commenter stated the definition is incomplete if 
additional terms, such as ``discernible break'' are needed. The 
commenter also asked if the border should not be identifiable to the 
extent that separate harvesting can result and records can be kept.
    Response: See response to the first comment.
    8. Code of Federal Regulations:
    Comment: Several commenters recommended defining the ``Code of 
Federal Regulations (CFR).'' Some stated there should be an explanation 
of 7 CFR part 400, subpart G in the definitions of ``average yield'' 
and ``approved yield,'' and that FCIC should also explain other 
regulations referenced in the policy.
    Response: FCIC agrees the definition of ``Code of Federal 
Regulations (CFR)'' should be added. The new definition includes a Web 
site address where interested parties can find the full text of the CFR 
in electronic format. An explanation of the CFR subparts referenced in 
the policy should not be included in the policy as it would be 
repetitious with those parts and unnecessarily increase the size of the 
policy.
    9. Contract:
    Comment: A commenter was concerned about the terms ``contract'' and 
``policy'' and using them interchangeably.
    Response: Since the terms mean the same thing, using the two terms 
interchangeably should not cause confusion. No change has been made. 
However, the definition of ``policy'' has been revised in response to 
other comments.
    10. Contract Change Date:
    Several comments were received regarding the definition of 
``contract change date.'' The comments are as follows:
    Comment: A few commenters recommended retaining the current 
definition of ``contract change date.''
    Response: The current definition is too restrictive because FCIC 
does not have any control over when agents will obtain the policy 
changes. It would allow for disparate treatment of producers based on 
whether their agent had the changes in their office by the contract 
change date. The revised definition gives a date certain and location 
where the information can be found on that date. No change has been 
made.
    Comment: A commenter recommended not changing the definition 
because not requiring policy

[[Page 48661]]

changes to be available in an agent's office does not appear to meet 
the needs of limited resource farmers who may not have access to the 
Internet. The commenter recommended deleting the word ``provisions'' 
because ``policy'' is defined, if the new definition is retained. A 
commenter stated that producers cannot reasonably assess their 
alternatives regarding contract changes not available for review in the 
office of their agent. The proposal substitutes the undiscoverable 
decision of an unknown entity (``changes will be made,'' but by whom?) 
for a clear, reasonable definition currently in use. A commenter 
recommended revising the definition of ``contract change date,'' to 
allow for years when no changes are made. The commenter recommended 
adding ``if any'' to the definition. The commenter further recommended 
clarifying who can make changes in the policy by including the words 
``the date by which we may make changes * * * '' A commenter 
recommended changing the definition of ``contract change date'' as 
follows: ``The calendar date by which FCIC changes the policy in 
accordance with section 4.'' The change is recommended because the 
insurance provider does not have the authority to change the Basic 
Provisions.
    Response: Reference to the location of where the changes can be 
found is not necessary in the definition of ``contract change date.'' 
The purpose of the definition is just to specify that there is a date 
by which changes must be made. Provisions in section 4 of the policy 
specify changes may be viewed either in the insurance agent's office or 
on RMA's Web site. Further, changes to the policy will still be 
directly mailed to the policyholder. Therefore, the needs of all 
policyholders to have sufficient information to make informed decisions 
will be met. FCIC agrees the word ``provisions'' should be deleted and 
has revised the definition accordingly. FCIC agrees an allowance should 
be made for years in which no changes are made and has revised the 
definition accordingly. FCIC does not agree that it is necessary to 
identify the entity making policy changes. Only FCIC has the authority 
to conduct the rulemaking necessary to revise the policies published in 
the Code of Federal Regulations.
    Comment: A commenter recommended adding the words ``of this 
policy'' at the end of the definition of ``contract change date.''
    Response: FCIC has revised the definition to add the phrase ``of 
these Basic Provisions.''
    11. County:
    Comment: A commenter stated the definition of ``county'' does not 
refer to or allow for the addition of ``added land'' to a unit in a 
legal county that may be in another county.
    Response: Since no changes to this definition were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    12. Coverage:
    Comment: A commenter suggested revising the definition of 
``coverage'' by adding ``or as we determine to be correct if your 
summary was based on the incorrect information supplied by you.''
    Response: Since no changes to this definition were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    13. Crop:
    Comment: A commenter recommended adding the definition of ``crop.''
    Response: The term ``crop'' has been used for many years and 
connotes many different types of agricultural commodities. It would be 
impossible to construct a definition that could encompass all possible 
agricultural commodities that could qualify as a ``crop'' without 
making it too broad to add any clarity to the policy. No change has 
been made.
    14. Crop Year:
    Comment: A commenter stated there was no need to add the new 
wording, ``unless otherwise specified in the Crop Provisions,'' to the 
definition of ``crop year,'' since the Crop Provisions override the 
Basic Provisions.
    Response: Since there are currently instances where the definition 
of ``crop year'' is changed by the Crop Provisions, the reader should 
be referred to the Crop Provisions. No change has been made.
    Comment: One commenter recommended revising the definition of 
``crop year'' by stating the ``period'' is a ``time period'' and 
including the idea that fall and spring planted crops generally share 
the same crop year.
    Response: Since the only period that could be applicable is a time 
period, the change would have no practical effect. Further, there may 
be instances where spring and fall planted crops may not share the same 
crop year. No change has been made.
    15. Damage, Notice of:
    Comment: A commenter stated it was unclear why the definition of 
``damage, notice of'' was deleted when notice is required in section 
14. Some commenters added that retaining the definitions helps the 
insured read and understand his/her duties. Another commenter 
recommended not deleting the definition of ``loss, notice of'' but 
shortening it to refer the reader directly to section 14, ``Your 
Duties.'' A commenter stated if the definition of ``loss, notice of'' 
was deleted then ``but not later that 15 days after the end of the 
insurance period'' should be added in section 14, and asked what the 
effect on late notices and how late notices would be handled if this 
language is not added back in. Some commenters were concerned deleting 
the definitions would lead to an unlimited time frame for ``initial 
discovery'' in section 14, and that the reference to the end of 
insurance period in section 14 is effectively removed.
    Response: FCIC proposed to delete the definitions of ``damage, 
notice of'' and ``loss, notice of'' because the responsibilities 
associated with these terms are clearly defined in section 14 (Your 
Duties). Further, the definitions were inconsistent with the 
requirements of section 14. Therefore, FCIC does not agree the 
definitions should be retained. In response to other comments, FCIC has 
elected not to adopt the proposed revisions in section 14(a) and 
14(a)(2), except as needed to remove the reference to notice of loss 
since that term is not used anywhere else in the section. As a result, 
the current provisions regarding the time frames will remain in effect, 
thereby negating the need to adopt the recommendations of the 
commenters.
    16. Deductible:
    Comment: A commenter stated the term ``deductible'' is not used in 
the provisions and does not need to be defined.
    Response: Since no changes to this definition were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    17. Delinquent Account:
    Comment: A commenter recommended revising the definition of 
``delinquent account'' by adding the phrase ``including payments for 
replants and prevented planting,'' after ``indemnities.'' Another 
commenter recommended refining the definition to clarify that the term 
``indemnities'' includes overpaid claims, replant payments and 
prevented planting payments, and to specify whether crop

[[Page 48662]]

hail and/or supplementary product premiums are included in ``any 
account you have with us.''
    Response: FCIC has revised the definition, and all other applicable 
provisions, to include replanting and prevented planting payments, 
overpaid amounts and to specify that the provisions apply only to 
insurance issued under the authority of the Act. FCIC has also changed 
the term to ``delinquent debt'' to be consistent with the ineligibility 
regulations.
    Comment: A few commenters recommended changing the definition of 
``delinquent account'' and the provisions of section 2 to not consider 
an account delinquent until completion of appeals.
    Response: FCIC does not agree with the recommended change. Unlike 
most other lines of insurance, premiums are not paid until after 
insurance has attached and in many cases not until the end of the 
insurance period. Therefore, policyholders have already received the 
benefit of insurance coverage. Further, accounting and program 
administration would be made more complex if producers are allowed to 
pay premium at various stages, depending on whether or not they have 
asked for arbitration, appeal, etc. It would also add program 
uncertainty if policyholders could be declared ineligible in the middle 
of the crop year. No changes have been made.
    18. Discernible:
    Comment: A few commenters recommended defining ``discernible.''
    Response: Terms only need to be defined if they have meaning 
different from the common meaning of the term or there are multiple 
common meanings. FCIC intended the common meaning of the term 
``discernible'' to apply, which refers to being able to perceive, 
detect or recognize as separate and distinct. Therefore, it is not 
necessary to define this term. No change has been made.
    19. Disinterested Third Party:
    Several comments were received regarding the definition of 
``disinterested third party.'' The comments are as follows:
    Comment: A commenter recommended making it clear an interest in the 
insured crop or policy constitutes an interest in the insured, and 
eliminating ``other personal interests'' or quantifying it in some 
manner. Other commenters asked what constitutes ``other interest,'' 
``other personal relationship'' and ``interest in the insured.''
    Response: FCIC agrees a person having an interest in the insured 
crop would not qualify as ``disinterested'' and has clarified the 
definition accordingly. The phrases ``financial interest in the 
insured,'' ``other personal relationship'' and ``other interest'' have 
been removed from the definition because these terms are vague and 
would be difficult to administer.
    Comment: A few commenters recommended the definition specify the 
subject the party must be disinterested in (the crop, the person, or 
what).
    Response: The definition has been clarified to indicate that the 
person must not have a familial relationship with the insured person or 
receive a financial benefit from the sale of the insured crop.
    Comment: A commenter recommended deleting the definition since the 
term is not used in the Basic Provisions.
    Response: FCIC does not agree that the definition should be 
deleted. The term is used in several Crop Provisions and defining it in 
the Basic Provisions avoids unnecessary duplication. No change has been 
made.
    Comment: A commenter recommended deleting the wording ``such as 
familial or other personal relationship'' and replacing with the word 
``crop.''
    Response: FCIC agrees that the terms ``financial interest in the 
insured'' and ``personal relationships'' should be removed because they 
would be difficult to administer. However, references to familial 
relationships are necessary because family members may also have an 
interest even though it may not be financial.
    Comment: A commenter stated the term ``insured'' is inconsistent 
and should be replaced with ``you'' or ``your.''
    Response: FCIC agrees with the comment and has replaced ``insured'' 
with ``you.''
    Comment: A commenter recommended using the following definition: 
``any financial, familial or other personal relationship with the 
insured.''
    Response: The suggested definition cannot be adopted because the 
phrase ``other personal relationship'' is vague and would be difficult 
to administer. Therefore, this term was removed.
    Comment: A commenter recommended using the following definition: 
``a person or entity that does not have any financial interest in the 
insured or disposition or transfer of ownership of the insured crop nor 
a familial interest in the insured.''
    Response: The suggested definition cannot be adopted because 
elevator employees authorized to pull samples and analyze the quality 
of the crops would have a financial interest in the disposition or 
transfer of ownership of the insured crop, creating a conflict within 
the policy. No change has been made.
    Comment: A commenter recommended identifying interest in terms of a 
``substantial beneficial interest'' and doing so by specifying a 
percentage.
    Response: Not all interests are financial, such as familial 
relationships, and may not be measurable. No change has been made.
    Comment: Regarding the definition of ``disinterested third party,'' 
a commenter asked if the wording ``financial interest'' bars an 
elevator, gin or similar entity from making quality determinations. 
Another commenter asked if an elevator involved in the purchase of 
grain would be a disinterested third party.
    Response: The definition has been clarified to specify that persons 
authorized to conduct quality analyses of the crop can be considered as 
disinterested third parties.
    20. Enterprise Unit:
    A few comments were received regarding the definition of 
``enterprise unit.'' The comments are as follows:
    Comment: A few commenters suggested considering if the change 
should be made. A few commenters recommended revising the second 
sentence in the definition of ``Enterprise unit'' as follows: ``An 
enterprise unit must consist of planted acreage or acreage on which a 
prevented planting payment is made of the same insured crop in:''
    Response: FCIC has revised the definition so that enterprise units 
will consist of all acreage from the combined optional or basic units, 
as applicable, regardless of whether the acreage is planted or 
prevented from being planted as long as some acreage in at least two 
sections, section equivalents, FSA farm serial numbers, or units 
established by written agreement contain some planted acres. FCIC has 
also clarified in section 34 that the discount will only apply to 
acreage that has been planted. However, a unit containing only acreage 
that is prevented from being planted cannot be used to qualify for an 
enterprise unit.
    Comment: A commenter recommended adding ``in the county'' to 
paragraphs (1) and (2) of the definition of ``enterprise unit'' but 
also questioned why a policyholder with a basic unit in two counties 
could not combine them into an enterprise unit; and (4) A commenter 
recommended adding ``units by written agreement or Unit Division 
Option'' to references to sections, section equivalents, or FSA farm 
serial numbers, in the definition of ``enterprise unit.''

[[Page 48663]]

    Response: The addition of ``in the county'' to paragraphs (1) and 
(2) of the definition is not necessary because the first sentence of 
the definition already specifies that an enterprise unit is all 
insurable acreage of the insured crop ``in the county * * *'' FCIC does 
not believe a policyholder with a basic unit in two counties should be 
allowed to combine them into one enterprise unit, because the policy 
specifies that all unit division (basic, optional, enterprise, and 
whole farm units), guarantees, and premium rates are determined on a 
county basis. No change has been made; and (4) FCIC has revised the 
definition to include written agreements as a means to establish basic 
or optional units as applicable.
    21. Earliest Planting Date:
    Comment: Several commenters recommended defining the term ``initial 
planting date'' instead of ``earliest planting date'' to avoid 
introduction of a new term, and to be consistent with the term used in 
the Special Provisions. A few of the commenters stated it would be less 
cumbersome than changing all of the Special Provisions. Another 
commenter asked if all of the Special Provisions would be changed to be 
consistent with the new definition.
    Response: The term defined and used in the current regulations is 
the ``earliest planting date.'' Therefore, use of the term in the 
proposed provisions is not new. However, FCIC is aware that an 
``initial planting date'' is listed in the Special Provisions. To 
reduce confusion and prevent the need to change the Special Provisions 
or to change all references to the ``initial planting date'' in the 
regulations, FCIC has revised the definition to change the reference to 
``calendar date'' to the ``initial planting date.''
    22. Field:
    A few comments were received regarding the proposed definition of 
``field.'' The comments are as follows:
    Comment: A commenter recommended revising the definition of 
``field'' so acreage within a field must be contiguous.
    Response: FCIC cannot accept the requested change. Acreage 
separated by a waterway would be considered two fields under the 
definition. However, the same acreage would be considered contiguous 
under the proposed definition of ``non-contiguous.'' Therefore, if the 
change were accepted, the definitions would be in conflict. No change 
has been made.
    Comment: A commenter suggested the phrase ``Natural or artificial 
boundary'' used in the definition of ``field,'' could be anything 
because everything is either natural or artificial.
    Response: FCIC agrees that all boundaries are either natural or 
artificial. The intent of the provision was to only require some type 
of permanent or semi-permanent boundary and clarify that the use of 
planting patterns or different crops cannot be used to create separate 
fields. The reference to both artificial and natural boundaries is to 
provide notice that either type of boundary is acceptable.
    Comment: A few commenters recommended retaining the current 
definition of ``field.'' One of the commenters stated the definition is 
inconsistent with the definition of ``border'' because the two 
definitions together would allow several ``borders'' within a 
``field.''
    Response: The definition requires revision because of the common 
perception that acreage planted to separate crops are separate fields. 
For the purposes of insurance, different planting patterns or planting 
different crops do not create separate fields because it would 
adversely affect program integrity by allowing producers to circumvent 
certain prevented planting provisions. Since, as stated above, FCIC is 
removing the definition of ``border,'' any conflict has been 
eliminated.
    Comment: A few commenters stated the new definition of ``field'' is 
an improvement, but stated there could be a problem if a boundary, 
e.g., fence line, no longer exists and FSA still considers it to be two 
fields.
    Response: If a fence that separated two fields was removed, in 
accordance with the revised definition of ``field,'' the acreage would 
be considered one field regardless of whether or not FSA considers it 
as two fields. This requirement is needed to protect the integrity of 
the crop insurance program. No change has been made.
    23. FCIC and RMA:
    Comment: A commenter recommended adding definitions of ``FCIC'' and 
``RMA'' to alleviate confusion that exists among insured's and, to a 
lesser degree agents and loss adjusters. The commenter also recommended 
giving attention to their respective roles within the Federal crop 
insurance program.
    Response: Since these definitions were not proposed, no changes 
were required as a result of conforming amendments, and the public was 
not provided an opportunity to comment on the recommended change, the 
recommendation cannot be incorporated in the final rule. No change has 
been made.
    24. FCIC Procedures:
    Comment: A commenter recommended adding the definition of ``FCIC 
procedures'' and including ``procedures approved by FCIC'' in it.
    Response: FCIC has clarified in the preamble that procedures 
include handbooks, manuals, memoranda and bulletins. Therefore, a 
definition is not required.
    25. Farming or Farmed:
    Comment: A few commenters recommended defining ``Farming'' or 
``Farmed.''
    Response: FCIC believes these terms are readily understood and that 
adding the suggested definitions would not improve or clarify the 
policy terms. No change has been made.
    26. Household:
    Comment: One commenter recommended defining ``household'' since the 
term is used in the definition of ``substantial beneficial interest.''
    Response: The term has been removed from the definition of 
``substantial beneficial interest.'' However, the term has been added 
to the definition of ``limited resource farmer.'' Therefore, FCIC has 
added a definition of ``household.''
    27. Indemnity:
    Comment: Several commenters recommended defining ``indemnity.'' A 
few of these commenters recommended defining ``indemnity'' to either 
include or exclude replant and prevented planting payments. Some of the 
commenters suggested including replant payments and prevented planting 
payments as indemnities. One commenter suggested including overpaid 
claims in the definition. Another commenter asked if the replant 
payment is a loss mitigation payment or an indemnity. An additional 
commenter suggested using the following definition: ``The gross amount 
due to you from us as a result of a loss of yield or value of your 
insured crop as a direct result of an insured cause and in accordance 
with this policy.''
    Response: FCIC has clarified throughout this final rule that an 
indemnity is different from a replant payment or prevented planting 
payment. FCIC makes the distinction based on the fact that a replant 
payment is to reimburse for the costs of having to replant the crop, 
not indemnify for any crop losses. Further, a prevented planting 
payment is to reimburse for a portion of costs incurred when the 
producer was unable to plant the crop. It also is not intended to 
indemnify for any crop loss. Indemnities are intended to provide 
indemnification for crop losses. Overpayments are just indemnities, 
replant payments, or prevented planting payments that are

[[Page 48664]]

determined not to be due. Therefore, these terms are different and it 
should not be included in the definition. Indemnities are determined in 
accordance with the policy provisions and include the entire amount of 
the loss payable to the policyholder, regardless of whether any premium 
or other amounts due have been subtracted from that entire amount. 
Therefore, no definition is required for this term and the suggested 
definition has not been adopted.
    28. Insurable Loss:
    Comment: A commenter recommended defining ``insurable loss.''
    Response: FCIC has added a definition of ``insurable loss.'' In 
addition, section 14(d)(1) (Your Duties) has been revised to remove the 
requirement to reduce the first insured crop indemnity if the producer 
does not provide production records needed to determine a second crop 
indemnity. When records are not provided for a second crop loss, no 
indemnity can be paid for the second crop. Therefore, because no second 
crop indemnity can be paid, the first insured crop indemnity cannot be 
reduced.
    29. Insurance Provider:
    Comment: A few commenters recommended defining ``insurance 
provider.'' One of the commenters suggested, as an alternative, 
replacing ``crop insurance provider'' in the text with ``we,'' ``us,'' 
or ``our.''
    Response: FCIC agrees the better alternative is to replace the 
phrase ``crop insurance provider'' with ``we,'' ``us,'' or ``our'' and 
has revised the provisions accordingly.
    30. Insured:
    Comment: A few commenters recommended including the spouse and 
children living at home in the definition of ``insured'' if RMA intends 
for the interest of the spouse and children to be included in 
determining insurable share.
    Response: FCIC does not intend to consider the spouse or children 
as the insured person. Spouses are only considered as having a 
substantial beneficial interest in the insured unless they can prove 
otherwise. Therefore, no changes have been made to the definition of 
``insured.''
    31. Insured Crop:
    Comment: A commenter recommended revising the definition of 
``insured crop'' by adding ``and/or Special Provisions'' after ``Crop 
Provisions.''
    Response: The definition of ``insured crop'' was revised in 
response to other comments and now refers to the policy so the 
recommended change is no longer necessary.
    32. Irrigated Practice:
    Comment: A commenter suggested adding ``and quality'' after 
``quantity'' in the definition of ``irrigated practice.''
    Response: Since no changes to this definition were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    33. Liability:
    Comment: Several commenters recommended replacing ``applicable 
crop'' in the definition of ``liability'' with ``agricultural 
commodity,'' ``insured product,'' ``insured agricultural commodity'' or 
``insured crop or agricultural commodity.'' One of the commenters 
recommended using the term ``liability'' throughout the policy to 
replace terms such as ``maximum amounts of insurance'' and ``available 
coverage.'' Another asked why there needed to be a reference to premium 
in the definition of liability.
    Response: FCIC has revised the definition of ``liability'' to 
include the term ``agricultural commodity.'' The term ``liability'' 
cannot be used to replace ``maximum amount of insurance'' or 
``available coverage'' because in many instances the context in which 
these phrases are used is not consistent with the defined term. For 
example, maximum amount of insurance does not take into consideration 
coverage level, price election, number of acres, or share of the 
policyholder. However, liability would take these into consideration. 
The reference to ``premium computation'' is necessary because it 
provides notice that liability takes into consideration the price 
election, coverage level, number of acres, and share of the 
policyholder, which are used to compute premium.
    34. Limited Resource Farmer:
    Comment: Some commenters recommended the following regarding the 
definition of ``limited resource farmer:'' (1) Propose the new 
definition under a general USDA rule to provide adequate time for 
comments; (2) Change the maximum gross farm sales amount from $100,000 
to $250,000; (3) Delete the farm asset and household income tests in 
the first factor; (4) Change the second test from 75 percent of the 
median county income to 175 percent of the relevant poverty line; (5) 
Clarify the inconsistent use of the words ``total,'' ``gross,'' and 
``net,'' particularly in subsection (b), which refers to ``total gross 
household net income;'' (6) Clarify whether ``total operator household 
income'' means gross or net (the commenter stated that net income is 
more relevant in determining the resources available to farmers); (7) 
Clarify ``total farm assets'' (the commenter stated equity value is a 
meaningful indicator); (8) Delete the requirement that the standards in 
subsection (a) be met for the past two years; (9) Eligibility rules for 
other Federal programs, such as the school lunch program and the CHIPS 
federal health program, may provide useful models, though they may need 
to be adjusted to the situations of land-rich, cash-poor farmers; and 
(10) A commenter recommended using the following definition rather than 
the proposed definition: `` A Limited Resource Farmer or Rancher: (1) 
Is an individual with gross farm sales less than $100,000, AND (2) has 
a total household income at or below a qualifying county income level 
(to be determined annually), in each of the previous two years.'' The 
commenter stated the income level would be determined annually for each 
county based on two objective factors; the level would be the greater 
of the poverty level for a household of 4 or 50 percent of the median 
county income level; and a limited resource farmer would be limited to 
gross farm sales less than $100,000, which would be increased, 
beginning in fiscal year 2004, by the inflation percentage applicable 
to the fiscal year in which a benefit is being requested.
    Response: After publishing the request for public comments 
regarding the definition of ``limited resource farmer/producer'' (LRF) 
being considered for use by other USDA agencies, USDA determined that 
it would propose one definition of LRF to be applicable to all USDA 
programs. USDA proposed the definition in the Federal Register on 
February 10, 2003 (68 FR 6655), comments were received, and the final 
rule was published in the Federal Register on May 30, 2003 (68 FR 
32337). In accordance with that directive, FCIC is adopting that 
definition in this rule. Further, to mitigate the impact of this 
change, any policyholder who previously had their administrative fees 
waived because they qualified as a LRF will still be considered a LRF. 
In addition, FCIC has added the definition of LRF to the Catastrophic 
Risk Protection Endorsement.
    35. New Producer:
    Comment: A few commenters recommended defining ``New producer.''
    Response: Since the term is never used in the proposed rule, no 
changes were required as a result of conforming

[[Page 48665]]

amendments, and the public was not provided an opportunity to comment 
on the recommended change, the recommendation cannot be incorporated in 
the final rule. No change has been made.
    36. Non-contiguous:
    Several comments were received regarding the definition of ``non-
contiguous.'' The comments are as follows:
    Comment: A few commenters recommended defining ``farmed'' so there 
is no confusion that certain acreage (e.g., pastureland, golf courses, 
CRP acreage, summer-fallow acreage, etc.) would not be considered 
farmed, and so there is no confusion regarding policyholders who do not 
``farm'' the land such as landlords.
    Response: The term ``farmed'' has been removed.
    Comment: A few commenters recommended separating the definition of 
``non-contiguous'' into two sentences. Some of them suggested; (a) 
Eliminating the phrase ``except that'' or replacing the words with 
``Nonetheless'' or ``However,'' or a similar term at the beginning of 
the second sentence; (b) adding ``or significant beneficial interest 
holder'' after ``you'' in ``neither owned by you nor rented by you'' 
(this would keep insureds from splitting up policies/units when it is 
not justified); and (c) inserting a period after ``share.''
    Response: FCIC agrees that separate sentences would improve clarity 
and has revised the definition to accomplish this. However, adding 
``substantial beneficial interest'' would not have any practical effect 
because in order to be able to farm the land of the person with the 
substantial beneficial interest, it is presumed that the policyholder 
will either need to lease or own the land.
    Comment: A few commenters recommended clarifying ``non-contiguous'' 
because it is confusing.
    Response: The definition has been revised to provide greater 
clarity.
    Comment: A commenter suggested changing ``farmed by you'' to 
``controlled by you.''
    Response: As previously stated, the term ``farmed by you'' has been 
removed.
    Comment: A few commenters recommended retaining the current 
definition of ``non-contiguous.''
    Response: The current definition cannot be retained because FCIC 
has discovered that it is subject to multiple interpretations. One of 
those interpretations would have allowed policyholders with an 
insignificant amount of acreage between the fields of the insurable 
crop to obtain separate units. This creates a program integrity problem 
because policyholders could use this interpretation to circumvent the 
unit division requirements. No change has been made.
    Comment: A commenter recommended changing the definition of ``non-
contiguous'' to read as follows: ``Acreage owned or operated by you 
that is separated from other acreage that is owned or operated by you 
by land that is neither owned or operated by you, or acreage owned or 
operated by you that is only separated by a public or private right-of-
way, waterway, or an irrigation canal will be considered as 
contiguous.''
    Response: FCIC has in effect implemented this change. However, the 
method suggested could not be used because the repetition of terms 
would only add confusion to the definition.
    37. Offset:
    Comment: A commenter recommended defining the term ``offset.''
    Response: FCIC has added a definition.
    38. Perennial Crop:
    Comment: A commenter recommended revising the definition of 
``perennial crop'' to add the phrase ``to produce a crop or yield a 
commodity'' at the end for greater clarity.
    Response: The recommended change would not significantly improve 
the clarity of the definition. However, FCIC agrees that it needs 
clarification and has revised ``perennial crop'' to be more consistent 
with the common meaning of the term.
    39. Person/Entity:
    Comment: A few commenters recommended defining the term ``person/
entity'' (as in the CIH) rather than ``person'' to clarify that this 
includes more than single individuals. Another commenter questioned 
whether a ``group of individuals'' needs to be added to the definition 
since they are being considered individuals (i.e., spouse and children 
of a household).
    Response: Since no changes to this definition were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    40. Policy:
    Comment: Several commenters recommended the following regarding the 
definition of ``policy:'' (1) The definition does not include 
handbooks, bulletins, and other FCIC writings and procedures that 
insurance providers are required by the SRA to use (policyholders are 
not held to standards in the handbooks, etc., while SRA holders are)--
references to the handbooks, etc., should be removed from the preamble 
of the policy and removed from the SRA; (2) If the listing of 
handbooks, etc., is retained in the policy preamble, the listing should 
be repeated in the definition; (3) Make certain this definition 
conforms to the definition of ``contract'' in 7 CFR 457.7; (4) Include 
the summary of coverage which lists the guarantees and liabilities as a 
part of the policy; (5) Clarify that a policy includes all of an 
entities crops insured with the same provider; and (6) Clarify the 
basis of the policy. The commenter questions whether it is on a crop/
county basis, multiple crops on a county basis, or multiple crops on a 
multiple counties basis.
    Response: While the preamble states the procedures will be used to 
administer the policy, they have not been made a part of the policy. 
This reference cannot be deleted because it is necessary to put all 
participants on notice that procedures as issued by FCIC are applicable 
to the policy. Such procedures are needed to ensure that all policies 
are sold and serviced consistently. The procedures contain the 
responsibilities imposed on the insurance provider. The 
responsibilities of the policyholder are found in the policy, not the 
procedures. For example, the policy states that the policyholder must 
provide adequate records. The procedures assist the insurance provider 
in determining what records are adequate. FCIC has revised 7 CFR 457.7 
to remove the definition of contract to avoid any conflict with the 
definition of ``policy.'' With respect to the other recommended changes 
to the definition of ``policy,'' FCIC has revised the definition to 
clarify that each agricultural commodity in each county constitutes a 
separate policy. In addition, this same change was made to last 
paragraph immediately preceding the ``agreement to insure'' section of 
the Group Risk Plan Common Policy.
    41. Practical to Replant:
    Several comments were received regarding the definition of 
``practical to replant.'' The comments are as follows:
    Comment: Several suggested more direction with respect to whether 
or not it is practical to replant in the late planting period. One 
recommended a limit in time so it will not be considered practical to 
replant after fewer days remain to the end of the late planting period 
than have elapsed since the beginning of the late planting period, 
unless it would be a good farming practice with respect to the insured 
unit to replant.
    Response: The definition is silent regarding replanting within the 
late

[[Page 48666]]

planting period because of the extreme variation between crops, areas, 
and climatic conditions which affect the factors used to determine 
whether it is practical to replant, such as time to crop maturity. 
Determinations of the practicality of replanting must be made on a 
crop-by-crop, and area-by-area basis. Providing a fixed number of days 
in the late planting period during which replanting would be practical 
would not provide the flexibility needed by insurance providers to 
properly consider the factors contained in the definition. No change 
has been made in response to this comment.
    Comment: Some stated there is a conflict between requiring 
replanting in the late planting period as is required in the definition 
and no requirement to plant in the late planting period for the 
purposes of prevented planting coverage.
    Response: FCIC agrees the planting requirements are different 
during the late planting period depending on whether replanting or 
prevented planting is involved. However, such differences are needed in 
the fair and equitable administration of the policy. When acreage that 
is prevented from being planted is planted during the late planting 
period, the guarantee is reduced for every day that the crop is late 
planted. Such reductions do not apply to crops replanted during the 
late planting period. Further, prevented planting payments are based on 
the expected costs incurred in the preparation of planting and are 
usually limited to 60, 65 or 70 percent of the production guarantee for 
planted acreage. In contrast, once the crop is planted during the 
initial planting period, policyholders are eligible for payment based 
on 100 percent of the production guarantee. In addition, when it is 
practical to replant the crop, the policyholder does not have a loss 
other than the cost of replanting. The purpose of a replant payment, if 
available, is to cover a portion of such costs. Therefore, it is 
reasonable to require policyholders to replant in the late planting 
period because they will still receive the full benefit of insurance 
for which they paid the full premium. However, policyholders who are 
prevented from planting would receive reduced benefits if they were 
required to plant during the late planting period even though they paid 
a full premium. No change has been made.
    Comment: A few stated that clarification is needed for contracted 
crops when different acreage sometimes has to be replanted in order to 
fulfill the contract.
    Response: FCIC understands that there may be situations where 
acreage initially planted may not be available for replanting due to 
flooding, etc., and other acreage not initially planted to the 
contracted crop may be planted to replace it. However, FCIC cannot 
adopt this recommendation at this time because it does not know the 
impact of the change on premium rates or other aspects of the program. 
No change has been made.
    Comment: A few recommended clarification or removal of ``generally 
occurring'' and ``area,'' and linking the definition to the definition 
of ``good farming practice.'' One stated the words ``unless replanting 
is generally occurring in the area'' are subject to second guessing and 
various interpretations and a possible solution would be for FCIC to 
declare, by area, at the time issues arise, its determinations as to 
the practicality of replanting.
    Response: FCIC has removed the requirement that it will not be 
considered practical to replant after the final planting date unless 
others in the area are replanting. Determinations of whether it is 
practical to replant the policyholder's acreage should be based on the 
objective factors stated in the definition, not whether others are 
replanting. FCIC has clarified the term ``area'' in a final rule 
published prior to this rule (Vol. 68, No. 122/Wednesday, June 25, 
2003). FCIC does not agree that determination of ``practical to 
replant'' should be linked to the definition of ``good farming 
practice.'' The policy specifically states that replanting can be done 
under a practice that is not insurable. Therefore, adoption of this 
recommendation could cause a conflict in the policy.
    Comment: A few recommended revising the definition to specify the 
cost of seed or plants will be considered. One recommended a waiver 
mechanism be made available for exceptional cases when seed is 
extremely costly or unavailable.
    Response: FCIC does not agree with the recommendation. Crop 
insurance is not intended to cover the business practices of seed or 
plant suppliers, including their ability to maintain an adequate supply 
necessary to replant damaged crops. No change has been made.
    Comment: One recommended revising the definition to specify 
replanting is practical if it reduces the payable loss, and removing 
the requirement of the crop reaching maturity.
    Response: FCIC does not agree that practicality to replant should 
be dependent on mitigation of a payable loss. There is no practical 
method to determine whether replanting will mitigate the loss. There 
may be instances where the crop still fails and the policyholder is 
still eligible for a full indemnity in addition to the replant payment. 
FCIC also disagrees with removing the requirement that the crop should 
have time to reach maturity. If there is insufficient time for the crop 
to reach maturity, then it almost guarantees that the crop will fail 
and a full indemnity will be due. No changes have been made.
    Comment: One suggested passive language be made active (The high 
cost or unavailability of seed shall not determine the practicality of 
replanting).
    Response: The suggested change does not improve the clarity of the 
definition. No change has been made.
    Comment: A few recommended expanding the term ``cost'' to include 
components other than seed, such as irrigation.
    Response: FCIC agrees input costs other than seed should not impact 
whether or not it is considered practical to replant. The definition 
has been revised accordingly.
    Comment: One recommended removing ``marketing window'' from the 
definition because FCIC has taken positions counter to this wording in 
several cases.
    Response: FCIC cannot remove ``marketing windows'' because it is 
statutorily required to be considered. No change has been made.
    Comment: One stated the difficulty of comparing ``geography, 
topography, soil types, and the weather conditions and exposure'' from 
one farm to the next is significant, and the importance of taking all 
of these factors into account should be reflected in the definition of 
practical to replant.
    Response: FCIC agrees it is important to take geography, topography 
and other factors mentioned in the comment into consideration. There is 
nothing in the definition that precludes the consideration of these 
factors. The definition requires consideration of all factors that 
would impact the practicality of replanting, not just those listed. No 
changes have been made.
    Comment: One recommended providing for a review of determinations 
of whether it is practical to replant because the determination should 
be subject to reconsideration, mediation, and appeal.
    Response: Determinations of ``practical to replant'' cannot be 
included in the appeals process applicable to good farming practices. 
That process was statutorily created and states it is only applicable 
for good farming practice determinations. In

[[Page 48667]]

response to other comments, the arbitration process has been retained 
and policyholders can seek arbitration of findings that it is practical 
to replant because they are factual determinations. No changes have 
been made.
    42. Premium:
    Comment: A commenter recommended defining ``premium.''
    Response: Terms only need to be defined if they have meaning 
different from the common meaning of the term or there are multiple 
common meanings. FCIC intended the common meaning of the term 
``premium'' to apply and the section on annual premium and 
administrative fees explains how premiums will be computed. Therefore, 
it is not necessary to define this term. No change has been made.
    43. Premium Billing Date:
    Comment: A commenter recommended removing the restriction in the 
definition of ``premium billing date'' that does not allow the 
insurance provider to bill until a certain date, because the premium is 
payable at any time with an indemnity.
    Response: Since no changes to this definition were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    44. Prevented Planting:
    Many comments were received regarding the definition of ``prevented 
planting.'' The comments are as follows:
    Comment: Retain the current definition.
    Response: As stated in FCIC's response to comments on proposed 
prevented planting changes in section 17, FCIC will not incorporate the 
proposed definition of ``prevented planting'' in the final rule, but 
will defer revising the definition until FCIC has had an opportunity to 
further review the issue and possible solutions. The current definition 
will remain in effect.
    Comment: It is not clear if the producer must initially be 
prevented from planting by the final planting date to be eligible in 
the late planting period. It is not clear if planting has to be 
prevented until the end of the late planting period. It is unclear if 
the producer is required to plant within the late planting period.
    Response: See response to first comment under this heading.
    Comment: Rewrite the last sentence to require that planting be 
prevented by the final planting date before qualifying within the late 
planting period. Revise so planting must be prevented from the time 
planting may start until the end of the late planting period.
    Response: See response to first comment under this heading.
    Comment: Establish a date ten days after the final planting date 
and require planting be prevented until this date, or, as an 
alternative, allow prevented planting within the late planting period 
but reduce the prevented planting guarantee by one percent per day. 
Establish a date half way through the late planting period and require 
planting be prevented until this date. Establish a date 10 days past 
the end of the late planting period and require planting be prevented 
until this date.
    Response: See response to first comment under this heading.
    Comment: Add ``with the proper equipment'' after ``inability to 
plant'' in the first sentence.
    Response: See response to first comment under this heading.
    Comment: The phrase ``* * * such that the seed would not be 
expected to germinate,'' is ambiguous because it does not indicate who 
would expect germination, or if most, some or none of the seed is 
expected to germinate. A time element should be added to clarify if 
seed would be expected to germinate if it is very dry throughout the 
normal planting period, but rains an inch a day for two weeks prior to 
the final planting date.
    Response: See response to first comment under this heading.
    Comment: Add ``designated in the Special Provisions'' after ``by 
the final planting date.'' The reference to ``You may also be eligible 
for a payment * * *'' is inappropriate in this definition. Reference to 
``you may also be eligible for a payment'' indicates the payment has 
been mentioned earlier in the definition. If the intent is ``* * * 
germinate or produce a crop, or because you could not plant the insured 
crop with the proper equipment within the late planting period,'' then 
that is what the definition should say. Does ``unable to plant with the 
proper equipment'' mean a disabled tractor could prevent planting. It 
is unclear if drought is intended to be an acceptable cause of loss for 
prevented planting.
    Response: See response to first comment under this heading.
    Comment: Revise to prevent producers from filing claims for drought 
losses in successive crop years. Although prevented planting coverage 
due to drought remains in the policy, no one can qualify for it under 
the proposed provisions and it (drought) should be removed.
    Response: See response to first comment under this heading.
    Comment: Incorporate the concept of ``good farming practices'' into 
the definition. Prevented planting payment amounts should be based on 
the late planting guarantee. Retain the last sentence of the current 
definition. The definition does not address the issue of two or more 
crops having the same planting period and which crop is actually the 
one that is prevented from being planted. Replace the proposed 
definition of ``prevented planting'' with the following: ``The 
inability to plant the insured crop by the end of the late plant period 
for the crop, as specified in the Special Provisions, with the proper 
equipment, due to excess moisture or because weather conditions are 
such that it would not be expected to produce a crop.''
    Response: See response to first comment under this heading.
    45. Replanting:
    Comment: A commenter stated the proposed definition is too 
restrictive if it requires the same crop variety to be replanted 
because later planting may require use of a different variety. Another 
commenter thought the proposed definition is too restrictive because it 
requires replanting the same crop in situations in which it might be a 
better choice and reduce losses if a different crop were planted.
    Response: The definition does not require the same variety or type 
to be replanted unless it is otherwise required under the policy. The 
definition has been clarified accordingly. However, under the common 
usage of the term, replanting has to mean planting the same crop. It 
cannot mean planting a different crop.
    Comment: Several commenters recommended not deleting ``with the 
expectation of producing at least the yield used to determine the 
production guarantee'' because the proposed language would appear to 
allow seeding at a reduced rate; could be interpreted to force a 
producer to replant in a manner that produces a loss; or could conflict 
with the definition of ``good farming practices,'' which includes the 
requirement to plant in a manner to produce the yield used to determine 
the guarantee.
    Response: FCIC acknowledges that the proposed language could result 
in the replanting of crops that would produce yields less than the 
guarantee. However, the requirement to replant is intended as a means 
of loss mitigation because without such a requirement, the insurance 
providers would be required to pay 100 percent of the liability. The 
requirement that the policyholder use good farming practices in the 
manner in

[[Page 48668]]

which the crop is planted is still applicable.
    Comment: A commenter stated the current requirement of planting 
with the ``expectation of producing at least the yield used to 
determine the production guarantee'' is too restrictive because it does 
not allow a producer to plant a shorter season variety that had greater 
potential of success, but may not have the same yield potential as the 
original seed.
    Response: FCIC agrees and that is why FCIC removed it in the 
proposed rule.
    46. Second Crop:
    Comment: Some comments were received regarding the definition of 
``second crop.'' One commenter stated the definition of ``second crop'' 
encroaches on the definition of ``cover crop'' by implying a cover crop 
could be hayed, grazed or harvested.
    Response: FCIC originally responded in the June 25, 2003, final 
rule that the provisions had been revised to consistently use the 
terms. However, subsequent queries have demonstrated that it is unclear 
whether or not a cover crop or volunteer crop can be harvested for 
grain after the crop year without consequence to the prevented planting 
payment for a first insured crop. There was never any intent to allow a 
cover crop or volunteer crop to be harvested for grain at any time 
without reducing a prevented planting payment for a first insured crop. 
The definition of ``second crop'' and the provisions in section 
15(g)(3)(i) have been revised accordingly.
    47. Substantial Beneficial Interest:
    Many commenters disagreed with proposed changes in the definition 
of ``substantial beneficial interest'' (SBI) that would include 
children as having a SBI, and recommended removing the proposed 
changes. The reasons given and questions received are as follows:
    Comment: The definition is overly broad as it requires the social 
security number (``SSN'') for minor children who have no interest and 
do not participate in the farming operation. The requirement to obtain 
SSNs for children is extremely burdensome and places an unreasonable 
burden on insurance providers to verify and account for every member of 
a household.
    Response: For many of the reasons stated above, FCIC agrees the 
proposal to include children as having a substantial beneficial 
interest should not be retained, and has revised the definition 
accordingly.
    Comment: Insurance providers have no reasonable means to determine 
whether a SSN was provided for each person that ``resides in the same 
household.'' The commenter also questioned what assistance FCIC will 
provide and who is responsible to accurately report all members of a 
household. Including minor children as having a ``substantial 
beneficial interest'' raises questions regarding children's future 
eligibility if a father becomes ineligible and remains ineligible, and 
the children's responsibility for the father's debt. It is not fair for 
a child's eligibility to be affected by a parents failure to pay a 
debt. A child has no legal obligation to satisfy the debts of a parent 
and no legal right to any portion of an indemnity due the parent and 
the same is true from the parents' standpoint with regard to rights and 
obligations of the child, and a parent has no right to bind an adult 
child to a policy (the converse is also true). Because a minor may void 
any contract other than a contract for necessities, FCIC may not bind a 
minor to an insurance contract, even if the minor's parents are parties 
to the contract.
    Response: See response to first comment under this heading.
    Comment: The term ``substantial beneficial interest,'' as used in 
the Basic Provisions is a legal term of art and FCIC may not create 
such an interest out of whole cloth. The terms ``household'' and 
``children'' should be defined and the commenter questioned whether it 
includes students who live at home 3 months per year, and how will 
``household'' be determined when divorced parents have joint custody. 
Need to clarify if the new provisions pertain only to children who are 
actively participating in the farming operation. The phrase, ``derive 
no benefit from the farming operation of the insured or applicant'' is 
far too expansive and places an onerous burden on insured producers to 
prove spouses and children derive no material benefit from the farming 
operation; and needs substantial clarification to tell the insurance 
provider what proof will determine whether the spouse or household 
children derive benefit from the farming operation. Need to clarify if 
the definition is asking children to prove they have no beneficial 
interest in the farming operation.
    Response: See response to first comment under this heading.
    Comment: The recently implemented procedure requiring spousal SSNs 
should remain unchanged until FCIC, insurance providers and producers 
have developed clear and workable guidelines. With the revised 
definition of SBI, insurance providers now must go back to all 
policyholders and obtain SSNs for resident children after having gone 
through this process of obtaining spousal SSNs. RMA indicated 
previously that it would not impose a requirement to collect SSNs for 
children, but only for spouses. Requiring children's SSNs could be 
considered harassment. It is logical to assume that a spouse, 
especially one who is making an active contribution to the farming 
operation, would have a substantial beneficial interest in the 
operation and thus meet the SBI definition and need to have pertinent 
information on file, but it is not clear why the extension is made to 
automatically include children or other individuals that reside in a 
household as meeting this requirement. The new requirement to collect 
SSNs provides little opportunity to prevent fraud and abuse and will 
only provide more opportunity for inadvertent reporting mistakes to 
become future cause for denial of insurance applications, denial of 
coverage and/or collection of administrative fees and penalties without 
a finding of intentional wrongdoing. The whole process is very single 
and narrow-minded in order to trap a few renegades. Producers will be 
reluctant to provide children's SSNs and there are privacy concerns 
involved with collecting this information.
    Response: See response to first comment under this heading.
    Comment: If the concern is about ineligible parents who farm ground 
in their minor child's name, then require the parent's name be reported 
as a substantial beneficial interest. A commenter asked how anyone 
could propose a rule which would require the social security number of 
children as a prerequisite of participation in the program. This will 
be unacceptable to the American farmer, and in their opinion would be a 
violation of the farmer's rights to privacy under the Constitution. If 
an insured has a child born during a policy period and fails to notify 
his/her agent he/she would lose coverage the following year. The 
Federal Register explanation states the definition was revised ``to 
clarify the status of spouses,'' and if this is the intent, then the 
references to ``children'' and ``children that reside in the same 
household'' should be removed.
    Response: See response to first comment under this heading.
    Comment: A commenter stated the proposed definition of 
``substantial beneficial interest'' greatly diminishes the chances for 
spouses to unfairly manipulate the system, and that requirements to 
provide SSNs for all entities with 10 percent or greater interests in 
an operation will help prevent fraud and abuse.
    Response: FCIC agrees with the commenter and has retained

[[Page 48669]]

requirements to collect social security numbers for spouses and all 
persons having a substantial beneficial interest in the applicant or 
insured.
    Comment: A commenter recommended clarifying that prenuptial 
agreements that specify spouse's interests override the requirements in 
this definition and stated that FCIC has previously not recognized the 
terms of a legal prenuptial agreement that stated the spouse had no 
interest in the farming operation.
    Response: Prenuptial agreements containing evidence indicating that 
a spouse does not have an interest in the acreage farmed by the 
applicant or policyholder during the course of the marriage can be used 
for the purpose of the definition. However, most prenuptial agreements 
involve the disposition of property after the dissolution of the 
marriage. They do not specify how such property will be utilized during 
the course of the marriage. In such cases, prenuptial agreements cannot 
be used to determine whether the spouse has an interest in the farming 
operation. No changes have been made.
    Comment: A commenter stated, as written and contrary to current 
procedure, only spouses residing in the same household are required to 
provide SSNs.
    Response: FCIC did not intend the provision to apply only to 
spouses residing in the same household. Provisions indicating the 
``same household'' have been removed from the definition.
    Comment: A commenter stated that requiring SSNs of anyone who has a 
substantial beneficial interest in the applicant or insured could make 
acquiring coverage virtually impossible.
    Response: FCIC has clarified that only the individuals or persons 
other than individuals that have a substantial beneficial interest in 
the applicant or insured must report their SSNs. Individuals with an 
interest in the person with a substantial beneficial interest in the 
applicant or insured would not have to report their SSNs unless such 
persons have at least a 10 percent interest in the applicant or 
insured.
    Comment: A commenter stated the need to clarify how extensive the 
requirement to collect SSNs is when dealing with corporations as 
policyholders, bank trusts, Indian trusts, and other entities that do 
not have spouses or children.
    Response: FCIC agrees clarification is needed and has revised the 
definition to specify that only the spouses of the individual applicant 
or insured are required. If the applicant is an individual, then the 
requirement to report the SSN of the spouse would be applicable. 
However, if the applicant is an entity other than an individual, then 
it cannot have a spouse and the requirement to report the spouse's SSN 
is not applicable. Further, FCIC has clarified that the entities must 
report their EINs and the individuals who make up that entity whose 
interest in the applicant or insured, not the entity, is at least 10 
percent must report their SSNs. For example, if the applicant is a 
trust, each beneficiary of the trust with at least a 10 percent 
interest in the trust must report his or her SSNs. If the applicant is 
a trust and the beneficiaries of the trust are two partnerships, each 
of the individuals participating in the partnerships with at least a 10 
percent interest in the trust must report his or her SSN.
    48. Surrounding Area:
    Comment: Several commenters recommended defining ``surrounding 
area.''
    Response: FCIC added a definition of ``area'' in the final rule 
published on June 25, 2003 (68 FR 37697).
    49. Summary of Coverage:
    Comment: A commenter stated units are determined by county but it 
is not clear in the definition of ``summary of coverage,'' if the 
contract is by county or multiple counties.
    Response: FCIC has revised the definition of ``policy'' to clarify 
that each agricultural commodity in each county constitutes a separate 
policy.
    50. Timely Manner:
    Comment: A commenter recommended defining ``timely manner.''
    Response: FCIC has revised certain provisions that reference 
``timely manner'' so that a single common meaning of the term can 
apply, which refers to occurring within a reasonable amount of time.
    51. Verifiable Records:
    Comment: Some commenters recommended defining ``verifiable 
records.''
    Response: Verifiable records must be provided to support the 
production report that is used to establish the actual production 
history. The definition of ``actual production history'' references 7 
CFR part 400, subpart G, which contains a definition of ``verifiable 
records.'' Therefore, it is not necessary to repeat the definition in 
the Basic Provisions. No change has been made.
    52. Void:
    Comment: A commenter stated the definition of ``void'' is 
incomplete because there are other reasons that a policy may be voided. 
The commenter recommended replacing the proposed definition with: 
``When the policy is legally considered not to have existed,'' or 
insert a comma after ``fraud'', delete ``or'' and insert ``or other 
justifiable reason'' after ``misrepresentation.'' The commenter also 
recommended adding a definition of ``Voidable.''
    Response: Since no changes to this definition were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    53. Whole Farm Unit:
    Several comments were received regarding the definition of ``whole 
farm unit.'' The comments are as follows:
    Comment: Several commenters were opposed to the proposed definition 
of ``whole-farm unit'' for the following reasons: (a) Adding the phrase 
``no one crop can exceed 75 percent of the total liability'' 
unnecessarily further complicates an already complex unit determination 
process; (b) the proposed definition effectively would make a producer 
growing 80 percent corn and 20 percent beans in a single county 
ineligible for whole farm unit treatment; (c) adding the ``75 percent 
provision'' makes it so eligibility cannot be determined until the 
acreage reporting date; and (d) the additional requirements will 
discourage producers from electing the whole-farm unit structure.
    Response: Because a whole farm unit gives the producer a premium 
discount, it is important to include some limitation so a policyholder 
will not try to qualify for a whole farm unit discount by planting a 
negligible amount of another crop. FCIC has determined that the crop 
mix percentages should be reduced to 10 percent to be consistent with 
other policies currently available that offer whole farm units, which 
will allow more producers to qualify. FCIC agrees eligibility for the 
whole farm unit cannot be determined until the acreage reporting date. 
This is consistent with the current policy language for all units, 
which states that units will be reported on the acreage report.
    Comment: A few commenters recommended the following revisions to 
clarify what happens when a person who elects a whole-farm unit does 
not qualify for it: (a) Add a sentence to the end of the proposed 
definition which reads, ``If you do not qualify for a whole-farm unit, 
insurance will be provided on an enterprise unit basis;'' (b) Add a 
sentence to the end of the proposed definition which reads, ``If you do 
not

[[Page 48670]]

qualify for a whole-farm unit, we will assign the most similar eligible 
unit structure;'' and (c) Clarify in the definition of ``whole farm 
unit'' what unit structure would be applicable when a producer does not 
qualify for a whole farm unit.
    Response: As proposed, section 34(a)(3)(iii) specifies if the 
producer does not qualify for the whole farm unit when the acreage is 
reported the basic unit structure will be assigned. There may be 
instances where producers would not qualify for enterprise units. 
Further, it would be impossible to determine what is the most similar 
unit since each different crop may have different shares or qualify for 
enterprise or optional units. Since the change is included in section 
34, it does not need to be included in the definition.
    Comment: Some commenters recommended inserting a hyphen in the term 
``whole-farm'' throughout the policy.
    Response: A hyphen is not necessary to clarify the term or make it 
more grammatically correct.
    Comment: A commenter asked how, and on what basis, the 75 percent 
level was determined in the definition of ``whole-farm unit.''
    Response: The 75 percent level was revised to 10 percent to ensure 
consistency among policies that offer whole farm units.
    54. Written Agreement:
    Comment: A commenter recommended adding ``as submitted and approved 
by RMA'' to the definition of ``written agreement.''
    Response: FCIC has revised section 18 to specify that written 
agreements are approved by FCIC because only FCIC has the authority 
under the Act to offer written agreements.
    Comment: A few commenters stated the terms ``policy,'' ``crop 
policy,'' and ``crop'' are used inconsistently in section 2 and 
throughout the Basic Provisions.
    Response: FCIC has revised the Basic Provisions to change the 
references of ``crop policy'' to ``policy'' in each section it appears 
and has clarified the definition of ``policy'' to make it clear that 
each separate agricultural commodity insured under the Basic Provisions 
is considered as a separate policy.

Identity Collection Information--Section 2(b)

    Many comments were received regarding the requirement in section 
2(b)(1) to collect social security numbers for everyone with a 
substantial beneficial interest in the applicant. The comments received 
are as follows:
    Comment: A few commenters believe the proposed provisions which 
require social security numbers be collected for all persons with a 
beneficial interest, is another overreaching provision that requests 
the corporate veil to be pierced and requires insurance providers and 
agents to go back to all policyholders to obtain this information. Most 
producers question the purpose of collecting this information, and who 
will use the information. They are also concerned as to whether the 
insurance providers and agents will be held responsible for the 
accuracy of this information. Insurance providers and agents have no 
means of determining if the Social Security information is correct, or 
if all persons with a ``beneficial interest'' have been accounted for.
    Response: The requirement to provide SSNs of persons with a SBI in 
the applicant or insured is in the current provisions and this 
requirement remains. The requirement is necessary to prevent a person 
who is ineligible from receiving crop insurance benefits by simply 
becoming a part of an entity using a different identification number. 
Therefore, the SSNs will be used by FCIC and insurance providers to 
determine eligibility. It is the producer's responsibility to provide 
the correct information to the insurance provider. If the correct 
information is not reported for each person with a substantial 
beneficial interest, the penalties specified for failure to provide the 
SSN will apply.
    Comment: A commenter stated spouses and children's social security 
numbers are now required since the definition of substantial beneficial 
interest has been revised. They stated it is extremely hard to police 
or verify and this will increase workload for insurance providers. They 
asked whether FCIC considered and ruled out the possibility of merely 
requiring the names of family members. Their chief concern with the 
proposal is with how it will be implemented.
    Response: As previously stated, the requirement to collect 
children's SSNs has been removed. The amount of work required to obtain 
spouse's SSNs should not increase since this is already a program 
requirement and the policy provisions are only being clarified in this 
regard. FCIC did not consider only collecting the names of family 
members because many persons have the same name and tracking 
ineligibility in this manner would not be possible.
    Comment: A commenter suggested referencing ``spouse, landlord, 
tenant, corporation/partnership members, etc.'' when referring to 
``individuals with a substantial beneficial interest in the 
applicant.'' They also stated this provision will likely lead to a 
number of major systems problems.
    Response: The proposed provisions in section 2(b)(1) (now section 
2(b)) have been clarified to specify that any person with a substantial 
beneficial interest in the applicant must provide a SSN, which includes 
individuals and entities. Since SSNs and EINs must already be reported, 
FCIC is unsure of how this requirement will cause major systems 
problems.
    Comment: Several commenters stated the proposed language ``* * * 
the application will not be accepted * * *'' suggests that discovery of 
ineligibility or missing SBI information must take place before the 
first-year application is actually accepted. If it is intended to apply 
to discovery any time during the initial year, better wording might be 
``* * * the policy will be void and not considered to have been in 
effect * * *'' or ``* * * the application will be considered not to 
have been accepted * * *'' Another commenter stated it is not practical 
to expect the verification process to be complete prior to acceptance 
of the application.
    Response: FCIC has revised the provision to specify that if the 
applicants SSN or EIN is not on the application, the application is not 
acceptable. With respect to the SSN or EIN of persons with a 
substantial beneficial interest who are eligible for insurance, failure 
to provide such SSN or EIN on the application will result in reducing 
coverage consistent with that person's interest in the applicant. If 
the person with the substantial beneficial interest is not eligible for 
insurance, the policy will be void and no payments will be due under 
such policy. If premium has been previously paid, the premium will be 
returned, less an amount to reimburse the insurance providers for their 
administrative costs already incurred. In those cases where the premium 
has not been paid, it would be too administratively difficult to 
determine whether the insurance providers have incurred the costs and 
to collect the portion of the premium owed. Therefore, if the premium 
has not been paid, the producer will not be required to pay the portion 
of the premium to reimburse the insurance providers for administrative 
costs they may have incurred.
    Many comments were received regarding the requirement in section 
2(b)(2) to collect social security numbers for everyone with a 
substantial beneficial interest in the applicant. The comments received 
are as follows:
    Comment: Many commenters stated it is unclear if a corporation 
having a 10

[[Page 48671]]

percent interest in an applicant or insured would have to provide SSNs 
for everyone in the corporation. The commenters indicated that if this 
is the case, the provision would be very difficult to administer. Many 
commenters stated the provisions will require huge numbers of SSNs to 
be collected and provided examples in which thousands of individuals 
would be required to submit SSNs. A few commenters suggested only the 
individuals with a 10 percent or greater interest in a privately held 
entity be required to report their SSNs. Many commenters stated the 
proposed provisions would make the entire corporation and thousands of 
shareholders ineligible even if only one of the shareholders were 
actually ineligible. The same concerns were provided with regard to 
corporate trustees, partnerships, Indian tribes and other types of 
insureds. These commenters stated that this aspect of the proposal 
either should be narrowed and clarified or not be adopted. Several 
commenters stated the proposed policy provision will create an 
untenable situation with respect to large farming organizations with 
numerous shareholders, and it will be difficult in many situations to 
determine if all shareholders have been accounted for. Commenters 
further stated that FSA documentation that identifies shareholders 
often does not coincide with the information contained in the corporate 
charter, and it is unclear how a conflict should be resolved and how 
far a insurance provider must go to verify that the information 
reported is accurate.
    Response: FCIC has revised the provision to only require those 
persons with a 10 percent or more interest in the applicant to report 
their EIN or SSNs, as applicable. This means that individuals who are 
part of corporations or other legal entities with a substantial 
beneficial interest in the applicant must only report their SSN if the 
individual has at least a 10 percent interest in the applicant. This 
will eliminate large corporations with many shareholders from having to 
provide each shareholder's SSN to the applicant. FCIC has also revised 
the provision to clarify that individuals must provide their SSNs and 
persons other than individuals must provide an EIN.
    Comment: Many commenters stated the provision creates a second 
layer of social security number collection and verification. Some of 
these commenters raised questions regarding privacy issues and the 
legality of requiring individuals with interests in a corporation to 
provide SSNs as this appears to pierce the corporate veil and limited 
liability protection provided by corporate law. A commenter further 
stated the following: the law recognizes corporations as independent, 
legal entities that have duties and rights different than the duties 
and rights of the shareholders. The law restricts the conditions upon 
which the corporate form may be disregarded because corporations, and 
to a lesser degree partnerships, often are formed to keep separate the 
liability of the entity from that of the persons that own the entity. 
If a corporation has a substantial beneficial interest in an insured 
and, as a result, the corporations incur liability either to them or 
FCIC, that liability may not taint the corporation's shareholders. The 
corporation's liability does not de jute result in liability for the 
corporation's shareholders, and unless they or FCIC satisfy the state 
law standards for piercing the corporate veil, the shareholders will 
not incur any liability. Corporate law notwithstanding, nothing in the 
Act, even as amended by ARPA, authorizes the changes set forth in 
section 2(b)(2). Specifically, the Act authorizes FCIC to collect the 
name only ``of each individual that holds or acquires a substantial 
beneficial interest in the insured.'' 7 U.S.C. 1506 (m)(3). The Act is 
concerned with only the top two rungs of potential liability, not the 
third. In sum, requiring them to collect the name and SSN of each 
person that has an interest in the individual that has a substantial 
beneficial interest in an insured or applicant adds another level of 
bureaucratic busy-work and expense that runs afoul of the law of 
corporations and that is not authorized by the Act or ARPA.
    Response: The purpose of collecting SSNs is not to pierce the 
corporate veil, affect the corporate structure or for the purposes of 
assessing liability. The purpose of such a collection is only to 
identify all the persons who are obtaining benefits under the Federal 
crop insurance program to ensure that such persons are eligible. Only 
reporting the names of persons with a substantial beneficial interest 
in the applicant would not have any meaning because there are many 
persons with the same name. Further, if only the EINs of entities were 
collected, many producers could form entities for the express purpose 
of hiding ineligibility. Interpreting the Act in this manner would 
thwart the purpose of the Act and render the language in section 506(m) 
of the Act ineffective. Therefore, to effectuate the purpose of the 
Act, FCIC has interpreted section 506(m) of the Act to allow for the 
collection of SSNs and EINs from all persons with a substantial 
beneficial interest.
    Comment: A commenter stated references to ``social security 
numbers'' should include ``or employer identification numbers'' as 
well.
    Response: FCIC has revised the provisions accordingly.
    Comment: A commenter stated the term ``entity'' is not a defined 
term.
    Response: The reference to entity has been removed from this final 
rule.
    Comment: Several commenters stated it is unclear who is responsible 
for discovery and what assistance will be provided in that discovery 
process. They thought this section would penalize those that do not, as 
a matter of practice, abuse the system. Some commenters asked how an 
agent or insurance provider is supposed to know if an entity is 
omitted, who is responsible for the verification of the required 
information and when the verification process must be completed, if the 
insurance provider must undertake its own independent investigation in 
each instance, and who would incur the additional cost.
    Response: The only responsibility of the agent or insurance 
provider is to explain the requirements of section 2(b) to the 
policyholder. No independent investigation is required. It is the 
policyholder's responsibility to obtain and report all the required 
information. In this final rule, FCIC has reduced the burden on 
policyholders to report this information. Further, this is not an issue 
of abuse. This is an issue of being able to identify all persons who 
are receiving benefits from the Federal crop insurance program. The 
reporting of such information is the only effective way of accurately 
identifying such persons.
    Comment: A commenter stated the new provision would require 
applications to be re-designed to routinely request information 
regarding relevant business and family arrangements. They further 
recommend that producers be required to sign new contracts with bold 
type or a larger font to draw attention to the new requirement.
    Response: Applications do not need to be redesigned because they 
already request the SSN or EINs from persons with a substantial 
beneficial interest. FCIC has revised the provisions to require 
policyholders to update their applications if the persons with a 
substantial beneficial interest have changed or where all the 
applicable information was not provided on a previous application. It 
is the responsibility of the insurance provider

[[Page 48672]]

and agent to explain this requirement to the policyholder.
    Many comments were received regarding the sanctions provisions in 
proposed section 2(b)(3). The comments received are as follows:
    Comment: Many commenters stated the proposed penalty in this 
section was too harsh. Some of the commenters asked why the penalty is 
the same for those who are eligible and inadvertently omit a SSN and 
those who are ineligible and intentionally omit a SSN. Others thought 
it inappropriate to deny insurance for an entire entity when only a 
small share of the entity failed to provide a SSN, particularly when 
the small share is eligible for insurance. Additional commenters stated 
that the penalties should apply only to those who willfully or 
intentionally violate the requirement. These commenters agreed that if 
persons with substantial beneficial interests are omitted, and it is 
determined that the missing person is ineligible, then denying benefits 
to the insured entity is appropriate, but that denying benefits for 
simply omitting an SSN appears harsh. Another commenter stated that 
this surely is not the legislative intent and it should not be the 
regulatory result. Another of these commenters stated it would seem 
that if a SSN is left off the application and it is determined that the 
person omitted is not ineligible, there would not be any harm in 
correcting the SBI information.
    Response: FCIC agrees the proposed sanction is too harsh for those 
who omit a SSN and are eligible to receive insurance benefits. The 
provisions have been amended to only reduce the insured share by the 
percentage interest of the person who did not provide the SSN when such 
person would otherwise be eligible for insurance. It would be 
impossible to administer the provisions if the consequences were only 
applied if the omission was willful and intentional because it is 
difficult to prove willful or intentional. FCIC does not agree there is 
no harm in adding SSNs that are inadvertently left off the application. 
If allowed, it would reduce the incentive to initially properly 
identify all required persons with substantial beneficial interests.
    Comment: Some commenters stated the proposed provision is grossly 
unfair to absentee landlords, passive shareholders in farming 
corporations, persons who have given powers of attorney regarding crop 
insurance to tenants or insurance agents and others who reasonably rely 
on the active farm operators to do what is necessary to insure their 
interest in the crop. These commenters further stated that it is 
grossly unfair to insurance providers who have no reasonable means of 
ascertaining or verifying either the existence of significant business 
interests or the social security numbers provided by producers and 
agents, yet are put at risk by this section of the proposal of losing 
administrative and operating reimbursement and being unable to recover 
indemnity payments they could not have known were inappropriate under 
the proposal's standard.
    Response: As stated above, the burden is on the policyholder to 
correctly report the required information. FCIC has reduced the risk to 
insurance providers by allowing insurance for the persons with 
substantial beneficial interests that did provide SSNs, provided any 
other person whose interest in the applicant was not reported was 
eligible for insurance. However, as with all overpayments, insurance 
providers are at risk that they will not be able to collect the 
overpaid amount. While FCIC attempts to mitigate the effects on the 
insurance provider, there is no way to eliminate the effects. The use 
of specific consequences is one way to provide an incentive for 
policyholders to comply with program requirements. It is not unfair to 
absentee landlords, passive shareholders, or persons who have given 
powers of attorney, who rely on the operator to insure their share. 
Such landlords, passive shareholders, or persons who have given powers 
of attorney have expressly given permission for their share to be 
insured and should be held to the same standards as the policyholder 
with respect to the requirement to provide the applicable SSNs or EINs. 
If they have a substantial beneficial interest, they should provide the 
applicable information to the operator.
    Comment: Some commenters recommended denial of coverage apply only 
to those persons who knew or reasonably should have known of the 
requirement and failed to comply. These commenters further stated that 
insurance providers who implement and consistently follow realistic and 
responsible measures to obtain required information also should not 
suffer adverse consequences if those measures are defeated by those 
intent upon program abuse or fraud.
    Response: All policyholders are legally presumed to know the terms 
and conditions of insurance. Further, it would be difficult for 
insurance providers to determine which persons ``knew or reasonably 
should have known'' of the requirement. No change has been made.
    Comment: Some commenters stated the proposed section has no 
temporal element and provided the following example: If the existence 
of a 10 percent silent partner is first discovered years after the loss 
is paid, the provision requires the insurance provider to reimburse 
FCIC for the paid loss in the initial and all subsequent years, and the 
severe penalties would apply to the insured even though several years 
may have passed. Other commenters stated it would be reasonable to 
provide notice of deficiencies and a chance to correct applications in 
the first two crop years the requirement is enforced, unless there is 
evidence of willful or intentional deception. An additional commenter 
stated it is unclear whether the insured is required to repay an 
indemnity if an overlooked SSN is subsequently discovered.
    Response: Consequences that were in effect prior to the effective 
date of this final rule would apply to any instance of noncompliance in 
those prior years. The provisions contained in this final rule are only 
effective for violations that occur after its effective date. Further, 
after the effective date of this final rule, all policyholders are 
presumed to know of the requirement and, therefore, there is no basis 
for a two year period to allow for corrections. FCIC has revised the 
provision to require that policyholders that currently may not be in 
compliance amend their applications to provide the required 
information. In addition, this requirement is consistent with 
compliance findings. In many cases such investigations occur years 
after the crop year is over. In those cases, if non-compliance is 
discovered, appropriate adjustments must be made for the crop year in 
which the error occurred. FCIC has revised the provision to state that 
if an indemnity has been paid, the indemnity will be adjusted and the 
overpaid amounts must be repaid.
    Comment: Several commenters stated no premium should be due when no 
indemnity is paid. One of these commenters asked how they could charge 
an insured a premium if an insured is deemed ineligible. The commenter 
further stated that if a private insurance provider tried this scheme, 
they would be flooded with lawsuits.
    Response: FCIC is not requiring premiums be paid when the policy is 
voided. However, consistent with other administrative regulations, in 
certain cases, FCIC is simply requiring the policyholder to reimburse 
the insurance provider for the administrative expenses associated with 
the policy. Such amounts are not considered premium payments.
    Comment: Several commenters stated this provision is harsh because 
the

[[Page 48673]]

insured or applicant is penalized for the actions of others not subject 
to or under his/her control. Current procedure that reduces the share 
by the amount of the ineligible person's interest is fair.
    Response: The policyholder has the ability to choose with whom it 
does business. Therefore, it is fair to require the policyholder to 
obtain the compliance of those persons with whom it elects to do 
business. However, as stated above, in certain circumstances, the 
policy will allow the share insured to be reduced instead of the denial 
of all indemnities. FCIC has revised the policy to provide that the 
share can be reduced by the interest of an ineligible person as long as 
the required information is included on the application.
    Comment: A commenter stated many things are unclear regarding the 
20 percent premium amount and asked if the 20 percent applies to the 
gross premium or farmer-paid premium, and what it will be based on if 
no acreage report is filed. The commenter stated that this penalty is 
inconsistent with other penalties in the proposed changes because the 
insured is required to pay 20 percent of the premium, but not the 
administrative fee, and elsewhere in the policy no indemnity is due and 
100 percent of the premium is charged (section 21(e)(2), for example) 
and the administrative fee presumably is still due since it is not 
mentioned. The commenter further stated there does not appear to be any 
explanation or logical reasons for these differences. It also appears 
that the only penalty on CAT policies is no claim payment, as CAT 
policyholders do not pay premium, and this paragraph states that no 
administrative fee will be due. A commenter asked if the 20 percent 
``penalty'' is not paid for a CAT policy, should the insurance provider 
report the entity as a debtor to the Ineligible Tracking System. 
Another commenter asked if the insurance provider keeps the 20 percent 
penalty since they have done the work on the policy.
    Response: The provision has been revised to clarify that it is 
based on the farmer paid portion of the premium. Further, FCIC has 
clarified that the 20 percent only applies to the premium if the 
premium has already been paid. If no acreage report has been filed, no 
premium can be paid. FCIC has revised the provisions to make them 
consistent within the Basic Provisions to the extent practicable. 
Further, the sanction for additional coverage policies has been made 
consistent with other administrative regulations published at 7 CFR 
chapter IV. In addition, since producers do not pay a premium for CAT 
coverage, the 20 percent sanction would not be applicable to them. 
However, they will still have their coverage reduced. FCIC recognizes 
that this results in disparate treatment but there is no basis to 
charge CAT producers a premium or allow administrative fees to be used 
to provide reimbursement for administrative costs. Sections 
508(b)(5)(D) and 508(e)(2)(A) of the Act, respectively, specifically 
preclude the use of CAT fees to reimburse the insurance providers and 
required FCIC to subsidize 100 percent of the premium. With respect to 
buy-up policies, the insurance providers will be permitted to retain 
the 20 percent of the farmer paid premium.
    Comment: A commenter stated that investigation, enforcement, and 
implementation present significant issues, and one is whether 
individuals (those with any interest in an entity with an SBI in the 
insured) are placed on the Ineligible Tracking System.
    Response: If the issue is the failure or incorrect reporting of the 
individual's SSN, then the Ineligible Tracking System is not applicable 
because such persons would not be considered ineligible unless separate 
grounds exist. However, if the issue involves indebtedness or other 
basis for ineligibility, individuals with an interest in a person with 
a substantial beneficial interest in the applicant will not be placed 
on the Ineligible Tracking System unless it is currently permitted 
under the ineligibility regulations or grounds exist to pierce the 
corporate veil or other entity structure.
    Comment: A commenter stated ``no indemnity'' should be more 
explicit in either including or excluding replant and prevented 
planting payments, and that confusion could be eliminated with a 
definition of ``indemnity.''
    Response: FCIC agrees with the commenter and has clarified that no 
indemnity, prevented planting payment, or replanting payment can be 
made.
    Comment: Some commenters stated this provision would seem to 
indicate that all instances of not reporting a SSN are deliberate.
    Response: The provisions are not based on whether or not the 
failure to provide SSNs is deliberate. Applicants are required to 
provide this information and it would be difficult for insurance 
providers to determine those instances in which omission of the SSN was 
deliberate. Therefore, the provisions are written to address the 
consequences of not providing the SSNs and do not depend on the 
insurance providers determination of whether or not the omission was 
deliberate.

Delinquent Debts--Proposed Section 2(e) and Redesignated Section 2(f)

    Many comments were received regarding the sanctions provisions in 
proposed section 2(e). The comments received are as follows:
    Comment: A commenter recommended clarifying what ``eligibility may 
be affected'' means. Another commenter stated the second sentence 
refers to ``benefits under USDA programs'' and that it should be ``crop 
insurance and other USDA programs.'' Also, ``may affect'' is a far cry 
from the former ``you will be determined to be ineligible.''
    Response: FCIC has moved certain provisions that were in section 
2(e) and created a new section 2(f) for clarification, readability, and 
to address many of the following comments. FCIC has revised the 
provision to clarify that failure to make payment when it is due will 
make the policyholder ineligible for crop insurance. However, with 
respect to other USDA programs, it would be up to the agency that 
administers the particular program to determine whether ineligibility 
for crop insurance affects the eligibility for their applicable 
program. For this reason, FCIC can only state that eligibility may be 
affected.
    Comment: A commenter stated they believe the policy should not be 
terminated if a claim is pending because farmers who have suffered 
losses due to natural disasters may be extremely strapped for cash for 
farm operating and family living expenses until they receive their crop 
insurance indemnity payment, and they should not be penalized if 
payment is delayed or the disaster arrives shortly before a premium is 
due.
    Response: FCIC agrees that in some cases the indemnity will exceed 
the amount of premium due. However, the offset of premium from an 
indemnity is for the convenience of the policyholder and insurance 
provider and was never intended to abrogate the requirement that 
premiums and other payments be made by the due date. To allow anything 
different will result in the disparate treatment of policyholders based 
solely on whether they file a claim. Further, it adds a significant 
administrative burden for insurance providers to have to track all open 
claims, determine whether the claim is legitimate, and whether it will 
cover the amount of premium owed. No change has been made in response 
to this comment.
    Comment: A commenter stated section 2(e) provides that ``any amount 
due'' the insurance provider ``will be deducted from any indemnity 
due'' the

[[Page 48674]]

insured. They believe they also have the right to deduct amounts due 
the insured from replant payments and prevented planting payments, 
neither of which are indemnities. Moreover, they believe that such 
deductions should be discretionary not obligatory. They stated there 
may be situations in which such a deduction is unadvisable or contrary 
to other statutes. Thus, they recommended that the compulsory ``will'' 
be replaced with the permissive ``may'' and that the third sentence of 
section 2(e) be amended as follows: ``Any amount due us for any crop 
insured by us under the authority of the Act may be deducted from any 
prevented planting payment, indemnity or other payment due you for this 
or any other crop insured with us.'' Further, they stated, redesignated 
section 2(f) suggests that an insurance provider is obligated to enter 
into a payment agreement with a delinquent insured. Because FCIC may 
not compel them to agree to a payment arrangement, they recommend that 
FCIC amend redesignated section 2(f) to include the following sentence: 
``Nothing in this provision shall be construed to require us to enter 
into a payment agreement with you.''
    Response: FCIC agrees that premiums should be deducted from 
prevented planting payments, and has clarified section 2(e) provision 
accordingly. However, FCIC does not agree that premiums should be 
deducted from replanting payments because these payments are intended 
to provide funds to the policyholder to help defray the costs of 
replanting. Further, the premium billing date is generally quite some 
time after a replanting payment would generally be made. FCIC also does 
not agree the deductions should be discretionary. One major premise of 
the program is to ensure that all policyholders are treated the same, 
regardless of which insurance provider they select. To permit this 
change would introduce the potential for disparate treatment. In 
addition FCIC is not aware of any circumstance in which it would be 
contrary to another Federal statute to deduct the premium from an 
indemnity payment. To the extent that such a requirement would conflict 
with state law, the state law would be preempted. The suggested 
revision has not been made. Since the policy previously stated that 
payment plans were available to avoid ineligibility, such payment plans 
had to be offered by insurance providers. Nothing in this rule changes 
this requirement. Making this requirement discretionary could result in 
the disparate treatment of policyholders based on the insurance 
provider selected. This is contrary to the principles stated above. 
Further, the recommended change could have the effect of eliminating 
the availability of payment agreements. Since this was not proposed and 
the public was not afforded the opportunity to comment on this change, 
FCIC cannot adopt this recommendation.
    Comment: A few commenters stated they recommend the word ``paid'' 
in the first sentence of redesignated section 2(f) be replaced with 
``received by the insurance provider.'' One commenter stated 
``indemnities'' and ``other administrative offsets'' should be defined 
for the purpose of clarity. One commenter asked if the offsets in 
section 2(e) apply only to administrative fees and related interests 
(see subsequent reference to ``offset'' in sections 7(b) and 24(e)) and 
how will offsets be implemented.
    Response: FCIC has revised the definition of ``delinquent debt'' to 
replace the word ``paid'' with ``postmarked or received by us or our 
agent'' to provide a more easily administered time frame for 
establishing delinquent debts. The reference to postmarks is needed to 
prevent policyholders from being penalized for delays in mail service. 
In response to previous comments, throughout the Basic Provisions, FCIC 
has clarified that indemnities, prevented planting payments and replant 
payments are different and that offsets can only be used against the 
indemnities and prevented planting payments. Therefore, the term does 
not need to be defined. However, FCIC has defined ``offset.'' The 
respective provisions state what will be offset. FCIC has removed the 
references to offset of administrative fees from this section and has 
included all such provisions in section 24 and clarified how they will 
be implemented.
    Comment: A commenter asked what ``termination'' means in the phrase 
``termination may affect your eligibility * * *'' They ask whether it 
means termination of the policy. If so, they ask under what 
circumstances is termination relevant in this context. If the policy is 
terminated because the insured chooses to do so, or simply does not 
plant for three years, they ask if the insured is barred from other 
programs. The intent of this section must be clarified. Perhaps the 
intent is ``Termination under section 2(e) may affect * * *'' 
Identification of delinquent producers in the Ineligible Tracking 
System must be swift and certain if approved providers are to have any 
hope of collecting premium and other amounts, and the program is to be 
protected from people who simply do not pay their premium. In addition, 
FCIC should ensure that amounts due under the crop insurance program 
will be withheld from benefits payable under the ``other USDA 
programs'' to which this portion of the proposal refers and remitted to 
the approved provider to whom the crop insurance-related debt is owed. 
In addition, the proposal should be revised to ensure that if a 
producer is delinquent as to any one crop insurance policy, that 
producer also will be considered delinquent under all other policies in 
which the producer has an interest.
    Response: FCIC has revised redesignated section 2(f) to make it 
clear that ineligibility and termination of the policy will preclude 
the producer from receiving an indemnity, prevented planting payment or 
replanting payment and may affect eligibility for other USDA programs. 
This revision clarifies that the provision is only applicable when the 
policyholder fails to make a payment when it is due. FCIC agrees 
ineligible persons should be placed on the Ineligible Tracking System 
as quickly as possible and will continue to work with insurance 
providers in this regard. FCIC will ensure that all administrative 
offsets are conducted as expeditiously as possible in accordance with 
31 U.S.C. chapter 37. However, administrative offset only applies to 
amounts owed to FCIC and the provision has been revised accordingly. 
FCIC does not have the authority to collect amounts owed to the 
insurance provider through administrative offset. Therefore, any 
amounts recovered by FCIC will be retained by FCIC. Redesignated 
section 2(f) has been revised to state that if there is a delinquent 
debt for one policy, the policyholder is ineligible for insurance and 
all other policies will terminate effective of the next termination 
date. However, having a delinquent debt on one policy does not create a 
delinquent debt on all other policies. Delinquent debts only apply to 
those policies for which applicable payments have not been paid by the 
due date.
    Comment: A commenter asked whether the sentence ``All 
administrative fees and related interest are owed to FCIC * * *'' needs 
to be in redesignated section 2(f). FCIC is not a party to this 
contract, and the language already says other benefits may be affected. 
Another commenter stated the language indicates that all administrative 
fees and related interest are owed FCIC. The commenter asked if all 
accrued interest is owed FCIC, or just accrued interest on the 
administrative fee. If all accrued interest is owed FCIC, the commenter 
asks if FCIC be

[[Page 48675]]

responsible for the collection process for unpaid interest. The 
commenter asks if FCIC is going to calculate accrued interest and 
require all insurance providers to access accrued interest on the date 
specified in the policy. It would seem practical to do so if the 
accrued interest is a condition of termination. Another commenter 
stated the provision ``all administrative fees and related interest are 
owed to FCIC * * *'' seems to change the existing collection process. 
The commenter also stated the subsection would benefit from defining 
the term ``due'' and also recommended defining ``insured crop'' and/or 
``under the authority of the Act'' because these phrases are used here 
and elsewhere in the proposed Basic Provisions.
    Response: The reference to administrative fees being owed to FCIC 
is not necessary in this section since it is more appropriate to 
include this in section 24 and FCIC has revised the policy accordingly. 
Section 24 has also been revised to clarify that only accrued interest 
on administrative fees is owed to FCIC. Interest on amounts owed to the 
insurance providers should be determined and collected by the insurance 
providers. FCIC has clarified that administrative fees are paid to the 
insurance providers but they are actually owed to FCIC and if the 
policyholder fails to pay the administrative fee, FCIC is responsible 
for collection. The term ``insured crop'' is already defined. Further, 
FCIC believes the phrase ``under the authority of the Act'' is not a 
term that can be easily defined without being overly restrictive. This 
term would encompass all policies reinsured by FCIC and since new 
policies are being developed and offered all the time, it is impossible 
to specifically identify all these policies. With respect to the term 
``due,'' terms only need to be defined if they have meaning different 
from the common meaning of the term or there are multiple common 
meanings. FCIC intended the common meaning of the term ``due'' to 
apply, which refers to payable immediately or on demand. Therefore, it 
is not necessary to define this term.
    Comments were received regarding proposed section 2(e)(3). The 
comments are as follows:
    Comment: A commenter stated proposed section 2(e)(3) must be 
reconciled with proposed section 2(e)(5), or at least the two sections 
should be cross-referenced.
    Response: Proposed section 2(e)(3) has been redesignated as section 
2(f)(1)(i) and FCIC has revised redesignated section 2(f) to ensure 
there are no inconsistencies with the provisions in proposed section 
2(e)(5).
    Comment: A few commenters stated, if this proposed language is 
retained, the word ``and'' should be replaced with ``or'' following the 
word ``fee'' in proposed section 2(e)(3)(i).
    Response: FCIC agrees that interest is not always owed and has 
revised the provisions where necessary to refer to interest owed as 
applicable.
    Comment: A commenter stated proposed section 2(e)(3)(ii) seems to 
contradict proposed section 2(e)(2).
    Response: Proposed section 2(e)(2) specifies when the policy 
terminates, and proposed section 2(e)(3)(ii) specifies when 
ineligibility starts. Since these refer to different matters, there is 
no conflict between these two sections. Ineligibility specifies the 
period for which the policyholder can no longer obtain insurance. 
However, ineligibility does not terminate policies that were in effect 
before the person became ineligible. These policies must be terminated 
and the termination provisions provide the date on which these policies 
are no longer in effect. However, for the purposes of clarity, FCIC has 
revised the provisions regarding termination and ineligibility.
    Comment: A few commenters stated proposed section 2(e)(3) seems to 
require an insurance provider to offer a payment plan. This was not 
previously in the policy. If so, a payment agreement needs to be made 
part of the policy as an insurance provider option with language to 
specify what constitutes an agreement. Another commenter asked if an 
insurance provider must do a payment plan or if it is optional. The 
commenter stated, if it is optional, the language should state this.
    Response: Since the policy previously stated that payment plans 
were available to avoid ineligibility, such payment plans had to be 
offered by insurance providers. Nothing in this rule changes this 
requirement. However, FCIC has revised the definition of ``delinquent 
debt'' to specify that the agreement to pay must be acceptable to the 
insurance provider. The insurance provider should determine what terms 
are acceptable because this is an agreement between the policyholder 
and the insurance provider and such agreements may vary based on 
individual circumstances. The agreement does not need to be made part 
of the policy because the policy expressly states the consequences of 
entering or violating such an agreement.
    Comment: A commenter stated they have concern when an insured with 
a payment agreement transfers to Insurance provider B. Insurance 
provider B pays an indemnity and later the insured defaults on the 
payment agreement with Insurance provider A. Which insurance provider 
will be responsible for collecting money from the insured.
    Response: Since insurance provider B paid the indemnity, it would 
be up to insurance provider B to collect the indemnity back from the 
policyholder. Insurance provider A would not have privity of contract 
with the policyholder. However, insurance provider A would still be 
responsible to collect the amount of premium due under the payment 
agreement.
    Comment: A commenter stated proposed sections 2(e)(3)(ii) and (iii) 
seem to contradict proposed sections 2(e)(4) and (5) and asked if 
proposed sections 2(e)(4) and (5) are saying the same thing. The 
commenter further stated that the insured should only become eligible 
after the bankruptcy is discharged, not when it is filed. This would 
alleviate the problem addressed in the final sentence.
    Response: The sections do not conflict. Proposed sections 
2(e)(3)(ii) and (iii) specify when a producer becomes ineligible while 
proposed sections 2(e)(4) and (5) specify when policies will be 
terminated. As explained above, these are different matters. Proposed 
sections 2(e)(4) and (5) are not repetitive although a portion of 
proposed section 2(e)(5) does clarify that a policy in place at the 
time a person becomes ineligible does remain in place until the next 
termination date. Proposed section 2(e)(5) (redesignated section 
2(f)(3)) also clarifies when an ineligible person can again purchase 
insurance. FCIC does not agree that a person should be ineligible for 
insurance during bankruptcy proceedings because such proceedings 
obviate the requirement that persons repay amounts owed. It would be 
contrary to the purposes of bankruptcy to make a person ineligible 
based on a debt they may no longer owe.
    Comment: A commenter asked if the insurance provider must return 
any administrative and operating subsidy it has received when 
termination is retroactive.
    Response: When ineligibility is retroactive, any administrative and 
operating subsidy associated with the policy must be returned for the 
applicable crop year. Any changes in this requirement should be 
addressed in the reinsurance agreement, not the crop insurance policy.
    Comments were received regarding proposed section 2(e)(6). The 
comments are as follows:

[[Page 48676]]

    Comment: A few commenters stated if an insured defaults on a 
payment agreement with his previous insurer after the insured's present 
insurance provider has paid a subsequent claim, an overpaid claim 
situation results which in all likelihood would be uncollectible. In 
situations such as this, the current policy language is preferable.
    Response: FCIC understands that making the ineligibility 
retroactive may create overpayments. However, when eligibility for crop 
insurance for the year is based on an agreement to pay a debt, benefits 
should not be paid for that crop year if the payment agreement is 
breached. No change has been made in response to this comment.
    Comment: A commenter has concern with the possible litigation this 
could create when insurance has attached on a policy and then the 
insurance provider will cancel current insurance because an agreement 
to pay was defaulted on by the insured. The commenter prefers to keep 
current language in the provisions. If proposed section 2(e)(6) is 
kept, an insured that has an agreement to pay that continues four or 
five months past the termination date, could intentionally default on 
the agreement. They would intentionally default because they feel they 
will not have a loss in the current year and therefore would not be 
required to pay premium. RMA could propose charging the current year 
premium on acres even though they will not qualify for a loss, in this 
situation. This proposal could be viewed as harsh because they are 
charging premium for a policy in which they have no hope of collecting 
an indemnity. Also agreements to pay with multiple installments have a 
higher likelihood to be late on a payment because insureds are not 
billed in advance of their next payment installment. A commenter 
suggested the current language be retained because the proposed 
language seems to imply that an insurance provider retroactively 
cancels all policies and establishes no other payment plans for any 
crops. It should also address situations where another insurance 
provider has a payment plan in place. The reference to ``crop year'' is 
a departure from ``reinsurance year.'' It is irrelevant which insurance 
provider holds the payment agreement. If such agreement is breached, 
the policy automatically terminates effective with the beginning of the 
crop year. Once a policyholder becomes ineligible, he or she will be 
placed on the Ineligible Tracking System with a date on which 
ineligibility began, which will provide notice to other insurance 
providers that the policyholder is no longer eligible. Since the policy 
is provided to producers on a crop year basis, the provisions must 
refer to crop years rather than reinsurance years. This is the only 
fair and equitable way to operate the program and prevent abuse.
    Response: Eligibility for the current year is conditioned on the 
payment of the debt in accordance with a payment agreement. If that 
payment agreement is breached, the condition is no longer met and the 
policyholder has no longer met the conditions for eligibility. This 
principle should be recognized by the courts and terminating the policy 
retroactively is no different than voiding the policy. Although there 
is no direct monetary penalty when a policyholder defaults on a payment 
agreement, there is a consequence because benefits will not be in place 
for the crop year in which the payment agreement was breached and until 
the debt is paid. The current provision affords no protection because 
policyholders could still breach the agreement, which rendered them 
ineligible on the date such payment was missed, and allow them to 
become eligible later in the same crop year by paying the debt in full 
when a loss is likely to occur. This would result in the administrative 
difficulty of trying to determine when the policyholder was eligible 
and whether an indemnity could be paid. FCIC cannot charge a premium 
even though the policy was terminated retroactively because it was not 
proposed and the public was not afforded the opportunity to comment on 
it. Insurance providers are responsible to manage these payment 
agreements and determine whether there is a failure to make a scheduled 
payment. There is nothing in this provision that prohibits late payment 
provided the scheduled payment is made. No change has been made in 
response to this comment.
    Comment: A commenter suggested adding the word ``crop'' between 
``your'' and ``policies'' in proposed section 2(e)(6). This paragraph 
seems consistent with proposed section 2(e)(3)(iii), but inconsistent 
with proposed section 2(e)(5). The added language will create many 
problems if coverage is terminated retroactively, as many lenders rely 
on coverage being in place, as do other holders of assignments of 
indemnity.
    Response: FCIC has replaced the reference to ``crop policy'' with 
``policy'' to make the provisions consistent and has revised the 
definition of ``policy'' to specify that each crop is considered to be 
covered by a separate policy. FCIC has revised the provisions to 
eliminate any inconsistencies. FCIC understands lien holders depend on 
crop insurance payments being made, and that additional complexities 
arise when more than one insurance provider is involved. However, 
whether crop insurance exists is within the control of the policyholder 
and benefits should not be allowed when premiums or other amounts due 
are not paid in a timely manner.
    Comment: A commenter stated they agree with the provision in 
proposed section 2(e)(6).
    Response: Although FCIC has revised the provisions, the 
requirements in proposed section 2(e)(6) have been retained in 
redesignated section 2(f).
    Comment: A commenter asked if failure of a payment plan is limited 
to just this debt. They stated this appears to be the case, since 
reference to ``the debt'' is used.
    Response: The phrase ``the debt'' in this section has been replaced 
with ``amounts owed'' to clarify that it covers any amounts covered 
under the payment agreement.
    Comment: The proposed language changes the current application of 
ITS (Ineligible Tracking System) in that it implies a retroactive 
termination. Also, this language conflicts with proposed section 
2(e)(4).
    Response: FCIC understands the proposed language constitutes a 
change in the time a producer becomes ineligible and may require more 
frequent monitoring of the Ineligible Tracking System. However, as 
stated above, a producer should not receive benefits for a year in 
which a previously agreed upon payment is not made. FCIC has revised 
the provisions to reconcile when policies are terminated and 
policyholders become ineligible.
    Comment: A commenter recommended revising proposed section 2(e)(7) 
because, by definition, there can only be one policy. They question 
whether this means ``county crop contract,'' and ask why not define and 
use that term.
    Response: FCIC has revised the definition of ``policy'' to clarify 
that each agricultural commodity in each county constitutes a separate 
policy. Proposed section 2(e)(7) refers to each policy that is 
terminated, which could be multiple policies in a given crop year. No 
changes have been made as a result of this comment.
    Comment: A commenter stated there must be a ``lag time'' allowed 
between signing the claim for indemnity and termination (i.e. claim for 
indemnity signed today, termination date is tomorrow) in proposed 
section 2(e)(9).
    Response: As stated above, the offset of premium from an indemnity 
is for the convenience of the policyholder and insurance provider and 
was never

[[Page 48677]]

intended to abrogate the requirement that premiums and other payments 
be made by the due date. To allow anything different will result in the 
disparate treatment of policyholders based solely on whether they file 
a claim. Further, it adds a significant administrative burden for 
insurance providers to have to track all open claims, determine whether 
the claim is legitimate, and whether it will cover the amount of 
premium owed. No change has been made in response to this comment.
    Comment: A few commenters suggested adding replant payments to the 
next to the last sentence in proposed section 2(e)(10).
    Response: FCIC agrees and has made the proposed change in 
redesignated section 2(f)(5).
    Several comments were received regarding proposed section 2(e)(11). 
The comments received are as follows:
    Comment: A commenter stated it was unclear how individuals (those 
with any interest in an entity with a substantial beneficial interest 
in the insured) would be placed on the Ineligible Tracking System if 
they are not involved in the crop insurance program.
    Response: FCIC agrees the provision is too inclusive. However, 
there may be situations, such as certain partnerships, where the 
partners are liable for the debt of the partnership and such persons 
will also be ineligible if the partnership becomes ineligible. Further, 
there may be other entities where piercing the corporate veil is 
appropriate based on the common law standards. This provision has been 
revised to put everyone on notice that persons with a substantial 
beneficial interest may be ineligible but it does not abrogate the 
legal requirements of determining when such persons may be held liable 
for the entity's debt or vice versa. Tracking should be no different 
than any other ineligible person.
    Comments: A few commenters stated proposed section 2(e)(11) would 
not appear to be legally permissible if the ``person'' with a 
substantial beneficial interest in the insured happens to be a 
corporation. Some of the commenters stated this language also may make 
others with an interest in the corporation liable for unpaid premium 
and the proposed language attempts to illegally pierce the corporate 
veil and make shareholders personally liable above and beyond their 
investment in the corporation.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated that in general terms, shareholders are 
insulated from the actions of a corporation and this section goes 
against this principle. Another commenter stated this section violates 
constitutional and legal provisions.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated RMA should research the legality of 
this provision.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated the proposed amendment is a good one, 
but will present major tracking and compliance problems.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated in their opinion proposed section 
2(e)(11) is too broad when determining ineligibility. If someone is 
involved in a corporation and also has an individual policy then 
becomes ineligible on the individual policy, the new language would 
make all other shareholders of the corporation ineligible on any other 
policies in which they had a substantial beneficial interest. The 
current procedure that would lower the corporations' insurable interest 
by the ownership amount of the person ineligible is fair and 
defendable. They suggested not adding this paragraph.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated proposed section 2(g) should be 
``cancel,'' not ``terminate.''
    Response: FCIC agrees the term ``cancel'' should be used because 
the use of the term ``terminate'' is inconsistent with the definition 
of the term ``termination date'' and has revised section 2(h), as 
redesignated, accordingly.
    Comment: The following comments were received regarding section 
2(i). A commenter questions whether section 2(i) is needed. They stated 
it should be deleted or at a minimum, the portion referencing FSA be 
deleted. A few commenters stated section 2(i) requires ``* * 
*information regarding crop insurance coverage on any crop previously 
obtained at any other local FSA office or from an approved insurance 
provider, including the date such insurance was obtained and the amount 
of the administrative fee.'' This does not distinguish between 
federally subsidized crop insurance and other types, such as crop-hail. 
FCIC should consider if the reference to ``any other local FSA office'' 
is still necessary; if so, at least the word ``other'' should be 
deleted. FCIC also should clarify whether ``the date such insurance was 
obtained'' means the effective crop year (question whether the specific 
day is necessary). The commenter questioned the necessity of learning 
``the amount of the administrative fee'' (if kept, add ``if any'' since 
the fee is a fairly recent addition).
    Response: Since no changes to this section were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.

Clarification of Insurance Guarantees, Coverage Levels, Verification of 
Records, Establishment and Adjustment of Approved Yields--Section 3

    Comment: A few commenters suggested deleting ``for Determining 
Indemnities'' from the heading of section 3 since guarantees, levels, 
and prices are used for other purposes as well.
    Response: Since this is merely a technical change since headings do 
not affect the meaning of the provisions, FCIC has revised the heading 
accordingly.
    Comment: A few commenters suggested rearranging the order of 
section 3 so redesignated paragraphs (g)-(j) are further redesignated 
as (c)-(f), and the APH-specific paragraphs, currently (c)-(f), are at 
the end of the section.
    Response: FCIC has revised section 3 to put all like provisions 
together.
    Comment: A commenter stated section 3(a) should be clarified as 
follows: ``(a) Unless adjusted in accordance with this policy, the 
production guarantee or amount of insurance, coverage level, and price 
used to calculate and establish your coverage as shown on your summary 
of coverage for each crop year also will be used to determine any 
indemnity that may be due with respect to that crop year. The 
information necessary to determine those factors will be contained in 
your application, the Special Provisions, the actuarial documents or a 
combination of these documents.''
    Response: FCIC agrees the provision should be revised to specify 
that reported information will be used for the summary of coverage 
unless the information is adjusted or limited by the policy. Further, 
FCIC has removed the reference to the location of the ``factors'' to be 
consistent with other changes made as a result of comments and because 
it is duplicative.
    Comment: A few commenters recommended FCIC consider whether the 
first sentence in proposed section

[[Page 48678]]

3(b) should refer to prices as well as to coverage levels since both 
are included in the rest of the paragraph. A commenter also asked if 
the limitation in proposed section 3(b) to one coverage level means one 
per county crop (for example, a grower could insure corn in County A at 
one level and corn in County B at a different level). (This is an issue 
of defining policy, contract, etc., and they suggested that the policy 
clarify that coverage choices are on a county-crop basis.).
    Response: Not all crops have only one price election. Some crops 
have multiple price elections for different types, varieties, etc., and 
provisions regarding the number of applicable prices are contained in 
the Crop Provisions. FCIC has revised the definition of ``policy'' to 
clarify that each crop in each county is considered a separate policy. 
Further, FCIC realizes the first sentence of redesignated section 3(b) 
conflicts with the first sentence of redesignated section 3(d). 
Therefore, the first sentence in redesignated section 3(d) has been 
removed and FCIC has revised the first sentence of redesignated section 
3(b) to specify that only one coverage level for additional coverage 
may be selected unless one of the exceptions apply.
    Many comments were received regarding the proposed language in 
proposed section 3(b) that would not allow increases in coverage levels 
when there was a cause that could or would result in a loss. The 
comments are as follows:
    Comment: The new language added to section 3(b) is an admirable 
attempt to prevent adverse selection against FCIC. However, the phrase 
``could or would'' is overly broad and puts an unreasonable and 
excessive burden of proving the unknown on the insurance provider and 
should be deleted from the proposal. Proposed section 3(b) mirrors 
section 17(b)(4), which imposes similar restrictions with respect to 
prevented planting. The provision, whether in proposed section 3(b) or 
in section 17(b), is problematic, speculative, difficult to determine, 
and is impractical to administer. It creates an administrative burden 
because it compels the insurance provider to conduct an inquiry as to 
whether a cause of loss has occurred each time an insured requests an 
increase to the coverage level or price election. They assume the 
insurance provider has the authority to determine a loss occurred prior 
to the insured making the change in price election or coverage level 
and proposed section 3(b) should so state.
    Response: FCIC agrees that the provision is unworkable with respect 
to coverage level selection and has removed it from redesignated 
section 3(d).
    Comment: The policy covers natural, unavoidable causes of loss. 
People cannot control the weather and other insured perils. They ask 
who would decide if there is a potential loss situation. The weather 
can change daily. A completely dry winter can become a blizzard with 2 
feet of snow the next day. The final sign-up deadline is March 15 for 
some crops in some areas. A producer requesting a policy change in 
February cannot be allowed to have an advantage over a producer 
requesting a policy change in March after a blizzard.
    Response: See response to first comment under this subsection.
    Comment: If a geographic area has suffered drought for the past 
year or two, this provision would not enable producers to increase 
their coverage level even though a known cause of loss is likely to 
adversely impact the producer. In the instance where an insured has a 
certain level of coverage when a drought begins, would that insured not 
be able to increase his or her coverage throughout the duration of the 
drought. It could be hard to police the increases of coverage if a 
cause of loss is present at the sales closing date. A prime example is 
the drought in the U.S. That means even with the rains that have 
occurred in areas, if you look on the drought maps, there are areas 
that are basically stuck with what they had this year because of the 
continuing drought.
    Response: See response to first comment under this subsection.
    Comment: They ask how do you prove in all cases if loss or 
potential loss may have occurred before election changes and what 
equitable standard should be used in making these determinations. It is 
difficult to determine or quantify situations in which a cause of loss 
could or would result in an insured cause of loss that has occurred 
before an insured's request for an increase of coverage. It is 
difficult to manage and monitor in dry areas. They ask whether in a 
drought situation if an insurance provider denies an increase in 
coverage because of ongoing drought and a month later, after a 
rainfall, can the insurance provider accept another request for an 
increase in coverage provided it is before the sales closing date. 
Insureds should be allowed to change coverage levels, price elections, 
plans of insurance, etc., anytime on or prior to the sales closing date 
specified in the Special Provisions. The proposed provision would be 
nearly impossible to determine/enforce.
    Response: See response to first comment under this subsection.
    Comment: FCIC should make the determination if a cause of loss that 
could or would result in an insured loss has occurred prior to the time 
the producer requests the increase. FCIC should issue Managers 
Bulletins defining counties and crops in which FCIC has determined that 
a cause of loss existed prior to the sales closing date and no increase 
of coverage from the prior year would be allowed. The burden should not 
be on the producer, agent or insurance provider to declare that such a 
condition exists, presuming that the sales closing dates are set 
properly. If FCIC believes a condition exists that should cause the 
offer of coverage to be withdrawn, it should advise all and withdraw 
the offer.
    Response: See response to first comment under this subsection.
    Comment: There are system issues to properly ``block'' applications 
from areas/situations that would not be eligible under this language. 
The proposed language seems to be counter to an insured's ability to 
make risk management changes from year to year. Producers may find it 
more difficult to obtain loans from their lenders when coverage cannot 
be increased because the likelihood of losses is apparent. The 
provision seems contrary to the intent of ARPA, which encourages 
producers to take out higher levels of coverage. Producers, unable to 
utilize existing risk management tools, will appeal to Congress for 
disaster aid. Will the determination be by insured, county, region, 
state, etc., and who will make it.
    Response: See response to first comment under this subsection.
    Comment: A ``knowledge qualifier'' should be added to proposed 
section 3(b) as well as a time element. Thus, the proposal should be 
revised to read ``* * * you may not increase your coverage * * * if as 
of the sales closing date you knew or reasonably should have known a 
cause of loss had occurred that is reasonably likely to result in an 
insured loss * * *'' Suppose there is no rain for six months before the 
sales closing date; as written, the provision would prohibit coverage 
changes because ``a cause of loss that could or would result in an 
insured loss has occurred. * * *.''
    Response: See response to first comment under this subsection.
    Comment: This section does not preclude insureds from changing to a 
different plan, such as Crop Revenue Coverage or Revenue Assurance, or 
changing approved insurance providers and then revising the coverage 
level or price election. How soon will the

[[Page 48679]]

insurance provider know what coverage the producer previously had when 
the producer comes to them and do they back off at a later date when 
they find that the producer increased coverage when a cause of loss was 
already there.
    Response: See response to first comment under this subsection.
    Comment: A commenter recommended FCIC amend proposed section 3(b) 
as follows: ``However, you may not increase your coverage level or 
price election after the occurrence of an insurable cause of loss.
    Response: See response to first comment under this subsection.
    Comment: They ask why existing policyholders should be prevented 
from making coverage changes, when a new applicant can choose the 
highest coverage level available on the sales closing date even though 
a cause of loss exists. This appears to be unfair and discriminatory.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated the word ``since'' in the fourth 
sentence of proposed section 3(b) should be amended to read 
``because.''
    Response: Since ``since'' or ``because'' are synonymous, either are 
correct in the fourth sentence. No change has been made.
    Many comments were received regarding proposed section 3(d). The 
comments received are as follows:
    Comment: A significant number of commenters complained of the 
excessive burdens on agents and loss adjusters to perform the work, on 
producers as a result of delayed claims, and the costs to the insurance 
providers as a result of this requirement. They claim the provisions 
conflict with other record requirements in the policy.
    Response: FCIC agrees with the commenters who indicated the 
proposed provision would delay claims processing, significantly 
increase program costs, and would conflict with current record 
retention requirements. Therefore, FCIC has removed the proposal 
requiring the insured to provide written verifiable records for the 
loss unit for at least the three most recent crop years of the 
producer's production history from redesignated section 3(f). However, 
verification of yields is important to maintaining program integrity. 
The policy provisions already contain record retention requirements and 
FCIC has determined the same effect can be achieved through APH reviews 
by insurance providers.
    Many comments were received regarding proposed sections 3(d)(2) and 
(3). The comments are as follows:
    Comment: Many commenters stated the provisions are unworkable and 
do not solve or mitigate the problem they are attempting to fix. 
Several commenters stated the penalty of denying a claim yet still 
charging premium when over or under a 5 percent tolerance level from 
the APH is far too harsh, and could easily be legally challenged 
because a premium is charged, yet no coverage and service is provided. 
A commenter stated denying the indemnity even after recalculating the 
average yield and still requiring premium payment will likely result in 
legal action and claims of Bad Faith. Some of the commenters further 
stated this penalty is unacceptable, and pointed out there is no 
coinsurance law in the Act. Other commenters indicated the penalty is 
unreasonable and should be deleted. A commenter stated the current 
processes in place to address APH and acreage tolerances is working, 
and the proposed provisions will unduly penalize insureds and create 
unbearable exposure for agents. A commenter stated that if APH audits 
are to be required as stated in section 3(d), then APH and unit 
corrections should be made to the policy, and indemnities subsequently 
paid based on the corrected information.
    Response: FCIC has revised redesignated section 3(f) to specify 
that the consequences of misreporting are now contained in section 6(g) 
to eliminate any inconsistencies with that section. FCIC has removed 
the provisions stating that insurance will be denied and a premium will 
still be owed. FCIC agrees that the consequences could be overly harsh 
because it provides the same consequences regardless of whether the 
error was large or small. Instead, FCIC will utilize the consequences 
currently stated in section 6(g) and a consequence has been added that 
is commensurate with the error when such error exceeds established 
tolerances. These changes will be much less harsh but still provide an 
incentive for policyholders to accurately provide information.
    Comment: A few commenters stated the proposed language refers to 
tolerances applied to the ``average yield.'' This does not seem to 
consider that the average yield is not always the same as the approved 
APH yield, due to yield substitutions and other yield adjustments. They 
questioned if the ``sanctions'' should be applied if the ``correct 
yield'' does not affect the (adjusted) approved APH yield by more than 
the tolerance. A commenter asked, if the statement ``* * * results in a 
yield more than five percent different than the correct yield'' refers 
to the APH yield or an individual year's yield. The commenter stated 
five percent of an individual year's reported yield may be excessively 
stringent as there may be instances of a simple error such as gross 
yield being reported instead of net yield. This may not make much of a 
difference in the APH but could exceed five percent for an individual 
unit.
    Response: Tolerances are now based on liability, not the components 
that make up the liability, such as yield or acreage.
    Comment: A few commenters stated it is unclear how the language 
meets the stated purpose of better meeting the insured's needs. 
According to the Federal Register explanation, ``* * * This change is 
necessary to protect the integrity of the crop insurance program 
because the operation of the program relies heavily on the accurate 
reporting by producers. A tolerance of 5 percent is included to be 
consistent with tolerances in other aspects of the program. However the 
receipt of complete and accurate information is crucial to the program 
* * *'' They agree with the motive, but disagree with the method 
proposed. The 5 percent tolerance provides some allowance for minor 
differences in what is reported at different times, but still may not 
be flexible enough. (In addition, this tolerance is not consistently 
applied in other provisions of the proposed revisions to the Basic 
Provisions.) The demand for accuracy needs to be tempered with the 
recognition that measurements of acreage and production can result in 
different (but not inaccurate) figures each time. FCIC may want to 
consider leaving the specific tolerance out of the policy language and 
letting it be handled in procedure instead. One set of tolerance 
percentages may be too restrictive for some crops and situations but 
too loose for others. (For example, the CIH provides a 5 percent 
tolerance for many Category B APH crops, but a 2 percent tolerance for 
other Category B and all Category C crops.) A commenter stated the 5 
percent tolerance in proposed section 3(d)(3) is unrealistic. The 
commenter further stated that errors do happen, but corrections can be 
made. They noted that typically, if information is misreported to the 
FSA, corrections are allowed. The commenter added this provision could 
potentially not only deny an insured a payment due to an insurable loss 
but could also cost him a premium on acreage deemed uninsurable, 
because of an honest error.
    Response: These changes meet the needs of insureds by preventing 
program abuse and keeping premiums down. The tolerance has been 
increased

[[Page 48680]]

to 10 percent to reduce the impact on those producers whose errors are 
more likely to be inadvertent and add greater flexibility. The 
tolerances in the procedures are not relevant because the purpose of 
the tolerances in the policy is to determine when a sanction will 
apply.
    Comment: A commenter asked if one loss unit is out of tolerance, 
what happens to the remainder of the units. The commenter further 
stated there is a conflict between language in section 6 (the insurance 
provider ``may elect'' whether to use reported information or the 
information determined to be correct) and proposed section 3(d)(3) 
which indicates ``corrected liability'' will be used with penalties 
attached.
    Response: Since liability is on a unit basis, the tolerances are 
also applied on a unit basis.
    Comment: A commenter stated proposed section 3(d)(3) makes no 
sense, as there may not even be a claim. The commenter also provided 
the following example: An insured reports APH production based on the 
bin measurements (no loss), the next year he/she has a loss, and the 
APH must be verified, by that time the prior year's production is sold, 
and the actual production sold differs from his/her APH by 5.5 percent, 
which should not be unreasonable due to moisture, shrink, etc., 
differences. The commenter stated that under the proposed language, it 
appears that his/her indemnity could be denied.
    Response: As revised, the monetary sanction only applies when there 
has been a claim. However, the information is still corrected so that 
future determinations of liability are correct. If the bin measurement, 
which is done by the insurance provider, differs from the sold 
production, the producer cannot be penalized because it was not the 
producer who reported the production. The producer relied on the 
insurance provider. In cases where the discrepancy cannot be explained 
under the current procedures, the information should be reconciled and 
appropriate corrections made.
    Comment: A commenter stated that unless fraud is evident, producers 
should be allowed to correct any discrepancies or errors in production 
reporting, and be paid any indemnity due, in return for premium paid. 
The commenter further stated the proposed provision exposes lenders to 
unneeded risk. A few commenters stated RMA already has in place 
punitive measures to deal with fraudulent behavior, and, if the 
proposed provision is implemented, the producers who will be most 
affected by the proposed tolerances and attendant sanctions will be 
those who simply make inadvertent errors. The commenters further stated 
that if a tolerance is maintained, it should be more reasonable and 
allow for exceptions. In addition, they believe that if a producer's 
claim is denied because of inaccurate yield reports exceeding a 
tolerance, the insured should not be responsible for the full premium, 
and in such cases only a modest administrative fee is warranted. A 
commenter stated that determining the nature of misreported information 
could be difficult. Therefore, they suggest consideration of a 
graduated monetary penalty matrix for misreported information resulting 
in an average yield of greater than 105 percent of the correct yield. 
If a reporting discrepancy of greater than 105 percent can be credibly 
attributed to an error made in good faith or variable reporting 
information, perhaps a maximum monetary penalty could be imposed with 
denial of the claim waived. Progressive monetary penalties short of 
claim denial would still serve as a strong incentive to report accurate 
information. Annual verification of certified yields would eventually 
alleviate the potential for misreported information problems because 
the actual production history yields would have been verified prior to 
the loss claim. A commenter recommended penalties be tailored toward 
willful and intentional actions.
    Response: It is almost impossible to distinguish intentional from 
unintentional errors and provisions requiring such determination would 
create a very difficult standard to administer. However, errors must be 
identified and corrected. FCIC has increased the tolerances to lessen 
the impact on growers who make small, inadvertent errors.
    Comment: A commenter suggested changing the wording in the lead-in 
sentence in proposed section 3(e) to read, ``We will revise your actual 
yield(s) which may change your approved APH yield when:''
    Response: ``Approved yields'' are the yields upon which production 
guarantees are based and are the yields that ultimately must be 
revised. However, as stated above, redesignated section 3(g)(1) has 
been revised to reference individual crop year yields.
    Comment: Several commenters recommended amending the introductory 
phrase in proposed section 3(e) to read: ``We may revise your approved 
yield when: * * *'' The commenters stated that proposed section 3(e), 
as written, compels them to revise an insured's yield if the conditions 
in proposed sections 3(e)(1) through (3) are satisfied. Because there 
are many circumstances now unforeseen that may impact the revision of 
an insured's yield, proposed section 3(e) should authorize, but not 
require, revision of the approved yield. The Federal Register 
explanation for the proposed change states the language was changed to 
``Clarify that yields may also be adjusted * * * '' however, the actual 
proposed language states ``We will revise your approved yield.''
    Response: The provisions in redesignated section 3(g) must apply 
the same for all producers. Therefore, if an insurance provider 
discovers producers who meet all the criteria for having the approved 
yield adjusted, such yield must be adjusted. The provisions themselves 
contain any exceptions, if applicable. If no exception is stated, FCIC 
did not intend for there to be any exception and none can be made. To 
require otherwise could result in disparate treatment.
    Comment: A few commenters stated existing regulations may not allow 
an approved yield to be revised as suggested, and thought providing an 
insured an ``approved yield'' and then revising it could raise legal 
questions.
    Response: The final rule published on June 25, 2003 (68 FR 37697) 
revised the definition of ``approved yield'' to include adjustments 
made under redesignated section 3(g). Therefore, adjustments of the 
approved yield are permitted.
    Comment: Several commenters stated proposed section 3(e) is too 
general and random, and asked what the procedure will be, in what time-
frame will the adjustments occur, and to what levels will the 
inconsistent yields be adjusted. One of the commenters stated the 
processes for revisions are subjective and leave the insurance 
providers open to dispute and litigation. An additional commenter 
stated they could not assess the impact of this subsection without 
knowing what the specific procedures will be.
    Response: FCIC has revised the provisions in redesignated section 
3(g) to be specific regarding when the adjustments apply and exactly 
how the adjustment will be made to reduce subjectivity and make the 
standards more certain. FCIC has added provisions stating that 
reductions in the approved yield will occur at any time the 
circumstances warranting such reduction are discovered. The procedures 
will only specify when the insurance providers must review the policies 
to determine whether redesignated section 3(g) is applicable and the 
standards that FCIC will use to

[[Page 48681]]

determine whether the yields are excessive.
    Comment: A few commenters recommended removing proposed section 
3(e) since computation of the APH yield is not otherwise addressed in 
the Basic Provisions, and stated the modified language could properly 
be included in the program materials governing APH determinations.
    Response: The final rule published on June 25, 2003 (68 FR 37697) 
revised the definition of ``approved yield'' to include all adjustments 
made, including those under redesignated section 3(g). Therefore, the 
Basic Provisions now address, in part, the computation of the approved 
yield. No change has been made in response to this comment.
    Comment: A commenter stated yield edit procedures are already in 
place to contain and identify certain yields, and asked why it is 
necessary to add proposed section 3(e). The commenter stated a unit 
could contain more than one APH database, and asked how the 
determination in proposed section 3(e) would be made in this case.
    Response: The producer must be notified that the approved yield may 
be adjusted, the reasons for such adjustment, and the manner of such 
adjustment. Since the yield edit procedures are not a part of the 
policy, they do not provide adequate notice. The provisions in 
redesignated section 3(g) have been revised to specify that 
determinations are made on a database basis.
    Comment: Some commenters recommended defining or explaining what an 
``inconsistent yield'' is as used in proposed section 3(e)(1) because 
the phrase will be subject to multiple interpretations. One of these 
commenters thought using the term ``materially inconsistent'' would be 
more appropriate because it would not be beneficial to make small 
changes. Commenters recommended defining or explaining what a 
``surrounding farm'' is. The commenters asked how big or small of an 
area make up the ``surrounding farms'' and if the area is measured in 
distance. A commenter suggested replacing ``approved yield'' with 
``actual yield per acre for each crop year reported.'' Another 
commenter thought ``approved yield'' should be replaced with ``average 
yield.''
    Response: FCIC agrees that the proposed provisions may be too broad 
and difficult to administer. FCIC has eliminated references to 
``inconsistent yield,'' and ``surrounding farm'' and has revised the 
provisions in redesignated section 3(g)(1) to state that approved 
yields will be adjusted by substituting assigned yields when individual 
crop year yields are excessive and the producer does not have 
verifiable records to support the yield. FCIC has also added provisions 
to handle situations where the producer provides verifiable records but 
the yield may be significantly different from other yields in the 
county or his other databases and there is no explanation for the 
difference.
    Comment: A commenter stated the language proposed in proposed 
section 3(e)(1) infers those involved in crop insurance, particularly 
FCIC, can more accurately determine actual yields using averages in the 
area than the insured who personally harvested the crop. The commenter 
disagrees with that notion.
    Response: FCIC does not presume to be able to determine actual 
yields more accurately than the producer. However, since yields are 
certified, some may not reflect the actual production. FCIC has revised 
redesignated section 3(g)(1) to use specific criteria to determine when 
differences in yields are sufficient to require adjustment. In 
addition, provisions have been added that allow the producer to avoid 
an adjustment of an approved yield by providing verifiable records of 
production and an explanation of yield differences.
    Comment: A few commenters stated the Federal Register explanation 
of the changes in proposed section 3(e)(1) ``* * * Given the ease in 
which production can be shifted to create losses or to increase 
approved yields, the policy must provide a mechanism to allow 
correction when the surrounding yields show the reported yields are not 
accurate * * *'' appears to contradict the proposed language in 
proposed section 3(d) which only requires hard copy records ``for the 
loss unit.''
    Response: Changes proposed in proposed section 3(d) have not been 
retained in this final rule. However, the proposed requirement to 
provide records was limited to the loss unit to decrease the 
administrative burden on the insurance provider and policyholder. 
Section 508(g)(2) of the Act requires that the producer have 
satisfactory evidence of the yields in the database or receive an 
assigned yield. Therefore, the producer must still maintain the records 
even if they are not requested or there is no loss. As revised in 
redesignated section 3(g)(1), in certain circumstances, such records 
can now be used to avoid the application of the adjustment to the 
approved yield. However, the producer must still explain any 
discrepancies from other yields. This should address situations where 
production may have been shifted.
    Several additional comments were received regarding proposed 
section 3(e)(1). The comments are as follows:
    Comment: A commenter stated proposed section 3(e)(1) is not clear 
as to where the responsibility lies to obtain yields from ``surrounding 
farms,'' and that insurance providers are not generally authorized to 
compel this type of information from neighboring farmers. Some 
commenters stated it is unclear how policyholders will be able to 
provide ``evidence'' from surrounding farms that are not part of their 
operations. A commenter stated it is unclear how anyone will know if 
surrounding farms have similar characteristics and farming practices.
    Response: The provisions regarding surrounding farms have been 
removed and FCIC will now determine whether yields are excessive based 
on procedures.
    Comment: Some commenters stated the provisions do not specify what 
acceptable explanations for inconsistency would be nor does it consider 
in which direction (higher or lower) the inconsistency exists. These 
commenters pointed out that soil type, rainfall, wind, heat, etc., can 
affect the yield of one farm, as compared to another just across the 
road. A few commenters asked if a unit with low yields in its history 
due to losses could have a yield increased due to surrounding yields, 
or if non-loss units would be revised to the same yield level as units 
with losses or just lower yielding units. Some commenters stated, as 
written, the parenthetical sentence ``(The inconsistent yield will be 
revised * * *)'' indicates yields will be changed even if satisfactory 
evidence is provided to support the yield. A commenter asked if it was 
the intent to revise yields that are deemed inconsistent, even though 
production records are provided that substantiate the inconsistent 
yield.
    Response: The provision has been revised to indicate that only 
verifiable records can be used to explain inconsistencies and where 
such records have been provided yield adjustments will not be 
applicable unless there is no reason for the discrepancy. The revised 
yield adjustment provisions are not dependent on whether the unit 
suffered a loss. If the criteria are met, the adjustment will apply.
    Comment: A commenter stated the phrase ``similar characteristics'' 
is subject to various interpretations and should be explained.
    Response: The reference to ``similar characteristics'' has been 
removed from this section.

[[Page 48682]]

    Several additional comments were received regarding proposed 
section 3(e)(2). The comments are as follows:
    Comment: Some commenters stated they understood the goal of 
preventing inflation of a producer's APH yield, but thought provisions 
in proposed section 3(e)(2) that do not allow yields to be based on 
acreage under 25 percent of the current acreage would create problems. 
The commenters stated changes in market prices, farm program acreage 
restrictions and production technology would result in many legitimate 
situations in which the 25 percent level would be reached. The 
commenters recommended making the threshold percentage less than 25 
percent to limit harm to producers who have changed cropping patterns 
for the above reasons. Other commenters recommended reducing the 25 
percent threshold to 10 percent.
    Response: There may be cases where a 400 percent increase in size 
is legitimate. However, the purpose for using APH is to obtain a yield 
that is reflective of the actual production capability of the unit. 
FCIC has evidence that 400 percent or more increases in size have been 
used to create yields that do not represent the yield potential for the 
unit for the express purpose of creating losses. FCIC selected this 
threshold, and included the requirement that the yield would exceed 115 
percent of the other similar units, to limit the application of the 
approved yield reduction to those instances where the evidence shows 
the yields are not reflective of the potential production for the unit. 
To increase the threshold to 1000 percent, as recommended, would defeat 
the purpose of this provision because it would allow instances where 
FCIC has established that such increases have been used for improper 
purposes. No change has been made to redesignated section 3(g)(2) in 
response to this comment.
    Comment: Some commenters stated proposed section 3(e)(2) should 
reference average acres in the database or field rather than acres in 
the unit, and that the proposed language may not provide the desired 
results. The commenters recommended more direct language that would 
simply state that establishing high yields on small acreages that are 
then applied to large acreages is prohibited. Some commenters stated 
there is no indication of how yields would be revised, and, even though 
the details may belong in procedure rather than the policy, it is very 
difficult to comment when it is not known what effect the specific 
procedures will have on insurance providers and insured producers. A 
commenter stated proposed section 3(e)(2) places a burden on the 
insurance provider, after the APH is approved, to compare planted acres 
reported on the acreage report to the average acres in the APH. The 
commenter asked if they are comparing current acreage within the unit 
to the average acres within the APH for the unit, or if the comparison 
is done by APH database when multiple databases exist for a unit.
    Response: There may be a small burden added to insurance providers. 
However, not all databases will have to be reviewed. FCIC's procedures 
will establish the criteria for reviewing such databases. FCIC has 
revised this provision to state that it applies on a database basis. 
However, since every circumstance cannot be included in the policy, 
FCIC approved procedure will provide direction for situations in which 
there is more than one database involved. Further, FCIC has added 
provisions stating how the approved yield will be adjusted. The 
recommended change cannot be adopted because it fails to specify what 
constitutes small and large acreages.
    Comment: A commenter suggested replacing the phrase ``25 percent of 
the current acreage in the unit'' with ``25 percent of the current 
available cropland in the unit'' in proposed section 3(e)(2). The 
commenter stated this would prevent someone from building a yield 
database on a unit with substantially more available cropland that 
could use the yield established on the small amount of acreage on the 
entire unit, and that using cropland acres would be consistent with 
current added land procedure.
    Response: Producers do not report cropland acres and to make the 
recommended change would require additional reporting that would be 
meaningless because cropland has never been reported in the past, nor 
is it used to calculate approved yields. Since yield differences are 
also a factor, the current acreage must be compared to the acreage on 
which the APH yield was established and the current acreage will be 
available on the acreage report and the acreage on which the APH was 
established should be readily available to insurance providers from 
their APH databases. No change has been made.
    Comment: A commenter was concerned the 25 percent threshold in 
proposed section 3(e)(2) would be triggered too often when insureds who 
reported past production as basic units decide to break out into 
optional units. The commenter stated producers would have difficulty 
meeting the 25 percent requirement when breaking a basic unit into more 
than four optional units.
    Response: Approved yield reductions only apply when producers 
increase their acreage. Since optional units are usually smaller than 
the basic units from which they are derived, it is unlikely the 
provisions regarding reduction in approved yields would apply. This 
comment suggests there may be confusion regarding whether the 25 
percent refers to an increase or decrease in acreage. Therefore, FCIC 
has revised the provision in redesignated section 3(g)(2) to clarify 
that yield reductions only apply when current year's acreage is more 
than 400 percent of the average acreage in the database.
    Comment: Some commenters stated language in proposed section 
3(e)(2) requires yield revision, regardless of the reason for an 
acreage increase, and makes no distinction between the ``average number 
of acres'' for a database with one or two years of actual history and a 
database with five to ten years of history. The commenters asked if 
this rule should apply to perennial crops where trees/vines must reach 
a certain age before they are considered insurable, and if this 
revision changes the current ``added land'' procedures for category B 
crops.
    Response: The yield reduction can apply any time the producer has 
actual yields in the database. FCIC has not made any distinction based 
on the number of years because the purpose of this provision is to 
prevent producers from using small amounts of acreage to create 
artificially high yields and applying them to large acreages where such 
yield would not reflect the yield potential. This practice can happen 
regardless of the number of years in the database. Actual yields are 
only necessary to determine whether any increase existed that would 
meet the stated criteria for reduction. This provision applies to all 
crops. However, based on how perennial crops are produced, it is 
unlikely that the situation will ever arise where these yield reduction 
provisions are applicable. All applicable procedures will be revised to 
be consistent with this rule.
    Comment: A commenter stated reducing the threshold from 50 percent 
(the percentage currently used in added land procedures) to 25 percent 
as specified in proposed section 3(e)(2) will result in increased loss 
adjustment expenses.
    Response: Revisions to approved yields for acreage exceeding the 
revised 400 percent limitation in redesignated section 3(g)(2) should 
be made by insurance provider underwriters, not by

[[Page 48683]]

adjusters when working claims. The information needed to determine 
whether an approved yield adjustment is necessary will be available by 
the acreage report date and any adjustment should be reflected on any 
summary of coverage. Therefore, this provision should not result in 
increased loss adjustment expenses. Further, the 50 percent threshold 
in the added land procedures has been removed effective for the 2004 
crop year. However, applicable procedures will be revised to be 
consistent with this rule.
    Comment: A commenter recommended considering acres in each 
individual year compared to the current years' acres in determining the 
use of such year in the calculation of the approved yield rather than 
looking at the average number of acres.
    Response: The use of individual years would add an unnecessary 
complexity because of the variance between crop years and the 
determination of how each individual year would be evaluated. The 
average number of acres used to calculate the approved yield is easily 
understood and is a credible method to use for this purpose. No change 
has been made.
    Comment: Some commenters stated the language in proposed section 
3(e)(2) is very unclear, and there is no practical way for insurance 
providers to implement the provisions. Other commenters stated the 
proposed language is unworkable and unnecessary.
    Response: FCIC has revised the provisions to improve clarity and 
the ease of implementation.
    Comment: A commenter asked whether proposed section 3(e)(2) 
eliminated the need to perform silage appraisals on corn insured as 
grain but harvested as silage. Another commenter asked if they could or 
could not use a corn silage appraisal on 81 percent of the acres for 
APH purposes, if the appraisal and the yield on the remaining acres 
result in no loss.
    Response: Proposed section 3(e)(2) does not eliminate the need to 
perform silage appraisals on corn insured as grain but harvested as 
silage. The purpose of this provision was to prevent producers who did 
not have a loss from leaving high yielding acreage in a field for 
appraisals and destroying or putting the lower yielding acreage to 
another use in order to artificially inflate their actual yields. FCIC 
has revised the provision to state that appraisals obtained from only a 
portion of the acreage in the field that remains unharvested after the 
remainder of the crop within a field has been destroyed or put to 
another use will not be used to establish the actual yield unless 
representative samples are required to be left in accordance with the 
Crop Provisions. The provision has also been moved to redesignated 
section 3(e)(4) because it is more related to the other provisions 
establishing yields, not adjusting them.
    Many comments were received regarding the sanctions provisions in 
proposed section 3(e)(3). The comments received are as follows:
    Comment: Some commenters stated the example in proposed section 
3(e)(3) is confusing and asked if it is intended to address what may or 
may not be considered ``good farming practices.'' The commenters 
suggested revision to avoid confusion with insurable practices listed 
in the actuarial documents. Another commenter stated the example is 
confusing because there is no ``partial irrigated practice,'' and an 
insured crop is either irrigated or non-irrigated. An additional 
commenter asked what practice this would be called, irrigated or non-
irrigated, and if the yield would be raised. The commenter stated that 
during a season and between crop years are different issues (a new 
database could be developed for the next year to reflect the different 
practice).
    Response: FCIC agrees with the comments and has clarified the 
provisions in redesignated section 3(g) to indicate adjustments will be 
made when the approved yield is based upon cultural practices that are 
different than the cultural practice that will be carried out for the 
crop year. This provision is intended to address any change in practice 
that may affect the yield, even if both practices are considered good 
farming practices. The revised provisions require the producer to 
notify the insurance provider prior to the acreage reporting date if a 
cultural practice will be performed that will reduce the insured crop's 
production from previous levels. The example has been revised to 
clarify that the practice remains non-irrigated but the actions of the 
producer are different under that practice, which could affect the 
yield. Databases are established by practice, not the specific actions 
that comprise that practice. Therefore, it may not be possible to 
develop a new database for subsequent years.
    Comment: A commenter stated proposed section 3(e)(3) suggests that 
an insured's ability to change farming practices during the growing 
season is unrestricted. Because changing the farming practice may 
require a revision to the acreage report, this section should, at a 
minimum, advise the insured that other policy provisions or procedures 
may affect the insured's ability to change practices. Another commenter 
asked in the event of a claim and acreage reported as irrigated that 
has not been watered, if the practice would be changed or if it would 
remain as irrigated with an appraisal for an uninsured cause of loss.
    Response: FCIC has clarified the example to those situations where 
the cultural practices within a farming practice have changed, not the 
farming practice itself. If the farming practice has changed, different 
databases should be established or if the producer fails to carry out 
the good farming practice, appraisals for uninsured causes of loss must 
be made. Therefore, the ability to change farming practices is not 
unrestricted.
    Comment: A few commenters recommended revising proposed section 
3(h) to allow producers to elect two different levels of additional 
coverage for non-high risk and high risk acreage. The commenters 
claimed producers want to buy additional coverage on their high-risk 
ground, but it is not affordable at the level of coverage they have for 
their non-high risk ground. They also stated if high-risk rates are 
accurate, there is no reason a producer should not have a higher level 
than CAT or a different insurance plan. Current provisions discriminate 
against the farmer who farms both non-high risk and high risk ground 
versus the farmer who farms only high risk ground or only non-high risk 
ground. Current provisions force producers with high risk acreage to 
accept insurance insufficient to protect the income at adequate levels 
or pay astronomically high premiums. They state that current 
restrictive provisions prevent producers from using subsidy levels and 
other benefits provided by the legislature to the maximum extent 
possible. They also claim that current provisions force the producer to 
make the difficult choice between excluding the high risk ground from 
insurance or having coverage too low (CAT), reducing coverage on all 
acres to make the premium affordable, or paying an extremely high 
premium to maintain a high coverage level/plan of insurance on all 
acres. The commenters provided the following data for Hamilton County, 
Illinois, to show the prices being paid for the various levels of CRC 
coverage in 2002 based on a 120-bushel corn APH and a 45-bushel soybean 
APH. ``Farmer 1'' has all non-high risk land and elects 75 percent 
coverage with the following coverage and costs per acre:

[[Page 48684]]



------------------------------------------------------------------------
                       Crop                          Coverage     Cost
------------------------------------------------------------------------
Corn..............................................    $208.80     $13.30
Soybeans..........................................     152.10       8.20
------------------------------------------------------------------------

    ``Farmer 2'' has only high-risk ground, lowers coverage to 60 
percent to keep insurance affordable and has the following coverage/
costs.

------------------------------------------------------------------------
                                            Coverage Rating/Cost Rating/
                   Crop                                 Cost
------------------------------------------------------------------------
Corn......................................  $167.00 AAA/$8.70 BBB /
                                             $16.40
Soybeans..................................  $121.50 AAA/$5.90 BBB/$11.60
------------------------------------------------------------------------

    ``Farmer 3'' has both high risk ground and non-high-risk ground, 
insures at 75 percent and has the following coverage/costs:

------------------------------------------------------------------------
                                            Coverage Rating/Cost Rating/
                   Crop                                 Cost
------------------------------------------------------------------------
Corn......................................  $208.80 AAA/$23.80 BBB/
                                             $44.50
Soybeans..................................  $152.10 AAA/$16.20 BBB/
                                             $31.50
------------------------------------------------------------------------

    The commenters further stated, if ``farmer 3'' who has both non-
high risk and high risk land chooses to exclude the high risk ground 
and carry only CAT on it, the high risk CAT coverage is only $66/an 
acre on corn and only $61.87/an acre on soybeans, and furthermore, he/
she would lose replant coverage, choice of optional units, and the 
ability to collect both crop insurance indemnity payments and disaster 
program payments in the event of a disaster bill. The commenters 
recommended using the following language to make this revision:
    ``(h) You must obtain the same level of coverage (catastrophic risk 
protection or additional) for all acreage of the crop in the county 
unless one of the following applies:
    * * *
    (2) If you have additional coverage for the crop in the county and 
the acreage has been designated as ``high-risk'' by FCIC, you would be 
able to obtain a High-Risk Land Exclusion Option for the high-risk land 
under the additional coverage policy and insure the high-risk acreage 
under a separate policy at a level of coverage and/or plan of insurance 
less than that obtained on the other acreage, provided that the high-
risk policy is obtained from the same insurance provider from which the 
additional coverage on the other acreage was obtained.''
    Response: Since no changes to this paragraph were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made as a result of this comment.
    Comment: A commenter suggested changing the word ``comparable'' to 
``equivalent'' and deleting the phrase ``as established by FCIC.'' A 
few commenters stated it will be beneficial to add the clarification in 
proposed section 3(i) that at least 65/100 coverage is required to 
exclude hail/fire. Some of the commenters recommended adding language 
indicating that equivalent hail/fire liability can be obtained with a 
hail/fire policy (as in the Crop Insurance Handbook, section 4E(3) & 
(3)(c)). A commenter stated the phrase ``A comparable coverage as 
established by FCIC'' is ambiguous because it provides neither the 
producer nor the insurance provider a definitive standard for 
determining when this ostensible contract alternative may be utilized. 
The commenter asked if the phrase ``comparable coverage'' refers to 
alternative plans of insurance or whether FCIC intends to review each 
hail and fire exclusion. The commenter recommended the phrase either be 
clarified or omitted.
    Response: Since section 508(c)(7) of the Act refers to 
``equivalent,'' redesignated section 3(i) has been revised accordingly. 
However, the reference to ``as established by FCIC'' was added to be in 
compliance with the Act and only refers to the determination of whether 
the producer selected a coverage level that is equivalent to 65/100 for 
its multiple peril crop insurance policy. FCIC has also added a 
provision to redesignated section 3(i) to specify that to be eligible 
for the exclusion, the producer needs to have purchased the same or a 
higher dollar amount of coverage for hail and fire from another source 
in conformance with the Act. The insurance provider must determine 
whether the producer has met this requirement based on the amount of 
coverage privately purchased.
    Comment: Commenters stated RMA might consider if proposed section 
3(j) belongs in section 3 since it deals with who may sign crop 
insurance documents for the insured entity, which affects more than 
just level/price and APH documents. The commenters thought it might be 
better located in the definition of ``Person'' or possibly in a 
separate section of its own. One commenter suggested revising the 
provision to read, ``* * * on behalf of you, provided that the person 
has a properly executed power of attorney or such other legally 
sufficient document authorizing the person to sign and act on behalf of 
you. We may request a copy of the power of attorney or legally 
sufficient document.''
    Response: In response to this and other comments, FCIC has moved 
proposed section 3(j) to section 2 since this section contains 
provisions relating to the manner in which application is made.

Contract Changes--Section 4

    Comment: A few commenters stated the phrase ``local insurance 
provider'' should be defined if it is used in section 4. Another 
commenter does not believe the word ``local'' is necessary and pointed 
out the agent may be in another state.
    Response: FCIC agrees the term ``local crop insurance provider'' 
should not be used and has revised the provisions to indicate all 
changes will be available upon request from the producer's crop 
insurance agent.
    Comment: A few comments were received regarding language in section 
4(b) that indicates changes will be posted on RMA's Web site or filed 
with the Office of the Federal Register. A commenter stated that the 
language proposed infers that FCIC considers the posting of a change on 
RMA's Web site or the filing of a change with the Office of the Federal 
Register to be sufficient to effectuate a change to the Basic 
Provisions, which is incorrect. The commenter added that because the 
Basic Provisions is a substantive rule promulgated in accordance with 
the Administrative Procedure Act (APA), changes to the Basic Provisions 
also must be effected in accordance with the APA. The commenter 
believes posting a contract change on RMA's Web site, even if prior to 
the contract change date, is legally inadequate and will not change the 
Basic Provisions. The commenter stated that similarly, filing a change 
with ``the Office of the Federal Register not later than the contract 
change date'' also is legally insufficient to change the policy. At a 
minimum, any change to the Basic Provisions must be published in the 
Federal Register not later than the contract change date. The commenter 
recommended that FCIC amend the rule accordingly. A commenter stated 
they did not object to the posting on RMA's Web site of changes not 
later than the contract change date contained in the Crop Provisions. 
They do believe, however, that it is inappropriate to suggest that a 
change is sufficient and timely made if simply filed with the Office of 
the Federal Register on the contract change date. The commenter stated 
the Office of the Federal Register has specific rules determining when 
filings are available

[[Page 48685]]

for public inspection, and to avoid any legal controversy, either this 
portion of the first sentence of subsection (b) should be eliminated or 
should be revised to read ``or available for public inspection at the 
Office of the Federal Register'' (then continuing with the sentence as 
written).
    Response: Nothing in section 4(b) is intended to supplant the APA 
or change the legal requirements for when a rule is effective. Those 
provisions stating that policy changes will be posted on the RMA Web 
site or from agents are simply intended to provide alternative methods 
for producers to access the changes on the contract change date so the 
producer can select one that best meets the needs of the particular 
producer. To avoid confusion regarding the effective date of the 
changes, the reference to the Federal Register has been removed. It is 
the responsibility of FCIC to ensure that policy changes are made in 
accordance with the APA.
    Comment: A commenter states that section 4(b) strongly suggests the 
contract of insurance is between FCIC and the producer, which it is 
not. They believe the existing provision is preferable, although the 
following could be inserted without harm: ``Policy provisions may also 
be viewed on the RMA Web site at http://www.rma.usda.gov or a successor 
Web site. * * *'' They recommended the first sentence begin with ``All 
policy provisions, amounts of insurance and other information referred 
to in this section also will be available * * *'' They stated that 
alternatively, the insurance provider apparently can fulfill its 
obligations with respect to publication of contract changes by making 
available to producers computer equipment with internet access, and 
asked if that is the proposal's intent. Another commenter asked if the 
reference to the Web site in section 4(b) is intended to relieve the 
insurance provider from having to provide notification of changes. They 
stated if it is not, it should be deleted. The commenter also 
questioned the purpose for posting on the Web site.
    Response: The ``agreement to insure'' provision contained in the 
policy clearly specifies the contract of insurance is between the 
insurance provider and the producer. FCIC has revised the provision to 
specify that the changes are available for viewing on the RMA Web site. 
Section 4(b) specifies the information that must be available by the 
contract change date and the location of such information. This section 
does not relieve the insurance provider of the responsibility to 
provide written notice to policyholders of contract changes. Such 
notification is still required by section 4(c). The purpose of 
providing the Web site to producers is to provide an alternative way 
for policyholders to obtain information.
    A few comments were received regarding the last sentence in section 
4(b). The comments are as follows:
    Comment: A few commenters stated it is unclear what exactly needs 
to be available at the agent's office. A commenter prefers retaining 
the current policy language in section 4(b) regarding making the 
information available from the agent instead of the insurance provider. 
The commenter believes most insureds have easier access to their 
agent's office than their crop insurance provider.
    Response: As stated above, changes are made to the policy through 
the rulemaking process, not through the agent. To eliminate the 
confusion regarding when the contract changes must be made available, 
FCIC has deleted the reference to agents in section 4(b) and added it 
to section 4(c). This separation was needed to clarify that the 
contract changes must be on the Web site by the contract change date 
but agents do not need to make the information available until after 
the contract change date. This provides a location for producers to get 
a hard copy of the changes if they want them prior to 30 days before 
the cancellation date and they do not have access to the Internet. 
Further, FCIC agrees that use of the term ``local insurance provider'' 
is not correct since most producers will get the information from their 
agent and has changed the provision accordingly. The new provision in 
section 4(c) has also been revised to indicate that agents must make 
available all of the changes referenced in section 4(b).
    Comment: A commenter stated that FCIC, not the insurance providers 
nor their agents, has the duty of notifying the public of changes to 
the insurance policy. For this reason, FCIC should revise the final 
sentence of the section 4(b) to read as follows: ``This information may 
be available to you from your local crop insurance agent.''
    Response: The purpose of the requirement that agents make policy 
changes available is not to provide notice to the public of such 
changes. The purpose is to provide an alternative source of information 
for such changes for those producers who do not have access to the RMA 
Web site or the Federal Register. Therefore, agents must have the 
changes in their offices. However, as stated above, the provision has 
been moved to section 4(c) and clarified that the changes will be 
available from the agent after the contract change date.
    Comment: A commenter stated the added last sentence implies that 
crop insurance agents will make their computers available to insureds 
for searching the RMA Web site.
    Response: The reference to the RMA Web site only provides a site 
where the changes can be found. FCIC has revised section 4(b) to remove 
the reference to the agent to avoid any perception that the agents' 
computers are to be made available to access the Web site.
    Comment: A few commenters suggested the last sentence be deleted. 
One of the commenters wanted it deleted in view of the requirements in 
section 4(c). Some of the commenters stated if the sentence is not 
deleted they suggested changing ``will be available to you'' to ``may 
be requested.'' Some of the commenters stated the phrase ``insurance 
provider'' is used whereas ``insurance company'' is used in other 
places in the policy. A commenter asked what the purpose of the last 
sentence is, and if it is contradictory with the earlier information 
regarding Web site posting.
    Response: As stated above, FCIC has moved this sentence to section 
4(c). The requirement is not contradictory because it only provides an 
alternative location for the information. FCIC has also revised the 
provision to specify the information will be available upon request.
    Comment: A commenter believes the language in section 4(b) that no 
longer requires policy changes to be available in the agent's office 
does not appear to meet the needs of limited resource farmers who may 
not have access to the internet.
    Response: FCIC agrees that policy changes should be available in 
the agent's office and has revised the provisions accordingly.
    A few comments were received regarding section 4(c). The comments 
received are as follows:
    Comment: A few commenters stated it is unclear what constitutes 
notification. A commenter stated that since RMA does not provide 
insurance providers with a summary of changes to the Special 
Provisions, how does RMA expect insurance providers to provide a 
summary of changes to policyholders. The commenter further stated this 
subsection seems inconsistent with (b) above. They asked what RMA's 
overall intent is for this issue. They asked whether it is the 
insurance provider's burden to notify of changes, or the policyholder's 
burden to check the Web site. The commenter stated that in the past, 
RMA has taken the position for its direct policies that once it was

[[Page 48686]]

published in the Federal Register, the burden was on the policyholder. 
They asked if that is still the position of RMA.
    Response: The provision has been revised to clarify that 
notification means the insurance provider must provide the insured with 
a copy of the changes to the Basic Provisions and Crop Provisions and a 
copy of the Special Provisions because this document may change every 
year and FCIC agrees that insurance providers should not be required to 
have to compare the previous and current year's Special Provisions to 
determine what, if any, changes were made. Therefore, a summary of 
changes is provided to insurance providers and others at the time 
actuarial documents are released. Section 4(c) is not inconsistent with 
the provisions of section 4(b). Section 4(b) is intended to provide a 
location where changes can be found by the contract change date. 
However, many producers do not have access to this information so 
section 4(c) requires insurance providers to provide actual notice of 
the policy changes. Section 4(c) imposes the burden on the insurance 
provider to provide the required information. However, nothing in this 
provision changes the legal principle that once the policy is published 
in the Federal Register, producers are presumed to know what is in the 
policy and can be held responsible for such knowledge regardless of 
whether they actually received a copy of the policy from the insurance 
provider.
    Comment: A few commenters stated it may help to clarify the 
reference is to ``* * * the cancellation date preceding the effective 
crop year for the insured crop * * *'' in section 4(c).
    Response: The definition of ``cancellation date'' refers to the 
date by which the policy renews for the next crop year. Further, by its 
very nature, the policy changes must be made before insurance attaches 
(except for prevented planting). Therefore, the producer knows that the 
cancellation date must precede the next year's insurance. No changes 
have been made.

Eliminating the Liberalization Provisions--Section 5

    A few comments were received regarding deletion of the current 
liberalization provision. The comments are as follows:
    Comment: A commenter stated that FCIC proposed to delete the 
provisions contained in section 5, but did not explain its reasons for 
doing so. The commenter stated that because the removal of the 
provisions contained in section 5 is a material change to the Basic 
Provisions, FCIC's failure to provide an explanation precludes them and 
the public from commenting on said deletion and therefore constitutes a 
violation of the APA. Accordingly, they request that FCIC explain the 
basis for deleting this provision and they reserve the right to file 
comments at a later date.
    Response: The Background section of the proposed rule did state why 
section 5 was being deleted. The Federal Register 67 FR 58917 under 
section 5 states, ``Delete the liberalization provisions because they 
conflict with the preamble to the Basic Provisions.'' Therefore, the 
public was provided the opportunity to comment on the proposed change 
and the reason for it and comments were received. No additional 
comments will be entertained on this issue prior to the finalization of 
this provision.
    Comment: A few commenters recommended the liberalization provision 
in the current provisions be retained. One of the commenters suggested 
a legal opinion on the issue. They stated that according to the Federal 
Register explanation, this was deleted because it conflicted with the 
preamble (opening paragraph) of the Basic Provisions, and they question 
if this is really a conflict as long as the policy provisions include 
such a liberalization clause. Another commenter stated this provides 
policyholder protection in the event liberalization occurs. One of the 
commenters stated that the preamble is errant since the policy can be 
revised by written agreement, and added that liberalization allows for 
some authorized flexibility.
    Response: The preamble stated that the policy could not be waived 
or varied in any way by any person. Section 5 stated that coverage 
could be broadened, which constitutes a variation of policy terms. 
Therefore, a conflict existed. FCIC agrees that the policy can be 
modified by written agreement and has revised the policy preamble 
accordingly. However, the liberalization provisions cannot be retained 
because they are difficult to administer, add a level of uncertainty, 
and could result in disparate treatment of producers. Further, many 
requests were received after losses had occurred and it was very 
difficult to determine the affect such change would have on premium. 
Changes made after losses had occurred also subjected FCIC to 
significant litigative risk.
    Comment: A commenter agreed with deletion of the current 
liberalization provision. They believe the presence of the language 
which FCIC proposes to delete is simply an invitation to litigation. 
The commenter stated that such a provision, moreover, can be 
misinterpreted as providing a rationale for introducing actuarially 
unsound changes in coverage.
    Response: FCIC agrees with the comment and no change has been made.

Revisions to Acreage Reports and Misreporting of Information--Section 
6:

    A few comments were received regarding section 6(d). The comments 
received are as follows:
    Comment: A commenter believes the current language in section 6(d) 
appears to adequately cover both planted and prevented planting acreage 
revisions. Therefore, they question whether the added language 
regarding prevented planting acreage is necessary. A few commenters 
stated there already is a final acreage reporting date in each county 
actuarial, and recommended that the provisions continue to allow 
revisions up until that date, rather than as proposed in section 6(d).
    Response: The proposed revision is necessary to prevent situations 
in which producers revise their acreage report to try to claim a 
different planting intention in order to receive a higher benefit. This 
change is necessary to protect program integrity by preventing abuse.
    Comment: A commenter stated the rule should give examples of the 
types of circumstances under which consent, as specified in proposed 
section 6(d), may be given. They believe one such circumstance might 
well be when government errors are discovered.
    Response: FCIC has revised the provision to add criteria upon which 
consent can be given to revise an acreage report and to restructure it 
for readability.
    Comment: A commenter stated the provisions in section 6(d) address 
reporting of planted acreage and revising prevented planting acres but 
leave out what happens if prevented planting acres fail to be reported. 
They believe the proposed language could give the impression that if 
the insured failed to report prevented planting acres, they could be 
added after the acreage report deadline. They suggested the words ``or 
fail to report any prevented planting acreage'' be added in the first 
sentence after the words ``for any planted acreage * * *''
    Response: The recommended change could not be made because it would 
suggest the prevented planting acreage could be added after the acreage 
reporting date with the insurance providers consent. FCIC has added a 
provision to clarify that if a producer fails to report any prevented 
planting acreage on the acreage report, it cannot

[[Page 48687]]

be added later. Producers should know all prevented planting acreage by 
the final planting date or after the late planting period, as 
applicable. Acreage acquired after such dates would not be insurable as 
prevented planting because a cause of loss would already have occurred 
before the acreage was acquired.
    Comment: The commenter stated that acreage can be revised with an 
insurance provider's consent provided it meets certain appraisal 
requirements and that policyholders who under-report acreage can 
request to add these acres to their policy with no additional expense 
to them. They added that the insurance provider then incurs the expense 
of inspection and if the acres do not make the appraisal guarantee, 
acres are not increased. The commenter stated that insureds are not 
charged for failure to report acres correctly and the insurance 
provider incurs expense for the errors of the insured. They propose 
charging insureds a fee when insureds fail to report acres and request 
inspection by the insurance provider. They believe the fee could be 
based on a flat charge per unit, number of acres, actual expense to 
inspect or a combination thereof.
    Response: There is no authority in the Act to impose other fees in 
addition to the administrative fee. Further, the SRA precludes 
insurance providers from imposing fees unless such fees are authorized 
by the Act and approved by FCIC. No changes have been made.
    Many comments were received regarding changes proposed in section 
6(f). The comments received are as follows:
    Comment: Most of the commenters stated the proposed penalties are 
much too harsh, will cause undue hardship for those making reasonable 
or inadvertent errors, and that the current, time tested, provisions 
should be retained. A commenter stated the proposed revisions to 
section 6, like those to section 3, reflect FCIC's belief that every 
error is malum in se. They stated given FCIC's world view, it is not 
surprising that its proposals, particularly the penalties for the 
misreporting of acreage, are Draconian. Other commenters requested 
consideration of an approach other than the proposed ``all or 
nothing.'' Several of the commenters stated the current provisions are 
more consistent with other forms of insurance in the way they deal with 
unintentional errors. Another commenter stated the current provisions 
were too harsh in some circumstances. Some of the commenters stated 
penalties should be targeted toward willful and intentional 
misstatements, not inadvertent mistakes. A commenter stated discretion 
must be given to the circumstances of misreported information and 
suggested a graduated penalty matrix and claim denial waiver ability 
for misreported acreage resulting in a liability exceeding the 
established tolerances. A commenter was hopeful there is still a human 
side to our society today where a mistake is still possible. The 
commenter stated FSA corrects mistakes made, but the proposed rule 
allows no tolerance for crop insurance mistakes.
    Response: The purpose of the provision is not to punish but to 
provide an incentive for producers to take such actions as are 
necessary to ensure that information is properly reported. FCIC has an 
obligation to taxpayers to ensure that program funds are properly 
spent. FCIC has also added provisions that allow the correction of 
information in certain circumstances and the incorrect information will 
not be considered as misreported in such cases. The new provisions now 
take into consideration the severity of the misreporting and should not 
impact those making small, inadvertent errors. Further, FCIC has 
revised the provision to clarify that producers will be required to 
repay any overpaid amounts that result from the correction of 
misreported information to be consistent with other provisions in the 
policy that require the repayment of such amounts.
    Comment: Most commenters stated the 5 percent tolerance is 
unrealistic, intolerable and there is no reason to deny claims when 
information provided on the acreage report exceeds the proposed 5 
percent tolerance. They stated the current provisions should be used 
because they prohibit liability increases after the reporting date 
(without insurance provider approval) and, in nearly all cases, if an 
insured misreports acreage, it almost always results in a disadvantage 
for the insured, because if over-reported, premium is paid on unplanted 
acreage, and if under-reported, the guarantee is reduced and the claim 
is paid on the lesser of acres reported or acres determined. Some of 
the commenters stated that if tolerances remained, the insured should 
be responsible for only a modest administrative fee and not the full 
premium.
    Response: FCIC has revised the provisions to increase the tolerance 
to 10 percent, removed the provisions disallowing the payment of a 
claim while still requiring payment of the premium, and added 
provisions that require claims be reduced by an amount commensurate 
with the misreporting in excess of the 10 percent tolerance. For 
example, if a producer reports 100 acres in the unit and there was 
actually 150 acres, any payable claim would be reduced by 23.3 percent 
(100/150 acres = 0.667 and 0.90-0.667 = 23.3 percent reduction). 
Further, the current provisions regarding over-reporting or under-
reporting liability will be retained. Tolerances are a set number. 
However, to determine whether something exceeds the tolerance there 
must be a comparison between the reported and actual information, which 
is what is required in the provisions.
    Comment: A commenter stated the changes in section 6(f) create a 
policy that is strewn with fine print which makes a payable claim 
nearly impossible if not at least unreliable. Several commenters 
pointed out most of the measurements used in agriculture are not 
precise and there is no gold standard. They stated acreage 
measurements, even by Geographic Information System (GIS), do not 
generally measure actual surface area, but assume a flat earth. Several 
commenters stated it is not reasonable to hold farmers accountable for 
measurement errors made by third parties. Some commenters believe FSA 
measurements are poorly constructed with uncorrected photos, worn 
planimeters, or bouncing wheels. They stated in areas of significant 
slope or in case of errant FSA measurements, the proposed rule would 
deny claims. Other commenters asked whose acreage determination will be 
determined to be the ``correct'' one, for example, the insurance 
provider's or FSA's, or others. The commenter recommended this section 
include a discussion of how the ``correct'' acreage is to be determined 
and by whom, for instance Global Positioning System (GPS), FSA, etc. 
The commenters stated producers often report acreage that is recorded 
by ``FSA,'' and FSA acres are many times determined to be inaccurate 
(except that they are used for other farm programs). Other commenters 
stated that under 4-CP, the FSA compliance manual, farmers whose 
acreage or production records exceed the five percent tolerance of 
error are notified of the discrepancy on their acreage or production 
records and an adjustment is made to their records and payments. They 
stated producers who have production records with innocent 
discrepancies are not declared ineligible to receive FSA benefits. Some 
commenters thought it very confusing to farmers if they are allowed to 
correct their records without penalty at the FSA office, but their crop 
insurance information must be error free or they

[[Page 48688]]

will be denied coverage. Some commenters asked if the individual will 
be able to seek recourse against that government agency or if the 
producer will be prohibited from collecting any payments when the error 
was beyond his/her control (i.e. processing error). A commenter stated 
the proposal does not take several issues into consideration such as: 
(a) The degree of the violation; (b) Did the producer measure or employ 
others to measure the acreage; (c) Did the producer rely on photocopies 
or past acreage determinations; and (d) Did the producer control the 
acts contributing to the violation. The commenter believes these types 
of issues are important to consider because they indicate the violation 
or error was not a result of fraud.
    Response: FCIC agrees the policy must provide a reliable means to 
cover losses for producers and the proposed provisions regarding ``no 
insurance'' has been removed. FCIC also understands acreage 
measurements may not be entirely accurate and has added provisions to 
allow for exceptions for those who exceed the new tolerance because 
they relied on FSA measurements. In such cases, the information can now 
be corrected and the reduction in claim for misreporting shall not 
apply. FCIC understands acreage measurements vary depending on the 
method used. FCIC has revised section 6(d) to specify that if there is 
an irreconcilable discrepancy in acreage, the acreage that is 
determined by the insurance provider through an on farm measurement 
will be used. If no on farm measurement by the insurance provider is 
done, the measurement obtained from FSA will be used. FCIC understands 
FSA may have different methods of adjusting errors. However, because 
the various programs have different goals and associated issues, it 
sometimes is necessary to have different consequences for non-
compliance. If the government or the insurance company commits the 
error, the error will be corrected. If a third party commits the error, 
the producer always has legal recourse against such person. However, it 
would add substantial program vulnerability to allow corrections for 
the errors committed by third parties.
    Comment: Other commenters stated the proposed provisions would make 
the product less appealing to producers who do not abuse the program, 
go way overboard, and will drive many producers out of the program. 
Other commenters stated the proposal undermines ARPA and places 
unnecessary burdens on producers that could discourage them from using 
the program. The commenters added agricultural bankers rely on farmers 
obtaining crop insurance to cover a major portion of their production 
risk when approving an operating loan. They stated crop insurance is 
used as a form of collateral and helps ensure community bank's farm 
customers will have the ability to repay their operating loans. They 
believe this is especially true given the current adverse economic 
conditions caused by severe drought impacting roughly 50 percent of the 
nation and increased reliance on crop insurance indemnity payments by 
farmers and their lenders. They stated making the policy so unreliable 
and uncertain will threaten the ability of many producers to obtain 
loans from bankers who would be concerned the collateral they thought 
they had to back up the crop loan may be canceled due to no fault of 
the producer. Some of the commenters asked who pays if the loss was 
supposed to repay a bank loan when the claim is denied due to a 
tolerance issue. They also asked who the banking industry goes after 
and who gets sued. Some of the commenters stated there is no need to 
over-react to prevent fraud and abuse, and that from the information 
available to them, it appears the crop insurance industry is taking 
significant steps to prevent fraud and abuse and cited preventative 
measures being worked on such as data mining and spot checking. Some of 
the commenters also thought the proposal would create a paper work 
nightmare and stated it will not work.
    Response: FCIC agrees the proposed provisions would make the 
program less appealing to those who do not abuse the program and make 
it less reliable for lending institutions. However, the above stated 
revisions should remove the uncertainty and help maintain the 
reliability of the program.
    Comment: A commenter questioned if it is legal to charge premium 
when denying a claim and stated it is likely the provision will be 
challenged. Some commenters stated the provision requiring premium for 
no coverage is illegal and in violation of insurance principles.
    Response: FCIC has removed the consequence of no insurance while 
still requiring the payment of the premium and replaced it with a 
payment reduction commensurate with the misreporting. Since producers 
will still receive coverage, charging the full premium is appropriate.
    Comment: Several commenters recommended FCIC simply adjust the 
acreage and/or yields to reflect the actual conditions when an error is 
made, since the error could be made through no fault of the producer 
and with no intent to defraud. A commenter stated this type of 
allowance would be consistent with other provisions of the proposed 
rule, such as those allowing cancellation of multiple contracts when 
the extra contracts are not the fault of the producer. The commenter 
stated the proposed provision is more restrictive than other types of 
insurance policies such as property or commercial insurance where 
errors are taken into consideration and the amount of the indemnity 
payment is adjusted accordingly, but not completely denied.
    Response: FCIC does not agree that errors should simply be fixed. 
Fraud is not the only issue. Any misreporting can result in increased 
outlays and cause premiums to increase. If no consequences are in place 
for misreporting, there would be no incentive to accurately report 
information and program abuse and costs would increase. However, the 
consequences of misreporting have been revised to take into 
consideration the extent of the error. While other lines of insurance 
may be willing to accept the risk of misreported information, the crop 
insurance program uses taxpayer dollars so there is a heightened duty 
to ensure such dollars are properly paid.
    Comment: A commenter stated the proposed penalties imposed for 
under or over reporting acreage will cause an explosion of lawsuits, 
all of which will be lost. The commenter also stated the proposed 
provision would create unbearable exposure for agents, and the new 
language requires revision of all errors, no matter how small, and will 
create tremendous administrative expense. The commenter stated the 
provision should refer to ``reported liability'' instead of ``corrected 
liability'' to have true tolerance--otherwise there is no tolerance.
    Response: The new provisions now take into consideration the 
severity of the misreporting and should not impact those making small, 
inadvertent errors. In addition, this should significantly reduce the 
litigative risks.
    Comment: A commenter thought some producers seeking to defraud the 
government would deliberately seek to keep their misstatements within 
the 5 percent margin of error, while some unintentional errors may 
deviate from the correct report by more than 5 percent. Some commenters 
stated the proposed language would encourage under-reporting of 
liability within the 5 percent tolerance if it will be corrected at 
loss time. They also stated the proposed rule already includes a 
potentially costly consequence for innocent errors, in that the 
proposal says if the Corporation or insurance

[[Page 48689]]

provider discovers a producer has misreported any information 
(including, presumably, within the 5 percent margin of error) the 
producer may be required to document the producer's acreage in future 
years, including an acreage measurement service at the producer's own 
expense.
    Response: FCIC agrees that producers may try to misreport within 
the tolerances, but this is true for whatever tolerance is set. There 
must be a balancing test between meeting the needs of those producers 
who have inadvertent errors and those who may seek to defraud the 
program. However, even information misreported within tolerance will be 
subject to the under and over-reporting provisions.
    Comment: A commenter asked how claims can be paid at the corrected 
liability (105%) without correcting policy coverage and the associated 
premium.
    Response: The tolerance only determines when an additional 
consequence will apply. Any time there is incorrect information 
reported, the policy coverage should be corrected or limited as 
necessary, and any adjustments necessary must be made.
    Comment: Some commenters stated that in fraudulent situations there 
already exist other punitive measures at RMA's disposal. The commenters 
believe if the proposed provisions are implemented, the producers who 
will be most affected by the proposed tolerances and attendant 
sanctions will be those who simply make inadvertent errors. They stated 
if a tolerance is maintained, they believe it should be more reasonable 
and consider exceptions. They also stated many growers have noted that 
it is often logistically impossible for an acreage measuring service to 
complete its survey of a parcel of land by the specified acreage 
reporting date. Therefore, they believe when an insured producer has 
contracted for the services of an acreage measuring service, the 
insured should only be required to file a preliminary acreage report by 
the acreage reporting date, which should be followed by a reasonable 
time period (e.g., 30-days) for the insured to file a final acreage 
report and have his production guarantee adjusted accordingly without 
penalty. A commenter stated acreage reports for wheat covered under the 
winter coverage endorsement are required before acreage is measured by 
FSA and an allowance needs to be made for this.
    Response: FCIC agrees there are measures in place to deal with 
fraudulent situations. However, as stated above, the measures in this 
rule are intended to cover all errors, not just fraud. FCIC agrees that 
in some cases, final determination of acreage must be delayed until 
acreage measurement services are performed and has revised section 6(d) 
accordingly.
    Comment: Some commenters stated the proposed provisions would not 
meet the following purpose stated in the preamble ``* * * stronger 
sanctions are imposed to ensure that producers completely and 
accurately report material information'' and the statement that the 
provisions ``will better meet the needs of the insured.'' They did 
believe the proposal would reduce participation by honest producers who 
are hit with tough penalties for accidental errors. A commenter stated 
the proposed provisions might discriminate against the small producer 
who may report 21 acres and have 19 acres at loss time and not be paid 
the loss and still owe the premium. They suggested FCIC consider using 
a minimum number of acres, such as 5 acres.
    Response: The needs of producers are met because incorrect payments 
can be reduced, which can result in reduced premiums. It is impossible 
to set a de minimis amount of acreage that would be fair to both large 
and small producers. As stated above, FCIC has revised the provision to 
make the consequences commensurate with the offense and increased 
tolerance levels to mitigate the consequences for inadvertent errors. 
This should avoid any discrimination.
    Comment: A commenter stated the proposed provisions would allow 
unit liability to increase or decrease at loss time, and did not 
believe this should be allowed after damage to the crop.
    Response: FCIC generally agrees unit liability should not increase 
after damage to the insured crop. The provisions retained in this final 
rule do not allow such increases in liability.
    Comment: A commenter suggested revising provisions to allow the 
acreage found to be misreported in excess of 5 percent to be revised to 
what is correct if it results in a lower liability yet the insured pay 
the original premium amount, including prevented planting acres 
reported. They further recommended allowing a claim to be paid based on 
the liability of the reported amount but charge premium on the correct 
amount of acreage, if the acreage is under reported by more than 5 
percent. A few commenters recommended retaining the current 
misreporting provisions but to add a penalty equal to what the premium 
would have been on an unreported unit.
    Response: As stated above, the 5.0 percent tolerance has been 
removed. However, the consequences of misreporting recommended would 
not affect any catastrophic risk protection policies since no premium 
is owed. FCIC has revised the provision to reduce any claim paid so it 
will affect all producers, regardless of the coverage level selected.
    Comment: Some commenters thought the provisions could conflict with 
section 6(d), which allows late revisions with the insurance provider's 
consent, and (e), which states the insurance provider ``may elect'' to 
use reported information or the information determined to be correct 
(while (f) indicates ``corrected liability'' will be used with 
penalties attached). Another commenter stated the proposed language has 
the appearance of taking away the ability to revise submitted acreage 
reports even prior to the acreage reporting date which is allowed by 
another paragraph in section 6.
    Response: FCIC has revised both section 6(d) and 6(f) to remove any 
inconsistencies. FCIC intended to restrict revisions to the acreage 
report when the acreage has been prevented from being planted even if 
the acreage report was submitted prior to the acreage reporting date. 
The acreage report can still be revised prior to the acreage reporting 
date for planted acreage under certain circumstances.
    Comment: A commenter questioned how this provision affects the rest 
of the policy when only one loss unit is out of tolerance.
    Response: The reductions in the claim for misreporting apply on a 
unit basis. Other units insured under the policy that are within 
tolerance would not be affected by the claim reduction.
    Comment: A few commenters stated the provision proposed in section 
6(f)(2) totally disregards tolerances that may already be in place, 
such as tolerances recently implemented in the Pacific Northwest.
    Response: In most situations, the tolerances will no longer be 
applicable. Under certain circumstances, revisions to the acreage 
report will be made and the originally reported information will not be 
considered as misreported.
    Comment: A commenter suggested section 6(f) be revised to read as 
follows: ``You are responsible for the accuracy of all information 
reported by you, or by someone else on your behalf, on the acreage 
report and you should verify the information prior to submitting to 
us.''
    Response: FCIC has revised the provision to specify that the 
producer is responsible for the accuracy of all information contained 
in any reports. However, current section 3(i) has been moved to section 
2(k) and revised to specify that the producer is responsible

[[Page 48690]]

for the accuracy of all information submitted on their behalf.
    Several comments were received regarding section 6(g). The comments 
are as follows:
    Comment: Some commenters asked if the language proposed in section 
6(g) would allow insurance providers to charge insureds for acreage 
measurement services. Some of the commenters thought this would be 
similar to charging for appraisals in traditional property and casualty 
policies. One of the commenters thought this issue should be addressed 
in the SRA, but stated the presence of this language in the policy 
raises the issue and that it should be addressed for consistency.
    Response: There is no basis for the insurance provider to charge a 
fee. Under FCIC's procedures, the insurance providers are required to 
verify acreage and are compensated for this obligation under the 
administrative and operating subsidy. If the insurance provider elects 
to provide acreage measurements under section 6(h), they still cannot 
charge for it because such service will be considered as part of their 
responsibilities under the procedures.
    Comment: A commenter asked whether insurance providers could 
provide the acreage measurement service or use FSA measurements, and on 
what basis the insurance provider elects to require third-party 
measurement services in subsequent years. The commenter also pointed 
out that a policyholder can easily switch insurance providers to avoid 
the requirement and associated expense.
    Response: The insurance providers are in the best position to 
determine the possible reason for the misreporting and whether there is 
a risk that information will continue to be misreported in subsequent 
crop years. If the insurance provider feels that a risk of misreporting 
still exists, it can require documentation to support the reported 
information. It would be very difficult to set standards for when the 
information is required.
    Comment: A commenter stated the proposed provision is confusing 
because acreage measurement cannot be performed or documented after the 
fact.
    Response: This section contains a requirement to substantiate 
information reported in subsequent crop years. It is not intended for 
the purpose of making corrections in the crop year that information was 
misreported. No changes have been made.

Clarification of Premium and Administrative Fees--Section 7

    Comment: A few commenters wanted clarification of provisions in 
section 7(a) regarding the time premium is due. One of the commenters 
stated they should be able to bill the policyholder anytime after 
premium is determined.
    Response: The annual premium is earned and payable at the time 
coverage begins. However, many producers may have used their available 
capital to produce the crop and there has always been concern that 
billing producers up front would discourage or prevent participation. 
This problem still exists today and it would be detrimental to 
producers to change this provision. Producers must generally be able to 
use the proceeds of the crop or their insurance, as applicable, to pay 
the premium to mitigate the financial barrier to participation in the 
program. No change has been made.
    The following comments were received regarding the provisions in 
section 7(b) that specify premium or administrative fees owed may be 
offset from an indemnity.
    Comment: Several commenters agreed with the change.
    Response: The proposed changes have been retained in the final 
rule.
    Comment: Some commenters wanted to add ``replant payment'' with 
indemnity and prevented planting.
    Response: FCIC has clarified throughout this final rule that a 
replant payment is different from an indemnity or prevented planting 
payment. FCIC makes the distinction based on the fact that a replant 
payment is to reimburse for the costs of having to replant the crop, 
not indemnify for any crop losses. No change has been made.
    Comment: A few commenters recommended changing ``may'' to ``will.'' 
A few commenters recommended keeping ``may'' so the insurance provider 
has the option, but not the obligation to offset premium due from 
indemnities. One of these commenters recommended changing it to ``We 
may deduct from any replant payment, prevented planting payment or 
indemnity due you under any policy issued by us under the authority of 
the Act, any amount you owe us related to any insurance policy issued 
by us.'' A commenter asked why the reference to ``crop insured with us 
under the authority of the Act'' was removed.
    Response: FCIC has revised the provision to use ``will'' instead of 
``may'' to be consistent with section 2(e). Offsets cannot be 
discretionary without making producers subject to disparate treatment 
based on their insurance provider. FCIC has revised section 2(e) to add 
that the amounts must be due for policies authorized under the Act and 
section 7(b) cross-references section 2(e). Therefore, it is not 
necessary to add the language to section 7(b).
    Comment: A few commenters asked to have the ability to offset 
outstanding premium due under a negotiated payment agreement with the 
producer.
    Response: There is nothing in the policy that precludes the 
insurance provider from including in their payment agreement a 
provision that would allow offset. However, if the payment agreement 
does not contain such a provision, no offset can be permitted unless 
such offset is mutually agreed to by the producer and insurance 
provider.
    Comment: A few commenters recommended section 7(b) clarify that 
premium due for fall crops could be withheld from fall payments and 
premium due from spring crops could be withheld from spring payments 
(but not both unless there is a past due situation).
    Response: FCIC does not agree with the recommended change. If a 
premium is due for a fall crop it should be withheld from the next 
indemnity or prevented planting payment due, regardless of whether the 
indemnity due is for a spring or fall crop. The insurance provider 
should not have to pay indemnities when there is an outstanding amount 
owed.
    Comment: A commenter stated further clarification is needed to 
determine if the word ``offset'' means the same as ``administrative 
offset'' in section 2(e). If so, there appears to be a conflict between 
the two.
    Response: FCIC has defined the term ``offset'' and the term 
``administrative offset'' is only used in conjunction with the 
governments ability to offset amounts owed to it. Therefore, there 
should no longer be confusion between the two sections.
    Comment: A commenter is concerned about the ``zero tolerance'' 
provision of the program, where non-payment of premium by termination 
date results in ineligibility to participate in the program--without 
recourse.
    Response: FCIC believes it is necessary to enforce premium payment 
provisions, including the consequence of ineligibility for failure to 
make required payments. Failure to do so could result in significant 
administrative difficulties involving collections, increased 
accounting, etc. Further, the program accommodates producers as much as 
possible by generally delaying the payment of premium until after the 
growing period to allow the premium to be paid from the crop proceeds 
or offset from the indemnity or prevented planting payment. To allow 
producers to

[[Page 48691]]

continue to participate when they have not paid their premiums could 
cause program abuse. However, producers do have recourse. They have the 
ability to challenge the amount owed with the insurance provider 
through the arbitration process. They can further appeal their 
inclusion on the Ineligible Tracking System to the National Appeals 
Division. No changes have been made.

Clarification of Insured Crop--Section 8

    The following comments were received regarding section 8(b):
    Comment: A few commenters recommended section (b) be left as 
currently written.
    Response: The current provisions can not be retained because there 
have been questions regarding insurability of specific practices and 
the use of the Special Provisions for exclusions in the last few years 
that demonstrate they need clarification.
    Comment: A commenter asked for clarification of the section.
    Response: This proposed section has been revised to specify that if 
the acreage does not qualify as planted acreage the crop is not 
insurable or if a crop type, class or variety or the conditions under 
which the crop is planted are not generally recognized in the area, the 
crop is not insurable. This was done to set an objective standard and 
make the provision easier to administer. This standard is similar to 
standards used elsewhere in the policy so there is more consistency 
among policy provisions. FCIC has retained the provisions regarding 
when information necessary for insurance is not included in the 
actuarial documents but has moved it to a new provision for 
readability. FCIC has removed the reference to ``adapted to the area'' 
because such determinations are now included in determinations of 
``generally recognized.'' The provision regarding whether a practice, 
type, class or variety has been excluded from the actuarial documents 
has been moved to a newly created section 8(c) and clarified to 
indicate that specific exclusions do not mean everything else is 
insurable. FCIC also revised the definition of ``insured crop'' to 
remove the references to the Basic and Crop Provisions and refer to the 
policy to be consistent with section 8, which also refers to the 
actuarial documents.
    Comment: A few commenters recommended the definition in parentheses 
at the end of the sentence in (b)(1) be removed. A commenter 
recommended the last sentence in section 8(b)(1) that references 
written agreements be removed from that section and be included in 
either the definition of written agreement or in section 18, which 
covers written agreements.
    Response: FCIC agrees that the parenthetical is not appropriate in 
this section and has moved it to section 3 and clarified that it is 
only for high risk land that transitional yields and premium rates can 
be changed.
    Comment: A few commenters stated section (8)(b)(2) states ``if any 
farming practice, type, class, or variety is not established or widely 
used in the area, it may not be considered a good farming practice.'' 
This sentence fails to reflect section 123 of ARPA and must be modified 
in the final rule. A few commenters stated the ``good farming 
practice'' is not objective and makes it difficult for producers and 
insurance providers to know if a crop is insured or not, and it should 
be changed.
    Response: FCIC has removed all references to ``good farming 
practices'' because this determination is separate and distinct from a 
determination of insurability. FCIC also revised the definition in the 
June 25, 2003, final rule to make the standard more objective. Further, 
FCIC agrees that ``widely used'' should not be used to determine 
insurability and has revised the provision to use the standard of 
``generally recognized'' for the area to determine insurability.
    Comment: A commenter requested the provisions state when a crop is 
not covered. A commenter stated that better wording for section 8(a)(2) 
would be: ``A farming practice, type, class or variety that is not 
excluded by the policy may not be insurable.'' But this provision still 
requires FCIC to develop an exhaustive list of ``good farming 
practices'' that are established, general to the area, and widely used.
    Response: As stated above, all references to ``good farming 
practices'' have been removed. However, there are so many factors that 
could render a crop uninsurable, it is impossible to list them all. 
FCIC has set an objective standard for making such determinations to 
add stability and consistency to the program.
    Comment: A few commenters believed the use of ``expressly'' is 
misleading and ``just because'' is un-professional language to use in 
an insurance contract.
    Response: FCIC agrees with the comment and has revised the 
provision accordingly.
    Comment: A few commenters asked if section 8(b) covers substitute 
crops.
    Response: Section 8(b) is applicable to all crops.
    Comment: A commenter recommended the entire section 8(b) be altered 
to read as follows:
    ``(b) A crop which will NOT be insured will include, but will not 
be limited to, any crop:
    (1) For which the information necessary * * *;
    (2) Grown using a practice or a type, class or variety that is not 
adapted to the area or is expressly excluded by the policy or the 
actuarial documents; and
    The policy's failure to expressly exclude a specific farming 
practice, type, class, or variety does not mean that the practice, 
type, class, or variety is insurable. If any farming practice, type, 
class or variety is not established or widely used in the area, as 
determined by FCIC or us, it may not be considered a good farming 
practice. It is your responsibility to determine prior to planting 
whether the practice, type, class, or variety is insurable under this 
section.''
    Response: The recommended revision has not been used because the 
provision has been revised as indicated above. Additionally the 
recommended language would require FCIC to determine whether or not 
certain types, classes, or varieties are adapted in an area. FCIC 
believes these determinations should be made by agricultural experts 
for the area.
    Comment: Two commenters asked if section 8(b)(4) should be revised 
since there is a new definition of ``second crop.''
    Response: FCIC agrees section 8(b)(4) should not use the term 
``second crop'' and has amended the provision accordingly.

Clarification of Insurable Acreage--Section 9

    Comment: A commenter recommended section 9(a) be revised to add the 
words ``in the county'' between the words ``insurable'' and ``except.''
    Response: Since no changes to this provision were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    Comment: A commenter stated that ``three'' versus ``3'' should be 
consistent in sections 9(a)(1) and 9(a)(1)(i)(A) and also in item B 
with ``4''. The commenter stated this language creates a burden on the 
grower, and asked how the agent knows to ask. The commenter believes 
this creates errors and omission exposure to the agent that is not 
reasonable. The commenter also asked

[[Page 48692]]

for the purposes of ``harvested'' as used herein, if they are to use 
the applicable ``harvest'' definition found in the crop provisions.
    Response: FCIC agrees these terms should be consistent and the 
numbers contained in paragraphs 9(a)(1)(i)(A), 9(a)(1)(i)(B), and 
9(a)(1)(iii) have been spelled out. FCIC does not agree that section 
9(a) created a burden on the producer or unreasonable exposure to 
agents. The purpose of this provision is to ensure that only acreage 
that has the capability of producing a crop is insured. Agents are only 
required to explain the operations of the crop insurance program to 
producers, including conditions required for acreage to be insurable. 
Therefore, the agent only commits an error if the agent fails to inform 
the producer of the policy requirements. It is the obligation of the 
insured to provide the information. The definition of the term 
``harvested'' contained in the Crop Provisions should be used. However, 
if there are no Crop Provisions covering the crop, the common meaning 
of the term should be used.
    Comment: Several commenters believe it is unclear who is 
responsible for the burden of proof regarding the requirements found in 
section 9(a)(1). They believe it is unclear whether the agent is 
required to ask or the insured is required to volunteer the 
information.
    Response: It is the agent's responsibility to make sure the 
producer is aware of and understands insurability requirements so that 
he or she can properly report insurable and uninsurable acreage. It is 
the producer's responsibility to provide the information when acreage 
would not meet the insurability requirements of section 9(a)(1).
    Comment: One commenter believes the provisions in section 9(a)(1) 
imply the agent needs to be involved in the loss process, which they 
stated is not acceptable in the eyes of compliance.
    Response: Determinations of insurability should be made at the 
beginning of the crop year, not after a loss has occurred. Loss 
adjusters are required to verify that the acreage on the acreage report 
is insurable. No change has been made.
    Comment: A few commenters stated the provisions in section 9(a)(1) 
need further clarification because the language as written could be 
interpreted to mean that it only takes one year in the past three that 
a crop was not planted and harvested to make the acreage uninsurable. 
Therefore, any acreage with a loss in one of the past three years that 
was not harvested would be uninsurable. They believe the language could 
also be interpreted to mean that two out of the past three years where 
the acreage was planted and harvested is good enough. A commenter 
recommended using the following: ``(1) That has not been planted with 
the intention of harvesting within one * * *.''
    Response: FCIC agrees the provision requires clarification and has 
revised the language to indicate acreage is insurable unless it has not 
been planted and harvested in at least one of the three previous crop 
years. FCIC also revised the provision to add that the acreage is 
insurable if the acreage was insured in any of the past three years. 
This was done to clarify that prevented planting acreage had to be 
insured because it would be extremely difficult to establish when 
acreage was actually prevented from being planted in past years unless 
there is an insurance record and to address the situation where the 
acreage was insured but not harvested during the last three crop years. 
The recommendation to use language based on the intention of the 
producer has not been used because of administrative difficulties in 
determining intent.
    Comment: Several commenters stated that the provisions in section 
9(a)(1) make it very difficult to verify on an acreage basis. A 
commenter asked that the current provisions contained in section 9(a) 
be retained.
    Response: The current provisions have been subject to multiple 
interpretations and must be clarified. This new provision is intended 
to identify acreage where it may not be appropriate to insure a crop 
because of the production capacity of the acreage. There are means to 
determine the previous use of the acreage through FSA records, 
satellite imaging, or even previous insurance records. This provision 
is necessary to protect program integrity. No change has been made.
    Comment: One commenter stated the provisions in section 
9(a)(1)(i)(A) and (B) that require harvest may be a problem if the crop 
is destroyed by an insured cause of loss.
    Response: The concern is addressed in this final rule by revising 
section 9(a)(1) to allow insurance for acreage that has been insured in 
any of the three previous crop years. The requirement in section 
9(a)(1)(ii) has been deleted because of the revision in section 
9(a)(1).
    Comment: Several commenters asked that section 9(a)(1)(i)(C) not be 
deleted as proposed. The commenters stated that in areas with poor 
drainage and wet cycles there are areas of cropland that do dry up 
after the final planting date. They believe deleting the current 
provisions contained in section 9(a)(1)(i)(C) would be very 
discriminating to the prairie pothole region of the country. The 
commenters added that not all excessive rainfall disappears in several 
weeks like river flooding. Commenters questioned what the issue is if a 
producer has not planted a crop on the ground in the past three years. 
They noted there are justifiable reasons, too dry, too wet, etc. The 
commenter believes the proposed provisions potentially penalize a 
grower for making prudent planting decisions.
    Response: FCIC agrees provisions allowing insurance for acreage 
that has been prevented from being planted for the three previous years 
should be retained. However, rather than retaining section 
9(a)(1)(i)(C), section 9(a)(1) has been revised to allow insurance for 
such acreage if it has been insured in any of the previous three crop 
years.
    Comment: A few commenters were concerned if the proposal was 
intended to make acreage that has had a prevented planting payment for 
three consecutive years uninsurable. A commenter stated that such 
acreage should be insurable.
    Response: FCIC agrees acreage referenced in the comment should be 
insurable provided the acreage was insured, and has revised section 
9(a)(1) to accomplish this as stated above.
    Comment: A commenter stated a compromise to restricting 
insurability for acreage that has been prevented from being planted for 
the previous three crop years should be considered. The commenter 
suggested reinstating the provisions of section 9(a)(1)(i)(C) with 
additional language similar to the following:
    ``Due to an insurable cause of loss that prevented planting. 
However, prevented planting will not be an insurable cause of loss 
until planting viability has been re-established. Should the acreage 
again be prevented from planting, no indemnity will be paid nor premium 
due on the acreage for the current crop year, or * * *'' Another 
commenter recommended the prevented planting issue be left as it is 
currently. Another commenter stated insurance for acreage that is 
prevented from being planted is a crucial part of the safety net for 
farmers who have been repeatedly hit by drought or flood in recent 
years. The commenter stated it is farmers who have been struck by 
disaster several years in a row who have the greatest need for 
continued insurance coverage, for example, they may need to show proof 
of insurance in order to obtain operating credit. They believe it would 
be unfair

[[Page 48693]]

to pull the coverage away from the farmers because they have had to use 
it.
    Response: As stated above, prevented planting is now covered under 
section 9(a)(1) provided the acreage was insured. The current prevented 
planting provisions impose some restrictions because there is a limited 
time period in which the cause of loss must occur. If the cause of loss 
occurs outside of that period and no crop was planted and harvested on 
the acreage, the acreage would not insured for the crop year. If this 
occurs for three subsequent crop years, the acreage is not insurable. 
If in any one of the last three crop years, the acreage was insured and 
qualified for prevented planting, the acreage would be insurable for 
the subsequent year. No change has been made.
    Comment: One commenter stated they do not understand why changes 
were proposed in section 9(a)(1)(i). They believe the proposed language 
appears to be more confusing than the current provision, therefore, 
they recommended retaining the current language, but deleting 
subsections 9(a)(1)(i)(B) & (C).
    Response: Past inquiries have indicated a need for clarification of 
this provision. Changes were proposed to clarify the number of years 
that acreage cannot be planted to comply with another USDA program, to 
avoid uninsurability when a de minimis amount of acreage is 
uninsurable, and to remove provisions that allowed insurance for 
acreage that was prevented from being planted for the three previous 
years. The provisions have been further revised as stated above to 
provide additional clarification. FCIC does not agree that section 
9(a)(1)(i)(B) should be deleted because rotational practices sometimes 
require the same crop to remain on the acreage for three or more years. 
This acreage may not have been planted during those years, such as 
alfalfa, and such acreage may not be insurable. Therefore, if section 
9(a)(1)(i)(B) were deleted, the acreage would not be insurable. Section 
9(a)(1)(i)(C) has been incorporated into section 9(a)(1) as stated 
above.
    Comment: A few commenters suggested the 5 percent tolerance 
proposed in section 9(a)(1)(iii) is too restrictive because it would 
require over 30 acres in a section. The commenters recommended the 5 
percent be reduced to 1 to 2 percent.
    Response: The suggested change would be more restrictive than the 
proposal. The purpose of this provision is to identify a de minimis 
amount of acreage that if added to the unit would not significantly 
impact a loss on the unit. This is intended to apply in situations such 
as when fence rows or structures are removed and the acreage is 
converted to crop land. The provision does not require a full five 
percent of the acreage in the unit to be added. Any amount of acreage 
up to five percent of the acreage in the unit can be added without 
requiring a written agreement. No change has been made.
    Comment: Regarding section 9(a)(3), a few commenters stated, based 
on their past experience, only FCIC knows when actuarial documents do 
not provide the necessary information. The commenters further stated 
that in reality, the option is unavailable.
    Response: The reference to the information on the actuarial 
document was used because there are instances where the actual premium 
rate is not on the actuarial document. The actuarial document contains 
a premium rate or a formula to determine the premium rate for each 
insurable situation. If a rate can be determined for the acreage in 
question based on such formulas, it is insurable. If a premium rate 
cannot be determined from the actuarial documents, the acreage still 
may be insurable if a written agreement provides a rate. No changes 
have been made.
    Comment: A few commenters stated the provision proposed in section 
9(a)(4) which is currently (a)(3) should not be changed. They believe 
the phrase ``as soon as it is practical'' creates ambiguity and leaves 
it open to interpretation as to whose decision this is. An additional 
commenter stated the phrase ``as soon as it was practical to do so'' 
establishes a requirement that cannot reasonably be implemented or 
enforced. They stated as they previously noted, and certainly as 
universally recognized among producers and insurance providers, simply 
determining whether it is ``practical to replant'' is a very difficult 
task. They believe requiring the additional determination of the 
earliest date upon which it was ``practical to replant'' assures 
conflict and inconsistency for the sake of insignificant benefit to the 
program. Another commenter stated the proposed change is too subjective 
and impossible to defend or prove.
    Response: FCIC agrees the phrase ``as soon as it is practical'' 
should be removed and has deleted this proposed change from the final 
rule.
    Comment: Several commenters commented on the provision in section 
9(b). Some of the commenters stated that RMA should be responsible to 
help make definitive determinations regarding the amount of irrigation 
water available at the beginning of the insurance period rather than 
after the fact. They stated the phrase ``knew or had reason to know'' 
is difficult to substantiate, especially since water district 
authorities are reluctant to predict the amount of water that will be 
available at a later time. A commenter asked what ``adequate water'' is 
if the crop is not under full irrigation and some rainfall is needed in 
addition to irrigation water to produce a crop. One commenter 
recommended clarifying provisions regarding irrigation practice 
requirements. A few of the commenters stated the provisions remain 
ambiguous as they relate to coverage in adverse weather conditions such 
as drought. One of the commenters stated that the absence of a more 
precise description of a ``good irrigation practice'' in section 12(e) 
is a serious concern for many producers and recommended language be 
added to acknowledge that conditions may arise when continued 
irrigation is no longer beneficial to the crop. One commenter asked who 
is to determine what acres should be reported as irrigated versus non-
irrigated in drought or dry situations, and how this should be 
administered. The commenter stated policy language that does not have a 
clear way of being administered should not be issued.
    Response: Since no changes to sections 9(b) or 12(e) were proposed, 
no changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
changes, the recommendations cannot be incorporated in the final rule. 
No change has been made.

Clarification of Share Insured--Section 10

    Comments received regarding section 10(b) are as follows:
    Comment: A commenter supported the proposed new requirement that a 
single policy be required where the same people are involved in 
multiple farming operations. The commenter believes this change would 
help prevent abuse.
    Response: Based on other comments received, FCIC agrees that the 
proposed provisions could affect legitimate entities in ways that were 
not intended, would add complexity to the program, and could be 
circumvented. However, there are significant problems within the 
program that are caused by the use of multiple entities that can be 
used to circumvent program requirements. An examination of the program 
has revealed that there may be procedures that provide incentives for 
the creation of such entities and abuse of the system. Instead of 
precluding the insurance of individual entities, FCIC has revised its

[[Page 48694]]

procedures to reduce incentives to abuse the program through the 
creation of multiple entities. The procedures have been amended to 
require that previous production records be used to establish the 
insurance guarantees any time a producer has been involved with a 
particular farming operation. This requirement will reduce instances in 
which producers create separate entities to avoid using records of 
production established by other entities in which they have been 
involved. The proposed revisions to section 10 have been removed in 
their entirety.
    Comment: Many commenters recommended deleting the language added to 
section 10(b). Some stated the existing language is far more clear than 
the proposed language. A commenter believes that all parties on one 
policy will not work. They stated that farm partnerships or 
corporations operate land over hundreds of miles and that one partner 
may live in a community 100 miles away from another producer. They 
stated that producer A may want his policy in his home town while 
producer B wants his coverage with his agent in his home town with his 
existing insurance provider. The commenter believes requiring all of 
these issues be handled as ``one'' does nothing for the benefit of the 
insured, insurance provider, or RMA. The commenter finds that when 
there is more than one insurance provider involved in a loss situation, 
each insurance provider ``patrols'' the other to make sure the 
submitted data is correct. They believe this is far too cumbersome and 
serves no benefit and, therefore, urged this provision be dropped.
    Response: See response to first comment under this subsection.
    Comment: An additional commenter stated no person should be 
permitted to receive an indemnity payment unless they have an insurable 
interest in the property lost or damaged. The commenter added that the 
proposal perpetuates this error by permitting landlords and tenants to 
insure each other's interest, even though they have no economic or 
legal ownership of the other's interest. An additional commenter stated 
the provisions do not appear to address insuring the persons share of a 
corporation, partnership, etc., when the corporation and/or partnership 
does not have a policy. The commenter stated that current procedure 
contained in the Crop Insurance Handbook (CIH) requires this acreage to 
be reported on the person's policy. A few additional commenters stated 
that the proposed changes in section 10(b) launch a very wide net that 
encompasses everyone who is even remotely related to the insured to be 
disclosed and included on the policy. The commenters stated that, aside 
from the fact that it can be very difficult to determine if all 
necessary persons are included under the policy, it also appears to be 
a rather blatant violation of the freedom of contract between the 
producer and the insurance provider, as this provision would dictate 
who would be incorporated as a contracting party. The commenters stated 
that if this language were included in the Basic Provisions of the 
policy, it would probably not be an enforceable contract, as all 
parties did not voluntarily enter into the contract. They stated that a 
corporation is a recognized legal entity that is separate from its 
shareholders, and added that the proposed language would also require 
``piercing the veil'' of the corporation to expose all persons with 
whom the insured might have remote affiliations. The commenters stated 
that the corporate veil may only be pierced through a judicial process 
if it is found that the officers of a corporation committed intentional 
or illegal acts outside the scope of their duties. The commenters 
believe it is unreasonable for there to be a presumption of wrong doing 
by every policyholder to warrant a court proceeding to ``pierce the 
veil'' of every corporation affiliated with the insured. Another 
commenter believes the proposal would eliminate two aspects of the 
program they feel are today working well for farmers. The commenter 
stated that first, under the proposal, producers would no longer be 
able to separately insure separate shares in the same crop, which is a 
common practice today and works well for both landlords and tenants.
    Response: See response to first comment under this section.
    Comment: A commenter suggested separate policies be issued for each 
insured person to help mitigate the potential for fraudulent 
activities.
    Response: See response to first comment under this section.
    Comment: A few commenters stated that if section 10(b)(2) is 
retained, the last sentence should be revised. They stated for example, 
Bureau of Indian Affairs trusts often do not have an SSN/EIN, but 
instead use the allotment number to create an identification number as 
referenced in Exhibit 32 of the Crop Insurance Handbook (CIH).
    Response: See response to first comment under this section. FCIC 
agrees that BIA trusts may not have an SSN or EIN and has revised 
section 2 to provide an alternative means of reporting.
    Comment: One of the commenters added that insurance providers have 
some concerns with this clause, which allows the additional entity's 
share to be given the policyholder's APH and guarantee for the unit. 
The commenter stated that this allows abuse of the program because 
those with lower APHs will want to insure their share on the person's 
policy with the higher APH. They stated that this can create a serious 
problem in high loss ratio counties and that each entity should be 
required to use his/her individual APH records.
    Response: See response to first comment under this section.
    Comment: A commenter stated that landlords who wish their tenants 
to handle their insurance affairs can provide a power of attorney 
allowing them to do so. The commenter added that while this would 
require a separate policy, it will be easier to administer. Another 
commenter recommended the tenant and landlord each insure their 
individual interests through individual policies, and separately 
provide the identifying information the proposal requires.
    Response: See response to first comment under this section.
    Comment: A commenter stated that trying to gather the information 
about all of the husbands, wives, and children who are involved would 
be virtually impossible. They stated that the proposed provision would 
change the fundamental role of an insurance agent from being someone 
knowledgeable in the policy, its provisions, and how they apply to a 
growers situation to that of a private investigator. The commenter 
feels this provision implies there is a great deal of fraud within the 
system that must be prevented. They believe if that is true, every 
legitimate legal means to prevent the fraud should be used, but it 
should be done by trained fraud investigators and not the insurance 
agents. The commenter stated that agents' backgrounds and training do 
not prepare them for duties such as this. The commenter added that 
because agents are not trained in gathering this information and 
verifying its legitimacy, they now have a significant liability 
exposure. The commenter added that currently, many agents have trouble 
obtaining this coverage at all. The commenter feels that implementing 
this change would result in eliminating the agency force that has done 
a very commendable job of delivering this product to this point. A few 
other commenters suggested that ``child, or any member of your 
household'' be removed, because identification of such individuals and 
subsequent enforcement will be very difficult. An

[[Page 48695]]

additional commenter asked if agents or insurance providers will be 
held accountable for enforcement, and if so, if they will be held 
liable for incorrect information given to them by other parties, 
including FSA. They do not believe an agent can be expected to validate 
the share arrangements of every insured farmer.
    Response: See response to first comment under this section.
    Comment: A few commenters stated the language contained in section 
10(b)(1) indicates that the insured share includes that of ``* * * your 
spouse, child, or any member of your household * * *'' which they 
believe conflicts with the definition of ``substantial beneficial 
interest,'' which only includes spouses and children who reside in the 
household (if the children are not removed), not non-resident children 
or other household members.
    Response: See response to first comment under this section.
    Comment: A few commenters stated that if the language in section 
10(b)(1) remains, procedural questions need to be addressed (though 
perhaps not in the policy) regarding proof of separate farming 
operations. The commenter noted that currently, each spouse may prove 
that he or she has totally separate farming operations in certain 
limited situations, however, with the addition of children and other 
household members who may derive their income from something other than 
farming, it may be difficult to prove that they have ``separate'' 
operations; A few additional commenters stated that they understood the 
intent (as indicated in the Federal Register explanation) of the 
provisions proposed in section 10(b), but stated it will be very 
difficult to administer and enforce.
    Response: See response to first comment under this section.
    Comment: A commenter stated they understand the revised provisions 
contained in section 10(b) are trying to stop the insuring of high risk 
land under separate policies, however, they believe that if an entity 
is recognized as independent by the FSA and IRS it would seem that to 
be consistent it should be considered a separate entity for crop 
insurance purposes as well.
    Response: See response to first comment under this section.
    Comment: A few commenters doubt that data reconciliation 
ramifications have been considered sufficiently to make the change in 
section 10(b).
    Response: See response to first comment under this section.
    Comment: A few commenters do not believe the new wording in section 
10(b), ``* * * or under your policy for any insured crop * * *'' is as 
clear as the current sentence. An additional commenter stated FCIC's 
determination of the entities would not coincide with FSA's or other 
government programs. A few additional commenters feel the change from 
``may'' to ``will,'' in section 10(b) could be understood to include 
uninsurable acreage. A few additional commenters stated that the first 
sentence is lengthy and unclear, and in fact, the Federal Register 
explanation is superior. The commenters doubt this is intended to mean 
that an insured individual may no longer insure his/her share of an 
uninsured partnership that is not composed entirely of other family 
members, but they feel the new language may be interpreted that way. 
The commenters stated they do not have any serious objection to what 
FCIC is trying to accomplish, but they are not sure that the objective 
can be accomplished with any degree of certainty. They stated they 
trust that feasibility studies have been performed to see if this is 
even possible to administer and that procedures will be made readily 
available by RMA in order to implement the provisions of section 
10(b)(2) effectively.
    Response: See response to first comment under this section.
    Comment: A commenter asked if the provisions proposed in section 
10(b)(2) are finalized as proposed, what happens with currently insured 
policies that would no longer be permissible under this language. A few 
commenters were concerned about the effect on unit structure. One of 
the commenters asked if these provisions survive to final rule, how 
basic and optional units will be determined under these provisions. A 
few commenters stated the provisions are unclear as to who would 
receive the 1099 if losses were paid. A few of the commenters presumed 
the named insured would receive the 1099, but believe this becomes more 
complicated when other parties are involved.
    Response: See response to first comment under this section.
    Comment: A commenter stated that the proposed provisions would 
jeopardize lending institutions. Several commenters urged FCIC to 
modify the language of the proposed rule to clarify that the intent is 
no broader than the current requirement that common owners/operators 
within a county have all of their farming operations under one policy.
    Response: See response to first comment under this section.
    Comment: A commenter stated that the proposed provisions contained 
in section 10(b) relate to the requirement that common owners and 
operators within a county have all of their farming operations under 
one policy and further require producers to ``prove that the acreage 
farmed by your spouse, child, or any member of your household is a 
totally separate farming operation in accordance with FCIC approved 
procedures.'' The commenter suggested that FCIC clarify that the 
purpose of this rule is for the original intent of common owners and 
operators being covered by one policy.
    Response: See response to first comment under this section.
    Comment: A commenter stated that the American farmer has the same 
rights as other business professionals and individuals to operate under 
various legal entities. A commenter stated the proposal would require a 
partnership to insure all of its various crops within a single county 
under the same policy, which they believe removes flexibility from the 
program and further discourages participation. They stated the proposal 
seems to shift the focus of the program away from insuring a particular 
crop in a particular location and toward insuring particular people. 
The commenter believes this is inappropriate in an insurance program 
where it is a particular risk to a particular crop that is being 
insured. The commenter recognizes that FCIC is attempting to eradicate 
past instance of so-called ``over-insuring'' the same crop, however, 
they believe this proposal goes too far in the other direction. The 
commenter added that by trying to eliminate a very small problem, the 
proposal creates a disincentive for using the program.
    Response: See response to first comment under this section.
    Comment: A commenter stated that while they agreed with the intent 
to keep insureds from creating new entities and either shifting 
production between entities or taking the highest coverage available on 
one piece of ground and CAT coverage on the other, they believe the 
people FCIC is trying to keep from abusing the program will just find a 
way to work around this, and only the people with legitimate business 
reasons will be affected. The commenter stated that three individuals 
working together would be able to create seven different entities 
without falling under the proposed language, and that adding a fourth 
individual increases the ability to establish 13 different entities.
    Response: See response to first comment under this section.
    Comment: A commenter asked what effect these provisions would have 
when one shareholder has less than a 10 percent interest for SBI 
purposes but the same individuals in another entity all

[[Page 48696]]

have over 10 percent interest in the entity. The commenter also asked 
how this can be checked and enforced through the duplicate policy 
listing. A few commenters stated they are concerned how this is to be 
administered when more than one policy with different insurance 
providers are involved.
    Response: FCIC agrees that the proposed provisions could affect 
legitimate entities in ways that were not intended, would add 
complexity to the program, and could be circumvented. However, there 
are significant problems within the program that are caused by the use 
of multiple entities that can be used to circumvent program 
requirements. An examination of the program has revealed that there may 
be procedures that provide incentives for the creation of such entities 
and abuse of the system. Instead of precluding the insurance of 
individual entities, FCIC has revised its procedures to reduce 
incentives to abuse the program through the creation of multiple 
entities. The procedures have been amended to require that previous 
production records be used to establish the insurance guarantees any 
time a producer has been involved with a particular farming operation. 
This requirement will reduce instances in which producers create 
separate entities to avoid using records of production established by 
other entities in which they have been involved. The proposed revisions 
to section 10 have been removed in their entirety.
    Comment: A commenter stated it is unclear why sections 10(c) and 
10(d) are necessary or where these definitions have any effect under 
the policy. They stated that these two sections should be included in 
the definitions sections if anywhere.
    Response: Since no changes to these subsections were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.

Clarification of Causes of Loss--Section 12

    Comment: A few commenters questioned the use of the words ``natural 
disaster'' in section 12. Some of the commenters recommended ``act or 
acts of nature'' should be used instead.
    Response: FCIC agrees that ``natural disaster'' can be interpreted 
in a number of ways. However, the term ``act of nature'' has the same 
problems. The purpose of the provision is to ensure conformity with the 
Act, which precludes losses caused by things that are not naturally 
occurring. FCIC has revised the provision to specify a ``naturally 
occurring event.''
    Comment: A commenter stated FCIC should change section 12(b) to 
``approved by us.'' Another commenter believed removal of ``farming 
practices'' from section 8(b)(1) would be detrimental to the provisions 
in section 12(b).
    Response: The recommended change is not appropriate because in the 
Final Rule published on June 25, 2003, agricultural experts make the 
determination of whether a production method constitutes a good farming 
practice. Further, the reference to ``farming practices'' in section 
8(b)(1) created an ambiguity because that section deals with whether 
the crop is insurable and it could be confused with the failure to 
follow good farming practices, which deals with uninsurable causes of 
loss after insurability has been established. Therefore, the reference 
had to be removed from section 8(b)(1) and that provision has been 
revised as stated above.
    The following comments were received regarding the provisions 
proposed in section 12(c):
    Comment: A commenter supported the proposed change.
    Response: Although there was general agreement with the proposed 
changes, additional information has indicated that it may not be 
possible to implement the change regarding released water on acreage 
where there is a water easement in an actuarially sound manner. Water 
flowage easements are extremely variable in location. For example, in 
some cases, easements have been purchased outside of older levee 
systems, while inside the older levee systems easements were not 
purchased. In this case, disparate treatment of insureds would result 
because the proposed provisions would provide coverage for the acreage 
most often flooded and no coverage would be provided for acreage less 
frequently flooded. In addition, because of variability in location of 
the water easements, it would be very difficult to provide separate 
premium rates for land with and without water easements. Further, the 
proposed provision would create additional loss adjustment difficulties 
because it can be very difficult to separate damage caused by released 
water and generally wet conditions that often occur at the same time. 
Therefore, FCIC has not retained the proposed provision regarding 
released water in this final rule.
    Comment: A commenter requested this type of acreage be uninsurable.
    Response: There may be years when no water is released or the 
timing of the release still allows a crop to be produced. Therefore, 
there is no basis to determine the acreage uninsurable. No change has 
been made in response to this comment.
    Comment: A commenter wanted clarification of ``contained,'' 
``contained by'' and ``flood water.'' A few commenters wanted 
clarification of ``water easement'' and ``seepage.''
    Response: FCIC agrees that this provision may have needed 
clarification and has revised it to clarify what constitutes water 
contained behind the structure and water released from the structure 
and has added an example for further clarification. As stated above, 
the term ``water easement'' has been removed from this rule. Since the 
proposed provisions regarding released water have been removed, it is 
not necessary to clarify how released ``flood water'' and ``seepage'' 
will be considered.
    Comment: Several comments were received regarding provisions 
proposed in section 12(d). A few commenters agreed with changing 12(d) 
as written in the proposed rule. Some commenters stated ``reasonable 
effort'' should be clarified and that guidelines should be added in the 
policy stating who is responsible to determine what is practical and 
what is not a reasonable effort. A few commenters stated the phrase 
``unless we determine it is not practical to do so'' should be removed.
    Response: Since situations may vary greatly, it would be impossible 
to set a single standard that would encompass all situations. 
``Reasonable efforts'' means the producer must attempt to repair the 
damage unless the insurance provider determines it is not possible to 
make repairs or it would not be practical to replace the equipment 
because the need for irrigation no longer exists because of the insured 
peril. It is the insurance provider's responsibility to determine 
whether the producer made reasonable efforts and whether it is 
practical to require that such efforts be made based on the individual 
circumstances, such as the extent of the damage to the equipment and 
the extent of damage to the crop. FCIC does not agree the phrase 
``unless we determine it is not practical to do so'' should be removed 
because there may be times that reasonable efforts to restore the 
equipment in a timely manner may not be possible or practical, such as 
when the crop is destroyed. To be consistent with other provisions, 
FCIC has clarified that cost will not be a factor in

[[Page 48697]]

determining whether it is practical to restore the equipment or 
facilities.
    Comment: A few commenters stated section 12(e) needs clarification 
as to ``good irrigation practice'' because there are times when 
continued irrigation is no longer beneficial because of agronomic 
factors.
    Response: Since no changes to this subsection were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    A few comments were received regarding the provision proposed in 
section 12(f). The comments are as follows:
    Comment: A commenter agreed with the proposed provision.
    Response: FCIC agrees that some provision is needed.
    Comment: A few commenters requested clarification of what is 
``discoverable'' and ``placed in storage.''
    Response: FCIC has modified the provision to replace the word 
``discoverable'' with ``that is not evident or would not have been 
evident'' to avoid any perception that the insurance provider is 
required to conduct tests on the crop before the end of the insurance 
period or to determine whether it has been damaged when no notice of 
damage has been filed. However, the insurance provider is still 
required to conduct proper loss adjustment if a notice of damage has 
been filed. Producers are still required to ascertain whether damage 
occurred after a cause of loss for the purposes of timely filing their 
notice of damage. FCIC has removed the reference to ``placed in 
storage'' and referred to ``the end of the insurance period'' to 
increase clarity.
    Comment: A commenter did not agree a producer should have reduced 
coverage for losses suffered during the insurance period, just because 
the damage could not be discovered until the crop was placed in 
storage.
    Response: Many crops will not be affected by this change because 
most of the time that a crop is damaged by an insurable cause of loss, 
the damage is evident before the crop has been removed from the field. 
However, FCIC agrees there may be some situations where a crop may be 
affected by an insurable cause of loss and the damage is not apparent 
until after it is placed in storage. In many of these cases, it is 
extremely difficult, if not impossible, to determine whether the damage 
was due to an insured cause of loss that occurred within the insurance 
period or due to a cause of loss that occurred during transport, was 
due to intermingling with other producer's damaged or diseased crop 
while in storage or was first damaged while in storage, making accurate 
loss determinations impossible. In situations where it is possible to 
determine that the cause of loss occurred during the insurance period 
and it is possible to determine the extent of the insurable damage, the 
Crop Provisions may permit such coverage. No change has been made in 
response to this comment.
    Comment: Several commenters recommended coverage be excluded for 
the following causes of loss: (1) War, invasion, any act of terrorism 
(including biological and chemical), and warlike operations whether or 
not war is declared; (2) genetically modified organism (GMO) 
contamination (production or price loss); (3) Fire if artificial or 
man-made origin; and (4) Early harvest of a crop that reduces yield, 
but receives a premium from the processor.
    Response: Since these changes were not proposed, no changes were 
required as a result of conforming amendments, and the public was not 
provided an opportunity to comment on the recommended changes, the 
recommendations cannot be incorporated in the final rule. No change has 
been made. However, in the proposed rule, FCIC revised the first 
paragraph of section 12 to clarify that all causes of loss, except 
where the Crop Provisions specifically cover loss of revenue due to a 
reduced price in the marketplace, must be due to a naturally occurring 
event. Since the causes referenced in the comments are not due to 
naturally occurring events, they are already excluded under the policy.

Clarification of Replanting Payments--Section 13

    Several comments were received regarding replanting payment 
provisions contained in section 13. The comments are as follows:
    Comment: A commenter stated the replant provision is a loss 
mitigation provision for the benefit of the insurance provider because 
it reduces losses, instead of an added benefit.
    Response: Since no changes to this section were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
changes the recommendations cannot be incorporated in the final rule. 
No change has been made.
    Comment: Several commenters requested an additional subsection (4) 
be added to section 13(b) stating, ``On which you did not incur costs 
to replant.''
    Response: See response to first comment under this section.
    Comment: Several commenters recommended deleting the ``actual 
cost'' item stating the administrative cost to determine the actual 
cost is counterproductive and results in more cost than is saved by 
just paying the amount specified and referring directly to what is 
stated in the Crop Provisions.
    Response: See response to first comment under this section.

Clarification of the Insured's and Insurance Provider's Duties--Section 
14

    Comment: A commenter stated there are two distinct areas under 
section 14, ``Your Duties'' and ``Our Duties'' and each of these areas 
are then lettered or numbered consecutively from (a)(1), creating 
confusion and inability to clearly reference the correct provision. The 
commenter recommended that section 14(a) should be ``Your Duties,'' and 
everything below that should be relettered and renumbered accordingly; 
and section 14(b) should be ``Our Duties'' and treated similarly.
    Response: To make this change, FCIC would be required to identify 
all references to section 14 found throughout the Basic Provisions, the 
specific Crop Provisions and Special Provisions to also make the 
corresponding changes. New documents would have to be provided to all 
insureds. As has been done by FCIC, references can be made to section 
14(a)(2) (Our Duties) or section 14(a)(2) (Your Duties) to distinguish 
between these provisions. The burden of making the change would 
outweigh the benefit that would result from making this change. No 
change has been made.
    Comment: A commenter stated if providing 3 years of records when a 
claim is filed is an insured's responsibility, it should also be 
included in section 14 of ``Your Duties.''
    Response: Based on the comments received regarding the changes 
proposed in section 3(d) that required the insured to provide records 
for at least the three most recent crop years that were certified in 
the producer's APH database for any unit for which the insured files a 
claim, FCIC removed the requirement in section 3(d) and, therefore, 
there is no need to incorporate it here.
    Comment: A commenter recommended that the phrase ``In case there 
has been a cause of loss'' be changed to ``When there is a cause of 
loss'' in section 14(a) (Your Duties).

[[Page 48698]]

    Response: In response to other comments, FCIC has elected not to 
adopt this proposed change. Therefore, the recommended revision is no 
longer applicable.
    Comment: A commenter stated the word or should be added to the end 
of section 14(a)(1) (Your Duties).
    Response: FCIC does not agree with the recommended change. The 
producer must comply with all the requirements listed in section 14(a) 
(Your Duties). The recommended change would only require them to comply 
with any one of the requirements, not all. No change has been made.
    Numerous comments were received regarding the provisions proposed 
in section 14(a)(2) (Your Duties). The comments are as follows:
    Comment: A commenter stated it is unclear why ``occurrence'' was 
added. The commenter believes the term should be defined.
    Response: Based on the comments received, FCIC will not incorporate 
the provisions proposed in sections 14(a) and (a)(2) (Your Duties) in 
the final rule.
    Comment: Several commenters stated the proposed revision that 
requires notice ``within 72 hours after the occurrence * * *'' (instead 
of `` * * * your initial discovery * * *'') places an undue burden on 
absentee landlords. A commenter stated the proposed change removes the 
ability to accept late notice of loss from absentee landlords, 
insured's whose companion policyholder notice was turned in timely and 
other situations where insurance providers are able to accurately 
adjust the loss.
    Response: See response to first comment under this subsection.
    Comment: Another commenter believes the proposed language would 
result in agents submitting claims for a large number of insureds 
anytime a peril occurred in the area just to be certain the 72-hour 
after occurrence requirement was met.
    Response: See response to first comment under this subsection.
    Comment: Several commenters stated the current provision should be 
retained and that it is more simple and direct. The commenter stated 
the proposed change would result in a producer failing to report events 
that they knew caused damage, but which the producer alleges he or she 
did not recognize was from a ``cause of loss'' or that ``may affect the 
amount of production or quality.''
    Response: See response to first comment under this subsection.
    Comment: A commenter was opposed to eliminating the requirement to 
provide notice when a producer ``initially discovers'' damage to an 
insured crop as they believe adoption of this proposal will prevent 
insurance providers from learning about potential losses and inspecting 
the insured crop before deterioration from uninsured causes occurs. The 
commenter believes adoption of the proposal would erode program 
integrity and significantly increase the opportunity for program abuse 
and fraud.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated the provisions need reference to a 
calendar date. The commenter recommended using ``by the end of the 
insurance period'' versus ``15 days after * * *''
    Response: See response to first comment under this subsection. With 
respect to the current 15 day notice requirement and parentheses in 
section 14(a)(2), since no changes to this provision were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation to require notice by the end of the 
insurance period cannot be incorporated in the final rule. No change 
has been made.
    Comment: A commenter suggested retaining the current provision but 
delete the parentheses. The commenter believes the parenthetical 
portion is necessary and does not put the program at risk. The 
commenter stated if the revision is incorporated, it will be directly 
in conflict with state law in several jurisdictions and will limit an 
insurer's ability to deny claims due to late notice in situations where 
the insurer cannot accurately adjust the claim. The commenter added 
that if this provision is inserted, it must specifically preempt 
contrary state laws.
    Response: See response to first comment under this subsection. With 
respect to the current 15 day notice requirement and parentheses in 
section 14(a)(2), since no changes to this provision were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation to require notice by the end of the 
insurance period cannot be incorporated in the final rule. No change 
has been made.
    Comment: A commenter recommended the section be revised to 
establish an absolute obligation to give notice, when there is a 
continuing cause of loss, no later than the end of the insurance 
period.
    Response: See response to first comment under this subsection.
    Comment: Another commenter stated the proposed changes are too 
extreme. The commenter believes there are valid reasons for filing a 
late notice of loss and the provisions do not need to be so 
restrictive. They also stated the current language is sufficient.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated that section 14 should allow some lee-
way for delayed reporting in exceptional circumstances and that the 
extension request option should also be available for the initial 
reporting deadlines in section 14(a) (Your Duties).
    Response: See response to first comment under this subsection.
    Comment: A few commenters stated it is not clear how the proposed 
language will affect the ``delayed notice'' language in the Loss 
Adjustment Manual (LAM).
    Response: See response to first comment under this subsection.
    Comment: A commenter recommended the words ``specified in the Crop 
Provisions'' be inserted following ``cause of loss'' in section 
14(a)(2) (Your Duties). The commenter stated that this approach adds 
clarity and is consistent with the revisions proposed in section 2.
    Response: See response to first comment under this subsection.
    Numerous comments were received regarding the provisions proposed 
in section 14(a)(3) (Your Duties). The comments are as follows:
    Comment: A commenter stated it is unclear why representative 
samples of the unharvested crop must be left only if the insured 
reports damage within 15 days of the time they begin harvest of the 
damaged unit. The commenter believes that representative samples should 
be left in any case, at any time, whenever the insurance provider 
determines it cannot accurately determine the loss at the time a claim 
is made, because that is the purpose of representative samples. Another 
commenter similarly stated that representative samples should be 
required in all cases.
    Response: The purpose of this provision is to ensure that insurance 
providers have the ability to adjust the loss. If notice of loss is 
provided more than 15 days before harvest begins, the assumption is 
that the insurance provider will have time to inspect the crop prior to 
its harvest to verify the cause of loss. If notice is provided within 
15 days of harvest, it is possible that insurance providers will not 
have time to inspect the crop while it is still in the field and 
representative samples must be left. If the insurance provider 
determines it cannot accurately

[[Page 48699]]

determine the loss, representative samples may be required under the 
claims section in the Crop Provisions. Therefore, it is unnecessary to 
add the provision to the Basic Provisions. No change has been made in 
response to this comment.
    Comment: Several commenters recommended the current provisions be 
retained and rely on the Crop Provisions for additional requirements 
regarding representative samples. They believe the proposed provision 
would create undue hardship for growers of higher value crops. A few of 
the commenters stated if the proposed provision is adopted, FCIC should 
rewrite it to avoid confusion, such as ``Leave representative samples 
(if authorized in the Crop Provisions) of the unharvested crop intact 
if you report * * *'' while one of the commenters stated if the 
proposed provision is adopted, FCIC should rewrite it to avoid 
confusion, such as ``Leave representative samples (if not authorized in 
the Crop Provisions) of the unharvested crop intact if you report * * 
*''. A few commenters recommended that section 14(a)(3) (Your Duties) 
be deleted from the Basic Provisions and included in specific Crop 
Provisions to allow for crop differences. They believe the proposed 
description of a sample may not be realistic for all crops, with one 
commenter adding this is probably the reason such has not been included 
before. The commenters stated if the proposed language is retained, the 
number and frequency of samples should be addressed. The commenter 
believes the Crop Provisions should define the particular types of 
samples appropriate to the particular crop and various potential 
circumstances. They recommend the proposal therefore should not be 
adopted. One commenter stated the current language is sufficient and 
should be retained while another commenter stated the current language 
should be retained and refer the insured to the Crop Provisions. A 
commenter suggested adding the word ``not'' after the word ``If.'' The 
commenter stated this requirement should apply if not already provided 
for in the crop provisions, and suggested keeping the current wording 
because the crop provisions address this requirement better. The 
commenter stated this would allow a producer to give notice on the 14th 
day after harvest and still be in compliance.
    Response: The proposed rule moves the representative sample 
provisions from the Crop Provisions to the Basic Provisions to be 
consistent with FCIC's ongoing efforts to consolidate common 
requirements. When Crop Provisions, which currently require 
representative samples, are next revised, only the requirements that 
differ from those listed in the Basic Provisions will be contained in 
the specific Crop Provisions (for example, different sample sizes, 
etc.). To leave the provisions in the Crop Provisions instead of the 
Basic Provisions, would lead to unnecessary duplication and the 
difficulty of revising every Crop Provision when the common 
requirements change. The number and frequency of samples should not be 
included in the Basic Provisions because the requirements may change by 
crop. FCIC does not agree that moving the current provisions from the 
Crop Provisions to the Basic Provisions would create an undue hardship 
for growers of higher value crops because the proposed provisions will 
not apply if the Crop Provisions do not require the representative 
samples. Most Crop Provisions for higher value crops do not require 
representative samples. FCIC agrees the proposed provisions should be 
clarified. FCIC does not agree the phrase ``if not authorized in the 
Crop Provisions'' should be added because the issue is whether the 
samples are required by the Crop Provisions and the provision has been 
revised accordingly. FCIC agrees this was not the intent of the 
provision and has revised it to require representative samples if 
notice is provided less than 15 days before harvest or during harvest.
    Comment: A commenter stated it is unclear why the proposed 
provisions added statements that the 15-day time limit to retain the 
representative samples may be extended if it is necessary to accurately 
determine the loss and provided that the insured will be notified in 
writing of any such extension. The commenter believes it would be 
simpler to require that the samples be left intact until such time as 
the insurance provider is able to determine the loss or permission is 
granted in writing to destroy or harvest the samples. They feel this 
would be simpler and better because otherwise, if the time period 
expires and was not extended in writing by the insurance provider, and 
no accurate determination of loss was made, how would the loss be 
determined. A commenter stated the provision proposed contains language 
stating, ``You will be notified in writing * * *'' which the commenter 
believes is an additional Insurance provider expense addressing 
something the insured already has in writing--the policy and crop 
provisions.
    Response: The requirement to leave the sample for 15 days after 
harvest is to ensure that there is adequate time to inspect the crop. 
However, insurance providers are required to adjust all losses in a 
timely manner. Further, the producer is required to expend resources to 
care for the sample and should not be required to maintain the sample 
indefinitely. The added language is only intended to allow the 
insurance provider to extend the time period to provide additional time 
when unusual circumstances exist that preclude the insurance provider 
from inspecting the crop within the 15 day time period. Since this is 
an exception to a policy term, i.e., the requirement that the sample 
only needs to be maintained for 15 days after harvest, the producer 
must be notified that the insurance provider is exercising its right to 
extend the time.
    Comment: A commenter stated the phrase ``length of the field'' is 
not defined in section 14(a)(3) (Your Duties) and may be interpreted 
differently with different dimensions, shapes, and planting patterns of 
the field. A few commenters suggested further consideration of the 
following: (a) Usage of the term field with respect to leaving 
representative samples may require clarification because, per the 
revised definition of ``field,'' a field could include multiple crops; 
and (b) The length of the field could be interpreted to be row 
direction or longest point from one end to another, and leaving strips 
perpendicular to row direction could be impractical.
    Response: ``Field'' is defined and the provision is clarified to 
indicate that the samples must be the length of the rows, if the crop 
is planted in rows, or, if the crop is not planted in rows, the longest 
dimension of the field. The provision has been further clarified to 
specify the crop within each field because units may have multiple 
fields. FCIC also agrees it would not be practical to leave strips 
perpendicular to row direction. Therefore, FCIC has revised the 
provisions as stated above.
    Comment: A commenter recommended the word ``investigation'' be 
replaced with the word ``adjustment'' in section 14(a)(4) (Your 
Duties). A few commenters recommended the word ``written'' be inserted 
following the word ``obtain'' in section 14(b) (Your Duties). Another 
commenter stated written consent for and written notification of the 
actions listed in section 14(b) (Your Duties) should be required.
    Response: Since no changes to section 14(a)(4) (Your Duties) were 
proposed, no changes were required as a result of conforming 
amendments, and the public was not provided an opportunity to comment 
on the recommended change, the recommendation cannot be

[[Page 48700]]

incorporated in the final rule. No change has been made.
    Comment: A commenter supports the provision proposed in section 
14(c) (Your Duties) that allows written requests for extensions. The 
commenter also recommended the standard under which such requests will 
be reviewed should be set forth. A commenter stated the extension 
period proposed in section 14(c) (Your Duties) should not be adopted. 
The commenter stated that sixty days is more than sufficient time for 
producers who disagree with the insurance provider's adjustment of 
their loss to assemble and submit all data and analysis available to 
support the producer's determination of an appropriate adjustment. They 
believe the requirement that providers consent to extensions will be 
abused and manipulated as a result of normal market forces, and will be 
ignored by finders of fact, with the result that producers who claim 
``a good reason'' for submitting data and documentation of their claim 
a year after the insurance period will be permitted to do so and 
insurance providers will have no meaningful way to address that data 
and documentation regarding a crop long since rendered inaccessible and 
conditions that no longer exist.
    Response: There may be circumstances beyond the producer's control 
that could prevent the determination of the amount of the loss within 
the 60 day time period after the end of the insurance period, such as 
the unavailability of crop settlement records. Further, notice of 
damage must be provided within 72 hours of the discovery of such damage 
and not later than 15 days after the end of the insurance period. 
Therefore, the insurance provider has the opportunity to inspect the 
acreage or access the other documentation prior to the claim being 
filed. The provision has been revised to clarify that extensions can 
only be granted if the amount of the loss cannot be determined within 
the time period because the information needed to determine the amount 
of the loss is not available. This should eliminate any potential 
abuse.
    Comment: A commenter suggested the word ``other'' should be deleted 
following the words ``complying with the'' in section 14(c) (Your 
Duties). The commenter views the requirements of subsections (a) and 
(c) to establish separate obligations of insureds, and they believe 
applicable judicial precedents dictate this view. They added that 
FCIC's proposed addition of the word ``the'' makes the use of ``other'' 
superfluous.
    Response: FCIC agrees and has revised the provision accordingly.
    Comment: A commenter suggested adding the words ``we will assist 
you in preparing a claim for indemnity'' in section 14(c) (Your 
Duties).
    Response: Certain information required to complete a claim is 
provided by the insured while the insurance provider provides other 
needed information. The suggested language does not help clarify the 
necessary steps or the claims process in general. Therefore, no change 
has been made.
    Comment: A commenter stated the provisions in section 14(c) (Your 
Duties) are not practical for some crops, for example information 
needed to complete an avocado insurance claim is not known or available 
until after 60 days.
    Response: FCIC is aware there may be circumstances in which 
determinations necessary to finalize a claim cannot be made within 60 
days. This is the justification for adding the extension in writing 
language to section 14(c) (Your Duties) in the proposed rule that 
allows for additional time to submit a claim for indemnity with the 
insurance provider's approval. If individual crops require a longer 
time period, the crop provisions may provide for this. No change has 
been made.
    Comment: A commenter stated that a claim for indemnity referenced 
in section 14(c) (Your Duties) is more commonly referred to as a 
production worksheet. The commenter also asked if this part was even 
necessary.
    Response: Although some insurance providers may use a specific form 
to record and transmit claim information, the claim for indemnity is a 
common generic term used throughout the insurance industry and the 
policy provisions. This is the document that contains all the 
information necessary to pay the claim. The information in section 
14(c) (Your Duties) is necessary as it provides a deadline for insureds 
to submit a claim for indemnity to ensure that claims are not submitted 
years after the fact when it is impossible to verify the cause of loss 
or the records. However, an exception does need to be made for those 
situations where the producer was genuinely prevented from submitting 
the claim timely. No change has been made.
    Comment: Several commenters suggested adding ``s'' after 
``examination'' in section 14(d)(2) (Your Duties) to allow for the 
possibility that more than one sworn statement may be necessary in some 
instances.
    Response: The second paragraph in the heading of the Basic 
Provisions states that unless the context indicates otherwise, use of 
the singular form of the word includes the plural. No change has been 
made.
    Comment: Several comments were received regarding the provision 
proposed in section 14(d)(2) (Your Duties). A commenter stated that 
USDA is not a party to the contract and it has no right to directly 
require the producer to do anything, nor should insurance providers 
suffer the exposure to liability resulting from use of a contract to 
which they are a party as a means through which a USDA employee abused 
a producer or violated the producer's civil rights. They stated that if 
an examination under oath is needed, FCIC should direct the insurance 
provider to conduct such an examination. The commenter does not believe 
a producer should be required to submit to multiple examinations by 
FCIC, FSA, the Office of Inspector General (OIG), whoever else in USDA 
may be interested, and also by the producer's insurance provider, who 
alone has the direct obligation to deliver the program in accordance 
with its requirements. Other commenters stated reference to ``any USDA 
employee'' is too broad and should be more limited.
    Response: Although the contract is between the producer and the 
insurance provider, the Act specifies that FCIC and FSA have oversight 
responsibilities since taxpayer money is involved in the crop insurance 
program, which includes conducting investigations and other fact-
findings. Further, the Office of Inspector General Act authorizes OIG 
to conduct investigations. In addition, insurance providers would not 
be held accountable for the actions of any USDA employee. Any adverse 
decision rendered by an USDA employee is appealable to the National 
Appeals Division. Further, USDA employees who are authorized to conduct 
investigations cannot abdicate their responsibility by allowing the 
insurance provider to conduct the examinations under oath. To the 
maximum extent practicable, USDA employees will coordinate their 
efforts so that multiple examinations are not required. The provisions 
have been revised to limit the reference to any USDA employee 
authorized to conduct investigations.
    Comment: A commenter suggested the words ``by you or your agent'' 
be inserted after ``confirmed'' and ``to us'' after ``writing'' in 
section 14(g) (Your Duties).
    Response: Since no changes to section 14(g) (Your Duties) were 
proposed, no changes were required as a result of conforming 
amendments, and the public was not provided an opportunity to comment 
on the recommended change, the recommendation cannot be

[[Page 48701]]

incorporated in the final rule. No change has been made.
    Comment: A commenter suggested that the words ``and such failure 
affects our ability to accurately adjust the loss'' be added after the 
word ``section;'' in 14(h) (Your Duties). A commenter believes the 
penalty seems out of proportion, particularly when the producer may be 
in an extremely difficult situation due to the aftermath (or ongoing 
nature) of a natural disaster. The commenter recommended graduated 
penalties based on the length of the delay, with provisions for waivers 
for good cause shown. Another commenter stated the proposed provisions 
are very restrictive and should not be a part of this rule. Many 
commenters stated they do not believe an insured should be held 
responsible for the full premium when coverage is denied because of an 
inadvertent failure to meet the much reduced notification deadlines. 
Most of those commenters believe that in such cases, only a modest 
administrative fee is warranted. A commenter recommended the provisions 
be revised to read as follows: ``If you fail to comply with the notice 
requirements and we believe that such failure prejudiced our ability to 
make all determinations required to verify your loss, no indemnity will 
be due.'' A commenter stated that the sanction in section 14(h) (Your 
Duties) of claim denial for not meeting the 72-hour notification 
requirement of a prevented planting claim is troubling because of 
potential extenuating circumstances that could be considered good cause 
for missing the 72-hour requirement. The commenter suggested a monetary 
penalty such as reduced indemnity percentage(s) and/or sanction waiver 
ability for reasonable and justifiable late claim notifications. 
Another commenter objected to the proposed change because they do not 
believe it is legal to charge premium and not offer coverage. A 
commenter questioned how an insured can be charged a premium for 
acreage that was never planted. A commenter recommended that language 
be added to section 14 to expressly state that the insured's duties are 
conditions precedent to the payment of any claim for loss or damage 
under the policy. The commenter added this is important because it 
shifts the burden of proof of compliance with ``Your Duties'' to the 
insured in a disputed situation.
    Response: FCIC agrees that there are circumstances where an 
indemnity, replanting or prevented planting payment should be allowed 
if the insured's failure to comply in a timely manner with the notice 
requirements of section 14 did not preclude the insurance provider from 
accurately determining the loss. FCIC has revised the provision 
accordingly. If failure to comply with the requirements of section 14 
results in the insurance provider's inability to accurately determine 
the loss, a claim cannot be paid since the amount of the insurable loss 
cannot be determined. It is not illegal to charge the full premium for 
planted or prevented planting acreage because the insured still 
received the full benefit of insurance coverage for the crop. However, 
FCIC agrees that there is a discrepancy between the notice of damage 
and the notice of prevented planting. FCIC intended that the exception 
for when a claim can still be adjusted to apply to both. To ensure that 
this exception is consistently applied, it has been added to section 
14(h) and removed from section 14(a)(2). Further, there is no authority 
to impose a modest administrative fee and there is no basis to 
establish a graduated penalty. FCIC agrees that it should be the 
insured's duty to prove compliance with all policy provisions because 
the policy imposes the burden on the insured to comply with the 
requirements and the provisions have been revised accordingly. FCIC has 
also clarified the consequences for such failure.
    Comment: Several commenters recommended deleting the words ``in a 
timely manner'' in section 14(h) (Your Duties), because they feel the 
72-hour requirement covers this.
    Response: FCIC agrees that the provisions contain the requirements 
for providing notice and this section simply states the consequences 
for failing to meet those requirements. The provision has been revised 
accordingly.
    Comment: A commenter believes that section 14 (Our Duties) should 
require the insurance provider to notify the producer if the 
information submitted is incomplete, which the commenter believes 
generally happens in practice.
    Response: Since nothing relating to this recommended change was 
proposed, no changes were required as a result of conforming 
amendments, and the public was not provided an opportunity to comment 
on the recommended change, the recommendation cannot be incorporated in 
the final rule. No change has been made.
    Comment: A commenter recommended that the provisions proposed in 
section 14(a)(3) (Our Duties) be deleted because if there is no basis 
for investigation, this becomes meaningless. They added that it implies 
the insurance provider would have to check with USDA before paying any 
claim to see if there was a USDA investigation under way. The commenter 
further stated that no time limit is set for completion of USDA's 
investigation, which could result in unreasonable delays in 
policyholders receiving valid indemnity payments. Another commenter 
stated the proposed provisions will require RMA to notify insurance 
providers when an insured is under investigation regarding a policy 
with a previous insurance provider.
    Response: FCIC agrees that this provision only applies if there is 
an investigation and has revised the provision to add ``,if 
applicable,''. FCIC agrees that if payment of a claim is to be delayed, 
the insurance provider must be notified. Insurance providers are not 
required to determine whether there is an investigation before paying a 
claim. Investigations are completed as expeditiously as possible. 
However, many investigations are very complex and it would be 
impossible to set specific time limits. Therefore, no time limit can be 
included.
    Comment: Numerous commenters suggested retaining the current 
language in section 14(d) (Our Duties) that was proposed to be deleted. 
One commenter stated the language is extremely valuable for insurance 
providers in court cases, while others added that the Standard 
Reinsurance Agreement allows for approved documents. Another commenter 
stated that removing the reference to the application of FCIC loss 
adjustment procedures in this section will hinder insurance providers' 
ability to defend their conduct in litigation or arbitration. One other 
commenter expanded to say they feel this contract needs to be very 
clear in establishing that both the insurance provider and the producer 
are bound by loss adjustment procedures approved by the Agency. The 
commenter believes that deletion of this section will result in 
producers challenging as inaccurate, unscientific or otherwise 
insufficient the Agency's often very technical and specific 
requirements for determining production, quality and many other issues 
that routinely arise. Another commenter objected to the proposed 
deletion, stating that although there may be a reason to modify 
somewhat the language, as done with the preamble, the concept embodied 
in the existing subsection (d) should remain specifically as a 
provision of section 14. While the commenter believes the preamble is a 
part of the policy and binding contractual language, they are 
concerned, however, that a court may view the matter differently, for 
instance, treating the preamble as merely introductory or explanatory 
language as opposed to a binding contractual

[[Page 48702]]

provision. The commenter added that since the Standard Reinsurance 
Agreement obligates insurance providers to follow FCIC's prescribed 
``or approved'' procedures, there is no reason to delete this 
obligation from the description of insurance providers' loss adjustment 
duties as described in section 14.
    Response: To avoid any confusion regarding the legal affect of 
putting the language in the preamble, FCIC agrees to retain the current 
language in section 14(d) (Our Duties). FCIC disagrees that producers 
are bound by the procedures. While the procedures will be used to 
establish the loss, if the loss adjustment procedures impose any burden 
on the producer not contained in the policy, the producer is not bound 
by such procedures.

Clarification of Production Included in Determining an Indemnity 
Provision--Section 15

    Several comments were received regarding section 15(b). The 
comments are as follows:
    Comment: A commenter suggested the policy should be amended to give 
insurance providers the option of paying indemnities based on appraised 
production when a farmer's harvested production is substantially lower 
than the appraised production for the same unit (as determined by a 
growing season inspection).
    Response: FCIC does not agree the insurance provider should have 
the ``option'' of paying indemnities based on appraised production when 
the harvested production is substantially lower than the appraised 
production. The purpose of this provision is to establish that 
harvested production is presumptively more accurate than appraised 
production and should be used to establish indemnities except in those 
situations where the crop is harvested after the end of the insurance 
period. After the end of the insurance period, it is extremely 
difficult to determine whether an additional cause of loss occurred or 
whether the crop simply deteriorated so the appraised production is 
presumptively more accurate. FCIC has revised the provisions to make it 
clearer when appraised production is used and when harvested production 
is used. Further, if it is an issue of the appraisal, the procedures 
allow producers to dispute the appraised amounts through the 
controversial claims process. However, if there has been a growing 
season inspection and the appraised production was significantly higher 
than the harvested production, there may be a need for further 
investigation but the harvested production should not be automatically 
rejected.
    Comment: A few commenters recommended retaining the current 
language in section 15(b) and adding ``If your claim is based on 
appraised production and you later decide to harvest the acreage, you 
must provide us with the amount of harvested production. Claims will be 
adjusted if the harvested production exceeds the appraised production 
and you will be required to repay any overpaid indemnity.'' A commenter 
would like to change the language from ``only if you are not going to 
harvest'' and replace with ``if the crop is not harvested by the end of 
the insurance period.''
    Response: FCIC does not agree the current provisions in section 
15(b) should be retained because the current provisions state the 
amount of production of any unharvested insured crop ``may'' be 
determined based on appraisals, instead of ``will'' be determined based 
on appraisals. This led to confusion in situations where the crop was 
later harvested after the crop was appraised and indemnities may have 
been paid. However, FCIC has revised the proposed provision to remove 
the term ``only'' in the first sentence because it created an 
inconsistency. Appraised production will be used to calculate the claim 
if the insured does not harvest the acreage, or if the insured later 
decides to harvest the acreage after the end of the insurance period 
and the harvested production is less than the appraised production. 
FCIC has also revised the fourth sentence of the proposed provision, to 
clarify that claims will be adjusted using the harvested production, if 
the harvested production exceeds the appraised production.
    Comment: A few commenters believe the new language will leave 
policies open-ended since there is no closure date.
    Response: FCIC agrees there is no closure date or time frame in 
which a producer must harvest the acreage. However, there should be few 
instances in which harvest is delayed for any significant period 
because if the crop is economically viable, the incentive will be to 
remove it as quickly as possible. Further, since the appraised 
production is used if the crop is harvested after the end of the 
insurance period and the harvested production is lower than the 
appraised production, insurance providers are not harmed by the delay 
and producers have the freedom to choose the management practices that 
best suits their operations.
    Comment: A few commenters asked if the insurance provider pays a 
higher indemnity if harvested production is lower than appraised 
production. They also asked if the producer is required to repay 
overpaid indemnities when the harvested production is higher than the 
appraised production.
    Response: When the appraisal occurs at the end of the insurance 
period and the crop is harvested after the end of the insurance period, 
if the appraised production is greater than the harvested production, 
the claim will be paid based on the higher appraised production. 
However, FCIC has clarified that the harvested production may still be 
used if the producer can prove that no additional causes of loss or 
deterioration of the crop occurred after the end of the insurance 
period. Producers will be required to repay overpaid indemnities if the 
harvested production was greater than the appraised production.
    Comment: Several comments were received regarding the meaning of 
the term ``commensurate'' in sections 15(e)(2)(ii) and 15(f)(2)(ii).
    Response: FCIC originally responded in the June 25, 2003, final 
rule that the term was clear. However, subsequent queries have 
demonstrated that although the term may be clear, its application is 
not. FCIC has revised the provision to clarify that the 65 percent 
reduction in the amount of the indemnity will also result in a 65 
percent reduction in the amount of premium owed by the producer.
    Comment: Several comments were received regarding the provisions 
proposed in section 15(j) that require producers to certify production 
has been destroyed before a claim can be paid, when a Federal or State 
agency requires such destruction. One of the commenters stated 
producers that are no-till farming need flexibility to leave appraised 
crops standing. Several other commenters asked if there was a conflict 
between the Federal and State agency's decisions, whose decision rules.
    Response: The provision is only applicable if there is an injurious 
disease present. If any State or Federal agency requires the crop to be 
destroyed, then the producer is required to destroy the crop, 
regardless of whether the producer used no-till or any other production 
methodology. However, if the State or Federal agency only requires 
destruction of the production, then the producer could leave the plants 
standing. FCIC has revised the provisions to allow for this 
distinction. If either a State or Federal agency requires destruction, 
destruction must occur before a claim can be paid.

[[Page 48703]]

Clarifications of the Prevented Planting Provisions--Section 17

    Many general comments were received regarding proposed prevented 
planting changes. The comments are as follows:
    Comment: A few commenters stated that while improvements and 
simplification in prevented planting provisions are long overdue, they 
believe that producers and the insurance industry would be better 
served if RMA deferred action on this section until the agency has an 
opportunity to fully evaluate the input and recommendations from the 
Prevented Planting Forums.
    Response: Based on the comments received regarding proposed changes 
to the prevented planting provisions, FCIC has decided to defer action 
on most of the proposed prevented planting proposed changes until it 
has an opportunity to fully evaluate other possible solutions. Any 
other recommended changes would be proposed in the Federal Register and 
the public would be provided an opportunity to comment. FCIC was 
required to make certain prevented planting changes that were mandated 
by ARPA. Those changes were included in the Final Rule FCIC published 
in the Federal Register on June 25, 2003. Additionally, while FCIC has 
agreed to defer most of the proposed prevented planting changes, as 
stated more fully below, it has decided to incorporate proposed changes 
to prevented planting provisions that are necessary to protect program 
integrity.
    Comment: Several commenters stated it is now widely acknowledged 
that current rules are impractical for many prevented planting 
situations, particularly those related to extended drought and that RMA 
has established Prevented Planting Work Groups to provide the agency 
with guidance on the development of new prevented planting provisions. 
The commenters believe RMA should refrain from promulgating any 
prevented planting changes until the Prevented Planting Work Groups 
have completed their work, except for those necessary to implement 
other provisions (e.g., the ``double insurance'' provisions mandated by 
ARPA).
    Response: See response to first comment under this section.
    Comment: A commenter stated they would like to see an entirely 
fresh approach taken with regard to prevented planting. They understand 
that work groups have been, or are being, formed to discuss alternative 
approaches or changes to the current language, and stated that if it 
has not been considered, there should be a representative from each 
Standard Reinsurance Agreement holder included in these workgroups. 
They offer the following as several alternatives to the current and 
proposed language: (a) Abandon the idea of eligible acres by crop; (b) 
abandon the idea of rolling prevented planting acres to another crop; 
and (c) establish the idea of a ``window of opportunity'' something on 
the order of ``According to NASS Crop Reporting District, you must have 
been unable to do fieldwork on a minimum of 70 percent of the days from 
the earliest planting date on the policy to the end of the late 
planting period on the policy.'' The commenter stated that an idea like 
this would establish a defined area that is either eligible or 
ineligible for prevented planting payments and that it would also 
promote planting, such as a subsequent crop after the final planting 
date for some earlier crop.
    Response: See response to first comment under this section.
    Comment: A commenter noted there were numerous proposed changes in 
the prevented planting provisions. They are also aware that an RMA-
backed prevented planting work group is being formed to address 
possible solutions to current prevented planting issues. The commenter 
suggested that it may be best to minimize the prevented planting 
changes being made in the new policy until the work group has a chance 
to complete its work, then make one, rather than two, changes to 
prevented planting provisions and the associated procedures. They 
stated that while the current prevented planting provisions and 
procedures have their problems, there will be a tremendous amount of 
cost, training and learning curve associated with changes, and they 
believe going through that process one time rather than two times may 
be the most prudent approach. The commenter generally believes that RMA 
should wait for the prevented planting work group to finish its work 
and provide recommendations before any prevented planting provisions 
are changed. They believe the current provisions are nearly impossible 
to administer but they do not believe the proposed provisions are any 
better. They believe there may be benefit to only going through the 
pain of one change rather than two changes.
    Response: See response to first comment under this section.
    Comment: A commenter stated that prevented planting provisions need 
simplification and a concise determination of what qualifies. They 
stated the provisions continue to show vagueness and subjectivity as to 
what is supposed to be eligible. They believe now is the time to 
improve this part of the provisions that have been a burden on all 
parties. The commenter feels the use of seven pages of a forty-page 
document should be a good indication of the complexity of prevented 
planting coverage. The commenter believes serious consideration should 
be given to delaying these proposed provisions if for no more reason 
than to rectify the issues with prevented planting. The commenter 
stated producers want to plant a crop. However if they cannot, they 
want to know what they can collect. They stated it is difficult to 
provide an answer without going through a major process. The commenter 
also believes consideration should be given to the following: (a) The 
prevented planted acreage; (b) the insured peril; (c) acreage left as 
black dirt should be paid an amount low enough to encourage producers 
to plant if at all possible; and (d) the crop to be paid on would be 
the largest planted acreage crop in the producer's database for any 
such acreage prevented from being planted. The commenter stated there 
does not appear to be any valid reason to determine if a loss caused by 
perils covered under the policy for one insured should be based on what 
other producers did or did not do. The commenter asked if insureds get 
paid a fire loss on their homes based upon if the neighbors did or did 
not have a loss on their homes. They also asked if hail losses are paid 
to an insured based upon the hail his neighbor received. They further 
asked why FCIC thinks they have to determine an insured's claim based 
on others and asked if this was the intent of Congress when prevented 
planting was requested to be covered.
    Response: See response to first comment under this section.
    Comment: A few commenters do not agree with the new prevented 
planting provisions. They believe the current prevented planting 
provisions are already an administrative nightmare and are difficult to 
understand without introducing additional options. The commenters 
recommended retaining the current provisions as they are until the 
prevented planting provisions can be simplified.
    Response: See response to first comment under this section.
    Comment: A commenter stated they support the long discussed idea of 
a flat payment per acre. The commenter stated this approach could also 
use NASS data based on average land rental rates by Crop Reporting 
District.
    Response: See response to first comment under this section.

[[Page 48704]]

    Comment: A commenter noted that provisions contained in section 
17(a)(1) require that the insured was prevented from planting the 
insured crop, ``due to an insured cause of loss that is general in the 
surrounding area and generally prevents other producers from planting 
acreage with similar characteristics. Failure to plant at any time on 
or before the final planting date when other producers in the area with 
acreage with similar characteristics are planting will result in the 
denial of the prevented planting claim provided that such planting 
constitutes a good farming practice.'' The commenter stated this 
requirement presumes there is one sound and correct practice that 
constitutes ``good planting practices.'' They believe this requirement 
pits one producer against another as the resultant successful practice 
is not known until well after a crop is planted or is considered 
prevented from being planting. In this regard, the commenter suggested 
that in light of the fact that RMA is organizing a ``Prevented Planting 
Forum,'' that resolution of this issue be postponed until RMA further 
reviews the issue.
    Response: See response to first comment under this section.
    Many comments were received regarding provisions proposed in 
section 17(a)(1). The comments are as follows:
    Comment: A few commenters believe the term ``general in the 
surrounding area'' is vague, ambiguous, and cannot be administered 
without specific guidelines. A commenter stated the proposal's use of 
``general in the surrounding area'' is unworkable. They believe a 
reasonableness standard coupled with an objective definition of ``good 
farming practice'' as previously proposed should be substituted. They 
suggested the following language, ``(1) In view of the geography, 
topography, soil types, weather conditions and exposure, it was not 
reasonable and would not have been a good farming practice, for you to 
plant the insured crop on the insured acreage due to an insured cause 
of loss. (Failure to plant at any time on or before the final planting 
date when it would have been reasonable and a good farming practice to 
plant will result in denial of a prevented planting claim).''
    Response: FCIC has deferred most of the changes proposed in section 
17(a)(1) until it has an opportunity to fully evaluate other possible 
solutions. Any alternatives will be proposed in the Federal Register 
and the public will be provided an opportunity to comment. However, 
there is a program integrity issue that arises when producers are able 
to plant the crop on some or all of the days early in the planting 
period but elect not to do so until the end of the planting period, 
where adverse weather may prevent them from planting. Producers should 
not receive a prevented planting payment if the producer elected not to 
plant on those days other producers in the area were planting. If a 
producer has been planting crops throughout the planting period when it 
was possible, but weather conditions prevented further planting, the 
producer would still be eligible for a prevented planting payment. In 
response to comments applicable to the June 25, 2003, final rule, the 
term ``area'' is now defined. FCIC has revised section 17(a)(1) 
accordingly.
    Comment: A commenter stated the proposed changes will be 
unenforceable in litigation or in arbitration. They stated the Special 
Provisions establish a planting period, the conclusion of which is 
marked by the final planting date, and that accordingly, an insured who 
plants by the final planting date is eligible for insurance (provided 
that the insured satisfies all other conditions of the policy). The 
commenter noted however, that subsection (a)(1) suggests that, for the 
purposes of prevented planting, the final planting date may be 
irrelevant and that an insured, to maintain eligibility for prevented 
planting, must have planted by some arbitrary date that may be a day, a 
week, or a month before the final planting date. They believe that 
unless a latter-day Nostradamus participates in the Federal crop 
insurance program, neither FCIC, the insurance providers, nor insureds 
have the ability to anticipate the possibility of future conditions 
that may prevent planting.
    Response: See response to first comment under this subsection.
    Comment: A commenter suggested deleting everything after the word 
``loss'' in the second line, because they believe everything else is 
subjective and not defensible. They stated that if the proposed 
language stays, RMA should issue its up front timely determination on a 
by area basis of what will be considered acceptable prevented planting 
locations and situations. They feel insureds and agents must be able to 
know what the rules and expectations are at the time possible prevented 
planting conditions exist and cannot be subjected to after the fact 
second guessing, particularly in situations where some are planting and 
some are not in the same conditions. The commenter recommended that a 
subsection (iii) be added to specify that an insured should only get 
paid prevented planting one time, not consecutive years for the same 
cause of loss (for example, the same potholes that are filled with 
water every year).
    Response: See response to first comment under this subsection.
    Comment: A commenter stated that the proposed change is a good 
improvement regarding initial planting period.
    Response: See response to first comment under this subsection.
    Comment: A few commenters stated language should be added that an 
insured must be prevented from planting during the regular planting 
period prior to the final planting date to be eligible for payment in 
the late planting period.
    Response: See response to first comment under this subsection.
    Comment: A few commenters recommended a requirement be included 
that a producer must show that an effort was made to plant when 
conditions were favorable. A few commenters believe the phrase 
``generally prevents other producers from planting * * *'' suggests 
there could be situations where some producers are eligible for 
prevented planting payments even though other producers in the area 
were able to plant. A few commenters stated the parenthetical statement 
following is absolute and that this needs clarification.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated that allowances should be made for 
eligible prevented planting payments and planted acres. A few 
commenters stated the policy should be absolutely clear as to whether 
insurable and planted acreage can exist in the same area. A commenter 
stated they realize the language for prevented planting was written in 
the farm bill, however they suggested to address abuse, the provisions 
should require that to qualify for prevented planting, a producer must 
be prevented from planting during the initial planting period. The 
commenter also believes that prevented planting claims should not be 
allowed until the midpoint in the late planting period has passed.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated the language does not clarify whether 
or not the farmer must initially be prevented from planting during the 
original planting period. A few commenters recommended a specific date 
should be established to remove the guesswork. One of the commenters 
stated that prevented planting, as a general matter, requires 
continuing analysis with a view to maintaining program integrity, being

[[Page 48705]]

able to offer a sound insurance product, and having a clearly 
understood program.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated it is their general position that 
prevented planting claims should be allowed if a producer is prevented 
from planting by the end of the documented planting window. They 
believe that to expand the requirement further puts RMA in the position 
of dictating management practices and other decisions that are solely 
the responsibility of the producer. However, they do not believe RMA 
should simply look away from situations where there is an indication 
that committing fraud was the main objective, especially those 
situations where an individual is clearly pushing the edge of the 
envelope in regard to planting activities in the surrounding area.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated the provisions specify that ``Failure 
to plant at any time * * * will result in the denial of the prevented 
planting claim. The surrounding area includes * * *'' They asked who 
determines that everyone else should have been planting when a drought 
may be in effect. They stated that perhaps the other producers should 
not have been planting to collect their full guarantees. The commenter 
stated that some people will virtually always plant, because that it is 
what they have always done even though it may not be a ``good farming 
practice.'' They believe the Colorado statement on prevented planting 
is very good.
    Response: See response to first comment under this subsection.
    Comment: A commenter stated that the proposed language requires a 
producer to have been prevented from planting the entire planting 
season which could penalize the producer who in the early part of the 
planting season, waits on better planting conditions, and finds later 
in the season planting is impossible.
    Response: See response to first comment under this subsection.
    Comment: A few commenters were concerned about inequitable 
treatment between replant requirements and prevented planting 
requirements. A few of the commenters believe both situations should be 
treated similarly while one of the commenters stated that consistent 
requirements would help simplify the program.
    Response: There are different planting requirements between 
prevented planting and replanting. However, the purpose for the payment 
and the circumstances are significantly different and warrant different 
treatment. When acreage that is prevented from being planted is planted 
during the late planting period, the guarantee is reduced for every day 
that the crop is late planted. Such reductions do not apply to crops 
replanted during the late planting period. Further, prevented planting 
payments are based on the expected costs incurred in the preparation of 
planting and are usually limited to 60, 65 or 70 percent of the 
production guarantee for planted acreage. In contrast, once the crop is 
planted during the initial planting period, policyholders are eligible 
for payment based on 100 percent of the production guarantee. In 
addition, when it is practical to replant the crop, the policyholder 
does not have a loss other than the cost of replanting. The purpose of 
a replant payment is to cover such costs. Therefore, it is reasonable 
to require policyholders to replant in the late planting period because 
they will still receive the full benefit of insurance for which they 
paid the full premium. However, policyholders who are prevented from 
planting would receive reduced benefits even if they were required to 
plant during the late planting period and they paid a full premium. No 
change has been made.
    Comment: A commenter stated that under the notice of loss section, 
the insured must give notice of prevented planting and in section 
17(a)(2) it appears he must give a prevented planting acreage report. 
The commenter asked if there is a deadline for the prevented planting 
acreage report.
    Response: Current provisions contained in section 17(a)(2) require 
prevented planting acreage to be included on the insured's acreage 
report. Therefore, the deadline would be the acreage reporting date 
specified in section 6(a).
    Comment: A commenter stated the burden of the provisions contained 
in section 17(a)(4) should be on FCIC to withdraw the offer of 
insurance if these conditions exist in a specific area or for a 
specific crop. They believe if that happens, FCIC should provide timely 
notice to insurance providers and the public that its offer of 
insurance or increases in coverage is withdrawn.
    Response: FCIC believes the commenter is referring to current 
provisions contained in section 17(b)(4). Since no changes to section 
17(b)(4) were proposed, no changes were required as a result of 
conforming amendments, and the public was not provided an opportunity 
to comment on the recommended change, the recommendation cannot be 
incorporated in the final rule. No change has been made.
    Comment: A few commenters believe coverage at the 60 percent level 
should be reduced to 50 percent. A few commenters stated that buy-up 
coverage for prevented planting should be eliminated. One of the 
commenters believes this change would address the current abuse created 
by the moral hazard of too great an incentive not to plant. A commenter 
recommended that the option to increase prevented planting coverage by 
an additional five or ten percent be eliminated in section 17(h)(1). 
They believe the base coverage provided is already too much incentive 
to not plant. A few commenters believe the incentive to not plant is 
too great. A commenter stated prevented planting, as a general matter, 
requires continuing analysis with a view to maintaining program 
integrity, being able to offer a sound insurance product, and having a 
clearly understood program. The commenter believes that in certain 
situations, the highest available coverage level is such that it may 
serve as an incentive not to plant which leads to vulnerability to 
program abuse when a producer perceives it more profitable not to plant 
rather than to incur the additional costs of planting and tending a 
crop through harvest. Another commenter stated that reducing the 
incentive to not plant (reducing the amount of prevented planting 
payments) would likely reduce the tendency of growers to ``stop'' 
trying to get a crop planted when conditions are less than ideal.
    Response: Since no changes to the prevented planting coverage 
levels were proposed, no changes were required as a result of 
conforming amendments, and the public was not provided an opportunity 
to comment on the recommended change, the recommendation cannot be 
incorporated in the final rule. No change has been made.
    Comment: A commenter suggested RMA consider declaring areas or 
counties eligible for prevented planting due to drought which would 
allow producers within the area who choose not to plant to receive a 
prevented planting payment. They stated this would be similar to the 
Palmer Drought Index that was previously used, except it would be more 
precise and could be based on information from FSA, Natural Resources 
Conservation Service (NRCS), and the Extension agents reported to the 
RMA/Regional Office.
    Response: Since no such changes to the prevented planting 
provisions related to drought were proposed, no changes were required 
as a result of

[[Page 48706]]

conforming amendments, the public was not provided an opportunity to 
comment on the recommended change, and only technical amendments were 
proposed, the recommendation cannot be incorporated in the final rule. 
No change has been made.
    Comment: A commenter stated that FCIC should prohibit insureds from 
filing prevented planting claims based on drought in successive years.
    Response: Since no such changes to the prevented planting 
provisions related to drought were proposed, no changes were required 
as a result of conforming amendments, the public was not provided an 
opportunity to comment on the recommended change, and only technical 
amendments were proposed, the recommendation cannot be incorporated in 
the final rule. No change has been made.
    Comment: A commenter asked how the possibility of inadequate 
irrigation water from reservoirs or other water facilities will be 
addressed in terms of prevented planting.
    Response: Inadequate water from reservoirs or other water 
facilities is already addressed in the current provisions of section 
17(d), which discusses failure of the irrigation water supply. Since 
only technical corrections were proposed, no changes were required as a 
result of conforming amendments, and the public was not provided an 
opportunity to comment on any changes, no additional changes can be 
incorporated in the final rule. No change has been made.
    Comment: A few commenters stated the provisions in section 17(d) 
need to be consistent with other sections that require qualification 
for the entire planting period rather than the final planting date. A 
commenter recommended that the words ``or within'' be changed to the 
words ``or throughout.'' A commenter stated that as they expressed 
previously regarding the definition of ``prevented planting,'' section 
17(d) does not clarify whether or not the farmer must initially be 
prevented from planting during the original planting period. They 
believe it appears the farmer must be prevented from planting 
throughout the entire planting period to be eligible for prevented 
planting coverage during the late planting period. Commenters also 
believe that ``drought'' and ``normal precipitation'' for prevented 
planting purposes need to be defined.
    Response: There is no need for a conforming amendment to require 
the inability to plant throughout the planting period. To qualify for 
coverage under section 17(d), the cause of loss of drought must 
continue over a prolonged period and there must be insufficient soil 
moisture. Therefore, by its very terms, those conditions must exist 
throughout the planting period. The reference to the final planting 
date is simply to provide the date on which the conditions stated in 
section 17(d) must exist. Since no changes to the terms ``drought'' and 
``normal precipitation'' were proposed, no changes were required as a 
result of conforming amendments, and the public was not provided an 
opportunity to comment on the recommended change, the recommendation 
cannot be incorporated in the final rule. No change has been made.
    Comment: A few comments were received regarding section 17(d). A 
commenter suggested striking ``if you elect to try to plant the crop'' 
from the last sentence. A commenter suggested changing the words 
``final planting date'' to ``late planting date.''
    Response: Since only technical corrections were proposed to section 
17(d), no changes were required as a result of conforming amendments, 
and the public was not provided an opportunity to comment on the 
recommended change, the recommendation cannot be incorporated in the 
final rule. No change has been made.
    A few comments were received regarding section 17(d)(1). The 
comments are as follows:
    Comment: A few commenters stated the term ``toward crop maturity'' 
is an undeterminable and ambiguous term.
    Response: Since only a technical correction was proposed to section 
17(d)(1), no changes were required as a result of conforming 
amendments, and the public was not provided an opportunity to comment 
on the recommended change, the recommended changes cannot be 
incorporated in the final rule. No change has been made.
    Comment: A commenter suggested deleting the words ``or progress 
toward crop maturity.'' They believe this change would make the 
determination of prevented planting due to drought easier.
    Response: See response to first comment under this subsection.
    Comment: A commenter believes the provisions are totally 
subjective. They believe RMA should issue these determinations up front 
to providers and policyholders for the locales where the determination 
applies. The commenter does not believe agents should be subjected to 
the error and omission exposures this language creates, and that 
insureds should know up front how the policy will react when these 
conditions exist.
    Response: See response to first comment under this subsection.
    Comment: A few commenters stated the term ``germination of seed'' 
is an ambiguous term and leaves much guesswork. They stated that 
insurance providers are not able to determine ``good farming 
practices,'' and that the provisions seem to require that FCIC provide 
a determination in time for the grower to make an accurate decision. 
One of the commenters stated recent FCIC interpretation through FAD-012 
has attempted to incorporate a sense of ``good farming practice'' as a 
criteria for prevented planting eligibility due to drought, i.e., if it 
is a ``good farming practice'' to plant, then one should not be 
prevented, and vice versa. They stated the difficulty is that the 
policy also provides coverage for planted acreage that fails due to 
drought. The commenters added that the policy does not define drought, 
nor does it adequately describe the severity of dryness needed in order 
to qualify for prevented planting coverage and therefore, drought needs 
to be defined. They believe eligibility for prevented planting due to 
drought should be viewed as a significantly harsh weather-related 
condition and that eligibility needs to be based on NRCS or other 
governmental agency declaration that soil should not be disturbed due 
to dry conditions or the insured is physically unable to properly 
prepare the seed bed (as verified by an adjuster) due to dry 
conditions.
    Response: See response to first comment under this subsection.
    Several comments were received regarding section 17(d)(2). The 
comments are as follows:
    Comment: A few commenters stated that FCIC should determine whether 
``reasonable expectation'' exists prior to the time the decision must 
be made. They stated the policy states that there must not be a 
``reasonable expectation'' of having adequate water to carry out an 
irrigated practice. They believe with the myriad of informational 
sources available with respect to irrigation water and agriculture, the 
provision leaves both the policyholder and insurance provider open to 
subjectivity and second-guessing. They believe that in situations where 
water availability is controlled by water districts (e.g., reservoirs, 
canals, etc.), RMA should be required to facilitate the distribution of 
available water resource data, which would provide for consistent 
information being provided to all insurance providers. The commenters 
believe that existing policy language

[[Page 48707]]

was adequate with respect to individuals who relied on their own water 
sources (e.g., wells) as these situations need to be handled on a case-
by-case basis. A few of the commenters believe if access to the water 
supply is adversely affected and the cost of modifying equipment to 
obtain the irrigation water equals or exceeds the indemnity, such 
modification should not be required, even though actual failure of the 
water supply may not have occurred. Another commenter stated the policy 
language is vague relative to insurability for prevented planting. A 
commenter believes the provisions proposed are totally subjective and 
that RMA should issue these determinations up front to providers and 
policyholders for the locales where the determination applies. They do 
not believe agents should be subjected to the error and omission 
exposures this language creates. The commenter stated that insureds 
should know up front how the policy will react when these conditions 
exist. A commenter stated they would expect FCIC to determine whether 
the expectation exists prior to the time when the decision must be 
made.
    Response: With respect to the recommendations that FCIC make the 
determinations of whether the producer had a reasonable expectation, 
many of these decisions are made on a case by case basis because 
individual circumstances can vary significantly. FCIC does not have the 
information (local weather data, available water or other information 
from irrigation districts, etc.) or personnel to make decisions on an 
individual producer basis. The insurance provider would have a much 
greater access to local conditions and the availability of water. No 
change has been made.
    Comment: A few commenters believe the change from ``reasonable 
probability'' to ``reasonable expectation'' simply is a bad idea. They 
believe the former is objective and the latter is subjective. They 
stated that while weather bureau records can establish whether there is 
a ``reasonable probability'' of adequate water, only the producer's 
psychiatrist can state whether that producer had a ``reasonable 
expectation.'' The commenter suggested section 17(d)(2) be revised to 
read as follows: ``(2) For irrigated acreage, you have not been 
notified by the supplier(s) upon whom you intend to rely for irrigation 
water that the supplier(s) does(do) not expect sufficient water will be 
available to you at appropriate times throughout the growing season to 
constitute a good farming practice for the insured crop on the insured 
acres.''
    Response: FCIC proposed to amend section 17(d)(2) to only replace 
the word ``probability'' with the word ``expectation'' to conform to 
other policy provisions, such as section 9(b). It was not intended to 
change the meaning of the provision. FCIC agrees that there is a degree 
of subjectivity in both terms. It is impossible to totally remove the 
subjectivity because there is no way to know for certain at the final 
planting date whether the producer will have adequate water to irrigate 
the crop for the remainder of the crop year. Too many factors are 
unknown. However, FCIC will clarify when there is no reasonable 
expectation. The information used to determine whether or not there is 
a reasonable expectation must be from objective sources such as weather 
stations, reservoir levels, snow pack measurements, etc. Subjective 
information, such as letters from water districts that are not 
supported by the other evidence, will not be sufficient to establish a 
reasonable expectation.
    Comment: A commenter stated that the provisions proposed in section 
17(e) are entirely too complex for the average agent or insured to 
understand.
    Response: Since the commenter did not reference any specific 
provisions contained in section 17(e) that they believe are complex or 
difficult to understand, FCIC cannot respond or make any specific 
changes as a result of this comment. As stated above, FCIC has elected 
not to make the proposed changes unless they are necessary to protect 
program integrity. FCIC elected to incorporate the proposed changes to 
section 17(e)(1)(i)(A) into the final rule to clarify that prevented 
planting payments cannot be collected on uninsurable acreage. If the 
acreage is not insurable, it cannot be used to determine eligible 
acreage for the purposes of prevented planting. The proposed changes to 
section 17(e)(1)(ii)(A) have been incorporated into the final rule 
because some prevented planting payments may have been allowed on the 
maximum number of acres specified in the processor contract even though 
the processor contract only guaranteed to accept production from a 
minimum number of acres and acceptance of any production from acreage 
above the minimum was optional or conditional. Further, there were 
instances where processors canceled contracts because the acreage was 
prevented from being planted, which, under the existing language, could 
render the acreage ineligible for prevented planting. This outcome 
would render the prevented planting coverage useless for such 
producers.
    Comment: A commenter recommended the provisions proposed in section 
17(e) be revised as follows: (1) Near the end of the statement in the 
first column, insert a comma after ``available'', delete ``or'' and 
insert ``or elect to use another growers APH records'' after the word 
``guarantee'; and (2) At the end of the statement in the second column, 
insert a comma after ``available'', delete ``or'' and insert '', unless 
you elect to use another growers APH records'' after the word 
``guarantee.''
    Response: Since no changes to these provisions were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    A few commenters suggested that section 17(e)(1)(i)(A) be revised 
as follows:
    Comment: Near the beginning of the first sentence, insert the words 
``in any one of the 4 most recent crop years'' after the word 
``purposes.''
    Response: FCIC has revised the provision to clarify that the phrase 
``in any one of the 4 most recent crop years'' applies to both the 
acres certified for APH purposes and the insured acreage reported.
    Comment: In the last sentence, insert the words ``during the normal 
planting period'' between the words ``planting'' and ``may.''
    Response: The issue involves whether the crop has been prevented 
from planting and such determinations can only apply to the period in 
which the crop is normally planted. No change has been made.
    Several comments were received regarding section 17(f)(1). The 
comments are as follows:
    Comment: A few commenters recommended removing the entire 
parenthetical statement and adding language specifying payment or per-
acre liability would not exceed that of the crop that is planted or 
reported for prevented planting. One of the commenters further stated 
the provision's ``20/20'' rules attempt to prevent a producer from 
claiming small acreages within a unit for prevented planting or from 
claiming small acreages within a ``field'' to a crop, type and practice 
different from any crop already planted in a ``field.'' They believe 
the provision contains qualifiers that are burdensome and complicated 
to administer, when in reality, the provision can be easily 
circumvented by the producer. Therefore, they feel the

[[Page 48708]]

provision is of little benefit. A commenter recommended the section be 
removed because they believe it is confusing and impossible to 
administer. They believe the objective of the removed language could be 
simply accomplished by revising this section of the proposal to provide 
that any per-acre liability for prevented planting would not exceed the 
per-acre liability of the planted portion of the field.
    Response: The proposed change is incorporated into the final rule 
because it is necessary to protect program integrity. There has to be 
means to determine the crop considered prevented from being planted 
when acreage in the field has been planted without penalizing producers 
for their normal planting practice, which may include planting separate 
crops within the field. Further, without this change, it is possible 
for prevented planting payments to be made for crops on acreage that 
would otherwise not be insurable because of rotation requirements or 
processor contract requirements. However, FCIC will look for ways to 
reduce the complexity while still maintaining program integrity. FCIC 
will consider the recommended change to add language to limit liability 
to that of the planted crop or the crop reported from being prevented 
planting. To be consistent with ARPA, FCIC also added provisions to 
handle those situations where the producer was prevented from planting 
a first insured crop and plants a second crop on the acreage. FCIC 
realizes there may be ways to circumvent the requirements and is 
working diligently to resolve this problem.
    Comment: A commenter stated that as written, section 17(f)(1) is 
confusing and contains ambiguities that render the subsection amenable 
to different, reasonable interpretations. They believe this confusion 
is exacerbated by the parenthetical, which they suggest be subdivided 
into additional subsections.
    Response: FCIC has subdivided the parenthetical into different 
sections to make it more easily read and understood.
    Comment: A commenter suggested putting a period after the word 
``unit'' which would thereby eliminate rolling acreage from one crop to 
another. The commenter believes this recommendation would greatly 
simplify the provisions.
    Response: Ending the provision at ``unit'' would not solve the 
problem of rolling acreage from one crop to another because eligible 
acreage for a crop is still limited in section 17(e) and there must be 
a determination of the basis on which the remaining prevented planting 
acreage would be paid. FCIC is looking at other ways to simplify these 
provisions. No change has been made in response to this comment.
    Comment: One commenter suggested the word ``is'' be changed to the 
word ``acreage'' in section 17(f)(3).
    Response: FCIC agrees the word ``is'' is not necessary in the 
provision and has revised the provision accordingly. However, FCIC does 
not believe the word should be replaced with the word ``acreage'' 
because the term ``acreage'' is already stated in the lead-in sentence 
in section 17(f) and would apply to this provision.
    Comment: Regarding provisions proposed in section 17(f)(4), a 
commenter questioned how they will know if another person has received 
a prevented planting payment, because one grower could get a fall 
prevented planting payment while another grower may have the land for 
spring. The commenter suggested that the word ``insured'' be added in 
the third line in front of ``crop.''
    Response: FCIC incorporated the proposed change into the final rule 
published on June 25, 2003. However, it inadvertently omitted this 
comment. ARPA only permits multiple prevented planting payments on the 
same acreage if the double cropping requirements are met. Therefore, 
this determination must be made and it is the producer that would be in 
the best position to have access to the information since the producer 
will either be the landowner or lessee. In either case, the producer 
would know who to contact to determine whether the acreage was 
previously prevented from planting. FCIC has revised the provision to 
clarify that it is the insured's responsibility to determine whether a 
prevented planting payment had previously been made for the acreage 
before receiving a payment. It is not necessary to add the word 
``insured'' before the word ``crop'' in the third line because it would 
not be possible to receive a prevented planting payment for the crop if 
the crop was not insured. No change has been made.
    Comment: Some comments were received indicating the provisions in 
section 17(f)(5) were unclear.
    Response: FCIC originally responded in the June 25, 2003, final 
rule that the section was revised to improve clarity and remove any 
conflict with other provisions. However, FCIC subsequently discovered 
that it failed to incorporate provisions that would allow a crop from 
which no benefit was derived to be planted without consequence to the 
prevented planting payment, just as is allowed for a cover crop. The 
provision has been revised to allow a crop to be planted prior to first 
insured crop that is prevented from being planted, provided no 
insurance or other benefit is derived from the crop.
    Comment: A few commenters believe the language proposed in 
redesignated section 17(f)(6) would seem to be helpful.
    Response: FCIC has incorporated the proposed change into the final 
rule to protect program integrity. Without this change, it would be 
possible for producers to claim they were prevented from planting even 
though they never intended to destroy the forage crop and plant another 
crop.
    Comment: A few commenters recommended that a comma be inserted 
after the word ``practices'' in the parenthetical sentence in section 
17(f)(9), and that the word ``or'' be deleted and the words ``or FSA 
farm plan'' be inserted after the word ``requirements.''
    Response: Since no changes to section 17(f)(9) were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    Comment: A commenter suggested the provision contained in section 
17(f)(9), which requires producers to have inputs available to plant, 
needs to be clarified. They stated that while prevented planting was 
addressed in the proposed rule, this one important subsection is in 
need of clarification and was not addressed. The commenter stated that 
as modes of farming and farm financing change, many limited resource 
producers in particular, buy inputs at the moment they are needed. They 
stated that often times, this purchasing pattern is made necessary by 
lack of dry storage for the inputs. The commenter recommended this 
subsection be revised to clarify that producers must have inputs 
available to plant, which may include having sufficient financing, 
including lines of credit, available to purchase inputs when needed.
    Response: Since no changes to section 17(f)(9) were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    A few comments were received regarding provisions proposed in 
section 17(f)(12). The comments are as follows:

[[Page 48709]]

    Comment: A few commenters believe the term ``could'' is vague. They 
believe the provision will be difficult to enforce. A commenter 
believes the word ``could'' is far too broad in the context of the 
provision and should be revised to state `` * * * a cause of loss has 
occurred that should reasonably be expected to prevent planting.''
    Response: FCIC has incorporated the proposed change into the final 
rule to protect program integrity. Without this change, it would be 
possible for producers to lease or buy acreage on which a cause of loss 
has already occurred in order to obtain a prevented planting payment. 
This would violate the basic tenets of insurance. FCIC has revised the 
provision to specify a cause of loss that has occurred that would 
prevent planting. This change should make the provision more 
enforceable.
    Comment: Commenters also believe the phrase ``or you request 
insurance for the acreage'' is confusing. They stated that prevented 
planting is reported via the acreage report and it is unclear if the 
application and the sales closing date were intended to serve as the 
time by which insurance providers are to be notified. A commenter 
suggested the words ``request insurance'' be changed to ``apply for 
insurance'' because ``request'' could be construed to mean when the 
prevented planting acres are listed on the acreage report, the insured 
is in the process of requesting coverage from the insurance provider. 
The commenter noted that at acreage reporting, a loss has already 
occurred.
    Response: FCIC has revised the provision to clarify that the 
request for insurance only applies to requests for written agreements 
to provide insurance. The date the request for written agreement is 
submitted would be the date to determine whether a cause of loss that 
would prevent planting had occurred, not the acreage reporting date or 
the sales closing date.
    Comment: A commenter believes the provision is subjective and 
questioned how the provider or agent is supposed to know that a cause 
of loss has occurred that will or could prevent planting. The commenter 
stated that if RMA believes conditions exist in an area that warrant 
withdrawal of the insurance offer, it should publicize and make known 
that the offer is withdrawn.
    Response: Section 17(f)(12) is necessary to allow insurance 
providers to deny coverage in those situations where it is clear the 
acreage could never have been planted. Most agents and loss adjusters 
are located far closer to their insureds than FCIC and would be in the 
best position to know the local weather conditions and whether 
significant events had occurred that would preclude the ability to 
plant the acreage. The provision has been revised to make the standard 
less subjective and only require denial when there is a cause of loss 
that would prevent planting.
    Comment: A commenter suggested that the language be replaced 
entirely with wording similar to that used at the end of section 
17(e)(1)(i)(A). The commenter believes the reference to ``otherwise 
acquire'' should surely be removed to prevent the situation of a grower 
operating land a year ago, leasing it last year, getting it back this 
year and calling it added land.
    Response: FCIC has revised section 17(f)(12) and section 
17(e)(1)(i)(A) to make them consistent to the maximum extent practical 
and has restructured section 17(f)(12) to make it easier to read and 
understand. However, there must be language to cover those situations 
such as inheritance or gifts of land. FCIC has revised the language to 
clarify that it is referring to other means of acquiring acreage beside 
lease or purchase. FCIC has also clarified the language to make it 
clear that producers who have leased the acreage in successive years 
will be eligible for prevented planting coverage. It is unnecessary to 
make other changes to address the commenter's hypothetical situation. 
If the producer owned the acreage, leased it to another person and the 
lease expired and the producer regains the acreage, the producer is not 
``acquiring'' the acreage. The producer had already acquired it when 
the acreage was first purchased and it is simply being returned. In 
this situation, the acreage would be eligible for prevented planting 
coverage. In those situations where the producer leased the acreage 
from a landlord, the landlord subsequently leases the acreage to 
another person, and the producer was able to lease the acreage again 
from the landlord, the provisions regarding leased acreage would apply, 
not the ``otherwise acquired'' provisions.
    Comment: A commenter suggested the phrase ``during the normal 
planting period'' be inserted at the end of the sentence.
    Response: The recommended language does not need to be added 
because the prevented planting coverage begins on the current or 
previous sales closing date, which falls outside the time the crop is 
normally planted, and the cause of loss that prevented planting could 
occur at any time during this period. No change has been made in 
response to this comment.
    Comment: A few commenters recommended that language be added in 
section 17(f)(13) to specifically state that for acreage to be eligible 
for prevented planting, it must have been insurable if it had been 
planted.
    Response: Since the suggested language was not proposed, no changes 
were required as a result of conforming amendments, and the public was 
not provided an opportunity to comment on the recommended change, the 
recommendation cannot be incorporated in the final rule. No change has 
been made.
    Several comments were received regarding provisions contained in 
section 17(h). The comments are as follows:
    Comment: A commenter suggested that sections 17(h), 17(h)(1) and 
17(h)(2) be deleted. A commenter recommended that when switching acres, 
only allow those crops of equal or lesser value and only if both crops 
are insured with the same insurance provider. A commenter believes the 
practice of ``rolling'' of crops creates an unacceptable moral hazard 
in connection with prevented planting and that serious consideration 
should be given to its elimination. They stated that if however, the 
practice of ``rolling'' is retained, an insured should not be permitted 
to roll up to a higher paying crop. They do not believe any prevented 
planting payment should exceed that which would have been paid on the 
crop originally reported as prevented planting. The commenter also 
believes that ``rolling'' should only be allowed when both crops are 
insured by the same insurance provider. A commenter suggested the total 
elimination of subsection 17(h) because they believe it is complex, 
burdensome and hard for insureds to understand. They believe the added 
language will be very difficult to track, both for insurance providers 
and RMA. The commenter stated that changing insurance providers is 
possible, therefore the ``rolling'' of acres should somehow be limited 
to ``rolling'' of acres to another crop to the same insurance provider, 
otherwise it becomes impossible to track. A few commenters believe the 
language that introduces the ``rolling'' concept should be removed. 
They believe these provisions that attempt to restrict the number of 
payable prevented planting acres by crop are complicated and difficult 
to understand by the insured, the insured's agent, and insurance 
provider personnel. They added that once understood, the procedural 
process required to determine, by crop, the maximum eligible acres and 
subsequent payable crop acres, once the maximum has been reached, is 
excessively arduous and expensive to administer. A commenter 
recommended that section 17(h) be revised to read as follows: ``If

[[Page 48710]]

we determine you are eligible for a prevented planting payment for a 
crop for which you do not have an adequate base of eligible prevented 
planting acreage, as determined in accordance with section 17(e)(1), 
your prevented planting guarantee or amount of insurance, premium and 
prevented planting will be paid as reported if you have other insured 
crops with eligible prevented planting acres up to the amount of 
liability originally reported for the crop you were prevented from 
planting. The prevented planting liability established for the other 
insured crops in the county will be applied on a dollar amount of 
liability per acre basis until you no longer have other crops with 
eligible prevented planting acres or you have been paid for the full 
amount of the prevented planting liability for the crop you reported as 
prevented planting.''
    Response: FCIC understands there may be concerns regarding section 
17(h). However, FCIC has been unable to determine whether the 
recommendations regarding ``rolling'' acreages, limiting ``rolling'' 
acreages to a lesser value crop or original liability, limiting 
``rolling'' acreages to when both crops are insured by the same 
insurance provider, and total elimination of the ``rolling'' acreage 
provisions would fully address the concerns or add other program 
vulnerabilities. Until FCIC can make such a determination, it would be 
premature to include such changes in this final rule. FCIC will review 
alternatives, including those recommended, to find one that will 
simplify these provisions and still protect program integrity. Since 
FCIC is considering alternatives, it has elected to defer the changes 
proposed in section 17(h);
    Comment: A commenter suggested the word ``insured'' be added 
between the words ``a'' and ``crop.''
    Response: FCIC agrees with the commenters that it may improve 
clarity to add the word ``insured'' before the word ``crop.'' However, 
it has elected to defer the proposed change until a more thorough 
review of prevented planting provisions is completed.
    Comment: A commenter believes the issue of switching to a crop that 
results in the most similar prevented planting payment creates 
considerable uncertainty as to the ultimate monetary impact to the 
insurance provider. They stated this provision provides switching of 
crops that use different plans of insurance that have different Basic, 
Crop, and Special Provisions. They also added it impacts the premium, 
amount of administrative and operating reimbursement caused by 
switching of plans and crops, and fund designations (for example, by 
switching from the Assigned Risk Fund for Crop A to the Commercial Fund 
for Crop B). They also noted that if crops are insured with different 
insurance providers, insurance provider B can be responsible for 
payment of prevented planting acres reported to insurance provider A. 
They believe this provision is confusing for auditors since you are 
switching crops to different databases that are in different legal 
descriptions from where the prevented planting loss occurred. The 
commenter stated this provision does not address how to handle 
situations in revenue plans of insurance when the harvest price is 
higher than the base price and the liability per acre increases, and 
asked if they should roll to the approved yield database using the base 
or harvest price.
    Response: FCIC also does not believe it is necessary to incorporate 
language in the provisions that address how to handle situations in 
revenue plans of insurance when the harvest price is higher than the 
base price. This would be an issue for any prevented planting payment 
made under such plans of insurance. Therefore, nothing in this 
provision increases or decreases the delay that may arise while waiting 
for the harvest price to be established. However, as stated above, FCIC 
is looking at alternatives to the ``rolling'' acreage provisions.
    Comment: With respect to section 17(h)(2), a commenter recommended 
the words ``no prevented planting payment will be made for the 
acreage'' be deleted and replaced with the words ``a prevented planting 
payment will be made based on a guarantee equal to or less than the 
guarantee for the originally reported non-irrigated crop.'' Another 
commenter stated this language could lead to the conclusion that 
eligible prevented planting acres are tied to practice and asked if 
that is the intent of the language.
    Response: FCIC has incorporated the change in the proposed rule 
into the final rule to protect program integrity. Without this change, 
it would be possible for producers to receive prevented planting 
payments based on irrigated crops even though the acreage that was 
prevented from being planted was not irrigated and there was no 
equipment to irrigate such acreage. FCIC is unable to adopt the 
recommended change because FCIC has been unable to determine whether 
the recommendation would fully address the concerns or add other 
program vulnerabilities. Until FCIC can make such a determination, it 
would be premature to include such changes in this final rule. FCIC 
will review alternatives, including those recommended, to find one that 
will simplify these provisions and still protect program integrity. 
Eligible acreage may be tied to a practice only with respect to 
irrigated practice. Current provisions contained in section 17(f)(10) 
prohibit prevented planting coverage based on an irrigated practice 
unless adequate irrigation facilities were in place to carry out an 
irrigated practice on the acreage. Since the provisions only reference 
irrigated and non-irrigated, eligible acreage is not tied to other 
practices, such as summerfallow or continuous cropping.
    Comment: A commenter stated the proposed revisions in section 17 do 
little to clarify what they believe is the most baffling portion of the 
Basic Provisions. They question whether or not an insured is actually 
prevented from planting if the insured is able to plant a substitute 
crop. They stated that an insured either plants or does not, and that 
in the former instance the insured insures the crop, and in the latter 
instance the insured files a claim for prevented planting.
    Response: ARPA specifically provides for a prevented planting 
payment to be made if the insured is prevented from planting a first 
crop even though a second crop is planted on the same acreage in the 
same crop year. No change can be made.

Clarifications to the Written Agreement Provisions--Section 18

    Comment: Several commenters recommended clarifying the situations 
in which price elections can be included in a written agreement, and 
asked if the new language was intended to allow RMA Regional Offices to 
offer higher price elections for organic crops.
    Response: The reason the definition of ``price election'' 
references written agreements is because written agreements are often 
requested when the actuarial documents do not contain the provisions 
necessary to insure the crop. In such cases, the price election used is 
generally the price election established by FCIC for the crop where it 
is insured and it is just transferred from an existing Special 
Provisions or addendum thereto. This is to prevent over-insurance of 
the crop. FCIC did not intend to provide authority to increase the 
price election by written agreement from those that have been announced 
by FCIC. The reference to written agreement in the definition of 
``price election'' may be misleading and FCIC has removed the 
reference. FCIC has also revised section 18 to clarify that price 
elections cannot be revised by written agreement. If price elections 
are

[[Page 48711]]

established by FCIC for organic crops, they will be included with all 
the other price elections on the Special Provisions or addendum 
thereto.
    Comment: Several commenters recommended deleting the language 
contained in section 18(d) that allows a written agreement to be in 
effect for a maximum of 4 years. Another commenter agreed with the 
four-year period. Several commenters stated the RMA-Regional Office 
should approve agreements for the length they want to, if they want 
less than 4 years.
    Response: The maximum number of years a written agreement should 
remain in effect is dependent on the type of agreement, the propensity 
for terms defined within the agreement to change, and pending changes 
to actuarial documents in effect for the crop and county. Some 
agreements may be reasonable and prudent for only one year. Others may 
have terms that should apply for many years. To provide flexibility and 
reduce unnecessary paperwork, FCIC agrees with the comments 
recommending deletion of the four-year maximum duration for a written 
agreement. The duration of a written agreement will be stated in the 
written agreement. FCIC has revised section 18(d) accordingly. Because 
written agreements can now be extended for many years, FCIC has also 
revised and clarified the provisions to specify that even though the 
written agreement may be for multiple years, it will only be in effect 
for a particular crop year if the conditions under which it was 
requested exist for that year. If conditions change, the written 
agreement is not cancelled, it is just not considered in effect for 
that crop year. FCIC has also removed the consequences of a denial of 
liability for failure to report a changed condition to be consistent 
with the removal of such consequences elsewhere in the policy in 
response to other comments.
    Comment: A few commenters recommended deleting the word ``printed'' 
in the last sentence in section 18(d). A commenter stated ``policy'' is 
already defined and asked for clarification if the definition for it is 
the same as in the rest of the provisions. Another commenter asked that 
``immediately'' be defined, and suggested ``promptly'' may be more 
appropriate.
    Response: FCIC agrees the word ``printed'' should be deleted and 
the provisions have been revised to specify the policy without regard 
to the written agreement. Since the notice provisions have been 
removed, the term ``immediately'' is no longer applicable.
    Comment: Several comments were received regarding the provision 
proposed in section 18(e) that states certain written agreements may be 
accepted after the sales closing date. The commenters asked that this 
issue be handled in the Crop Insurance Handbook as it is now. A 
commenter asked for clarification of placing a Web site address in the 
regulation regarding if this would lock down the procedures and make 
them unchangeable without republication in the Federal Register as a 
proposed rule. Another commenter asked that ``physical inability'' be 
defined while another commenter asked who ``may'' approve the policy.
    Response: Producers do not receive copies of the handbook and must 
be provided the date by which written agreements must be requested. 
Therefore, FCIC has revised the provisions in section 18(e) to 
specifically state the exceptions to the sales closing date deadline 
and removed the reference to the procedures and Web site. FCIC also 
agrees the term ``physical inability'' is unclear and has revised the 
provision to add an example. Only FCIC can offer written agreements and 
section 18 has been revised accordingly. Once offered, the producer and 
the insurance provider can elect whether to accept the written 
agreement as offered. Neither the insurance provider nor producer can 
elect to accept some terms of the written agreement and reject others.
    Many commenters commented on the provisions proposed in section 
18(f). The comments are as follows:
    Comment: Commenter disagreed with the proposed language that 
requires producers to have a four year history of the same crop in 
order to qualify for a written agreement. They noted that peas, lentils 
and chickpeas are expanding in the Midwest because producers are 
finding the value in pulse crops through rotation and market value. The 
commenter stated that depending on demand and profitability, producers 
will plant and rotate peas, lentils and chickpeas in a 3 to 5-year 
rotation. They added that pulse crops break cereal disease cycles, 
improve soil organic matter, fix nitrogen and improve farm 
profitability. Commenters believe this requirement would also have a 
detrimental effect on specialty and alternative crop producers who 
quite often would have less than 4 years of production history for the 
crop. They stated that producers often rotate crambe and canola in a 2 
to 4 year rotation, which would take 8 to 16 years to establish the 
history to qualify for the proposed crop insurance requirement. They 
believe this is an unrealistic and unreasonable expectation that would 
close the door for risk management protection for numerous producers. A 
commenter stated by the time an insured has four years of history with 
a new crop, considering recent weather patterns, he could easily 
experience a couple of bad years. Thus, he is out of business before he 
is even eligible for crop insurance. A commenter stated the current 
rule of a three year crop history requirement for insurability is 
onerous already and that extending this to four years is simply 
unrealistic and will have a muffling affect on innovative agriculture. 
Many commenters stated the federal requirement for organic 
certification is 3 years, and requiring 4 years costs organic producers 
another year without coverage. A few commenters asked why two years 
would not suffice. Several commenters asked that records for similar 
crops, types, varieties, and practices, as well as agronomic research 
done at regionally relevant land grant research stations, be accepted 
for consideration when approving a written agreement.
    Response: The Act provides the authority for the FCIC to enter into 
a written agreement with an individual producer if the producer in the 
area has actuarially sound data relating to the production by the 
producer of the commodity that is acceptable to FCIC. This means that 
there has to be sufficient data to be able to make an insurance offer 
and such data must be specific to the crop in the area. It would be a 
violation of the Act to rely on similar crops or to rely on data on a 
crop that was not produced in the area. Based on comments received, 
FCIC agrees that requiring four or more years of data related to the 
production of a commodity by a producer may be too restrictive. 
However, the suggestion to use two years of data cannot be accepted 
because the ability to determine actuarially sound coverage on zero to 
two years of production experience of a single producer is questionable 
when insurance has not been available in the county. Therefore, FCIC 
will retain the current three year requirement for a crop for which 
there are no actuarial documents because there may not be any other 
data upon which to base insurance.
    Comment: The commenter added that the proposal would create an 
artificial impediment to the expansion of minor oilseed crop acres in 
the United States (for example, in South Dakota and Montana where there 
are some canola written agreements, because there is no standard 
coverage available in many of the counties) since producers would have 
to grow canola 4 years before RMA could provide the insurance offer. 
The

[[Page 48712]]

commenter stated that because the proposed language is practice, type, 
and variety specific, a grower in North Dakota who wanted insurance on 
high erucic rapeseed would need to provide four years of production 
evidence for high erucic rapeseed (regardless of the number of years 
they grew canola) before RMA could provide an insurance offer. The 
commenter believes since canola and rapeseed are very similar, this 
requirement would be unduly restrictive to growers. They added that any 
growers wishing to rotate into canola in other states that show 
promising growth, such as Wisconsin, Michigan and the Pacific 
Northwest, would face the same overly restrictive requirements.
    Response: In those cases where the crop has previously been insured 
and the producer is only changing the type, variety or practice, there 
is data in the county that can be used to establish insurance and, 
therefore, only one year of records is required. FCIC has revised the 
provisions accordingly.
    Comment: A commenter stated that the provision seems to run 
contrary to Congressional intent in the farm bill to encourage planting 
flexibility. The commenter added that producers in some states are 
growing program crops (i.e., cotton in Kansas) that may not have been 
grown traditionally. The commenter stated the intent of planting 
flexibility is to allow producers to respond to market signals and 
promote conservation practices. The commenter believes the proposed 
provisions would discourage producers from pursuing planting 
flexibility and may discourage planting based on new technologies and 
possible value added opportunities.
    Response: Notwithstanding the added flexibility in the Farm Bill, 
FCIC is bound by the language in the Act. Therefore, even though it may 
impose a hardship to those producers who rotate crops and new 
producers, to comply with the Act, FCIC must set a minimum standard of 
how much production evidence is acceptable for determining an 
appropriate premium rate and coverage in these circumstances.
    Comment: A commenter recommended the provisions be revised to allow 
a minimum of 65 percent coverage if sound farming practices are adhered 
to when producers do not have 4 years of production records.
    Response: The Act's requirement for actuarially sound data applies 
to all coverage levels. Therefore, simply setting a maximum coverage 
level for producers without actuarially sufficient data would not be 
sufficient to meet this requirement. FCIC has also revised the 
provisions to inform the producer of the other requirements for 
requesting a written agreement. Such requirements were previously 
located in the procedures, which the producer did not receive.
    Comment: Several comments were received regarding the provision 
proposed in section 18(g) that states any written agreement will be 
denied if FCIC determines the risk is excessive. They stated that 
clarification is needed regarding the roles of the RMA Regional Offices 
and the insurance providers as to who decides. The commenters asked if 
the proposed provision would affect written agreements already in 
effect and asked what the definition of ``excessive risk'' is.
    Response: This provision has now been incorporated into sections 
18(d) and 18(h), which includes the basis for which written agreement 
requests can be denied. FCIC also added standards for which requests 
could be rejected and written agreements denied. Such standards were 
previously included in the procedures and FCIC determined that 
producers should know these standards. The Act provides FCIC with the 
authority to limit insurance on the basis of risk. Consistent with the 
Act, the provision clearly states FCIC will determine when the risk is 
excessive. The insurance providers have no role in making these 
determinations of excessive risk. Such determinations can affect 
requests for written agreements or written agreements already in effect 
but if the determination is made during the crop year, the written 
agreement will not be canceled until the subsequent crop year. 
Currently the excessive risk is determined by loss ratio and loss 
frequency. However, FCIC is exploring other possible methodologies to 
determine whether other methodologies may more accurately assess the 
risk.

Elimination of the Arbitration Provisions--Section 20

    There were a large number of comments regarding the proposed 
elimination of the current arbitration provisions. For the purpose of 
addressing these comments, FCIC has grouped them into the following 3 
categories: (a) Comments agreeing with the proposed elimination; (b) 
comments disagreeing with the proposed elimination; and (c) comments 
recommending alternative methods of dispute resolution.
    Many commenters stated they support the proposal to eliminate the 
arbitration provisions. Their additional comments are as follows:
    Comment: Many of the commenters believe that mandatory arbitration 
can be quite costly to the producer and that it eliminates access to 
any other form of dispute resolution. Some of the commenters agree with 
the rationale provided in the abstract to the rule and believe 
mandatory arbitration has proven to be ineffective in many instances 
and has overreached its original objectives. A commenter agreed with 
the rationale for the change provided in the preamble of the proposed 
rule. They applaud the elimination of the arbitration requirement, and 
the retention of the reconsideration, mediation, and appeal procedures 
for disputes with the government. The commenter added if arbitration is 
ultimately removed, references to arbitration in other areas of the 
policy should be removed, and they believe it should be replaced with 
alternative dispute resolution. One commenter believes the proposal to 
delete the provisions regarding arbitration and to permit producers to 
resolve disputes through the judicial process is a good one. The 
commenter believes that by deleting the provision, it is clear that the 
only avenue is through the judicial process.
    Response: As a result of all the comments, FCIC has determined it 
would not be in the best interest of the producer or insurance provider 
to eliminate the arbitration provisions. However, it is clear that the 
current arbitration provisions need to be revised to address the issues 
identified with arbitration. As explained more fully below, FCIC has 
revised the arbitration provisions to address these issues.
    Comment: A commenter recommends that FCIC should require insurance 
providers, as a condition of the reinsurance contract, to offer and 
participate in alternative dispute resolution similar to that offered 
in contracts with the government, i.e., reconsideration, mediation, and 
appeal to the National Appeals Division insofar as disputes involve 
interpretation of FCIC regulations. They do not believe this 
requirement would be unduly burdensome for insurance providers. A 
commenter stated their experience with mandatory farmer-lender 
mediation has been positive on the whole for both debtors and 
creditors. A commenter also believes FCIC should consider adding 
provisions which will simplify and quicken the dispute resolution 
process. They recommended the policy specifically provide that the 
parties may mediate any dispute, provided there is a clear requirement 
that whoever attends the mediation conference has the authority to 
settle the claim and that insurance providers be given some assurance 
their decision to settle will not be later questioned by FCIC, which

[[Page 48713]]

they believe is a crucial requirement. The commenter believes insurance 
providers are reluctant to settle any claims because it is easier for 
them to fight the insured and lose, than to settle with the insured and 
fight FCIC if FCIC later disagrees with the settlement. They do not 
believe mediation will work or that settlements will occur even in the 
judicial process, if there is a disincentive for the insurance 
providers to settle. The commenter recommended the rule be clarified to 
state that any settlement entered into between a producer and insurance 
provider related directly or indirectly to the payment of premium will 
constitute full payment of the premium so the producer will not be 
considered ineligible for benefits for non-payment of premium. They 
believe if the purpose of these new regulations is to ``better meet the 
needs of the insured,'' then it seems obvious to them such needs will 
be better served if the dispute resolution process is simplified and 
settlements are encouraged.
    Response: The commenters also suggested that FCIC require the 
insurance providers to offer alternative dispute mechanisms similar to 
the governmental dispute resolution mechanisms such as mediation, 
reconsideration or appeal to the National Appeals Division (NAD). 
Mediation is always an option available to resolve disputes between 
producers and insurance providers and FCIC will revise the provisions 
to clarify that this option is available and how mediation will operate 
within the policy provisions. Further, a revised arbitration process 
will still be available to resolve disputes. But there is no basis to 
impose additional burdens on the insurance providers to create formal 
reconsideration or appeals processes because it would impose a 
significant monetary burden to set up such formal processes. The 
insurance providers are always free to adopt informal reconsideration 
or appeals processes. Further, such informal processes must be in 
addition to, not instead of, the arbitration process stated in the 
policy. FCIC does not believe it should establish formal rules for 
mediation. Mediation works best when both parties are in agreement as 
to the process. However, FCIC agrees that producer and insurance 
provider representatives who participate in the mediation must have 
authority to settle the case or the process is rendered meaningless and 
will incorporate this requirement into the provisions. While insurance 
providers are free to mediate and settle disputes, FCIC cannot abdicate 
its responsibilities to ensure that taxpayer dollars are properly 
spent. However, FCIC agrees that it should take into consideration 
litigative risk and the reasonableness of settlement. If the insurance 
provider and producer settle a dispute regarding premium, the producer 
no longer owes a debt to the insurance provider once the agreed to 
amount has been paid and should no longer be ineligible. However, as 
stated above, if such settlement occurred after the termination date, 
the producer would still be ineligible for the following crop year. 
Notwithstanding any such settlement, the insurance provider would still 
be required to pay FCIC all premium owed under the policy unless the 
insurance provider can demonstrate that the amount of premium billed 
was in error.
    Comment: Commenters stated it appears that determinations made by 
FCIC will be subject to appeal provisions under 7 CFR part 11, but it 
is not clear as to whether the policyholder will be offered these same 
appeal rights for determinations made by insurance providers. One of 
the commenters commended FCIC for having already established the 
offering of appeal rights through the provisions of 7 CFR part 11. 
However, they believe it is imperative for policyholders to also be 
provided a system of dispute resolution with insurance providers. The 
commenter stated many of the potential disputes between insurance 
providers and policyholders involve sums of money that make legal 
action on the part of the policyholders cost prohibitive, thereby 
leaving them with no grievance procedure or recourse. The commenter 
urged that insurance providers be included in appeal procedures under 7 
CFR part 11 or a similar dispute resolution/appeals system and 
suggested the following language for section 20(a), ``Except as 
provided in section 20(d), you may appeal any determination made by 
FCIC or insurance providers in accordance with appeal provisions 
published at 7 CFR part 11.'' The commenter believes that in addition 
to providing low cost dispute resolution for both the insurance 
providers and policyholders, informal appeals and mediation serve to 
foster good will and communications between disputing parties.
    Response: FCIC agrees that it would be in the best interests of all 
parties if there were a low cost dispute resolution mechanism available 
to the insurance provider and producer. However, disputes between the 
producer and the insurance provider can never be appealed to NAD under 
7 CFR part 11. Under 7 U.S.C. 6994, only ``adverse decisions'' are 
appealable to NAD and under 7 U.S.C. 6991(1), ``adverse decisions'' can 
only be rendered by a USDA agency, such as FCIC. FCIC has clarified the 
provisions to specify when disputes may be brought to NAD. As stated 
above, FCIC has also revised the provisions to allow mediation as a low 
cost means to resolve disputes. However, disputes not resolved through 
mediation must be resolved through arbitration.
    Comment: One of the commenters questioned whether determinations 
made by insurance providers would leave the policyholder with no 
dispute resolution options other than legal action, or if it is 
intended that policyholders disputing insurance provider determinations 
will be able to appeal adverse insurance provider determinations to 
FCIC.
    Response: FCIC does not have the resources to hear disputes between 
producers and insurance providers at this time.
    Comment: A commenter added that many states have USDA certified 
agricultural mediation programs that are quite capable of participating 
in a dispute resolution/appeals system for insurance providers. 
Nationwide, the number of USDA certified state agricultural mediation 
programs has increased to 29 due to the ongoing success of the program 
and most USDA agencies that deal with agricultural producers have 
implemented dispute resolution/appeals of adverse determinations under 
7 CFR part 11. The commenter stated that as part of the appeals 
process, mediation is offered through USDA certified mediation 
programs, if available in the state and that if elected by producers in 
states without USDA certified programs, mediation is provided through 
other non-USDA certified mediation providers. The commenter added if 
mediation is unsuccessful in resolving the dispute, the producer can 
file a request to have the dispute heard by the National Appeals 
Division. The commenter stated in fiscal year 2002, the dispute 
resolution rate for one state's Agricultural Mediation Service cases 
was 89 percent, including those where adverse determinations are 
reversed or modified. Also included are those where the producer, 
through mediation, gains understanding, accepts the determination, and 
foregoes further administrative appeals even though the adverse 
determination remains unchanged. The commenter believes disputes 
resolved through mediation save the participants further time, effort, 
and money spent on formal appeals or litigation. In the commenter's 
state, average mediation costs for insurance

[[Page 48714]]

providers would typically range from around twenty-five to seventy-five 
dollars per case.
    Response: There is nothing in the policy that would preclude 
producers and insurance providers from utilizing the USDA certified 
state mediation programs, if such programs are amenable to hearing such 
disputes.
    Comment: A commenter stated it appears FCIC has decided that the 
American Arbitration Association (AAA) arbitration was not an effective 
or desirable dispute resolution method, and has therefore decided to 
use the administrative appeals process exclusively, which they agree 
with. The commenter stated the current language in section 20 caused 
considerable confusion over the meaning and the exact requirements of 
arbitration. They stated that the apparent requirement for the AAA 
oversight and administration was disregarded by a federal district 
court when the parties could not reach agreement on an arbitrator or 
initiation of arbitration.
    Response: FCIC has not decided to use the administrative appeals 
process exclusively. Under the proposed rule, the only dispute 
resolution mechanism available was litigation. Further, FCIC determined 
that elimination of arbitration was not in the best interests of the 
producer or the insurance provider and has elected to revise the 
arbitration provisions to reduce the problems identified by the 
commenters and FCIC in its preamble to the proposed rule. FCIC has not 
determined that the American Arbitration Association (AAA) arbitration 
was not an effective or desirable dispute resolution method. FCIC is 
simply unable to endorse or require a producer or insurance provider to 
use a specific organization to settle disputes. Such action would be a 
violation of the competitive process.
    Many commenters opposed elimination of arbitration from the policy. 
Their additional comments are as follows:
    Comment: Many commenters stated arbitration is effective and 
resolves disputes quicker and cheaper than litigating in court. A 
commenter stated lengthy court battles cause substantial delays of crop 
insurance indemnity payments which many producers cannot afford. If 
producers go to court, they may incur more expenses and delays than 
they would through arbitration. The commenter stated crop insurance 
involves complex evidence, testimony and documents and that experienced 
arbitrators' quick understanding of the issues saves time and money. 
They stated incorporation of an arbitration clause in the crop 
insurance policy enables producers, at the time they sign the contract, 
to know what their potential costs will be in terms of time and money 
if a dispute arises. A few commenters stated that while the arbitration 
process may have its flaws, it provides an interim process through 
which the insurance provider, agents and insured may make their case to 
an arbitrator whose expertise lends itself to quick resolution of the 
issue. A commenter states the case statistics from all Federal district 
courts for the year ending 2001 compiled by the Department of Justice 
indicate the median time to bring a civil case to trial in the Federal 
district courts is 21.6 months. An additional 10.9 months from the 
filing of a notice of appeal is required to dispose of any appeal. The 
number of cases pending in the Federal district courts for more than 
three years is at an all-time high of 35,303 cases, more than doubling 
since 1999. By comparison, the International Centre for Dispute 
Resolution, a division of the AAA, and the largest international 
commercial arbitral institution in the world, had an average resolution 
time for claims of less than ten months from filing to award.
    Response: FCIC is unable to dispute the statistics provided and has 
elected to retain the arbitration provisions.
    Comment: Commenters stated although the AAA, which administers the 
majority of arbitration cases, assesses filing fees, the fees vary 
according to the size of the case. They stated only a case in excess of 
$1 million would incur the filing fee described in the proposed rule, 
while by contrast, cases valued at $75,000.00 and at $150,000.00, which 
are more indicative of the average dispute, result in filing fees of 
only $750 and $1,250 respectively. The commenter stated that in 
analyzing costs, FCIC has examined only the infrequent high value 
cases, and from those made erroneous conclusion as to the cost of 
arbitration. The commenter questioned whether FCIC has, in fact, 
analyzed crop insurance arbitration cases to determine both the median 
and mean claim amounts demanded by insureds. They stated if FCIC has 
made such a determination, they request FCIC publish the number of 
cases reviewed and the median and mean claim amounts. The commenter 
stated that in an effort to make arbitration costs reasonable for 
consumers, the AAA has a separate fee schedule for consumer-related 
disputes and the commenter provided a listing of the fee schedule. The 
commenter stated a nonrefundable initial filing fee is payable in full 
by a filing party when a claim, counterclaim or additional claim is 
filed and a case service fee will be incurred for all cases that 
proceed to their first hearing, which is payable in advance at the time 
the first hearing is scheduled. They noted this fee is refunded at the 
conclusion of the case if no hearings have occurred, however, if the 
Association is not notified at least 24 hours before the time of the 
scheduled hearing, the case service fee will remain due and will not be 
refunded.
    Response: FCIC had previously received significant anecdotal 
evidence that the cost of arbitration was rivaling that of litigation 
and based on the requests for litigation expenses incurred in 
arbitration, FCIC had to agree. However, FCIC accepts that these cases 
may have been the exception and not the rule and has elected to retain 
the arbitration provisions as amended as stated below.
    Comment: The commenter believes that in assessing the cost of 
arbitration, FCIC apparently ignored the costs associated with 
retaining counsel, an option in arbitration but a necessity in 
litigation. The commenter stated that more specifically, in disputes 
involving nominal amounts of money, insurance providers and, to a 
greater degree, insureds chose to proceed without counsel. They stated 
however, if litigation is required, both insurance providers and 
insureds will be compelled to retain counsel to navigate through the 
specialized waters of litigation, which they believe will be more of a 
burden on insureds than on insurance providers. Therefore, they believe 
any cost-savings associated with the elimination of the filing fee will 
be more than offset by the imposition of legal fees. The commenter 
stated that moreover, for claims under $75,000, the AAA offers 
expedited procedures that streamline arbitration, thereby reducing the 
time and expenses incurred by insurance providers and insureds. They 
added that similarly, for claims under $10,000, the AAA permits cases 
to be decided based on documents only. The commenter stated that by 
eliminating the oral hearing, insurance providers and insureds are not 
compelled to spend more money than the amount in dispute. They added 
that unless the parties agree otherwise, arbitrator compensation and 
administrative fees are subject to allocation by the arbitrator in the 
award.
    Response: See response to first comment under this subsection.
    Comment: The commenters recognize that some arbitrators have 
exceeded the scope of their authority and, therefore, they urged FCIC 
to incorporate an

[[Page 48715]]

explicit list of issues subject to arbitration into the Common Crop 
Insurance Regulations. That some arbitrators or arbitration panels may 
have rendered interpretations of the policy should not be a basis for 
rejecting arbitration as an approach. Any deviation by an arbitrator 
from the scope of authority conferred by contract is a ground for 
vacating the arbitrator's decisions. Thus, to the extent an arbitrator 
goes beyond resolving factual disputes, the arbitrator's determination 
is subject to being vacated and reversed. This is the appropriate 
method for dealing with an errant arbitrator rather than the one chosen 
of proposing total elimination of the process. The commenter stated the 
proposed rule laments the instances in which arbitrators have 
interpreted the crop insurance policy and, in doing so, applied state 
law even though preempted. They stated contrary to FCIC's understanding 
or expectation, even purely factual disputes between insurance 
providers and insureds often necessitate the interpretation of an 
insurance policy that neither party wrote. They stated whether these 
disputes are resolved through arbitration or litigation, an arbitrator 
or a jury or a judge ultimately will decide the meaning and effect of 
the insurance policy and the various handbooks issued by FCIC. The 
commenter believes unless FCIC establishes a framework in which it 
alone has the authority to settle disputes involving policy 
interpretations, FCIC must accept the reality that a third party will 
fulfill that function. The commenter stated it is their overwhelming 
experience that most arbitrators apply the applicable policy provisions 
and the law, and do not engage in policy interpretation. They believe 
this is the direct result of briefing arbitrators on the history and 
role of the federal crop insurance program, the Act, the relationship 
between the FCIC and the insurance provider, the pertinent legal 
authority regarding preemption, and cases involving the specific policy 
terms and conditions at issue in the arbitration.
    Response: FCIC accepts that arbitration may be a valuable tool and 
has elected to retain it. However, there appears to be little dispute 
that arbitrators have exceeded the scope of their authority in the past 
and made policy or procedure interpretations. Since many arbitrators 
failed to state the reasons for their decision, it would be impossible 
to get such decisions vacated. Therefore, another means had to be 
developed to ensure that arbitrators were not interpreting the policies 
or procedures. FCIC agrees that factual disputes and policy and 
procedure interpretations can be intertwined and that this should not 
preclude arbitrators from hearing the dispute. FCIC also agrees that 
the only way to avoid the possibility of having third parties interpret 
the policy or procedure is to develop a framework in which FCIC is the 
only one who can render interpretations. There have been instances in 
the past where arbitrators' decisions have resulted in disparate 
treatment, whereby one producer could win an award and a neighbor with 
the same crop and conditions may not based on who the arbitrator was. 
This is contrary to the goals of the crop insurance program. Federal 
crop insurance is a national program with all producers receiving the 
same policy for the same crop and insurance providers are required to 
use procedures issued by FCIC in the service and adjustment of such 
policies to ensure that all producers are treated alike and none 
receive special benefits or treatment because of the crop they produce, 
the insurance provider that insures them, or who hears their disputes. 
Therefore, consistent with section 506(r) of the Act and 7 CFR part 
400, subpart X, FCIC has revised the policy to create this framework 
and specify that such interpretations must be sought from FCIC in 
mediations, arbitrations or litigations, such interpretations will be 
binding, and failure to obtain an interpretation will result in 
nullification of any settlement or award. This will ensure that all 
producers and insurance providers are treated alike.
    Comment: Commenters also stated they believe that local court 
decisions may cause more variance in policy decisions than through 
arbitration and thus, FCIC's goals for proposing to eliminate 
arbitration would not be met and would be even further undermined.
    Response: FCIC is not sure that local court decisions will have 
more variance than arbitrators' decisions. However, FCIC sees the other 
benefits of arbitration and has elected to retain the arbitration 
process.
    Comment: One of the commenters believes if there are problems with 
the arbitration system, the arbitration process should be improved 
rather than abandoned. They believe the arbitration process as enacted 
in 1925 provides such contracts be arbitrated and this provision is 
irrevocable.
    Response: FCIC does not agree that it is required to include 
arbitration in its policies. However, FCIC has elected to improve, 
rather than abandon the system.
    Comment: Commenters also stated they believe arbitration alleviates 
unnecessary parties from being named in litigation.
    Response: Regardless of whether arbitration or litigation is 
offered, unnecessary parties may be named. Further, there are instances 
where the necessary parties have not been joined in the arbitration, 
such as when the producer is alleging agent error. However, as stated 
above, FCIC has agreed to retain the arbitration provisions as revised.
    Comment: Commenters stated FCIC has historically been hesitant to 
provide financial and testimonial assistance to insurance providers 
defending FCIC policy and procedures. Commenters stated that while RMA 
may believe its direct participation in the arbitration of individual 
disputes would enhance the program, in their experience, RMA employees 
typically have declined requests to testify as either fact or expert 
witnesses, or have elected not to provide any information material to 
the dispute. They believe nevertheless, a system could be devised 
through which the approved providers would notify RMA of pending 
arbitrations and scheduled hearing dates, and upon RMA's request, would 
call an employee designated by RMA as a witness. The commenter believes 
the essential standard for any such system would be that RMA 
participation did not delay resolution of the dispute between producer 
and approved provider. They believe centralizing the notice receipt and 
RMA participation decision in a single RMA office should easily allow 
this standard to be met.
    Response: As stated above, FCIC agrees that it needs to provide 
interpretations to ensure that the provisions are administered in a 
uniform manner for all insureds. Therefore, it has revised the 
provisions to require policy and procedure interpretations be obtained 
from FCIC and such interpretations will be binding in any mediation, 
arbitration or litigation. FCIC has procedures in place to seek policy 
interpretations through 7 CFR part 400, subpart X. Further, the 
department has procedures to request witnesses or documents and FCIC 
will permit witness testimony or provide documents if the standards in 
such procedures have been met. Further, the administrative and 
operating expense subsidy paid to insurance providers includes an 
amount for litigation expenses. Such subsidy is paid for all policies, 
regardless of whether the policy is ever litigated, and is intended to 
cover the costs associated with those policies where litigation occurs.

[[Page 48716]]

    Comment: A commenter recommended the section heading be changed to 
read ``Arbitration, Appeals and Administrative Review.''
    Response: FCIC agrees that the heading should be changed and has 
revised it to read ``Mediation, Arbitration, Appeals, Reconsideration 
and Administrative and Judicial Review'' to encompass all the 
provisions contained in that section.
    Comment: Commenters suggested that all issues should be arbitrated. 
Another commenter recommended the current provisions be retained with a 
definition of ``factual determination'' added or explain in another 
subsection what can and cannot be arbitrated. A commenter recommended 
FCIC establish guidelines regarding how arbitration cases are to be 
handled, how various types of issues are to be addressed and provide 
producers with information when they sign contracts as to what their 
options are under arbitration clauses. A commenter stated their 
experience with the arbitration process has been the arbitrators' lack 
of knowledge or understanding of the policy and procedures and 
specifically the insurance providers' lack of authority to negotiate 
settlements without doing so outside of FCIC procedure and jeopardizing 
FCIC reinsurance on the policy. The commenter believes most of the 
problems cited in the proposed rule relating to the use of arbitration 
may arise from insufficient guidance from the Department of 
Agriculture. They stated if a contract arbitration clause is intended 
to only direct certain types of disputes to arbitration, the clause 
should explicitly set out the appropriate parameters (i.e. ``Any 
disputes involving acreage determinations, approved yield calculations, 
determinations of production to count, or other similar factual 
determinations shall be resolved in accordance with the rules of the 
American Arbitration Association. Arbitration shall not be used to 
resolve other policy disputes or disputes regarding the interpretation 
of policy.''). They added that specific provisions of an arbitration 
clause in effect modify the standard framework embodied in the 
Commercial Arbitration Rules.
    Response: FCIC agrees that all disputes should be subject to 
arbitration and has revised the provisions accordingly. FCIC considered 
listing the factual disputes but realized that it was impossible to 
list all possible factual disputes and that even factual disputes may 
involve some policy interpretations. Further, as commenters and FCIC 
have realized, it may be difficult to distinguish factual disputes from 
other types of disputes. Therefore, FCIC has elected to revise the 
provisions to allow all disputes to go to arbitration but require 
policy and procedure interpretations be made by FCIC and provide 
guidelines such as requiring arbitrators issue written decisions, 
timing of arbitrations, the binding effect of arbitrations, etc. Since 
producers should receive the policy upon application, which contains 
the rights and responsibilities of the parties regarding arbitration, 
there is no need to provide additional information regarding their 
options. Insurance providers have the authority to negotiate any 
settlement. However, FCIC must have the ability to determine whether 
its policies and procedures have been adhered to. If an insurance 
provider and its agent and loss adjuster have followed FCIC's policy 
and procedures in handling the policy, there is no basis to deny 
reinsurance, which includes the defense of cases where there is little 
or no litigative risk. It is only where the insurance provider, agent 
or loss adjuster committed an error or omission that reinsurance is at 
risk. Insurance providers always have the option to discuss settlement 
of a case with FCIC to determine whether the settlement would be 
reinsured. FCIC is unsure what the commenter is referring to when it 
states that the arbitration clause in effect modifies the standard 
framework of the Commercial Arbitration Rules and, therefore, cannot 
respond to this comment.
    Comment: A few commenters recommended retaining the first sentence 
of current subsection (a) to address arbitration between policyholder 
and insurance provider, and that the appeal details be incorporated in 
a separate subsection (b). The commenter views the process of 
arbitration and the process of appeals and administrative review as two 
distinct processes, and both may be appropriate for inclusion in the 
policy. The commenter believes arbitration should apply to disputes 
between the insurance provider and the insured, and appeals and 
administrative review should apply to decisions made by FCIC. A 
commenter added that the proposed language (only a ``determination made 
by FCIC'') severely limits the situations that would be subject to the 
process identified in the proposal.
    Response: FCIC has restructured the entire section and has 
attempted to distinguish between resolution of disputes with insurance 
providers and those with FCIC. However, since some processes and 
provisions are applicable to both, it would be impossible to totally 
separate these provisions. FCIC agrees that the appeals process 
available in 7 CFR part 11 is extremely limited. However, there is no 
statutory authority to permit disputes between insurance providers and 
producers to be resolved through this process. Arbitration and 
mediation are now available for determinations not made by FCIC.
    Comment: Commenters stated the AAA should administer all 
arbitrations. The commenter stated based on their experience, 
alternative dispute resolution organizations other than the AAA are 
either unable or unwilling to administer arbitration in accordance with 
the AAA's rules. Other commenters felt it would work if reputable 
arbitrators were used that both parties agreed to. A commenter states 
the existing provisions of section 20 only require use of the AAA 
rules, not the AAA itself. It states that this approach is appropriate 
because there are various reputable and less expensive arbitration 
providers available. Because of the increasing acceptance of 
arbitration as a preferred alternative to the judicial process, 
competition amongst the providers of arbitration services enables 
parties to the process to negotiate cost savings arrangements. A 
commenter believes the AAA should still be an option for any appeals 
process. Other commenters expressed concern that local influences need 
to be discouraged. They suggested that perhaps this should go to the 
Federal system to resolve the lawsuit and, as with any other Federal 
program, lawsuits should pre-empt State laws. The commenter suggested 
the Law Committee's input be sought. A commenter referred to the RMA's 
FAD-007 (issued in 2001), stating RMA interpreted the arbitration 
requirement of section 20(a) of the Basic Provisions to allow for any 
alternative dispute resolution organization to administer these 
proceedings. The commenter also referenced their previous letter in 
which they brought to RMA's attention that Rule R-2 of the specific 
rules required by the Basic Provisions states ``When parties agree to 
arbitrate under these rules, or when they provide for arbitration by 
the AAA and an arbitration is initiated under these rules, they hereby 
authorize the AAA to administer the arbitration.'' They stated that the 
American Arbitration Association cannot vouch for the integrity, 
quality, or fairness of any proceedings carried out by other 
organizations. A commenter stated creating federal jurisdiction over 
federally-reinsured crop policies will assist insurance providers in 
those few instances when arbitrators intend to

[[Page 48717]]

exceed the role as fact finder and that declaratory relief could be 
sought. The commenter does not believe creating federal jurisdiction 
will require any statutory change. They believe rather, by completely 
preempting the field of crop insurance with improved regulatory 
language (in conjunction with the existing statutory language set forth 
in the Act at 7 U.S.C. 1506(1)), Federal courts will have jurisdiction 
over all federal crop insurance claims as a matter of law and complete 
preemption will also promote uniformity in the payment of claims.
    Response: FCIC cannot require all arbitrations be filed with AAA. 
This would violate the government requirement to compete for contracts 
or services if it were to limit arbitrations to AAA. However, FCIC 
needs a uniform standard for administering arbitrations and the AAA 
rules provide a standard that is widely accepted. FCIC is not 
precluding the use of AAA. However, if any other organization offering 
arbitration services wants to participate, it must use the AAA rules 
except that to the extent the AAA rules may conflict with the laws 
regarding competition, such rules cannot apply. FCIC has attempted to 
obtain legislative authority to limit litigations to the Federal courts 
several times in the past and such authority has not been provided. 
Therefore, even if, as the commenter states, FCIC has the authority to 
limit litigations to the Federal courts through the regulatory process, 
it is unlikely that Congress would permit the exercising of such 
authority. FCIC does not have the resources to completely preempt state 
law. Further, Congress did not intend for complete preemption or it 
would have preempted all state laws, not just those in conflict with 
contracts, agreements or regulations of FCIC. FCIC has revised the 
provisions to clarify its preemptive effects by making the policy 
provisions binding and limiting the imposition of certain costs and 
damages. FCIC is unsure of what the commenter is suggesting regarding 
the Law Committee. Arbitration is an issue that involves all program 
participants and they all should have an opportunity to comment on any 
proposals.
    Comment: A commenter stated that the proposed language does not 
address insurance provider determinations at all, and specifically, it 
does not provide any protection to the insurance provider from punitive 
or extra contractual damages because it only applies to appeal or 
administrative reconsiderations, not ``legal actions'' against 
insurance providers.
    Response: FCIC agrees that insurance providers may have been at 
risk for punitive or extra contractual damages in litigations even 
though they may not have violated FCIC's policies or procedures. This 
risk poses a considerable program integrity issue since it can affect 
the manner in which insurance providers manage their litigations and 
could result in increased costs to taxpayers. Therefore, FCIC has 
revised section 20, and made conforming amendments to 7 CFR 400.176(b) 
and 400.352(b)(4), to limit the imposition of punitive and other extra 
contractual damages, attorneys fees and other costs to those situations 
where FCIC has determined the insurance provider violated its policies 
and procedures and such violation had a monetary impact on the payment 
of the claim. FCIC will be making the determinations because, as 
authors of the policy or procedure, FCIC is in the best position to 
know whether an action constitutes a violation and to ensure the 
uniform application of the policies and procedures.
    Comment: Commenters suggested FCIC first consider alternative 
appeals systems, including an internal dispute settlement division 
within the RMA. A commenter suggested that perhaps requiring approved 
providers to institute some form of internal process for independent 
review of provider actions challenged by producers, and requiring 
producers to utilize that process as a prerequisite to arbitration, 
also would be helpful. They stated that certainly has proved to be the 
case in their insurance provider, even though the original insurance 
provider decision is affirmed far more often than the producer's 
request for relief is granted.
    Response: FCIC does not currently have the resources to implement 
an internal dispute resolution division within FCIC. Insurance 
providers are free to implement their own internal review mechanisms. 
However, there is no basis to require them to provide such a mechanism. 
It would impose a considerable administrative burden on the insurance 
providers and FCIC does not have the authority to compensate them for 
this burden.
    Comment: A commenter believes removing arbitration will add to the 
uncertainty of dispute resolution and, ultimately, discourage farmer 
participation in crop insurance.
    Response: As stated above, FCIC has elected to retain the 
arbitration process.
    Comment: A commenter stated arbitration is one of the longstanding, 
accepted forms of alternative dispute resolution, and the Federal 
Arbitration Act encourages its utilization as a mechanism for resolving 
disputes. The commenter believes the proposed regulation appears to 
directly violate this Act. They stated all 50 states and the Federal 
Government have adopted contract arbitration statutes that provide for 
dispute settlement by arbitration, and that most contracts with the 
Federal Government include a provision that all disputes be settled by 
arbitration. They do not see any justification for removing this option 
from the crop insurance program.
    Response: FCIC agrees that arbitration may be a longstanding form 
of alternative dispute resolution. However, this does not mean it is 
appropriate in every situation. In the existing rule, the arbitration 
provisions were subject to abuse and disparate treatment of program 
participants. This is not acceptable of a national program that relies 
significantly on taxpayer dollars. However, instead of eliminating 
arbitration, FCIC has elected to directly address the situation through 
the revisions stated above and below.
    Comment: A commenter stated arbitration should be retained as a 
binding obligation of the parties to the crop insurance policy. To do 
otherwise is totally inconsistent with this salutary change previously 
made to and embodied in the current Basic Provisions. A commenter 
stated arbitration can also bring finality to the dispute because the 
arbitration award can only be appealed or overturned upon a showing of 
extraordinary circumstances (for example, fraud, bias or other 
inappropriate actions on the part of the arbitrator), once the decision 
is rendered the controversy is resolved. A commenter also states that 
FCIC's complaint that binding arbitration is inconsistent with the 
producer's right to file judicial appeals within one year of the denial 
of the claim ignores the probable benefit to the producer of achieving 
through arbitration a final resolution of any disputed claim within the 
first year following its denial. A commenter stated FCIC's reliance on 
section 508(j) of the Federal Crop Insurance Act, 7 U.S.C. 1508(j), to 
state that ``[b]inding arbitration is inconsistent with * * * the Act'' 
is not supported by the text of the Act. They stated section 
508(j)(2)(A), the only subsection that mentions litigation or the 
courts, vests the federal district courts with exclusive jurisdiction 
over the actions against FCIC or the Secretary of Agriculture. They 
added that the statute does not address an action by an insured against 
an insurance provider. They also believe the legislative history of the 
Act also is devoid of language supporting FCIC's interpretation of 
section 508(j). They stated, moreover and more significantly, none of 
the

[[Page 48718]]

federal courts that have discussed the crop insurance policy's 
arbitration clause have intimated the Act precludes or limits FCIC's 
authority to require disputes to be submitted to binding arbitration. 
They believe FCIC's contention directly contradicts its present 
interpretation of this exact issue as referenced in FAD-013. The 
commenter also believes FCIC's position also contradicts numerous 
arguments made by RMA to the federal district courts and the 
Agriculture Board of Contract Appeals, namely, that the right of 
judicial appeal is not inconsistent with the exhaustion of contractual 
remedies. They believe if FCIC intends for arbitration to be non-
binding, it may insert into the crop insurance policy an arbitration 
clause that mirrors the arbitration clause contained in both the 
Livestock Gross Margin Insurance Policy and the Livestock Risk 
Protection Insurance policy. The commenter stated that a decision by a 
trial or an appellate court has precedential effect, albeit in varying 
degrees, on other courts, both federal and state. They believe a 
verdict in litigation that is adverse to an insurance provider may be 
more detrimental to the crop insurance program than a multitude of 
adverse decisions rendered in arbitration. The commenter stated that 
under the AAA's Commercial Rules, arbitration provisions are binding, 
and that generally, arbitration is by nature a binding process. They 
stated the issue of the appealability of an arbitration decision should 
not be confused with the binding nature of that decision. They believe 
inclusion of a statement in an arbitration clause that the decision is 
appealable within one year of the denial of claim would override the 
standard rules and allow the decision to be appealed in a manner 
consistent with section 508(j).
    Response: There apparently has been confusion regarding the binding 
effect of arbitration decisions. FCIC agrees that arbitration must be 
binding on the parties. However, the producer has a statutory right to 
appeal a denial of a claim. Arbitration cannot take away that right 
even if there may be some benefits to finality. FCIC had been informed 
that the AAA rules precluded appeal of the arbitrator's decision. 
Because of this inconsistency, FCIC proposed to eliminate arbitration. 
As stated above, instead of eliminating arbitration, FCIC has elected 
to revise the provisions to make arbitration binding unless it is 
appealed. Any AAA rules restricting such an appeal are not applicable. 
The commenter is incorrect that section 508(j)(2)(A) of the Act is the 
only subsection that mentions litigations or the courts. Section 
508(j)(2)(B) of the Act states that a suit on the claim must be 
appealed within one year of denial of the claim. Suit refers to 
litigations. Further, the courts have held that section 508(j)(2)(A) of 
the Act does not limit all actions for denial of claims to suits 
against FCIC. The courts have held that producers can still sue the 
insurance providers in state or federal court. In such cases, the one 
year statute of limitation applies. No court has discussed whether FCIC 
has the authority to require binding arbitration because FCIC has never 
asserted such authority. The intent of arbitration was to provide a 
more informal appeals process as a prelude to litigation similar to the 
administrative process that was available to producers who insured with 
FCIC. There was never any intent to take away the producers right to 
litigate disputes. Further, the commenters misunderstand FAD-013. FAD-
013 does not make arbitration binding. It specifically states that the 
producer must complete the arbitration process before bringing any suit 
to court. Therefore, FCIC is unsure of how the FAD-013 is inconsistent 
with the proposed rule because, in the proposed rule, FCIC was 
expressing concern that arbitration under the AAA rules precluded 
appeal to the courts. Under the final rule, the producer will still be 
required to complete the arbitration process before any appeal to the 
courts may be brought. Even though court decisions may have 
precedential effects, the Act specifically gives the right to appeal to 
the courts within one year of denial of a claim and FCIC does not have 
the authority to take away that right.
    Comment: A commenter stated that arbitration that provides 
producers flexibility in the timing and location of the hearing itself 
may be of utmost importance. Further, unlike litigation, when many 
matters become a matter of public record, disputes decided by 
arbitration can remain private and confidential if agreed to by the 
parties.
    Response: FCIC agrees that the flexibility offered by the 
arbitration process is beneficial and has retained arbitration. While 
arbitration disputes may not be public, FCIC, as the regulator of the 
program, has the right to examine all records relating to the policy, 
which includes documents relating to any mediations, arbitrations, or 
litigations. FCIC has revised section 21 to specify that FCIC has the 
right to obtain documents relating to mediations, arbitrations or 
litigations at any time.
    Comment: A commenter stated that because the parties have input 
into the selection of the arbitrators, persons of particularized 
knowledge to the subject matter of the dispute can be utilized. The 
arbitrator's experience in the subject matter of the dispute allows for 
a quick understanding of the issues which in turn may save time and 
expense. The parties are less vulnerable to unexpected rulings by less 
knowledgeable jurists or juries.
    Response: FCIC agrees that arbitrators with particularized 
knowledge can be useful and has retained the arbitration process. 
However, to alleviate any problems associated with disparate policy or 
procedure interpretations, only FCIC will now be able to make such 
interpretations. Arbitrators roles will be limited to factual 
determinations.
    Comment: A commenter stated that section 20 as now written is clear 
and comprehensive. It consistently has been upheld and enforced by all 
courts presented with the issue, most recently a decision of the United 
States District Court for the District of Minnesota entered September 
26, 2002, in the Minnesota sugar beet litigation (in re. 2000 Sugar 
Beet Crop Insurance Litigation, 01-CV-1629-1637--D. MN September 26, 
2002).
    Response: FCIC disagrees that the current section 20 is clear and 
comprehensive. FCIC intended arbitration to be limited to factual 
disputes. However, even the commenters admit that arbitrators have made 
policy interpretations. Therefore, it is not clear what matters are 
subject to arbitration and there has been no consistency as to the 
interpretations made. As stated above, FCIC has revised the provisions 
to allow arbitration of all matters. However, all policy and procedure 
interpretations will be done by FCIC. FCIC also disagrees that all 
courts have upheld arbitration. There have been courts that have failed 
to require producers to arbitrate disputes prior to filing suit. FCIC 
has clarified that completion of arbitration is a prerequisite to 
filing suit.
    Comment: Some commenters state because of the ability to structure 
the procedures associated with arbitration, parties enjoy increased 
opportunity to shape resolution of their disputes based on their own 
business circumstances and objectives. Parties that actively 
participate directly in creating agreements by which their disputes 
will be resolved are generally more satisfied with the outcome than 
those who become subject to the terms of a jury verdict.

[[Page 48719]]

    Response: FCIC has elected to retain the arbitration process and 
the flexibility of the AAA rules, as revised.
    Comment: A commenter states that although the preamble to the 
proposed rule portrays existing section 20 as a source of problems, no 
empirical, verifiable bases have been provided for the statements made 
at pages 58918-19 of volume 67 at the Federal Register. The commenter 
stated that its members are unanimous in desiring to retain 
arbitration. The commenter stated that while there certainly may be 
anecdotal reports of isolated complaints, there is no sentiment to 
abandon use of arbitration. In this context, it certainly is remarkable 
that data supposedly evidencing a reason for changing section 20 was 
provided in introductory material when RMA explicitly had terminated 
efforts last spring to gather objective data. They refer to inquiries 
by RMA initially soliciting the experience of insurance providers with 
respect to section 20 and then terminating its inquiries to them. In 
short, the commenter states RMA never has made any concerted effort to 
determine the actual experiences of members and their satisfaction 
level with arbitration. A commenter stated RMA has never communicated 
any concerns about the arbitration process, and no empirical data 
indicates the process is failing to meet the needs of the federal crop 
insurance program. Commenters stated that in support of elimination of 
arbitration, FCIC proffers several justifications, none of which they 
believe are credible.
    Response: While FCIC had received numerous complaints regarding the 
arbitration process, FCIC agrees that there is a lot of support for 
arbitration and has retained the arbitration process, as revised.
    Comment: A commenter states that subsection (c), as proposed, 
should be eliminated and its subject matter is more appropriately 
addressed under section 31.
    Response: FCIC has revised the provision to cross reference section 
31. However, the provisions stating that the Act, regulations and 
policy provisions are binding are still needed in section 20 to provide 
notice to mediators, arbitrators and the courts that the policy 
provisions must be followed.
    Comment: Commenters believe the proposed prohibition on the ability 
to arbitrate is an overreaching act by the federal government that 
interferes with the contracting process between the producer and the 
crop insurance provider.
    Response: Since FCIC drafted the contract, FCIC has the right to 
determine its terms. However, as a result of the many comments 
received, FCIC has elected to retain the arbitration process, as 
revised.
    Comment: Commenters stated they believe that arbitration has 
increased confidence and participation in the federal crop insurance 
program and has contributed materially to achievement of the program's 
objectives. They stated while they would not catalog the advantages of 
arbitration that have fueled the migration of disputes away from 
traditional courts, they felt however, it is important to note why this 
mechanism is so particularly appropriate for resolving factual disputes 
between producers and approved providers arising in the context of the 
federal crop insurance program. They provided the following five 
reasons: (a) First, the program is highly technical, involving a wide 
variety of farming practices and unique crops. In addition, and unlike 
virtually all other forms of insurance, actions taken under a federally 
reinsured crop policy with respect to one crop year directly affect the 
rights and obligations of the parties with respect to the following 
crop year. These program characteristics demand a dispute resolution 
forum that allows parties to educate the fact finder about the program 
and the unique relationship between the insured, the approved provider, 
the Agency, and the myriad of documents and requirements incorporated 
into the policy by law and the Basic Provisions. The fact finder also 
must learn details of the insured crop and good farming practices with 
respect to that crop. Moreover, this education must be completed, and a 
resolution obtained, quickly enough for producer and approved provider 
alike to apply the dispute's result to the following year's crop and 
insurance coverage. Universal experience with civil litigation 
demonstrates beyond reasonable dispute that America's courts are 
incapable of regularly meeting these challenges. Approved providers and 
producers likely would be nearly unanimous, however, in their view that 
arbitration under the existing section 20, in fact, does exactly that 
in virtually all cases; (b) Second, crop insurance is a federal program 
that must be administered consistently throughout the country. The 
proposal would empower every court in every state to interpret and 
apply the policy, including the countless Agency documents and 
materials incorporated into this contract of insurance. Adopting the 
proposal therefore is certain to prevent any semblance of uniform, 
national administration and delivery of the program. Approved insurance 
providers necessarily would be required to choose whether to follow 
Agency directives and procedures in states whose courts have severely 
penalized approved providers for doing exactly that. The resulting and 
inevitable differentiation in program delivery among states would 
constitute discrimination intolerable for a federal program. The Act 
preempted state law in the first instance for just these reasons. They 
continue to make program survival dependent upon that preemption not 
being eviscerated as the proposal seeks; (c) Third, in contrast to 
court decisions, arbitration decisions are confidential and have no 
value whatsoever as precedent. Each decision affects only the specific 
parties to that decision and their very specific facts. While if single 
misinterpretation or erroneous judgment by an arbitrator can defeat 
program intentions in one dispute, an identical misinterpretation or 
erroneous judgment by a court will defeat program intentions in an 
infinite number of disputes. The private nature of arbitration, 
therefore, fosters and enhances consistent, nondiscriminatory 
administration of the program; (d) Fourth, the federal crop insurance 
program is very technical and many aspects of the policy and required 
Agency procedures are wholly inflexible. As a result, in certain 
situations rigid application of the policy's technical requirements 
leads to outcomes for producers that are grossly inequitable by many 
common standards. Elected judges and juries of the producer's friends 
and neighbors are extraordinarily ill-suited to perform even the most 
clear duty to enforce such provisions and it is absurd to expect them 
to bring about the harsh outcomes adherence sometimes requires. A 
disinterested arbitrator, often an attorney, is far less likely to 
ignore the policy and its technical requirements simply to achieve a 
more favorable result for a needy insured; and (e) Fifth, 
notwithstanding the filing fee, arbitration is materially less 
expensive for both producers and approved providers than litigation. 
Even though the direct cost approved providers pay to defend program 
integrity is very substantial, to mount that defense in courts rather 
than in arbitration would be more expensive by several multiples. 
Moreover, arbitrators virtually always enforce the policy's limitations 
on recovery, thereby minimizing losses and costs while still providing 
the insured with the benefits of their bargain. From the insureds 
perspective, arbitration

[[Page 48720]]

virtually never exacts the typical civil litigation toll of one-third 
of whatever the insured might be awarded.
    Response: While FCIC disagrees that arbitration provides more 
consistent results than litigation or that courts are incapable of 
developing the knowledge base necessary to handle these disputes, FCIC 
agrees that arbitration can provide a valuable dispute resolution tool 
and has elected to retain the arbitration process.
    Comment: Commenters stated whatever concerns prompted section 20 of 
the proposal can be addressed through dialogue and consultation. They 
believe the only certain result is a better alternative than section 20 
of the proposal easily will be found. A commenter stated if FCIC 
believes specific aspects of the arbitration process can be improved to 
better effectuate program intent, it should initiate a dialogue with 
approved providers, producers and other interested parties to consider 
possible enhancements of the arbitration process.
    Response: FCIC agrees that arbitration can provide a valuable 
dispute resolution tool and has elected to retain the arbitration 
process. However, FCIC has revised the provisions to address the 
concerns expressed in the proposed rule. If interested parties have 
additional suggestions, they should provide them to FCIC.
    Comment: Commenters stated that the regulation providing for the 
issuance of a Final Agency Determination (``FAD'') is not the solution. 
They stated first, the parties often are not aware of the need for an 
interpretation until after a loss occurs or arbitration or litigation 
commences. They believe accordingly, any FAD issued by FCIC post-dates 
the insurance period, if not the crop year. They stated based on their 
experience, arbitrators and juries take a dim view of ex post facto 
policy interpretations. They stated secondly, FCIC may take up to three 
months to issue a FAD. They believe while 90 days may be expeditious in 
Government time, it is an eternity in the world of agriculture.
    Response: FCIC agrees that the FAD process does not work in all 
situations. There will be instances where witness testimony will be 
more appropriate. However, whether the policy interpretation is 
provided prior to the start of the crop year, at the time of loss or 
after a dispute has arisen, the policy interpretation will be the same. 
Policy interpretations will be rendered by unbiased persons within RMA. 
The benefits of the FAD process is that such interpretations provide 
consistent interpretations and are available to all interested parties 
on RMA's Web site.
    Comment: Commenters asked on what basis FCIC expects that a state 
court jury or judge will be less likely to apply state law than an 
arbitrator. They believe a county judge that faces an election every 
two years will apply a pro-farmer meaning to disputed policy terms or 
facts or will be removed from the bench. In their view, a state court 
jury, consisting of the insured's neighbors, is more likely to 
disregard the legal principle of preemption than a neutral arbitrator. 
They added that even the regulation preempting state taxation of 
federal crop insurance premium has not stopped the various state 
departments of insurance from attempting to impose premium taxes on 
their insurance provider. A commenter stated changing arbitration to 
appeals and administrative review does not solve any issue that may be 
perceived with arbitration without total state preemption and any final 
appeal being limited to the federal court for this federal program.
    Response: FCIC agrees that state preemption has been an issue and 
has clarified that the terms of the policy are binding and that state 
law is preempted to the extent it is in conflict with the policy. There 
has been a presumption that the ability to appeal a decision allowed 
courts to correct errors that may have been made by lower courts. FCIC 
had been informed that arbitrations were not appealable and, therefore, 
there was no further opportunity to review the decision to determine 
whether it complied with the preemption provisions. Now that 
arbitration can be appealed, the presumption again exists that any 
error of the arbitrator can be corrected by the court. However, FCIC 
cannot restrict appeals to the federal courts for the reasons stated 
above.
    Comment: A commenter stated because FCIC is not a party to the 
Basic Provisions or the current arbitration clause, FCIC may not be 
joined as a party to the arbitration. They believe FCIC's 
misconceptions concerning arbitration result from the fact that it sits 
on the sidelines and passes judgment but does not play. The commenter 
stated by contrast, FCIC is amenable to joinder in litigation, 
regardless of whether filed in state or federal court. They added the 
joinder of FCIC in state court action will necessitate the removal of 
the matter to federal court. They stated if FCIC mandates insurance 
providers and insureds litigate their disputes, FCIC should anticipate 
being involved in litigation. A commenter believes, at a minimum, FCIC 
should authorize the insurance providers to, at their discretion, enter 
into arbitration agreements with their respective insureds. They 
believe under these agreements, which FCIC would have the opportunity 
to review to ensure compliance with the applicable law, the parties 
would arbitrate cases in which the amount in controversy does not 
exceed a certain level. The commenter provided three reasons for their 
suggested $150,000 threshold amount: first, the filing fee for such a 
case is de minimus, only $1,250; second, the majority of disputes 
involve lesser amounts; and, third, assuming that insureds will 
commence litigation in state court, which is likely to be more hostile 
to the insurance providers and FCIC, the $150,000 benchmark will enable 
them to remove the litigation to federal court under the principle of 
diversity jurisdiction.
    Response: FCIC agrees that arbitration can provide a valuable 
dispute resolution tool and has elected to retain the arbitration 
process, as revised. FCIC cannot determine whether issues are subject 
to arbitration based on the dollar amount in dispute because it would 
result in disparate treatment. Two farmers could be disputing the same 
issue and one would be able to arbitrate the dispute while the other 
may not, solely based on the size of their loss. Such standards would 
be arbitrary and capricious. Further, the dollar limitation would not 
enable insurance providers to remove cases to federal court because 
producers frequently defeat diversity by filing suit against the local 
agent.
    Comment: A commenter recommended section 25 be incorporated into a 
more comprehensive section 20 to read as follows:
    ``20. Arbitration, Damages and Limitation of Actions.
    (a) If you disagree with any determination that we reach, the 
disagreement will be resolved before the American Arbitration 
Association and in accordance with its Commercial Dispute Resolution 
Procedures. Your failure to agree with any determination made by FCIC 
must be resolved through the FCIC appeal provisions published at 7 CFR 
part 11.
    (b) You may not bring legal action against us unless you have 
complied with all terms and conditions of the policy.
    (c) You must commence arbitration against us, as provided in 
subsection (a), within twelve (12) months of the date on which we 
denied your claim or rendered the determination with which you 
disagree.
    (d) No award determined by arbitration or appeal shall exceed the 
amount of liability established or which

[[Page 48721]]

should have been established under the policy.
    (e) You may not recover and we will not be liable for any 
attorney's fees, charges or costs, or any punitive, compensatory or any 
other damages other than contractual damages except as authorized by 7 
CFR 400.351 and 400.352.''
    Response: FCIC agrees that the provisions in section 25 should be 
incorporated into section 20 and made such other changes as necessary 
in response to these comments and due to the need to restructure the 
provisions for clarity.
    Comment: A commenter believes that instead of deleting policy 
provisions requiring arbitration, the federal crop insurance industry 
would be better served by RMA submitting standard amicus briefs to 
arbitrators on the issues outlined above. They believe amicus briefing 
will likely assist and assure the arbitrator's role to one of fact 
finder.
    Response: FCIC does not have the authority to submit amicus briefs. 
Such briefs are done by the Department of Justice and submitted on 
behalf of the Federal government. Obtaining such briefs is a time 
consuming process and often cannot be provided in the time frame needed 
by the insurance provider or producer. To assist the arbitrator, FCIC 
has revised the provisions to require that all policy and procedure 
interpretations be provided by FCIC. This should assist the parties to 
the dispute by providing an objective interpretation.
    Comment: A commenter noted that several states currently require 
arbitration or mediation to be done before going to court. They stated 
that mediation, however, is not restricted to the policy liability 
limits as the current arbitration is in the policy now.
    Response: FCIC has revised the provisions to limit liability under 
arbitration, mediation and litigation to the policy liability.
    Comment: A commenter believes a reasonable requirement could be 
made as to the knowledge an arbitrator hearing a dispute would have and 
that the arbitrator must withdraw himself or herself if there is any 
conflict of interest.
    Response: FCIC does not have the resources to check the knowledge 
and skills of all arbitrators. Arbitrators are mutually agreed to by 
the insurance provider and producer and they have the ability to 
determine whether the arbitrator has the requisite knowledge to resolve 
the dispute. However, FCIC has added a provision stating that 
arbitrators or mediators with a familial, financial or other business 
relationship to the producer or insurance provider are disqualified.
    Comment: A commenter believes since most disputes, if not all, 
involve denying coverage not intended to be provided under the policy 
or a claim payment not entitled to under the policy, FCIC should be 
supportive to settle these disputes in the fastest, and least expensive 
manner for all parties concerned. They stated this would be beneficial 
for the policyholder, insurance provider, FCIC and the American 
taxpayer.
    Response: The goal of the program is to ensure that producers 
receive those benefits to which they are entitled. FCIC has agreed to 
retain arbitration because commenters have claimed this is the fastest 
and least expensive manner to accomplish this goal. However, as stated 
above, FCIC has revised the provision to ensure that any payments are 
made in accordance with the policy terms.
    A few commenters recommended a mediation process or appeal rights 
to settle disputes. Their additional comments are as follows:
    Comment: One commenter stated section 20(a) implies adverse 
determinations made by insurance providers could leave the policyholder 
with no means of dispute resolution other than legal action. They 
stated that while the offering of appeal rights to insurance providers 
is certainly commendable, it provides no provision for potential 
disputes between the policyholder and the insurance provider. They 
strongly recommended the policyholder be offered appeal rights under 
the provisions of 7 CFR part 11. A commenter recommended using the 
existing USDA-National Appeals Division (NAD) system of hearing 
officers located around the country, which may require an expansion of 
NAD's authority and resources, therefore a legal opinion may be 
required. The commenter stated NAD hearing officers already hear some 
RMA cases and have basic program knowledge and that some of the present 
NAD hearing officers spent many years as FCIC hearing officers. The 
commenter stated that for RMA to move in this direction, support from 
NAD and any statutory changes as would be necessary to hear and decide 
RMA producer-insurance provider dispute cases would be required. They 
believe this alternative takes advantage of existing infrastructure and 
a seasoned appeals operation. The commenter believes the potential for 
disputes between insurance providers and policyholder is high and could 
involve sums of money that make legal action on the part of 
policyholders cost prohibitive. They stated that without appeal rights, 
the policyholders only grievance process would be the court system. The 
commenter added that most USDA agencies that deal with agricultural 
producers have implemented dispute resolution/appeals of adverse 
determinations rules under 7 CFR part 11 and carry out the mediation 
process with USDA certified programs in states where available. They 
added that if elected in states without USDA certified programs, 
mediation is provided through other non-USDA certified mediation 
providers. The commenter stated if mediation is unsuccessful in 
resolving the dispute, the producer maintains the right to file a 
request to have the dispute heard by the National Appeals Division. The 
commenter stated their programs consistently have agreement rates in 
the 90 percent range. They believe mediation provides a fast and 
efficient alternative to the formal appeals process and litigation, and 
therefore, they strongly urged that insurance providers be included in 
appeal procedures under 7 CFR part 11 or a similar dispute resolution/
appeals system. The commenter believes without question, and by 
definition of adverse decision (7 CFR 11.1), the proposed rule could 
very easily generate a multitude of determinations and decisions that 
could be interpreted as adverse, individually to the producer, to the 
insurance provider, and among government agency representatives, or in 
any combination.
    Response: As stated above, FCIC has elected to retain the 
arbitration process. Therefore, the producer's recourse will not be 
limited to the courts. However, FCIC cannot permit producers to appeal 
their disputes with insurance providers to NAD. As stated above, 
statutorily, only disputes between producers and agencies within USDA 
can be appealed to NAD. Further, since FCIC has elected to retain the 
arbitration process, it is not necessary to seek legislative authority 
for NAD to hear disputes between producers and insurance providers. 
However, as stated above, FCIC agrees that mediation could be a 
valuable dispute resolution tool and has revised the provisions to 
permit its use when both parties agree. There is nothing in the 
provisions that would preclude the use of the USDA certified mediation 
programs if they are willing to hear such disputes.
    Comment: A commenter stated as proposed, the changes in the Basic 
Provisions would seem to allow using the litigation route in a 
jurisdiction that encourages or requires alternate dispute resolution 
(ADR) and might open up that opportunity for quick, relatively

[[Page 48722]]

low cost correction. The commenter believes that would be a good thing, 
but it leaves the disposition methods applied to cases to happenstance. 
They believe both producers and insurance providers deserve a better 
approach. The commenter stated that leaving the producers and the 
insurance providers adrift without a structured, low cost, high 
settlement rate oriented dispute resolution system is not necessary.
    Response: FCIC agrees that producers and insurance providers need 
an alternative dispute resolution tool. As stated above, FCIC has 
elected to retain the arbitration process, as revised, and has added 
provisions that permit mediation. It is hoped that these will provide 
the low cost, high settlement rate alternatives as suggested by the 
commenters.
    Comment: A commenter recommended designing and bringing into 
existence an RMA based appeals division made up of one or more hearing 
officers employed by the agency for the purpose of hearing and deciding 
disagreements between producers and insurance providers. The commenter 
believes such a system could be ordered after the appeals process 
existing prior to NAD (1994). They stated a legal opinion will likely 
be required to determine the jurisdiction. The commenter stated that 
authorizing regulations and procedures would have to be developed to 
determine the areas to be covered by an RMA producer-insurance provider 
disputes appeals system. They stated there are former FCIC hearing 
officers with the requisite experience and training available in RMA 
who could be pressed into service full or part time as required by the 
case workload. They stated that impacts on the USDA National Appeals 
Division should be sorted out in a legal opinion before a final 
decision is made on this alternative. The commenter stated that since 
an RMA hearing officer is the decision maker, the agency is assured a 
direct say in the case disposition with reasonable assurance that 
government rules and regulations are followed. They added that in the 
former FCIC Appeals process, hearings were generally held by phone and 
supported by mailed or faxed documents, keeping cost low and 
accessibility high, which is a major advantage over more costly 
alternatives.
    Response: As stated above, FCIC has determined that it does not 
have the resources to implement an internal appeals division. However, 
FCIC agrees it should be involved to ensure that government rules and 
regulations are followed and FCIC has revised the provisions to require 
that all policy and procedure interpretations be obtained from FCIC.
    Comment: A commenter recommended using the existing USDA-FSA 
certified mediation system located in some 29 key agricultural states. 
The commenter stated this would rest on a proven infrastructure and 
cover the most important agriculture states for RMA purposes. They 
believe this approach is consistent with USDA Departmental Regulation 
Number 4710-001, July 20, 2001, which already allows for the use of FSA 
certified mediators in crop insurance cases. Commenters believe 
alleviation of this expense issue can only be reached by requiring 
departments to utilize the state programs certified by USDA, and 
without such a designation as to which mediation service to use, the 
proposed rule has the potential of being self-defeating. A commenter 
stated that costs vary from state to state but would always be a 
fraction of either litigation or arbitration costs. They stated cases 
would be settled quickly and close to home for both parties. The 
commenter stated settlement rates in the states are uniformly high. 
They believe since the parties, insurance provider and producer, decide 
the issues and reach voluntary agreement, long term working 
relationships can be enhanced. The commenter noted one significant draw 
back to this alternative, that is, what to do in the states without 
certified programs. The commenter stated one of the important 
advantages of mediation is that it helps to clarify and focus issues 
keeping the parties on track with their discussions. The commenter 
added that in FSA farm program mediation cases, a representative from 
FSA is always a part of the mediation. They stated this mediation model 
avoids the possibility of the parties going beyond their authority 
because the FSA representative is there to give guidance and clarify 
rules. They stated that for example, whenever they do mediation where 
the FSA county committee is the decision maker, the FSA CED or a 
representative from the State FSA office is present to advise on the 
rules and options available to resolve the dispute. They stated this 
would eliminate the problem of the parties going beyond the limits of 
what the agency feels is appropriate.
    Response: FCIC agrees that mediation is a valuable alternative 
dispute resolution tool and has revised the provision to allow for 
mediation if both parties agree. FCIC has elected not to direct who can 
provide such services because it recognizes that not all states have 
USDA certified mediation programs and there are other valuable 
organizations that can provide such services. This choice of mediator 
is best left to the participants. There is nothing in the provision 
that precludes the use of a USDA certified mediator if such person is 
willing to mediate the dispute. FCIC cannot direct such mediators to 
handle these disputes. FCIC's only participation in the mediation 
process would be to provide policy or procedure interpretations for 
matters in dispute and it will be able to review all settlements. This 
should provide sufficient restraints to ensure that settlements are 
made in accordance with FCIC approved policy and procedure.
    Comment: A commenter recommended making a hybrid of mediation and 
an RMA appeals division. They stated that in the 29 states where the 
USDA-FSA certified mediation system operates, use it as the first level 
of dispute resolution, and in those cases that could not be resolved 
could be appealed to an RMA hearing officer. The commenter recommended 
states without the USDA-FSA certified mediation system would use the 
RMA hearing officer as the primary appeal. They believe this solves the 
problem of what to do in the non-mediation states and puts RMA in 
control of the appeal process. They recommended that after the pilot, 
RMA should review the results and develop a permanent system. One 
commenter stated it hopes FCIC will consider applying ADR methods as 
alternatives to litigation and they are available to assist in that 
regard.
    Response: As stated above, FCIC does not have the resources to 
create an internal appeals division even if such appeals were limited 
to those cases where mediation failed. Instead, FCIC has elected to 
retain the arbitration process and if the mediation fails, the parties 
can have the dispute heard by an arbitrator.
    Comment: A commenter stated that in terms of public-sector ADR, 
dispute resolution activities involving USDA caseload began in 1989 
within ``credit'' issues arising from Farmers Home Administration 
(FmHA) activities. The commenter stated the Agricultural Credit Act of 
1987 created a mediation component offered through the public sector to 
provide an alternative for both FmHA customers and the agency in order 
to save time and money, and somehow mend lender and borrower 
relationships during a time of harsh transition in production 
agriculture. They stated resultant mediation activities were generated 
by agency actions associated with loan servicing, loan delinquency, and 
``distressed

[[Page 48723]]

borrower'' scenarios. The commenter noted that today, those same kinds 
of cases continue to be serviced, in addition to other caseload 
activities associated with issues arising from the USDA Reorganization 
Act of 1994, the Grain Standards Improvement Act of 2000, and a host of 
other federal dispute resolution regulations, orders, guidelines, and 
interpretations. The commenter added that the use of ADR processes 
(mediation) in their state in USDA-related crop insurance issues 
involving USDA agency administrators and staff (FSA, NRCS, etc.) 
insurance providers and their agents, producers and their attorneys, 
Native American Indian landowners, and others, is part of that service 
experience. In their view, the proposed rule for crop insurance issues 
moves considerably from what must have been a generally negative 
experience with binding arbitration, toward something that is 
identified in several parts as ``the judicial process.'' The commenter 
stated although no definition of this process is offered in the 
proposed rule, but again similar to the intent of the Agricultural 
Credit Act of 1987, it appears that USDA is once again seeking to 
improve, streamline, and simplify its methods of addressing the kinds 
of conflicts found within federal crop insurance matters. The commenter 
believes the agency is seeking a less-costly method of resolving 
disputes, settling claims, and building good working relationships 
within very complex scenarios of federal regulation, business, and 
production agriculture. The commenter stated for public-sector 
mediation and facilitation practitioners, it is easy to understand 
USDA's move away from the relatively expensive, legalistic, non-
problem-solving process of binding arbitration. The commenter believes 
however, the ``the judicial process'' referenced in the proposed rule 
seems unlikely to improve the situation. They believe in fact, a 
judicial process provided by federal or state court activities 
involving such triangulated issues would be more expensive, more time 
consuming, and less of a model to build relationships among 
stakeholders than binding arbitration. They stated that clearly, the 
trend in conflict management and dispute resolution is moving the other 
direction, toward mediation, facilitation, collaboration, consensus 
building, and neutrally negotiated dialogue. The commenter stated that 
the new USDA Departmental Regulation on ADR substantiates this trend, 
as do many other federal documents, orders, and initiatives that have 
been researched and reviewed over the last decade. They stated that 
collectively, these clearly suggest that ``the judicial process'' 
should be the method of last resort, after administrative remedies of 
ADR (mediation, facilitation, etc.) have been exhausted. The commenter 
believes from a practical perspective, moving decision making away from 
binding arbitration and toward ``the judicial process'' may help deter 
certain arbitration costs in the short term, but seems most likely to 
only add time delays, administrative costs, and peripheral complexity 
to cases, and shift issue management further away from the very 
stakeholders and participants who need to understand, interact, and 
take ownership in the facts and issues involved in crop insurance. They 
stated those are precisely the stakeholders and participants that 
should resolve complaints and conflicts in these matters, and the very 
people who should take ownership in, and be accountable for, the 
decisions or outcome. They believe as such, agency personnel, insurance 
representatives, and producers would not only more directly manage 
their issues, they would be responsible and accountable for remedies. 
They believe arbitration and judicial processes have no way of offering 
these kinds of issue management incentives, and therefore are falling 
out of favor. They suggested tapping into the resources of those 
programs, providing additional support and revenues for services, 
providing the necessary training and administration from stakeholders' 
perspectives, and putting the theory of conflict resolution into 
practice via mediation and facilitation. Their experience with 
mediating crop insurance issues has been that cases seem to arise 
because such matters are not managed with a collective approach among 
these stakeholder populations. They believe that now, with both new 
federal crop insurance initiatives and a new Farm Bill to manage, it 
would seem that a more user-friendly method (like mediation or 
facilitated dialogue) would make sense in these triangulated, complex 
situations. The commenter believes whether or not mediation (or 
facilitated dialogue) would be mandatory, accessed on a voluntary 
basis, performed for a fee or sliding scale for participants, etc., 
would require consideration over and above the content of the proposed 
rule. They stated however, in terms of providing better outcomes for 
participants, reaching appropriate outcomes for less money, saving 
time, and generally building viable business and regulatory 
relationships among stakeholders, the processes of mediation and 
facilitation are far superior to either arbitration or ``the judicial 
process.'' They suggested that new applications of mediation and 
facilitation among stakeholder groups in federal crop insurance issues 
be convened on a pilot study basis, beginning in one state.
    Response: FCIC agrees the historical trend is to provide for 
alternative dispute resolution. FCIC accepts the commenters statements 
that mediation is less expensive, less time consuming, and more of a 
model to build relationships between producers and insurance providers. 
Therefore, FCIC has retained arbitration, as revised, as a form of 
alternative dispute resolution and added mediation. Judicial review is 
the last resort if a party receives an unsatisfactory result in 
mediation or arbitration. FCIC agrees that better outcomes may be 
reached when both parties agree to the dispute resolution method.
    Comment: A commenter cited a third reason given by FCIC for 
eliminating arbitration was that ``* * * Binding arbitration is 
inconsistent with section 508(j) of the Act, which gives producers the 
right to file judicial appeals within one year of the denial of the 
claim.'' The commenter stated the USDA model of agricultural mediation 
provides mediation as an alternative to the formal appeal process. They 
stated whether an agreement is reached to resolve the dispute is 
totally up to the parties. The commenter added if an agreement is not 
reached at mediation, then the producer has further rights of appeal 
through the system. They believe that even if an agreement is not 
reached, mediation often helps the parties to better define the issues 
to be presented on appeal. The commenter stated the ``binding'' nature 
of arbitration is totally avoided. The commenter believes another 
advantage to mediation is that it would lend itself to crop loss claim 
disputes where there is some subjectivity involved in the adjustment of 
the claim. They stated it has been their experience that even in cases 
where the regulations do not allow the local USDA FSA decision makers 
the flexibility or discretion to negotiate their decision, mediation 
has still been valuable in explaining the decision and establishing 
better lines of communication. The commenter stated another advantage 
to mediation is that it gives parties an informal opportunity to 
resolve disputes on their own without having a judge or arbitrator take 
that power out of their hands. They stated that over the years, the 
USDA agencies have recognized the importance of being able to resolve a

[[Page 48724]]

dispute in a non-adversarial setting that nurtures and restores the 
business relationship they have with the producer. The commenter 
believes crop insurance providers may have a similar concern that they 
be able to keep a satisfied customer. They believe handling a loss 
claim can be a difficult time emotionally, especially when so much is 
at stake with the current drought conditions, along with the struggling 
agricultural economy. The commenter stated mediation helps deal with 
those difficult emotional issues and personality conflicts that can 
otherwise impede a good business decision and an ongoing business 
relationship.
    Response: FCIC agrees that mediation would avoid the problems 
associated with binding arbitration and has added provisions to allow 
for mediation. However, FCIC has also elected to retain the arbitration 
process although it has revised it to make arbitration decisions 
appealable. FCIC agrees that mediation can help to define issues even 
when no resolution is reached. FCIC also agrees mediation may provide a 
less stressful means of resolving disputes.
    Comment: A few commenters thought if the insured prevailed in 
court, the insured should not be responsible for attorney fees, court 
costs, etc., and the award in section 20(b) should include those costs. 
A commenter believes this appears to be a deterrent to producers from 
challenging FCIC or the insurance provider for any wrong treatment 
related to their claim. A commenter stated that to do otherwise would 
eliminate the possibility of appeal for all but the biggest claims and 
most financially stable producers.
    Response: FCIC disagrees that the provisions contained in section 
20 should specify that the insured should not be responsible for 
attorney fees, court costs, etc., if the insured prevails in court, 
because to do so would conflict with the provisions contained in 7 CFR 
400.352 regarding preemption of state laws and regulations. Further, 
FCIC does not want to punish insurance providers when there is a 
genuine dispute regarding policy coverage. In addition, it would be 
arbitrary and capricious to require insurance providers to pay the 
producer's expenses when the producer prevails and not require the 
producer to pay the insurance provider's expenses when the insurance 
provider prevails. However, as stated above, FCIC has clarified the 
provisions to specify the circumstances under which attorney fees, 
court costs, etc., can be awarded to the insured.

Clarification of Access to Insured Crop and Records, and Record 
Retention--Section 21

    Comment: Several commenters opposed the provisions proposed in 
section 21(a), which would allow any USDA employee access to an insured 
crop and related records. They state that only those USDA employees 
involved with the insurance program should have access to the farm or 
records. They also claim producers have a right to privacy and right of 
notice if anyone is to enter their property or obtain related records. 
The commenters state that the insurance contract is between the 
insurance provider and the producer, not between FCIC and the producer. 
They state that access to crops and records should be only that 
necessary to investigate reasonable suspicions of fraud. The commenters 
also claim that employees having such access should be required to 
provide identification and notice before visiting, and provide notice 
of ARPA, section 122, which protects producers from disclosure of the 
information to the public. This would help alleviate problems related 
to unknown persons seeking entrance on a farmer's land. One commenter 
agreed with the change stating this is consistent with the effort 
envisioned by Congress and contained in ARPA legislation.
    Response: FCIC agrees only those employees of USDA authorized to 
conduct reviews or investigations of crop insurance matters should have 
access to the farm or records. FCIC has revised section 21(a) 
accordingly. FCIC agrees the insurance contract is between the 
insurance provider and the insured. However, FCIC is also a Federal 
regulator of a government program and must have the ability to 
determine whether the program is being carried out in a proper manner. 
Therefore, FCIC must have access to the farm and records to make this 
determination. Further, the Act specifically provides for appropriate 
oversight and compliance functions to be carried out, through agencies 
besides FCIC, such as FSA. The Office of Inspector General also has 
oversight responsibilities over the program. In order to perform their 
functions, these persons may need to access the farm or farm records. 
FCIC disagrees that access should be limited to fraud cases because it 
is necessary to review a certain number of cases to ensure policy 
provisions and procedures are properly applied. To the extent possible, 
USDA employees will provide notice to the insurance provider or 
producer when entering the farm or obtaining records. However, there 
are cases, such as fraud investigations or other instances, where it is 
not practical to provide notice. Further, such employees may be asked 
to provide identification upon request. There is no violation of 
section 502(c) of the Act when an employee of USDA requests records. 
USDA employees are not considered the public for the purposes of 
section 502(c) of the Act. In addition, it is not the practice of USDA 
to tell farmers of the use of their documents. However, all such 
employees will be required to comply with the requirements of section 
502(c) of the Act.
    Comment: Several commenters were against the change in section 
21(b), where producers who are now required to keep their records for 
3\1/2\ years would now be required to retain their production records 
for approximately 8\1/2\ years. They stated it is retroactive and may 
deny coverage to a producer who has had coverage with three years of 
records and now needs previous years. A few of the commenters asked 
that the provision be clarified (including an example) to require 
records be kept for three years after the end of the crop year for 
which they were initially certified (as in the Crop Insurance 
Handbook).
    Response: The record keeping requirements in section 21 have not 
changed. Producers were required to keep records for three years and 
the proposed rule simply clarified that this requirement also applied 
to the records used to establish the APH. However, FCIC realized there 
was perceived a difference in the procedures and policy and revised the 
provision to clarify that production records must be retained for 3 
crop years following the crop year in which the record was certified, 
which is the current requirement in the procedures. Further, as stated 
above, FCIC removed the requirement that producers must provide all 
records for all years in the APH database when they file a claim. 
Therefore, there is no retroactive effect that would cause the denial 
of coverage. This means that if the producer certified five years of 
records for the 2003 crop year, the producer will be required to 
maintain those records for the 2004 through 2006 crop years and at the 
end of the 2006 crop year, the records are no longer required to be 
retained unless the producer has been otherwise notified by the 
insurance provider or USDA. The provision has been revised to be 
consistent with section 21(a), which permits USDA employees to obtain 
records from the farmer. An example is added to improve clarity.

[[Page 48725]]

    Many commenters stated the penalty proposed in section 21(e) was 
too harsh for the following reasons:
    Comment: A few commenters believe it is harsh to deny a claim 
because an insured fails to provide previous years' production records. 
A commenter added that the current procedure penalizes the insured by 
assigning 75 percent of the producer's prior approved yield and the 
producer loses any optional units. Another commenter believes only a 
modest administrative fee is warranted. Several commenters stated lack 
of previous years' records does not affect the ability to appraise the 
crop in the field. They added the proposed language overlooks whether 
or not the loss could be accurately determined. A commenter stated the 
proposed penalty is grossly excessive and should not be adopted. A 
commenter stated the penalty is extreme with no apparent alternatives 
available for corrective action. A commenter stated the penalty will 
result in many insured's being added to the ineligible list because the 
full premium would be due even though no claim is paid.
    Response: While failure to provide a previous year's production 
records does not affect the ability to adjust a current loss, the 
omission may affect the amount of the claim because the guarantee must 
not have been correctly calculated. However, as stated in FCIC's 
response to comments received regarding the provisions proposed in 
section 3(d), the proposed requirement that failure to provide APH 
records will result in denial of a claim will not be incorporated in 
the final rule. FCIC has revised the provisions to specify that if a 
producer fails to provide the previous years' production records, the 
producer will receive an assigned yield for all such years that 
required records were not provided. Further, FCIC has revised the 
provisions to clarify all possible consequences for failure to provide 
reports or provide access to the insured crop or third party records 
and added that the consequences also apply for failure to provide 
access to the farm to be consistent with section 21(a), which required 
the producer provide access to the farm, not just the insured crop.
    Comment: Several commenters stated the penalty raises a legal 
question of charging premium and not offering coverage or service. They 
stated they were not clear why the full premium is due in some cases 
and only 20 percent is due in others.
    Response: FCIC has elected not to retain the provisions regarding 
the denial of coverage and the payment of premium.
    Comment: A few commenters questioned if this was unit by unit or 
for the whole policy.
    Response: The consequences have been revised to specify whether 
they are on a unit or policy basis.
    Comment: Several commenters asked that the current provisions 
contained in section 21(b) that state, ``Your failure to keep and 
maintain such records will, at our option, result in: [(1)-(4)]'' be 
retained.
    Response: FCIC determined that the current language needed 
clarification and has revised the provisions to specify more precisely 
when each consequence applies. However, the imposition of such 
consequences is not optional. If the circumstance exists, the 
consequence will apply.

Clarification Regarding Other Insurance--Section 22

    Several comments were received regarding the provisions proposed in 
section 22(a). The comments are as follows:
    Comment: A few commenters stated that intent is considered here (as 
it should be) while it is not in other proposed sections dealing with 
what is reported versus what is correct.
    Response: Obtaining duplicate policies is a much more obvious error 
than misreporting. Because of this, the presumption is that the 
producer intended to obtain two policies unless the producer can prove 
otherwise. FCIC did not want to create such a presumption with respect 
to misreporting, where it could be very difficult to establish no 
intent existed and would adversely affect program integrity.
    Comment: Several commenters stated the provisions should be 
clarified as to what is necessary to demonstrate that the insured did 
not intend to have other like insurance, because one could interpret 
the language to mean that a transfer may not be a sufficient 
explanation. The commenters also asked to whom must the demonstration 
be made and to whose satisfaction. They asked what standards would be 
applied and who would make the decision. The commenters stated 
demonstration of intention is a subjective issue, and thus will be 
difficult to administer on an equitable basis.
    Response: A transfer would be sufficient evidence that the producer 
did not intend to have duplicate policies. Written notification to an 
insurance provider that states the producer wants to purchase or 
transfer insurance and eliminate the other policy could also be 
acceptable. These have been added to section 22 as an example. However, 
it would be impossible to identify all the situations and including 
some situations and omitting others may cause confusion. It is up to 
the judgment of the insurance provider to evaluate the evidence 
presented by the producer that the duplication was inadvertent. If no 
such evidence is provided, the duplication is assumed to be 
intentional. FCIC agrees that an evaluation of the evidence may be 
subjective. However, the circumstances may be so different that an 
objective standard cannot be determined that would encompass all the 
possibilities.
    Comment: A commenter stated the proposal assumes the existence of 
``other crop insurance issued under the authority of the Act'' is known 
or can be ascertained accurately at all times. The commenter believes 
that assumption is not correct with respect to duplicate policies or 
transferred policies. The commenter stated the proposal should be 
revised to reflect insurance provider's inability to determine at a 
certain time whether other insurance under the program is in effect.
    Response: Since SSNs must be provided for all individuals, FCIC can 
compare the SSNs in the database and duplicate policies can be 
identified. If duplicate policies are identified, FCIC will notify the 
insurance providers. There is nothing in the policy that states when 
such determination must be made and FCIC agrees that it may be 
difficult for the insurance providers to discover all instances without 
FCIC's assistance. No change has been made.
    Comment: A few commenters suggested the provisions contained in 
section 22(b) be clarified regarding how the provisions may apply to 
tobacco. The commenters stated the provisions contained in section 
22(b) regarding other insurance against fire may now be inconsistent 
with the provisions proposed in section 12 that clarify all causes of 
loss must be due to the occurrence of a ``natural disaster.'' The 
commenters stated that other fire coverage may be for reasons other 
than natural disasters.
    Response: FCIC has incorporated the change proposed in section 12 
in the final rule that clarifies all insurable causes of loss must be 
due to a naturally occurring event, except when the policy specifically 
covers loss of revenue due to reduced prices in the marketplace. This 
means that fire damage can only be paid if the fire is caused by a 
naturally occurring event. FCIC has clarified that section 22(b) only 
applies for fires due to naturally occurring events.

[[Page 48726]]

Clarification of the Amounts Due Us Provisions--Section 24

    Comment: A commenter said it was unclear in section 24(a) when 
interest would be applied on administrative fees and if insurance 
providers would be responsible for collecting this amount prior to the 
termination date. A few commenters questioned FCIC collecting the 
amount due for fees and interest. A commenter suggested adding ``due to 
us'' after ``amounts'', after ``fees due'' adding ``to FCIC'', deleting 
``us'', and adding after the word ``and'' the words ``after the 
termination date.''
    Response: The second sentence of section 24(a) [Reinsured Policies] 
makes it clear that interest on administrative fees accrues on the 
first day of the month following the premium billing date. Insurance 
providers will initially bill the producer for both premium and 
administrative fees and be responsible for collecting both. However, 
since administrative fees are ultimately due to FCIC, it will be FCIC's 
responsibility to collect the fees and related interest after the 
termination date for the applicable crop. FCIC agrees that 
clarification is needed regarding when amounts were owed to insurance 
providers and when amounts were owed to FCIC and has revised the 
provisions accordingly.
    Comment: A few commenters recommended deleting ``in part'' in 
section 24(e) because it could mean different things.
    Response: FCIC can only collect through administrative offset that 
part of any overpaid indemnity FCIC paid or the premium owed to FCIC 
through its reinsurance agreement. FCIC cannot collect on that share of 
the indemnity or premium retained by the insurance provider. FCIC will 
be able to collect all administrative fees and interest owed to it 
through administrative offset. FCIC has revised the provision to 
clarify that the portion of the amount owed by the producer under the 
policy that is owed to FCIC can be administratively offset and to 
specify what such amounts may include.

Limitation of the Right to Collect Extra Contractual Damages--Section 
25

    A few comments were received regarding section 25(c). The comments 
are as follows:
    Comment: A commenter suggested section 25 be combined in its 
entirety with section 20. Thus preventing confusion and clarifying 
FCIC's intent.
    Response: Section 25 has been incorporated into section 20 to 
eliminate duplication and ambiguity.
    Comment: A few of the commenters suggested that ``may'' be changed 
to ``will'' for clarification. A commenter requested clarification of 
``denial of a claim'' and ``legal action.'' This was stated as 
important because of the disallowance of arbitration in section 20 of 
the proposed rule. A commenter suggested ``legal action'' be changed to 
``litigation or arbitration'' since these terms are un-ambiguous. A 
commenter suggested section 25(c) be revised as follows ``You are not 
entitled to recover any attorneys'' fees and expenses (or other similar 
charges) or any punitive, exemplary, compensatory, incidental, or 
consequential damages, unless you are able to establish that an action 
or inaction by the insurance provider, an employee of the insurance 
provider, or an agent was not authorized, required, or permitted under 
the Act, the regulations issued thereunder, or your insurance policy. 
This limitation means, therefore, that you will not recover any damages 
other than contractual damages unless you can establish the existence 
of one of the exceptions indicated herein.''
    Response: FCIC has revised the applicable provisions in section 20 
to specify that producers cannot recover attorneys fees or other 
expenses, or any punitive, compensatory or any other damages from 
insurance providers unless the producer obtains a determination from 
FCIC that the insurance provider, its agent or loss adjuster failed to 
comply with the terms of the policy or procedures issued by FCIC and 
such failure resulted in the producer receiving an indemnity, prevented 
planting payment or replant payment in an amount that is less than the 
amount to which the producer was entitled. FCIC has revised the 
provisions to clarify how the one year statute of limitations applies 
to arbitrations and litigations. FCIC has also clarified that the 
statute of limitations applies to denial of a claim and any other 
determination with which the producer disagrees.
    Comment: A few commenters stated section 25 should further be 
amended to make clear that the Act and the attendant regulations 
likewise have a binding and preemptive effect in litigation. Some of 
the commenters stated the proposal should be amended to provide that no 
award rendered in litigation may exceed the amount of liability 
established or which should have been established under the policy. 
Some commenters stated the proposed amendment should not be 
implemented, as it will increase costs to insurance providers.
    Response: Section 20 was revised to clarify that the Act, 
regulations and the policy have binding and preemptive effect. In 
addition, as stated above, section 20 now states no award in litigation 
can exceed contractual damages unless FCIC determines the insurance 
provider, agent, or loss adjusters failed to follow FCIC approved 
policy or procedure. FCIC is unsure of how the limitation on punitive 
damages will increase costs to insurance providers. If the commenter is 
referring to the removal of the arbitration process from the policy, 
FCIC has elected to retain the arbitration process, with revisions as 
stated above.
    Comment: A commenter stated the rule states that language proposed 
in section 25(c) is intended to clarify that a producer may not recover 
attorney fees, punitive damages, compensatory damages or other extra-
contractual damages except as authorized by 7 CFR Sec.  400.352(b)(4). 
The commenter stated the policy language should be clear that these 
types of damages are ``preempted.'' They stated that preemption should 
be complete. A commenter agreed section 25(c) should be revised, but 
asked the reference to 7 CFR 400.352(b)(4) be amended to 7 CFR 400.351 
and 400.352, thereby incorporating the entire preemption regulation.
    Response: FCIC has clarified that such damages, fees and costs are 
preempted unless FCIC determines the insurance provider, agent, or loss 
adjusters failed to follow FCIC approved policy or procedure. As stated 
above, FCIC elected not to completely preempt the imposition of 
punitive or compensatory damages. There may be instances where the 
circumstances are so egregious that such damages are warranted and FCIC 
does not want to take the authority away from the states to regulate 
conduct through the imposition of such damages. However, FCIC has 
eliminated the possibility that such damages may be imposed when the 
insurance provider follows FCIC's policy and procedures. FCIC has also 
revised section 20 to specifically reference 7 CFR part 400, subpart P 
as binding.
    Comment: Some commenters stated suits should only be brought in 
federal court. A commenter stated the legal authority FCIC has in these 
matters and cited several cases. The commenter stated they understand 
there may be a belief among some employees of the United States 
Department of Agriculture that FCIC lacks the legal authority to 
require adjudication of disputes arising under the MPCI program to take 
place in Federal District Courts to the exclusion of state courts. They 
find any such belief to be erroneous. They also stated that any such 
understanding is not supported even by the analysis offered by those 
courts that have ruled against jurisdictional arguments

[[Page 48727]]

advanced by their members in their litigated disputes with agricultural 
producers. A commenter stated that complete preemption of state laws 
and remedies will have the effect of vesting federal courts with 
jurisdiction to hear claims involving federal crop insurance policies, 
which in turn, will ensure that a body of uniform federal, and not 
disparate state, law will develop regarding the application, 
construction and interpretation of federally-reinsured crop policies. 
The commenter added it will also prevent insureds from avoiding the 
terms and conditions of their federal crop insurance policies by filing 
claims in state courts and relying upon state remedies inconsistent 
with the federal crop insurance program. The commenter stated their 
position, of course, is supported by decisions of courts ruling in 
favor of their members' jurisdictional arguments, including Owen v. 
Crop Hail Management, 841 F.Supp. 297 (W.D. Mo. 1994), and Brown v. 
Crop Hail Management, 813 F.Supp. 519 (S.D. Tex. 1993). The commenter 
added that The Tenth Circuit in Meyer held: State law applies to FCIC 
contracts, with two exceptions: (a) When FCIC contracts provides that 
state law does not apply; and (b) when state law is inconsistent with 
FCIC contracts. 162 F.3d. at 1268. The commenter stated that relying on 
this explicit judicial authority, FCIC can revise sections 25 and 31 of 
the Basic Provisions to meet this test. Section 25 can and should be 
revised to state that legal actions against crop insurers, when 
producers are seeking to adjudicate claims of liability under any 
federally reinsured crop insurance contract, must be brought in the 
Federal District Courts of the United States. This approach would not 
preempt the bringing of state law claims for relief. Such claims easily 
could be alleged by producers' counsel as alternative or additional 
claims for relief to those which are brought under the MPCI policy in 
question.
    Response: There is a difference between preempting state law and 
removing jurisdiction to hear cases from the state courts. The cases 
cited operate on the premise that FCIC can completely preempt state 
law. FCIC agrees it has the authority to completely preempt state law 
but as stated above, complete state preemption is not an option at this 
time. Further, the courts, including the Eleventh Circuit, have 
affirmed that state courts have jurisdiction to hear disputes between 
producers and insurance providers. FCIC has attempted to obtain 
legislative authority to limit litigations to the Federal courts 
several times in the past and such authority has not been provided. 
Therefore, even if, as the commenters state, FCIC has the authority to 
limit litigations to the Federal courts through the regulatory process, 
it is unlikely that Congress would permit the exercise of such 
authority. However, to mitigate the problems in the state courts, FCIC 
has revised section 20 to significantly limit the ability of the state 
courts to impose extra-contractual damages.

Clarification of the Interest Provisions--Section 26

    Comment: A few commenters suggested combining section 26 with 
section 24(a) since (a) was deleted from section 26. A commenter stated 
the proposed amendment will increase the exposure to insurance 
providers and should not be implemented.
    Response: Section 24 refers to amounts the insured owes, while the 
provisions contained in section 26 refer to interest payments the 
insured may receive. Combining the sections could cause confusion as to 
which interest provisions apply. Additionally, FCIC fails to see why 
the proposed change would increase exposure to insurance providers. The 
interest provisions have not been changed and removing the damages 
section was to remove the conflict with other existing policy 
provisions. The limitation on extra contractual damages has been moved 
to section 20. No additional change has been made.

Policy Voidance Provisions--Section 27

    Comment: A commenter suggested section 27 should state whether the 
standard of proof required to void the policy in a disputed situation 
under this paragraph is a preponderance of the evidence or, clear and 
convincing evidence.
    Response: Since no changes to section 27 were proposed, no changes 
were required as a result of conforming amendments, and the public was 
not provided an opportunity to comment on the recommended change, the 
recommendation cannot be incorporated in the final rule. No change has 
been made.

Transfer of Coverage and Right to an Indemnity Provisions--Section 28

    Comment: A few commenters requested that ``Coverage and'' in 
section 28 be deleted to match the title with the form which is called 
``Transfer of Right to an Indemnity.''
    Response: Although headings do not affect the meaning of the terms, 
this change would be misleading because the provisions refer to the 
producer transferring his or her share during the crop year, then being 
allowed to transfer the coverage rights, and subsequently the 
transferee being eligible to receive any indemnity payment. FCIC 
believes the current title is more descriptive of the section. No 
change has been made.

Clarification of the Subrogation Provisions--Section 30

    Several comments were received regarding changes proposed in 
section 30. The comments are as follows:
    Comment: Some commenters asked the second sentence be revised to 
replace the word ``receive any funds'' with the words ``recover any 
compensation for your loss * * * '' Response: FCIC agrees and has 
revised the provision accordingly.
    Comment: A few commenters asked if compensation included hail 
insurance. A few commenters suggested hail insurance be excluded.
    Response: FCIC has revised the provision to specify that 
compensation does not include private hail insurance payments.
    Comment: A commenter suggested changing ``If you recover any funds 
as compensation for your loss * * * '' by adding ``except as provided 
in section 35 of this policy,'' otherwise subrogation could apply to 
other USDA payments (such as disaster payments).
    Response: FCIC agrees that funds the producer receives as payment 
for the loss under other USDA payments allowed in section 35 should not 
be covered by subrogation. Additionally, if a producer receives a 
payment under a private insurance policy that indemnifies the producer 
for the amount of the crop insurance deductible, that payment also 
should be excluded. FCIC has revised the provision to limit its use to 
situations when the crop insurance indemnity plus the other payment 
exceed the amount of the insured's actual loss, without regard to any 
payment made under a private hail policy. Since any indemnity and other 
USDA farm program benefit cannot exceed the total amount of the loss, 
subrogation will never occur against the USDA farm program benefit. 
This would only be an issue if the producer also received a benefit for 
the same loss from another person. Once paid to the producer, the funds 
lose their identity and the producer would be required to repay to the 
insurance provider any money received in excess of the total loss.
    Comment: A few commenters asked for examples of a situation to help 
with clarification.

[[Page 48728]]

    Response: Since the provision has been revised for clarification, 
examples are no longer necessary.
    Comment: A commenter stated if the producer returns the money their 
premium should be refunded.
    Response: FCIC does not agree that if the producer repays any 
amount of the indemnity paid by the insurance provider the premium 
should be refunded. The premium is earned and payable because the 
coverage under the policy was provided. The policy is only intended to 
cover the producer's loss and if the producer receives compensation 
from another party, the amount of loss is reduced. Therefore, the 
producer is still receiving the benefit for which the premium was paid. 
No further change has been made.

Applicability of State and Local Statutes--Section 31

    Comment: A few commenters suggested strengthening the language and 
clarifications in section 31 even though it was not proposed. They 
suggested clarifying that no state or local statutes are applicable to 
the interpretation of any federal crop insurance policy. A commenter 
asked if any of the Federal crop insurance definitions supercede state 
regulations such as California's. The following revision was suggested 
by one commenter, ``If the provisions of this policy conflict with or 
cover the same subjects or matters as the statutes of the State or 
locality in which this policy is issued, the policy provisions will 
prevail. State and local laws and regulations either in conflict with 
federal statutes, this policy, and the applicable regulations, or 
covering the same subjects or matters as federal statutes, this policy, 
and the applicable federal regulations, do not apply to this policy, 
and they are preempted.''
    Response: Since no changes to section 31 were proposed, no changes 
were required as a result of conforming amendments, and the public was 
not provided an opportunity to comment on the recommended change, the 
recommendation cannot be incorporated in the final rule. No change has 
been made.

Notice Provisions--Section 33

    A few comments were received regarding section 33. The comments are 
as follows:
    Comment: A few commenters stated this section now conflicts with 
the proposed section regarding prevented planting.
    Response: FCIC fails to see how the provisions contained in section 
33 conflict with the provisions in section 14. Section 33 requires 
written notice within the time frame specified unless the notice 
provisions state otherwise. Section 14(g) allows a telephone notice for 
all notices required to be made within 72 hours, which would include 
the prevented planting notice. No change has been made.
    Comment: A few commenters recommended changing ``crop insurance 
agent'' to ``us.'' A commenter suggested changing the current language 
regarding the insureds address to ``your last known address.''
    Response: Since no changes to this section was proposed, no changes 
were required as a result of conforming amendments, and the public was 
not provided an opportunity to comment on the recommended change, the 
recommendation cannot be incorporated in the final rule. No change has 
been made.

Clarification of the Unit Division Provisions

    Comment: A commenter recommended using one spelling of the term 
``discernible'', either ``discernable'' or ``discernible.''
    Response: FCIC agrees the word ``discernible'' should be spelled 
the same way throughout the provisions. The term was used in provisions 
proposed in section 34(b)(1) and (c)(2) but the terms were spelled 
differently in each subsection. Since, in its response to the comments 
received regarding the proposed definition of the term ``border,'' FCIC 
has decided not to adopt the proposed changes in section 34 that 
allowed a ``border'' to qualify as a separation of optional units. 
Therefore, there are no longer multiple spellings of ``discernible.''
    Comment: A commenter stated growers in the Southeast are penalized 
by the fact that optional units are by farm serial number (FSN). The 
commenter stated a grower can farm in multiple locations in a county, 
growing thousands of acres, and only have one FSN, and recommended 
offering optional units by section, tracts, or section equivalents, and 
by non-contiguous land. The commenter further stated rules and 
administration are ambiguous because the Texas region allows growers 
further division, while the Southeast region does not.
    Response: FCIC understands that unit division requirements vary 
between regions and crops. This variance is generally because there are 
many areas where there are not discernible section lines. Without a 
clear delineation between units, it would be very difficult to 
accurately track production, which creates the possibility of program 
abuse. Therefore, it would adversely affect program integrity to adopt 
this change. No policy allows optional units by tract. Before any other 
optional unit structures could be adopted, actuarial studies would have 
to be completed to determine the impact of such changes and any such 
changes must be adopted through the rulemaking process. No change has 
been made.
    Comment: A few commenters suggested section 34(a)(1) add ``For 
example, the enterprise unit selection may NOT remain in effect from 
year to year if there is only one underlying basic or optional unit 
with planted acreage one year.''
    Response: Since no changes to section 34(a)(1) were proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    Comment: A few commenters suggested section 34(a)(2) be revised to 
read: ``For an enterprise unit'' since there is only one crop per 
county.
    Response: FCIC agrees there can only be one enterprise unit per 
policy. However, there could be several different insured crops per 
county with an enterprise unit. The provision has been revised to state 
that the provisions apply to any individual enterprise unit.
    Comment: A few commenters suggested section 34(a)(2)(ii) probably 
requires revision because of the revised definition of ``enterprise 
unit'' referring to ``planted insurable acreage.''
    Response: FCIC agrees and has revised the provision accordingly.
    Comment: A few commenters stated section 34(a)(2)(iii) overlooks 
the possibility of discovery happening after reporting.
    Response: FCIC agrees and has revised section 34(a)(2)(vi) to 
clarify that if at any time the discovery is made that the producer 
does not qualify for an enterprise unit, the basic unit structure will 
be assigned. The same change has been made to section 34(a)(3)(iii).
    Comment: A few commenters stated section 34(a)(2)(v) refers to 
``production reporting provisions.* * *'' and should be clarified.
    Response: FCIC agrees that the provision should specifically 
reference the production reporting provisions and has revised the 
provision accordingly.
    Comment: A few commenters suggested FCIC should consider if any 
changes are needed in section 34(a)(3) to match the revised whole-farm 
unit definition, or at least to refer to that definition.

[[Page 48729]]

    Response: FCIC does not believe any changes are necessary because 
the use of the term ``whole farm'' would require reference to the 
definition to determine the meaning of the term. No change has been 
made.
    Comment: A few commenters suggested section 34(a)(3)(iii) may be 
improved by deleting the proposed language following the comma and 
inserting ``we will assign the most similar eligible unit structure.'' 
A few commenters asked if FCIC should consider the possibility of 
assigning an enterprise unit if the plan allows for it instead of basic 
units in section 34(a)(3)(iii).
    Response: FCIC is not sure what is the ``most similar eligible unit 
structure.'' Therefore, it would be very difficult to determine such 
structure. Further, the producer must select enterprise units. If such 
a selection is not made, FCIC cannot require the producer to receive 
enterprise units. Basic units are the default if no other unit 
structure is selected and, therefore, the most appropriate unit 
structure when reverting back. No change has been made.
    Comment: A few commenters disagreed with the changes in section 
34(b) regarding having discernible borders. A few commenters agreed 
with the changes. A commenter requested clarification. A commenter 
asked the break be unplanted and not plowed or tilled. A few commenters 
found it too subjective. A couple of commenters were concerned 
regarding optional units for non-irrigated corners of a field in which 
a center-pivot irrigation system is used. A few commenters felt the 
proposed change would be a workable solution to the long standing 
problem of same row direction planting in irrigation systems.
    Response: As stated in FCIC's response to the comments regarding 
the definition of ``border,'' FCIC is withdrawing its proposal to allow 
a border created by different plant densities to qualify for unit 
division.

Clarification of the Multiple Benefits Provisions--Section 35

    Comment: One commenter stated section 35 should specify that other 
USDA programs are not subject to being subrogated.
    Response: FCIC agrees that funds the producer receives as payment 
for the loss under other USDA payments allowed in section 35 should not 
be covered by subrogation and has revised section 30 accordingly.

Clarification of the Substitution of Yields Provisions--Section 36

    Comment: Some comments were received regarding section 36(b). Most 
were addressed in the final rule published prior to this rule (Vol. 68, 
No. 122/Wednesday, June 25, 2003) but one in particular suggested that 
yield substitutions should be allowed on a database basis at the 
production reporting time.
    Response: FCIC failed to discover the suggestion to allow the 
election to be made at the time of production reporting and 
subsequently received inquiries suggesting it was not possible for 
producers to make appropriate elections by the sales closing date. 
Therefore, FCIC issued a bulletin allowing the election to be made by 
the production reporting date and has revised section 36(b) 
accordingly.

New Provisions for Beginning and New Producers

    Comment: One commenter stated that a new section 38 should be added 
to address beginning farmers and new producers. They stated the 
proposed revisions to the Basic Provisions fail to address the special 
needs of beginning farmers with respect to insurance. The commenter 
believes the wide variety of regulations related to production history 
and records make it difficult for new producers to choose appropriate 
risk management tools. They believe to be consistent with widespread 
public support for addressing the crisis of an aging farm population, 
declining economic opportunity in agriculture, and depopulation of 
farming communities, the agency should not only make insurance more 
accessible to beginning farmers through clearer rules related to 
history and records, but should also offer special incentives to new 
producers of limited means. The commenter recommended the agency 
immediately develop a new section of the Basic Provisions to deal 
specifically with the unique needs of beginning farmers. They also 
urged the agency to develop proposals for special incentives for 
beginning farmers, and to utilize the USDA Advisory Committee on 
Beginning Farmers and Ranchers in developing this initiative.
    Response: Since the recommended changes were not proposed, no 
changes were required as a result of conforming amendments, and the 
public was not provided an opportunity to comment on the recommended 
change, the recommendation cannot be incorporated in the final rule. No 
change has been made.
    In addition to the changes described above, FCIC has made the 
following changes:
    1. Revise the definition of ``acreage report'' to change the word 
``paragraph'' to ``section'' and the definition of ``price election'' 
to change ``to be used for computing'' to ``that is'' to clarify that 
the price election is the value of the crop;
    2. The ``Contract change'' section has been changed to allow 
correction of clear errors in policy and actuarial materials such as 
when dates have been transposed or there are typographical errors such 
as transitional yields reported as 1000 pounds when it should have been 
100 pounds;
    3. Revise the provisions in section 9(a)(8) regarding the election 
to not insure second crop acreage to clarify the election can be made 
when it is uncertain whether or not the first insured crop will have an 
indemnity (Such cases may occur when only a portion of the acreage in 
the first insured crop unit is released to be planted to a second crop) 
and that the election is made for all acreage in the first insured crop 
unit, and to add provisions indicating when the election can be made 
when there is no release of first insured crop acreage;
    4. Revise the written agreement provisions proposed to clarify the 
reference to ``guarantee'' because it may not always be possible to 
know the guarantee (for example, in cases where the agreement 
authorizes coverage to be established according to standard actual 
production history rules or for adjustments in the premium rate only). 
In addition, the guarantee cannot be quoted for multi-year written 
agreements, because additional years of production cause the guarantee 
to change from year to year. Accordingly, the provisions have been 
revised to clarify that guarantees may not be required for written 
agreements in effect for more than one year. The provisions are also 
revised to clarify that if a written agreement is requested after the 
sales closing date, an inspection must be made only when the written 
agreement is needed to establish insurability and determine the 
condition of the acreage or crop, for example for an unrated practice, 
type or variety, or for a crop in a county where insurance is not 
currently offered for the crop. Add provisions to section 18 that were 
previously contained in procedures that imposed some requirement or 
burden on the producer so that the producer would know the process for 
filing a request for a written agreement, the contents of such request, 
the applicable deadlines, and the grounds for not

[[Page 48730]]

accepting or rejecting requests for written agreements. This change is 
intended to ensure that all program participants are aware of the 
requirements regarding written agreements. The provisions were also 
revised to clarify that any request for a written agreement will be 
denied if FCIC determines the risk is excessive. The proposed 
provisions specify the ``written agreement'' would be denied; however, 
the written agreement will not be denied since the request for a 
written agreement will not be accepted;
    5. In the Group Risk Plan, FCIC has moved the provisions previously 
contained in section 14 to section 16 to eliminate redundancies;
    6. In the Group Risk Plan, FCIC has added a provision to section 15 
to clarify when interest starts to accrue for amounts that may be due 
to the producer; and
    7. FCIC has made technical revisions to other provisions in this 
rule for the purpose of clarity and such revisions are not intended to, 
and do not, make substantive changes to the provisions. FCIC has also 
revised the Group Risk Plan provisions to be consistent with the Basic 
Provisions.
    Good cause is shown to make this rule effective less than 30 days 
after publication in the Federal Register. Good cause to make the rule 
effective less than 30 days after publication exists when the 30-day 
delay in the effective date is impracticable, unnecessary, or contrary 
to the public interest.
    It is in the public interest to implement changes in this rule 
because they will improve the integrity and reduce costs of the crop 
insurance program. These changes include: (1) The requirement to 
collect additional identification numbers (social security numbers or 
employer identification numbers) to prevent ineligible persons from 
receiving program benefits; (2) New provisions providing authority to 
reduce excessively high insurance guarantees, thereby eliminating over-
insurance; (3) New penalties for producers who misreport information 
necessary to establish insurance protection, which should increase the 
incentive to provide accurate information which will reduce costs 
associated with misreporting; (4) A requirement to destroy grain 
containing substances injurious to human or animal health before an 
insurance claim is paid to ensure that such grain does not enter the 
food stream; (5) New provisions to prohibit prevented planting payments 
where pasture or other forage crop is in place at the time planting 
should occur to prevent payments for acreage where it is possible that 
planting was never intended; (6) New provisions that require that 
policy and procedure interpretations be provided by FCIC in the 
settlement of any dispute, which should reduce instances in which 
policies and procedures are misinterpreted during arbitration or 
litigation resulting in improper payments; and (7) Clarification of 
several policy provisions that should result in more consistent 
administration of the crop insurance program.
    Due to the larger number of comments and the scope and complexity 
of this rule, it was not possible for FCIC to complete this rule before 
now. Additional time was needed to ensure that all comments were 
considered and properly addressed. If FCIC is required to delay the 
implementation of this rule 30 days after the date it is published, the 
provisions of this rule could not be implemented until the next crop 
year for those crops having a contract change date of August 31, 2004. 
This would mean the benefits described above would not be available for 
an additional year.
    For the reasons stated above, good cause exists to make these 
policy changes effective less than 30 days after publication in the 
Federal Register.
    The amendments in this rule are applicable for the 2005 and 
succeeding crop years for all crops with a contract change date on or 
after the effective date of this rule, and for the 2006 and succeeding 
crop years for all crops with a contract change date prior to the 
effective date of this rule.

List of Subjects in 7 CFR Parts 400, 402, 407 and 457

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

Final Rule

0
Accordingly, as set forth in the preamble, the interim rule amending 7 
CFR parts 402, 407, and 457, published in the Federal Register on June 
30, 2000, at 65 FR 40483-40486 is adopted as final. In addition, as set 
forth in the preamble, the Federal Crop Insurance Corporation amends 7 
CFR parts 400, 402, 407 and 457 as follows:

PART 400--GENERAL ADMINISTRATIVE REGULATIONS

0
1. The authority citation for 7 CFR part 400 continues to read as 
follows:

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

Subpart L--Reinsurance Agreement--Standards for Approval; 
Regulations for the 1997 and Subsequent Reinsurance Years

0
2. In Sec.  400.176, revise paragraph (b) to read as follows:


Sec.  400.176  State action preemptions.

* * * * *
    (b) No policy of insurance reinsured by the Corporation and no 
claim, settlement, or adjustment action with respect to any such policy 
shall provide a basis for a claim of punitive or compensatory damages 
or an award of attorney fees or other costs against the Company issuing 
such policy, unless a determination is obtained from the Corporation 
that the Company, its employee, agent or loss adjuster failed to comply 
with the terms of the policy or procedures issued by the Corporation 
and such failure resulted in the insured receiving a payment in an 
amount that is less than the amount to which the insured was entitled.

Subpart P--Preemption of State Laws and Regulations

0
3. Amend Sec.  400.352, paragraph (b)(4) by revising the parenthetical 
text to read as follows:


Sec.  400.352  State and local laws and regulations preempted.

* * * * *
    (b) * * *
    (4) * * * (Nothing herein precludes such damages being imposed 
against the company if a determination is obtained from FCIC that the 
company, its employee, agent or loss adjuster failed to comply with the 
terms of the policy or procedures issued by FCIC and such failure 
resulted in the insured receiving a payment in an amount that is less 
than the amount to which the insured was entitled) * * *
* * * * *

PART 402--CATASTROPHIC RISK PROTECTION ENDORSEMENT

0
4. The authority citation for 7 CFR part 402 continues to read as 
follows:

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


Sec.  402.3  [Amended]

0
5. Amend Sec.  402.3 by revising the OMB control number to read ``0563-
0053'';

0
6. Amend Sec.  402.4, as follows:
0
a. Revise the introductory text of the section to read as follows;
0
b. Amend section 1 by adding in alphabetical order the definitions of 
``Household'' and ``Limited resource farmer''; and
0
c. Revise section 6(c).

[[Page 48731]]

    The revised and added text reads as follows:


Sec.  402.4  Catastrophic Risk Protection Endorsement Provisions.

    The Catastrophic Risk Protection Endorsement Provisions for the 
2005 and succeeding crop years are as follows:
* * * * *
    1. Definitions.
* * * * *
    Household. A domestic establishment including the members of a 
family (parents, brothers, sisters, children, spouse, grandchildren, 
aunts, uncles, nieces, nephews, first cousins, or grandparents, related 
by blood, adoption or marriage, are considered to be family members) 
and others who live under the same roof.
* * * * *
    Limited resource farmer. A person with:
    (1) Direct or indirect gross farm sales not more than $100,000.00 
in each of the previous two years (to be increased starting in fiscal 
year 2004 to adjust for inflation using Prices Paid by Farmer Index as 
compiled by National Agricultural Statistical Service (NASS)); and
    (2) A total household income at or below the national poverty level 
for a family of four, or less than 50 percent of county median 
household income in each of the previous two years (to be determined 
annually using Commerce Department Data).
* * * * *
0
6. Annual Premium and Administrative Fees.
* * * * *
    (c) The administrative fee provisions of paragraph (b) of this 
section do not apply if you meet the definition of a limited resource 
farmer (see section 1). The administrative fee will be waived if you 
request it and:
    (1) You qualify as a limited resource farmer; or
    (2) You were insured prior to the 2005 crop year or for the 2005 
crop year and your administrative fee was waived for one or more of 
those crop years because you qualified as a limited resource farmer 
under a policy definition previously in effect, and you remain 
qualified as a limited resource farmer under the definition that was in 
effect at the time the administrative fee was waived.
* * * * *

PART 407--GROUP RISK PLAN OF INSURANCE REGULATIONS FOR THE 2005 AND 
SUCCEEDING CROP YEARS

0
7. The authority citation for 7 CFR part 407 continues to read as 
follows:

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

PART 407--[AMENDED]

0
8. In part 407 revise the part heading to read as set forth above.


0
9. Amend Sec.  407.2 by:
0
a. Revising paragraph (d), removing paragraph (e) and redesignating 
paragraphs (f) through (h) as paragraphs (e) through (g) respectively; 
and
0
b. Amending newly designated paragraph (e) by removing the phrase 
``Sec.  407.8, paragraph 21'' and adding the phrase ``Sec.  407.9, 
section 15'' in its place.
    The revision reads as follows:


Sec.  407.2  Availability of Federal crop insurance.

* * * * *
    (d) Except as specified in paragraph (c) of this section, if a 
person has more than one contract authorized under the Act that 
provides coverage for the same loss on the same crop for the same crop 
year in the same county, all such contracts shall be voided for that 
crop year and the person will be liable for the premium on all 
contracts, unless the person can show to the satisfaction of the 
Corporation that the multiple contracts of insurance were without the 
fault of the person.
    (1) If the multiple contracts of insurance are shown to be without 
the fault of the person and:
    (i) One contract is an additional coverage policy and the other 
contract is a Catastrophic Risk Protection policy, the additional 
coverage policy will apply if both policies are with the same insurance 
provider, or if not, both insurance providers agree, and the 
Catastrophic Risk Protection policy will be canceled (If the insurance 
providers do not agree, the policy with the earliest date of 
application will be in force and the other contract will be canceled); 
or
    (ii) Both contracts are additional coverage policies or both are 
Catastrophic Risk Protection policies, the contract with the earliest 
signature date on the application will be valid and the other contract 
on that crop in the county for that crop year will be canceled, unless 
both policies are with the same insurance provider and the insurance 
provider agrees otherwise or both policies are with different insurance 
providers and both insurance providers agree otherwise.
    (2) No liability for indemnity or premium will attach to the 
contracts canceled as specified in paragraphs (d)(1)(i) and (ii) of 
this section.
* * * * *


Sec.  407.6  [Removed and reserved]

0
10. Remove and reserve Sec.  407.6;


Sec.  407.7  [Amended]

0
11. Amend Sec.  407.7 in the fourth sentence by removing the words 
``Except as may be allowed under Sec.  407.6, and at the sole 
discretion of the Corporation,'' and capitalizing the first letter in 
the word ``no'';

0
12. Amend Sec.  407.9, as follows:
0
a. Revise the introductory text;
0
b1. Following the second appearance of the heading ``FCIC policies'', 
revise the first paragraph and add a new third paragraph ``Agreement to 
Insure'';
0
b2. Following the second appearance of the heading ``Reinsured 
Policies'', revise the first and second paragraphs and add a new fourth 
paragraph ``Agreement to Insure'';
0
c. Amend the third paragraph under the heading ``Both policies'' by 
removing the number ``55'' and adding the number ``45'' in its place;
0
d. Revise the last sentence of the seventh paragraph under the heading 
``Both policies'' and remove the paragraph ``Agreement to Insure'' 
preceding the ``Terms and Conditions'';
0
e. Amend section 1 by adding definitions for ``Agricultural 
commodity,'' ``Code of Federal Regulations (CFR),'' ``Contract change 
date,'' ``Delinquent debt,'' ``Household,'' ``Insurable loss,'' 
``Limited resource farmer,'' ``Offset,'' and ``Substantial beneficial 
interest'';
0
f. Amend section 1 by revising the definition of ``Actuarial 
documents'';
0
g. Amend the definition of ``Catastrophic risk protection'' by removing 
the number ``55'' and adding the number ``45'' in its place;
0
h. Amend the definition of ``Second crop'' by revising the third 
sentence;
0
i. Revise section 3(c)(2);
0
j. Revise the introductory text in section 3(c)(3) and section 
3(c)(3)(i);
0
k. Amend section 4(a) by removing the number ``55'' and adding the 
number ``45'' in its place;
0
l. Amend section 7 by revising sections 7(c), (d) and (e), 
redesignating section 7(f) as section 7(i), and adding new sections 
7(f), (g) and (h);
0
m. Revise section 8(c);
0
n. Amend section 8(f) by removing the word ``by'' in the second 
sentence and adding the words ``not earlier than'' in its place;
0
o. Amend section 8 by revising section 8(g) and removing section 8(h);
0
p. Revise sections 9(a), (c) and (d) and add new sections (e) through 
(l);

[[Page 48732]]

0
q. Revise section 10;
0
r. Revise section 13;
0
s. Remove and reserve section 14;
0
t. Amend section 15(c) in both the FCIC and the Reinsured policy 
versions by removing the second sentences;
0
u. Amend section 15 in the Reinsured Policy version by adding a new 
section 15(i);
0
v. Revise section 16 in both the FCIC and the Reinsured policy 
versions;
0
w. Amend section 18 by redesignating sections 18(f) through (h) as 
sections 18(g) through (i), respectively, revising sections 18(b) and 
(e), and adding a new section 18(f);
0
x. Revise newly redesignated section 18(h) by replacing ``terminate'' 
with ``cancel'';
0
y. Revise sections 19(b) and (c); and
0
z. Revise section 21(a)(2)(ii).
    The revised and added sections read as follows:


Sec.  407.9  Group risk plan common policy.

    The provisions of the Group Risk Plan Common Policy for the 2005 
and succeeding crop years are as follows:
* * * * *
    This insurance policy establishes a risk management program 
developed by the Federal Crop Insurance Corporation (FCIC), an agency 
of the United States Government, under the authority of the Federal 
Crop Insurance Act (Act), as amended (7 U.S.C. 1501 et seq.). All terms 
of the policy and rights and responsibilities of the parties thereto 
are subject to the Act and all regulations under the Act published in 7 
CFR chapter IV. The provisions of this policy may not be waived or 
modified in any way by us, your insurance agent or any employee of USDA 
unless the policy specifically authorizes a waiver or modification by 
written agreement. Procedures (handbooks, manuals, memoranda, and 
bulletins), issued by us and published on the RMA Web site at http://www.rma.usda.gov/ or a successor Web site will be used in the 
administration of this policy. All provisions of state and local laws 
in conflict with the provisions of this policy as published at 7 CFR 
part 407 are preempted and the provisions of this policy control.
* * * * *
    AGREEMENT TO INSURE: In return for the payment of the premium, and 
subject to all of the provisions of this policy, we agree with you to 
provide the insurance as stated in this policy. If there is a conflict 
between the Act, the regulations published at 7 CFR chapter IV, and the 
procedures issued by us, the order of priority is as follows: (1) The 
Act; (2) the regulations; and (3) the procedures issued by us, with (1) 
controlling (2), etc. If there is a conflict between the policy 
provisions published at 7 CFR part 407 and the administrative 
regulations published at 7 CFR part 400, the policy provisions 
published at 7 CFR part 407 control. If a conflict exists among the 
policy provisions, the order of priority is: (1) The Catastrophic Risk 
Protection Endorsement, as applicable; (2) the Special Provisions; (3) 
the Crop Provisions; and (4) these Basic Provisions, with (1) 
controlling (2), etc.
    [Reinsured policies]
    This insurance policy establishes a risk management program 
developed by the Federal Crop Insurance Corporation (FCIC), an agency 
of the United States Government, under the authority of the Federal 
Crop Insurance Act (Act), as amended (7 U.S.C. 1501 et seq.).
    This insurance policy is reinsured by FCIC under the provisions of 
the Act. All terms of the policy and rights and responsibilities of the 
parties are subject to the Act and all regulations under the Act 
published in 7 CFR chapter IV. The provisions of this policy may not be 
waived or modified in any way by us, our insurance agent or any other 
contractor or employee of ours or any employee of USDA unless the 
policy specifically authorizes a waiver or modification by written 
agreement. We will use the procedures (handbooks, manuals, memoranda, 
and bulletins), as issued by FCIC and published on the RMA Web site at 
http://www.rma.usda.gov/ or a successor Web site, in the administration 
of this policy. All provisions of state and local laws in conflict with 
the provisions of this policy as published at 7 CFR part 407 are 
preempted and the provisions of this policy will control. In the event 
that we cannot pay your loss because we are insolvent or are otherwise 
unable to perform our duties under our reinsurance agreement with FCIC, 
your claim will be settled in accordance with the provisions of this 
policy and FCIC will be responsible for any amounts owed. No state 
guarantee fund will be liable for your loss.
* * * * *
    AGREEMENT TO INSURE: In return for the payment of premium and 
subject to all of the provisions of this policy, we agree with you to 
provide risk protection as stated in this policy. If there is a 
conflict between the Act, the regulations published at 7 CFR chapter 
IV, and the procedures as issued by FCIC, the order of priority is as 
follows: (1) The Act; (2) the regulations; and (3) the procedures as 
issued by FCIC, with (1) controlling (2), etc. If there is a conflict 
between the policy provisions published at 7 CFR part 407 and the 
administrative regulations published at 7 CFR part 400, the policy 
provisions published at 7 CFR part 407 control. If a conflict exists 
among the policy provisions, the order of priority is: (1) the 
Catastrophic Risk Protection Endorsement, as applicable; (2) the 
Special Provisions; (3) the Crop Provisions; and (4) these Basic 
Provisions, with (1) controlling (2), etc.
    [Both policies]
* * * * *
    * * * The policy will consist of the accepted application, these 
Basic Provisions, the Crop Provisions, the Special Provisions, other 
applicable amendments, endorsements or options, the actuarial documents 
for the insured agricultural commodity, the Catastrophic Risk 
Protection Endorsement, if applicable, and the applicable regulations 
published in 7 CFR chapter IV. Insurance for each agricultural 
commodity in each county will constitute a separate policy.
* * * * *
    1. Definitions.
* * * * *
    Actuarial documents. The material for the crop year which is 
available for public inspection in your agent's office and published on 
RMA's Web site at http://www.rma.usda.gov/ or a successor Web site, and 
which shows the maximum protection per acre, expected county yield, 
coverage levels, information needed to determine the premium rates, 
practices, program dates, and other related information regarding crop 
insurance in the county.
* * * * *
    Agricultural commodity. Any crop or other commodity produced, 
regardless of whether or not it is insurable.
* * * * *
    Code of Federal Regulations (CFR). The codification of general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. Rules published in 
the Federal Register by FCIC are contained in 7 CFR chapter IV. The 
full text of the CFR is available in electronic format at http://www.access.gpo.gov/ or a successor Web site.
    Contract change date. The calendar date by which changes to the 
policy, if any, will be made available in accordance with section 19 of 
these Basic Provisions.
* * * * *
    Delinquent debt. Any administrative fees or premiums for insurance 
issued under the authority of the Act, and the

[[Page 48733]]

interest on those amounts, if applicable, that are not postmarked or 
received by us or our agent on or before the termination date unless 
you have entered into an agreement acceptable to us to pay such amounts 
or have filed for bankruptcy on or before the termination date; any 
other amounts due us for insurance issued under the authority of the 
Act (including, but not limited to, indemnities found not to have been 
earned or that were overpaid), and the interest on such amounts, if 
applicable, which are not postmarked or received by us or our agent by 
the due date specified in the notice to you of the amount due; or any 
amounts due under an agreement with you to pay the debt, which are not 
postmarked or received by us or our agent by the due dates specified in 
such agreement.
* * * * *
    Household. A domestic establishment including the members of a 
family (parents, brothers, sisters, children, spouse, grandchildren, 
aunts, uncles, nieces, nephews, first cousins, or grandparents, related 
by blood, adoption or marriage, are considered to be family members) 
and others who live under the same roof.
    Insurable loss. Damage for which coverage is provided under the 
terms of your policy, and for which you accept an indemnity payment.
* * * * *
    Limited resource farmer. A person with:
    (1) Direct or indirect gross farm sales not more than $100,000.00 
in each of the previous two years (to be increased starting in fiscal 
year 2004 to adjust for inflation using Prices Paid by Farmer Index as 
compiled by NASS); and
    (2) A total household income at or below the national poverty level 
for a family of four, or less than 50 percent of county median 
household income in each of the previous two years (to be determined 
annually using Commerce Department Data).
* * * * *
    Offset. The act of deducting one amount from another amount.
* * * * *
    Second crop. * * * A cover crop, planted after a first insured crop 
and planted for the purpose of haying, grazing or otherwise harvesting 
in any manner or that is hayed or grazed during the crop year, or that 
is otherwise harvested is considered to be a second crop. * * *
* * * * *
    Substantial beneficial interest. An interest held by any person of 
at least 10 percent in you. The spouse of any individual applicant or 
individual insured will be considered to have a substantial beneficial 
interest in the applicant or insured unless the spouses can prove they 
are legally separated or otherwise legally separate under state law. 
Any child of an individual applicant or individual insured will not be 
considered to have a substantial beneficial interest in the applicant 
or insured unless the child has a separate legal interest in such 
person. For example, there are two partnerships that each have a 50 
percent interest in you and each partnership is made up of two 
individuals, each with a 50 percent share in the partnership. In this 
case, each individual would be considered to have a 25 percent interest 
in you, and both the partnerships and the individuals would have a 
substantial beneficial interest in you (The spouses of the individuals 
would not be considered to have a substantial beneficial interest 
unless the spouse was one of the individuals that made up the 
partnership). However, if each partnership is made up of six 
individuals with equal interests, then each would only have an 8.33 
percent interest in you and although the partnership would still have a 
substantial beneficial interest in you, the individuals would not for 
the purposes of reporting in section 18.
* * * * *
    3. Insured and Insurable Acreage.
* * * * *
    (c) * * *
    (1) * * *
    (2) Where you have failed to follow good farming practices for the 
insured crop; or
    (i) Planted to a type, class or variety not generally recognized 
for the area; or
    (ii) Where the conditions under which the crop is planted are not 
generally recognized for the area (For example, where agricultural 
experts determine that planting a non-irrigated corn crop after a 
failed small grain crop on the same acreage in the same crop year is 
not appropriate for the area);
    (3) Of a second crop, if you elect not to insure such acreage when 
an indemnity for a first insured crop may be subject to reduction in 
accordance with the provisions of section 21 and you intend to collect 
an indemnity payment that is equal to 100 percent of the insurable loss 
for the first insured crop acreage. This election must be made for all 
first insured crop acreage that may be subject to an indemnity 
reduction if the first insured crop is insured under this policy, or on 
a first insured crop unit basis if the first insured crop is not 
insured under this policy. For example, if the first insured crop under 
this policy consists of 40 acres, or the first insured crop unit 
insured under another policy contains 40 planted acres, then no second 
crop can be insured on any of the 40 acres. In this case:
    (i) If the first insured crop is insured under this policy, you 
must provide written notice to us of your election not to insure 
acreage of a second crop by the acreage reporting date for the second 
crop if it is insured under this policy, or before planting the second 
crop if it is insured under any other policy, or, if the first insured 
crop is not insured under this policy, at the time the first insured 
crop acreage is released by us (if no acreage in the first insured crop 
unit is released, this election must be made by the earlier of the 
acreage reporting date for the second crop or when you sign the claim 
for the first insured crop), and if you fail to provide such notice, 
the second crop acreage will be insured in accordance with applicable 
policy provisions and you must repay any overpaid indemnity for the 
first insured crop;
* * * * *
    7. Report of Acreage and Share.
* * * * *
    (c) The premium amount and payment of an indemnity will be based on 
your insurable acreage on the acreage reporting date subject to section 
7(d).
    (d) You must provide all required reports and you are responsible 
for the accuracy of all information contained in those reports. You 
should verify the information on all such reports prior to submitting 
them to us.
    (1) If you submit information on any report that is different than 
what is determined to be correct and such information results in:
    (i) A lower amount of policy protection than the correct amount, 
the amount of policy protection will be reduced to an amount consistent 
with the reported information; or
    (ii) A higher amount of policy protection than the correct amount, 
the information contained in the acreage report will be revised to be 
consistent with the correct information.
    (2) In addition to the other adjustments specified in section 
7(d)(1), if you misreport any information that results in an amount of 
policy protection greater than 110.0 percent or lower than 90.0 percent 
of the correct amount of policy protection, any indemnity will be based 
on the amount of policy protection determined in accordance with 
section 7(d)(1)(i) or (ii) and will be reduced in an amount 
proportionate with the amount of policy protection that is misreported 
in excess

[[Page 48734]]

of the tolerances stated in this paragraph (For example, if the correct 
amount of policy protection is determined to be $100.00, but you 
reported a policy protection amount of $120.00, any indemnity will be 
reduced by 10.0 percent ($120.00 / $100.00 = 1.20, and 1.20 -1.10 = 
0.10)).
    (e) If you request an acreage measurement prior to the acreage 
reporting date and submit documentation of such request and an acreage 
report with estimated acreage by the acreage reporting date, you must 
provide the measurement to us, we will revise your acreage report if 
there is a discrepancy, and no indemnity will be paid until the acreage 
measurement has been received by us (Failure to provide the measurement 
to us will result in the application of section 7(d) if the estimated 
acreage is not correct, and estimated acreage under this paragraph will 
no longer be accepted for any subsequent acreage report).
    (f) If there is an irreconcilable difference between:
    (1) The acreage measured by FSA or a measuring service and our on-
farm measurement, our on-farm measurement will be used; or
    (2) The acreage measured by a measuring service, other than our on-
farm measurement, and FSA, the FSA measurement will be used.
    (g) Information on the initial acreage report will not be 
considered misreported for the purposes of section 7(d) if the acreage 
report is revised:
    (1) In accordance with section 7(e) or (f);
    (2) Because information is clearly transposed;
    (3) When you provide adequate evidence that we or someone from USDA 
have committed an error regarding the information; or
    (4) As expressly permitted by the policy.
    (h) If we discover you have incorrectly reported any information on 
the acreage report for any crop year, you may be required to provide 
documentation in subsequent crop years substantiating your report of 
acreage for those crop years, including, but not limited to, an acreage 
measurement service at your own expense. If the correction of any 
misreported information would affect an indemnity that was paid in a 
prior crop year, such claim will be adjusted and you will be required 
to repay any overpaid amounts.
* * * * *
    8. Administrative Fees and Annual Premium.
* * * * *
    (c) The administrative fee will be waived if you request it and:
    (1) You qualify as a limited resource farmer; or
    (2) You were insured prior to the 2005 crop year or for the 2005 
crop year and your administrative fee was waived for one or more of 
those crop years because you qualified as a limited resource farmer 
under a policy definition previously in effect, and you remain 
qualified as a limited resource farmer under the definition that was in 
effect at the time the administrative fee was waived.
* * * * *
    (g) If the amount of premium (gross premium less premium subsidy 
paid on your behalf by FCIC) and administrative fee you are required to 
pay for any acreage exceeds the amount of protection for the acreage, 
coverage for those acres will not be provided (no premium or 
administrative fee will be due and no indemnity will be paid for such 
acreage).
    9. Written Agreements.
* * * * *
    (a) You must apply in writing for each written agreement or for 
renewal of any written agreement no later than the sales closing date, 
unless you demonstrate your physical inability to submit the request 
prior to the sales closing date (For example, you have been 
hospitalized or a blizzard has made it impossible to submit the written 
agreement request in person or by mail);
* * * * *
    (c) If approved by FCIC, the written agreement will include all 
variable terms of the contract, including, but not limited to, crop 
practice, and type or variety;
    (d) Each written agreement will only be valid for the number of 
crop years specified in the written agreement and a multi-year written 
agreement:
    (1) Will only apply for any particular crop year designated in the 
written agreement if all terms and conditions in the written agreement 
are still applicable for the crop year and the conditions under which 
the written agreement has been provided have not changed prior to the 
beginning of the crop year (If conditions change during or prior to a 
crop year, the written agreement will not be effective for that crop 
year but may still be effective for a subsequent crop year if 
conditions under which the written agreement has been provided exist 
for such year);
    (2) May be canceled in writing by:
    (i) FCIC not less than 30 days before the cancellation date if it 
discovers that any term or condition of the written agreement, 
including the premium rate, is not appropriate for the crop; or
    (ii) You or us on or before the cancellation date;
    (3) That is not renewed in writing after it expires, is not 
applicable for a crop year, or is canceled, then insurance coverage 
will be in accordance with the terms and conditions stated in this 
policy, without regard to the written agreement; and
    (4) Will be automatically cancelled if you transfer your policy to 
another insurance provider (No notice will be provided to you and for 
any subsequent crop year, for a written agreement to be effective, you 
must timely request renewal of the written agreement in accordance with 
this section);
    (e) A request for any written agreement must contain:
    (1) A completed ``Request for Actuarial Change'' form;
    (2) Evidence from agricultural experts or the organic agricultural 
industry, as applicable, that the crop can be produced in the area if 
the request is to provide insurance for practices, types, or varieties 
that are not insurable, unless we are notified in writing by FCIC that 
such evidence is not required;
    (3) The legal description of the land (in areas where legal 
descriptions are available), FSA Farm Serial Number including tract 
number, and a FSA aerial photograph, acceptable Geographic Information 
System or Global Positioning System maps, or other legible maps 
delineating field boundaries where you intend to plant the crop for 
which insurance is requested; and
    (4) Such other information as specified in the Special Provisions 
or required by FCIC;
    (f) A request for written agreement will not be accepted if:
    (1) The request is submitted to us after the deadline contained in 
section 9(a);
    (2) All the information required in section 9(e) is not submitted 
to us with the request for a written agreement (The request for a 
written agreement may be accepted if any missing information is 
available from other acceptable sources); or
    (3) The request is to add land or crops to an existing written 
agreement or to add land or crops to a request for a written agreement 
and the request is not submitted by the deadlines specified in section 
9(a);
    (g) A request for a written agreement will be denied if:
    (1) FCIC determines the risk is excessive;
    (2) There is not adequate information available to establish an 
actuarially sound premium rate and insurance coverage for the crop and 
acreage; or
    (3) Agricultural experts or the organic agricultural industry 
determines the

[[Page 48735]]

crop practices, types, or varieties are not generally recognized for 
the county;
    (h) A written agreement will be denied unless FCIC approves the 
written agreement and the original written agreement is signed by you 
and sent to us not later than the expiration date;
    (i) With respect to your and our ability to reject an offer for a 
written agreement:
    (1) When a single Request for Actuarial Change form is submitted, 
regardless of how many requests for changes are contained on the form, 
you and we can only accept or reject the written agreement in its 
entirety (you cannot reject specific terms of the written agreement and 
accept others);
    (2) When multiple Request for Actuarial Change forms are submitted, 
regardless of when the forms are submitted, for the same condition, all 
these forms may be treated as one request and you and we will only have 
the option of accepting or rejecting the written agreement in its 
entirety (you cannot reject specific terms of the written agreement and 
accept others);
    (3) When multiple Request for Actuarial Change forms are submitted, 
regardless of when the forms are submitted, for the different 
conditions or for different crops, separate agreements may be issued 
and you and we will have the option to accept or reject each written 
agreement; and
    (4) If we reject an offer for a written agreement approved by FCIC, 
you may seek arbitration or mediation of our decision to reject the 
offer in accordance with section 16;
    (j) Any information that is submitted by you after the applicable 
deadlines in section 9(a) will not be considered, unless such 
information is specifically requested in accordance with section 
9(e)(4);
    (k) If the written agreement or the policy is canceled for any 
reason, or the period for which an existing written agreement is in 
effect ends, a request for renewal of the written agreement must 
contain all the information required by this section and be submitted 
in accordance with section 9(a), unless otherwise specified by FCIC; 
and
    (l) If a request for a written agreement is not approved by FCIC, a 
request for a written agreement for any subsequent crop year that fails 
to address the stated basis for the denial will not be accepted (If the 
request for a written agreement contains the same information that was 
previously rejected or denied, you will not have any right to 
arbitrate, mediate or appeal the non-acceptance of your request).
    10. Access to Insured Crop and Record Retention.
    (a) We, and any employee of USDA authorized to investigate or 
review any matter relating to crop insurance, have the right to examine 
the insured crop, any records relating to the crop and this insurance, 
and any records regarding mediation, arbitration or litigation 
involving the insured crop, at any location where such crop or records 
may be found or maintained, as often as reasonably required during the 
record retention period.
    (b) You must retain, and provide upon our request, or the request 
of any employee of USDA authorized to investigate or review any matter 
relating to crop insurance, complete records pertaining to the planting 
of the insured crop and your net acres for a period of three years 
after the end of the crop year or three years after the date of final 
payment of the indemnity, whichever is later. This requirement also 
applies to all such records for acreage that is not insured.
    (c) We, or any employee of USDA authorized to investigate or review 
any matter relating to crop insurance, may extend the record retention 
period beyond three years by notifying you of such extension in 
writing.
    (d) By signing the application for insurance authorized under the 
Act or by continuing insurance for which you have previously applied, 
you authorize us or USDA, or any person acting for us or USDA 
authorized to investigate or review any matter relating to crop 
insurance, to obtain records relating to the planting, replanting, 
inputs, production, harvesting, and disposition of the insured crop 
from any person who may have custody of such records, including but not 
limited to, FSA offices, banks, warehouses, gins, cooperatives, 
marketing associations, and accountants. You must assist in obtaining 
all records we or any employee of USDA authorized to investigate or 
review any matter relating to crop insurance request from third 
parties.
    (e) Failure to provide access to the insured crop or the farm, 
maintain or provide any required records, authorize access to the 
records maintained by third parties, or assist in obtaining all such 
records will result in a determination that no indemnity is due for the 
crop year in which such failure occurred.
* * * * *
    13. Other Insurance.
    Nothing in this section prevents you from obtaining other insurance 
not authorized under the Act. However, unless specifically required by 
policy provisions, you must not obtain any other crop insurance 
authorized under the Act on your share of the insured crop. If you 
cannot demonstrate that you did not intend to have more than one policy 
in effect, you may be subject to the consequences authorized under this 
policy, the Act, or any other applicable statute. If you can 
demonstrate that you did not intend to have more than one policy in 
effect (For example, an application to transfer your policy or written 
notification to an insurance provider that states you want to purchase, 
or transfer, insurance and you want any other policies for the crop 
canceled would demonstrate you did not intend to have duplicate 
policies), and:
    (a) One is an additional coverage policy and the other is a 
Catastrophic Risk Protection policy:
    (1) The additional coverage policy will apply if both policies are 
with the same insurance provider or, if not, both insurance providers 
agree; or
    (2) The policy with the earliest date of application will be in 
force if both insurance providers do not agree; or
    (b) Both are additional coverage policies or both are Catastrophic 
Risk Protection policies, the policy with the earliest date of 
application will be in force and the other policy will be void, unless 
both policies are with:
    (1) The same insurance provider and the insurance provider agrees 
otherwise; or
    (2) Different insurance providers and both insurance providers 
agree otherwise.
* * * * *
    [Reinsured policy]
    15. Restrictions, Limitations, and Amounts Due Us.
* * * * *
    (i) We will pay simple interest computed on the net indemnity 
ultimately found to be due by us or determined by a final judgment of a 
court of competent jurisdiction or a final administrative determination 
from, and including, the 61st day after the date we receive the NASS 
county yield estimates for the insured crop year. Interest will be paid 
only if the reason for our failure to timely pay is not due to your 
failure to provide information or other material necessary for the 
computation or payment of the indemnity. The interest rate will be that 
established by the Secretary of the Treasury under section 12 of the 
Contract Disputes Act of 1978 (41 U.S.C. 611 et seq.), and published in 
the Federal Register.
    [FCIC policy]
    16. Appeals, Administrative and Judicial Review.

[[Page 48736]]

    (a) All determinations required by the policy will be made by us.
    (b) If you disagree with our determinations, you may:
    (1) Except for determinations specified in section 16(b)(2), obtain 
an administrative review in accordance with 7 CFR part 400, subpart J 
or appeal in accordance with 7 CFR part 11; or
    (2) For determinations regarding whether you have used good farming 
practices, request reconsideration in accordance with the 
reconsideration process established for this purpose and published at 7 
CFR part 400, subpart J.
    (c) If you fail to exhaust your administrative remedies under 7 CFR 
part 11 or the reconsideration process for determinations of good 
farming practices described in section 16(b)(2), as applicable, you 
will not be able to resolve the dispute through judicial review.
    (d) If reconsideration for good farming practices under 7 CFR part 
400, subpart J or appeal under 7 CFR part 11 has been initiated within 
the time frames specified in those sections and judicial review is 
sought, any suit against us must be:
    (1) Filed not later than one year after the date of the decision 
rendered in the reconsideration process for good farming practices or 
administrative review process under 7 CFR part 11; and
    (2) Brought in the United States district court for the district in 
which the insured farm involved in the decision is located.
    (e) You may only recover contractual damages from us. Under no 
circumstances can you recover any attorney fees or other expenses, or 
any punitive, compensatory or any other damages from us in 
administrative review, appeal or litigation.
    [Reinsured policy]
    16. Mediation, Arbitration, Appeals, and Administrative and 
Judicial Review.
    (a) If you and we fail to agree on any determination made by us 
except those specified in section 16(d), the disagreement may be 
resolved through mediation in accordance with section 16(g). If 
resolution cannot be reached through mediation, or you and we do not 
agree to mediation, the disagreement must be resolved through 
arbitration in accordance with the rules of the American Arbitration 
Association (AAA), except as provided in sections 16(c) and (f), and 
unless rules are established by FCIC for this purpose. Any mediator or 
arbitrator with a familial, financial or other business relationship to 
you or us, or our agent or loss adjuster, is disqualified from hearing 
the dispute.
    (1) All disputes involving determinations made by us, except those 
specified in section 16(d), are subject to mediation or arbitration. 
However, if the dispute in any way involves a policy or procedure 
interpretation, regarding whether a specific policy provision or 
procedure is applicable to the situation, how it is applicable, or the 
meaning of any policy provision or procedure, either you or we must 
obtain an interpretation from FCIC in accordance with 7 CFR part 400, 
subpart X or such other procedures as established by FCIC.
    (i) Any interpretation by FCIC will be binding in any mediation or 
arbitration.
    (ii) Failure to obtain any required interpretation from FCIC will 
result in the nullification of any agreement or award.
    (iii) An interpretation by FCIC of a policy provision is considered 
a rule of general applicability and is not appealable. If you disagree 
with an interpretation of a policy provision by FCIC, you must obtain a 
Director's review from the National Appeals Division in accordance with 
7 CFR 11.6 before obtaining judicial review in accordance with 
subsection (e).
    (iv) An interpretation by FCIC of a procedure may be appealed to 
the National Appeals Division in accordance with 7 CFR part 11.
    (2) Unless the dispute is resolved through mediation, the 
arbitrator must provide to you and us a written statement describing 
the issues in dispute, the factual findings, the determinations and the 
amount and basis for any award and breakdown by claim for any award. 
The statement must also include any amounts awarded for interest. 
Failure of the arbitrator to provide such written statement will result 
in the nullification of all determinations of the arbitrator. All 
agreements reached through settlement, including those resulting from 
mediation, must be in writing and contain at a minimum a statement of 
the issues in dispute and the amount of the settlement.
    (b) Regardless of whether mediation is elected:
    (1) The initiation of arbitration proceedings must occur within one 
year of the date we denied your claim or rendered the determination 
with which you disagree, whichever is later;
    (2) If you fail to initiate arbitration in accordance with section 
16(b)(1) and complete the process, you will not be able to resolve the 
dispute through judicial review;
    (3) If arbitration has been initiated in accordance with section 
16(b)(1) and completed, and judicial review is sought, suit must be 
filed not later than one year after the date the arbitration decision 
was rendered; and
    (4) In any suit, if the dispute in any way involves a policy or 
procedure interpretation, regarding whether a specific policy provision 
or procedure is applicable to the situation, how it is applicable, or 
the meaning of any policy provision or procedure, an interpretation 
must be obtained from FCIC in accordance with 7 CFR part 400, subpart X 
or such other procedures as established by FCIC. Such interpretation 
will be binding.
    (c) Any decision rendered in arbitration is binding on you and us 
unless judicial review is sought in accordance with section 16(b)(3). 
Notwithstanding any provision in the rules of the AAA, you and we have 
the right to judicial review of any decision rendered in arbitration.
    (d) If you do not agree with any determination made by us or FCIC 
regarding whether you have used a good farming practice, you may 
request reconsideration by FCIC of this determination in accordance 
with the reconsideration process established for this purpose and 
published at 7 CFR part 400, subpart J (reconsideration).
    (1) You must complete reconsideration before filing suit against 
FCIC and any such suit must be brought in the United States district 
court for the district in which the insured farm is located.
    (2) Suit must be filed not later than one year after the date of 
the decision rendered in the reconsideration.
    (3) You cannot sue us for determinations of whether good farming 
practices were used by you.
    (e) Except as provided in section 16(d), if you disagree with any 
other determination made by FCIC, you may obtain an administrative 
review in accordance with 7 CFR part 400, subpart J (administrative 
review) or appeal in accordance with 7 CFR part 11 (appeal). If you 
elect to bring suit after completion of any appeal, such suit must be 
filed against FCIC not later than one year after the date of the 
decision rendered in such appeal. Under no circumstances can you 
recover any attorney fees or other expenses, or any punitive, 
compensatory or any other damages from FCIC.
    (f) In any mediation, arbitration, appeal, administrative review, 
reconsideration or judicial process, the terms of this policy, the Act, 
and the regulations published at 7 CFR chapter IV, including the 
provisions of 7 CFR part 400, subpart P, are binding. Conflicts between 
this policy and any state or local laws will be resolved in

[[Page 48737]]

accordance with section 31. If there are conflicts between any rules of 
the AAA and the provisions of your policy, the provisions of your 
policy will control.
    (g) To resolve any dispute through mediation, you and we must both:
    (1) Agree to mediate the dispute;
    (2) Agree on a mediator; and
    (3) Be present, or have a designated representative who has 
authority to settle the case present, at the mediation.
    (h) Except as provided in section 16(i), no award or settlement in 
mediation, arbitration, appeal, administrative review or 
reconsideration process or judicial review can exceed the amount of 
liability established or which should have been established under the 
policy, except for interest awarded in accordance with section 15(i).
    (i) In a judicial review only, you may recover attorneys fees or 
other expenses, or any punitive, compensatory or any other damages from 
us only if you obtain a determination from FCIC that we, our agent or 
loss adjuster failed to comply with the terms of this policy or 
procedures issued by FCIC and such failure resulted in you receiving a 
payment in an amount that is less than the amount to which you were 
entitled. Requests for such a determination should be addressed to the 
following: USDA/RMA/Deputy Administrator of Compliance/Stop 0806, 1400 
Independence Avenue, SW., Washington, DC 20250-0806.
    (j) If FCIC elects to participate in the adjustment of your claim, 
or modifies, revises or corrects your claim, prior to payment, you may 
not bring an arbitration, mediation or litigation action against us. 
You must request administrative review or appeal in accordance with 
section 16(e).
* * * * *
    18. Life of Policy, Cancellation, and Termination.
* * * * *
    (b) Your application for insurance must contain your social 
security number (SSN) if you are an individual or employer 
identification number (EIN) if you are a person other than an 
individual, and all SSNs and EINs, as applicable, of all persons with a 
substantial beneficial interest in you, the coverage level, price 
election, crop, type, variety, or class, plan of insurance, and any 
other material information required on the application to insure the 
crop. If you or someone with a substantial beneficial interest is not 
legally required to have a SSN or EIN, you must request and receive an 
identification number for the purposes of this policy from us or the 
Internal Revenue Service (IRS) if such identification number is 
available from the IRS. If any of the information regarding persons 
with a substantial beneficial interest changes during the crop year, 
you must revise your application by the next sales closing date 
applicable under your policy to reflect the correct information.
    (1) Applications that do not contain your SSN, EIN or 
identification number, or any of the other information required in 
section 18(b) are not acceptable and insurance will not be provided 
(Except if you fail to report the SSNs, EINs or identification numbers 
of persons with a substantial beneficial interest in you, the 
provisions in section 18(b)(2) will apply);
    (2) If the application does not contain the SSNs, EINs or 
identification numbers of all persons with a substantial beneficial 
interest in you, you fail to revise your application in accordance with 
section 18(b), or the reported SSNs, EINs or identification numbers are 
incorrect and the incorrect SSN, EIN or identification number has not 
been corrected by the acreage reporting date, and:
    (i) Such persons are eligible for insurance, the amount of coverage 
for all crops included on this application will be reduced 
proportionately by the percentage interest in you of such persons, you 
must repay the amount of indemnity that is proportionate to the 
interest of the persons whose SSN, EIN or identification number was 
unreported or incorrect for such crops, and your premium will be 
reduced commensurately; or
    (ii) Such persons are not eligible for insurance, except as 
provided in section 18(b)(3), the policy is void and no indemnity will 
be owed for any crop included on this application, and you must repay 
any indemnity that may have been paid for such crops. If previously 
paid, the balance of any premium and any administrative fees will be 
returned to you, less twenty percent of the premium that would 
otherwise be due from you for such crops. If not previously paid, no 
premium or administrative fees will be due for such crops.
    (3) The consequences described in section 18(b)(2)(ii) will not 
apply if you have included an ineligible person's SSN, EIN or 
identification number on your application and do not include the 
ineligible person's share on the acreage report.
* * * * *
    (e) Any amount due to us for any policy authorized under the Act 
will be offset from any indemnity due you for this or any other crop 
insured with us.
    (1) Even if your claim has not yet been paid, you must still pay 
the premium and administrative fee on or before the termination date 
for you to remain eligible for insurance.
    (2) If we offset any amount due us from an indemnity owed to you, 
the date of payment for the purpose of determining whether you have a 
delinquent debt will be the date FCIC publishes the payment yield for 
the applicable crop year.
    (f) A delinquent debt for any policy will make you ineligible to 
obtain crop insurance authorized under the Act for any subsequent crop 
year and result in termination of all policies in accordance with 
section 18(f)(2).
    (1) With respect to ineligibility:
    (i) Ineligibility for crop insurance will be effective on:
    (A) The date that a policy was terminated in accordance with 
section 18(f)(2) for the crop for which you failed to pay premium, an 
administrative fee, or any related interest owed, as applicable;
    (B) The payment due date contained in any notification of 
indebtedness for any overpaid indemnity, if you fail to pay the amount 
owed, including any related interest owed, as applicable, by such due 
date;
    (C) The termination date for the crop year prior to the crop year 
in which a scheduled payment is due under a payment agreement if you 
fail to pay the amount owed by any payment date in any agreement to pay 
the debt; or
    (D) The termination date the policy was or would have been 
terminated under sections 18(f)(2)(i)(A), (B) or (C) if your bankruptcy 
petition is dismissed before discharge.
    (ii) If you are ineligible and a policy has been terminated in 
accordance with section 18(f)(2), you will not receive any indemnity, 
and such ineligibility and termination of the policy may affect your 
eligibility for benefits under other USDA programs. Any indemnity that 
may be owed for the policy before it has been terminated will remain 
owed to you, but may be offset in accordance with section 18(e), unless 
your policy was terminated in accordance with sections 18(f)(2)(i)(D) 
or (E).
    (2) With respect to termination:
    (i) Termination will be effective on:
    (A) For a policy with unpaid administrative fees or premiums, the 
termination date immediately subsequent to the billing date for the 
crop year;
    (B) For a policy with other amounts due, the termination date 
immediately following the date you have a delinquent debt;

[[Page 48738]]

    (C) For each policy for which the termination date has passed 
before you become ineligible, the termination date immediately 
following the date you become ineligible;
    (D) For execution of an agreement to pay any amounts owed and 
failure to make any scheduled payment, the termination date for the 
crop year prior to the crop year in which you failed to make the 
scheduled payment; or
    (E) For dismissal of a bankruptcy petition before discharge, the 
termination date the policy was or would have been terminated under 
sections 18(f)(2)(i)(A), (B) or (C).
    (ii) For all policies terminated under sections 18(f)(2)(i)(D) and 
(E), any indemnities paid subsequent to the termination date must be 
repaid.
    (iii) Once the policy is terminated, it cannot be reinstated for 
the current crop year unless the termination was in error. Failure to 
timely pay because of illness, bad weather, or other such extenuating 
circumstances is not grounds for reinstatement in the current crop 
year.
    (3) To regain eligibility, you must:
    (i) Repay the delinquent debt in full;
    (ii) Execute an agreement to pay any amounts owed and make payments 
in accordance with the agreement (We will not enter into an agreement 
with you to pay the amounts owed if you have previously failed to make 
a scheduled payment under the terms of any other agreement to pay with 
us or any other insurance provider); or
    (iii) File a petition to have your debts discharged in bankruptcy 
(Dismissal of the bankruptcy petition before discharge will terminate 
all policies in effect retroactive to the date your policy would have 
been terminated in accordance with section 18(f)(2)(i));
    (4) After you become eligible for crop insurance, if you want to 
obtain coverage for your crops, you must submit a new application on or 
before the sales closing date for the crop (Since applications for crop 
insurance cannot be accepted after the sales closing date, if you make 
any payment after the sales closing date, you cannot apply for 
insurance until the next crop year);
    (5) For example, for the 2003 crop year, if crop A, with a 
termination date of October 31, 2003, and crop B, with a termination 
date of March 15, 2004, are insured and you do not pay the premium for 
crop A by the termination date, you are ineligible for crop insurance 
as of October 31, 2003, and crop A's policy is terminated as of that 
date. Crop B's policy does not terminate until March 15, 2004, and an 
indemnity for the 2003 crop year may still be owed. If you enter an 
agreement to repay amounts owed on September 25, 2004, the earliest 
date by which you can obtain crop insurance for crop A is to apply for 
crop insurance by the October 31, 2004, sales closing date and for crop 
B is to apply for crop insurance by the March 15, 2005, sales closing 
date. If you fail to make a payment that was scheduled to be made on 
April 1, 2005, your policy will terminate as of October 31, 2004, for 
crop A, and March 15, 2005, for crop B, and no indemnity will be due 
for that crop year for either crop. You will not be eligible to apply 
for crop insurance for any crop until after the amounts owed are paid 
in full or you file a petition to discharge the debt in bankruptcy.
    (6) If you are determined to be ineligible under section 18(f), 
persons with a substantial beneficial interest in you may also be 
ineligible until you become eligible again.
* * * * *
    19. Contract Changes.
* * * * *
    (b) Any changes in policy provisions, expected county yields, 
maximum amounts of protection, premium rates, and program dates (except 
as allowed herein) can be viewed on the RMA Web site at http://www.rma.usda.gov/ or a successor Web site not later than the contract 
change date contained in the Crop Provisions. We may only revise this 
information after the contract change date to correct clear errors (For 
example, the maximum amount of protection was announced at $2500.00 per 
acre instead of $250.00 per acre).
    (c) After the contract change date, all changes specified in 
section 19(b) will also be available upon request from your crop 
insurance agent. You will be provided, in writing, a copy of the 
changes to the Basic Provisions and Crop Provisions and a copy of the 
Special Provisions not later than 30 days prior to the cancellation 
date for the insured crop. Acceptance of the changes will be 
conclusively presumed in the absence of notice from you to change or 
cancel your insurance coverage.
* * * * *
    21. Indemnity and Premium Limitations.
    (a) * * *
    (1) * * *
    (2) * * *
    (i) * * *
    (ii) Be responsible for a premium that is 35 percent of the premium 
that you would otherwise owe for the first insured crop; and
* * * * *

PART 457--COMMON CROP INSURANCE REGULATIONS

0
13. The authority citation for 7 CFR part 457 continues to read as 
follows:

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

0
14. Revise Sec.  457.2(d) to read as follows:

Sec.  457.2  Availability of Federal crop insurance.

* * * * *
    (d) Except as specified in paragraph (c) of this section, if a 
person has more than one contract authorized under the Act that 
provides coverage for the same loss on the same crop for the same crop 
year in the same county, all such contracts shall be voided for that 
crop year and the person will be liable for the premium on all 
contracts, unless the person can show to the satisfaction of the 
Corporation that the multiple contracts of insurance were without the 
fault of the person.
    (1) If the multiple contracts of insurance are shown to be without 
the fault of the person and:
    (i) One contract is an additional coverage policy and the other 
contract is a Catastrophic Risk Protection policy, the additional 
coverage policy will apply if both policies are with the same insurance 
provider, or if not, both insurance providers agree, and the 
Catastrophic Risk Protection policy will be canceled (If the insurance 
providers do not agree, the policy with the earliest date of 
application will be in force and the other contract will be canceled); 
or
    (ii) Both contracts are additional coverage policies or both are 
Catastrophic Risk Protection policies, the contract with the earliest 
signature date on the application will be valid and the other contract 
on that crop in the county for that crop year will be canceled, unless 
both policies are with the same insurance provider and the insurance 
provider agrees otherwise or both policies are with different insurance 
providers and both insurance providers agree otherwise.
    (2) No liability for any indemnity, prevented planting payment, 
replanting payment or premium will attach to the contracts canceled as 
specified in paragraphs (d)(1)(i) and (ii) of this section.
* * * * *


Sec.  457.6  [Removed and reserved]

0
15. Remove and reserve Sec.  457.6.


Sec.  457.7  [Amended]

0
16. Amend Sec.  457.7 by removing the second sentence and adding ``, 
except as

[[Page 48739]]

provided in the policy'' at the end of the new third sentence.
0
17. Amend Sec.  457.8, Common Crop Insurance Policy Basic Provisions, 
as follows:
0
a. Throughout Sec.  457.8, where it appears, remove the words ``crop 
policy'' and add the word ``policy'' in its place;
0
 b. Revise the first paragraph of the ``FCIC Policies'' section that 
precedes the Basic Provisions Terms and Conditions;
0
c. Add an ``Agreement to insure'' section after the second paragraph of 
the ``FCIC Policies'' section that precedes the Basic Provisions Terms 
and Conditions;
0
d. Revise the first paragraph of the ``Reinsured Policies'' section 
that precedes the Basic Provisions Terms and Conditions;
0
e. Revise the ``Agreement To Insure'' section after the second 
paragraph of the ``Reinsured Policies'' section that precedes the Basic 
Provisions Terms and Conditions;
0
f. Amend section 1 by adding definitions for ``annual crop,'' ``Code of 
Federal Regulations,'' ``delinquent debt,'' ``disinterested third 
party,'' ``household,'' ``insurable loss,'' ``liability,'' ``offset,'' 
``perennial crop,'' revising the definitions of ``actuarial 
documents,'' ``agricultural commodity,'' ``contract change date,'' 
``crop year,'' ``earliest planting date,'' ``enterprise unit,'' 
``field,'' ``insured crop,'' ``limited resource farmer,'' ``non-
contiguous,'' ``policy,'' ``practical to replant,'' ``price election,'' 
``replanting,'' ``substantial beneficial interest,'' ``whole farm 
unit,'' and removing the definitions of ``another use, notice of,'' 
``damage, notice of,'' ``delinquent account'' and ``loss, notice of'';
0
g. Amend the definition of ``acreage report'' by removing the words 
``paragraph 6'' and adding ``section 6'' in their place;
0
h. Amend the definitions of ``Approved yield'' and ``Average yield'' by 
removing the phrase ``section 3(d) or (e)'' and adding ``section 3'' in 
its place;
0
i. Amend the definition of ``Second crop'' by revising the third 
sentence;
0
j. Amend section 2 by revising sections 2(b) and (e), redesignating 
sections 2(f), (g), (h), and (i) as sections 2(g), (h), (i), and (j) 
respectively, and adding a new section 2(f);
0
k. Amend newly redesignated section 2(h) by removing ``terminate'' and 
adding ``cancel'' in its place;
0
l. Redesignate section 3(i) as section 2(k) and add a new sentence at 
the end;
0
m. Revise section 3;
0
n. Revise sections 4(b) and (c);
0
o. Remove and reserve section 5;
0
p. Revise section 6(d);
0
q. Revise section 6(g);
0
r. Redesignate section 6(h) as section 6(i) and add a new section 6(h);
0
s. Amend section 7 by revising sections 7(a), (b), (d) and (e)(4), and 
adding a new section (f);
0
t. Amend section 8 by revising sections (b)(1), (2) and (4), and adding 
a new (c);
0
u. Revise section 9(a)(1);
0
v. Amend section 9(a) by redesignating sections 9(a)(3) through 9(a)(8) 
as sections 9(a)(4) through 9(a)(9), respectively, and adding a new 
section 9(a)(3);
0
w. Revise the introductory text of newly redesignated section 9(a)(8) 
and revise newly redesignated section 9(a)(8)(i);
0
x. Amend redesignated section 9(a)(9)(ii) by removing ``(8)'' and 
adding ``(9)'' in its place;
0
y. Amend section 9(c) by removing ``(1)'' and adding ``(2)'' in its 
place;
0
z. Amend section 10(a)(2) by adding two new sentences at the end;
0
aa. Amend section 12 by revising the introductory text and sections 
12(c) and (d) and adding a new section 12(f);
0
bb. Amend section 12(e) by removing the period at the end and adding 
``; or'' in its place;
0
cc. In section 14 revise the heading;
0
dd. Amend section 14 (Your Duties) in (a)(2) by removing the phrase 
``(we may accept a notice of loss provided later than 72 hours after 
your initial discovery if we still have the ability to accurately 
adjust the loss)'', revising sections 14(a)(3), 14(c), and 14(d)(2) and 
adding section14(h);
0
ee. Amend section 14(d)(1) (Your Duties) by removing the following 
phrase from the end of the section ``or, if you fail to provide the 
records necessary to allow allocation, the reduction specified in 
section 15 will apply'';
0
ff. Amend section 14 (Our Duties) by removing the word ``or'' at the 
end of section 14(a)(2), redesignating section 14(a)(3) as 14(a)(4), 
and adding a new section 14(a)(3);
0
gg. Revise sections 15(b), (e)(2)(ii), (f)(2)(ii) and (g)(3)(i);
0
hh. Revise section 15(j);
0
ii. Amend section 16(b)(3) by adding the word ``insured'' between the 
words ``from'' and ``acreage'';
0
jj. Revise the introductory text in section 17(a)(1);
0
kk. Amend section 17(d)(1) by removing the word ``and'' in the first 
sentence and adding the word ``or'' in its place;
0
ll. Revise section 17(d)(2);
0
mm. Amend section 17(e)(1)(i)(A) by revising the first and second 
sentences;
0
nn. Revise section 17(e)(1)(ii)(A);
0
oo. Revise sections 17(f)(1) through (4);
0
pp. Revise section 17(f)(5)(i) and 17(f)(6);
0
qq. Amend section 17(f)(10) by removing the word ``or'' at the end of 
that section;
0
rr. Amend section 17(f)(11) by removing the period at the end of that 
section and adding ``; or'' in its place;
0
ss. Amend section 17(f) by adding a new section 17(f)(12);
0
tt. Amend section 17(h)(2) by adding a sentence at the end of the text;
0
uu. Amend section 18 by revising sections18(c) through (e) and adding 
sections 18(f) through (n);
0
vv. Revise section 20 (For FCIC policies);
0
ww. Revise section 20 (For reinsured policies);
0
xx. Revise section 21;
0
yy. Revise section 22(a);
0
zz. Amend section 22(b) introductory text by adding the phrase ``caused 
by a naturally occurring event'' between ``due to fire'' and ``only'';
0
aaa. Revise section 24(b) (For FCIC policies);
0
bbb. Revise sections 24(a) and (e) (For reinsured policies);
0
ccc. Remove and reserve section 25;
0
ddd. Amend section 26 by removing the words ``Payment and'' in the 
section heading, removing section 26(a) and removing the section (b) 
designation;
0
eee. Revise section 30;
0
fff. Revise section 34(a)(2);
0
ggg. Amend section 34(a)(2)(ii) by inserting the term ``planted'' 
between the words ``insurable'' and ``acreage'';
0
hhh. Revise section 34(a)(2)(iii);
0
iii. Amend section 34(a)(2)(v) by adding the term ``production'' 
between the words ``the'' and ``reporting'', removing ``(c)'' and 
adding ``(e)'' in its place, and removing the word ``and'' at the end 
of the section;
0
jjj. Amend section 34(a)(2)(vi) by removing ``If'' and adding ``At any 
time we discover'' in its place, removing the phrase ``when the acreage 
is reported'', and removing the period at the end of the section and 
adding ``; and'' in its place;
0
kkk. Add a new section 34(a)(2)(vii);
0
lll. Amend section 34(a)(3)(i) by removing `` and'' at the end of the 
text;
0
mmm. Amend section 34(a)(3)(ii) by removing the period at the end of 
the text and adding ``; and'' in its place;
0
nnn. Add section 34(a)(3)(iii);
0
ooo. Revise section 34(b)(3);
0
ppp. Amend section 36(b) by removing the phrases ``sales closing date'' 
and ``applicable cancellation date'' and adding the phrase ``production 
reporting date'' in their place; and

[[Page 48740]]

0
qqq. Amend section 37(a) by removing ``(1)'' and adding ``(2)'' in its 
place.
    The revised and added text reads as follows:


Sec.  457.8  The application and policy.

* * * * *
    [FCIC Policies]
    This is an insurance policy issued by the Federal Crop Insurance 
Corporation (FCIC), a United States government agency. The provisions 
of the policy may not be waived or modified in any way by us, your 
insurance agent or any employee of USDA unless the policy specifically 
authorizes a waiver or modification by written agreement. Procedures 
(handbooks, manuals, memoranda, and bulletins), issued by us and 
published on the RMA Web site at http://www.rma.usda.gov/ or a 
successor Web site will be used in the administration of this policy, 
including the adjustment of any loss or claim submitted hereunder.
* * * * *
    AGREEMENT TO INSURE: In return for the payment of the premium, and 
subject to all of the provisions of this policy, we agree with you to 
provide the insurance as stated in this policy. If there is a conflict 
between the Act, the regulations published at 7 CFR chapter IV, and the 
procedures issued by us, the order of priority is as follows: (1) The 
Act; (2) the regulations; and (3) the procedures issued by us, with (1) 
controlling (2), etc. If there is a conflict between the policy 
provisions published at 7 CFR part 457 and the administrative 
regulations published at 7 CFR part 400, the policy provisions 
published at 7 CFR part 457 control. If a conflict exists among the 
policy provisions, the order of priority is: (1) The Catastrophic Risk 
Protection Endorsement, as applicable; (2) the Special Provisions; (3) 
the Crop Provisions; and (4) these Basic Provisions, with (1) 
controlling (2), etc.
    [Reinsured Policies]
    This insurance policy is reinsured by the Federal Crop Insurance 
Corporation (FCIC) under the provisions of the Federal Crop Insurance 
Act (Act) (7 U.S.C. 1501 et seq.). All provisions of the policy and 
rights and responsibilities of the parties are specifically subject to 
the Act. The provisions of the policy may not be waived or varied in 
any way by us, our insurance agent or any other contractor or employee 
of ours or any employee of USDA unless the policy specifically 
authorizes a waiver or modification by written agreement. We will use 
the procedures (handbooks, manuals, memoranda and bulletins), as issued 
by FCIC and published on the RMA Web site at http://www.rma.usda.gov/ 
or a successor Web site, in the administration of this policy, 
including the adjustment of any loss or claim submitted hereunder. In 
the event that we cannot pay your loss because we are insolvent or are 
otherwise unable to perform our duties under our reinsurance agreement 
with FCIC, your claim will be settled in accordance with the provisions 
of this policy and FCIC will be responsible for any amounts owed. No 
state guarantee fund will be liable for your loss.
* * * * *
    AGREEMENT TO INSURE: In return for the payment of the premium, and 
subject to all of the provisions of this policy, we agree with you to 
provide the insurance as stated in this policy. If there is a conflict 
between the Act, the regulations published at 7 CFR chapter IV, and the 
procedures as issued by FCIC, the order of priority is as follows: (1) 
The Act; (2) the regulations; and (3) the procedures as issued by FCIC, 
with (1) controlling (2), etc. If there is a conflict between the 
policy provisions published at 7 CFR part 457 and the administrative 
regulations published at 7 CFR part 400, the policy provisions 
published at 7 CFR part 457 control. If a conflict exists among the 
policy provisions, the order of priority is: (1) The Catastrophic Risk 
Protection Endorsement, as applicable; (2) the Special Provisions; (3) 
the Crop Provisions; and (4) these Basic Provisions, with (1) 
controlling (2), etc.

Terms and Conditions

Basic Provisions

    1. Definitions.
* * * * *
    Actuarial documents. The material for the crop year which is 
available for public inspection in your agent's office and published on 
RMA's Web site at http://www.rma.usda.gov/ or a successor Web site, and 
which shows available coverage levels, information needed to determine 
amounts of insurance, premium rates, premium adjustment percentages, 
practices, particular types or varieties of the insurable crop, 
insurable acreage, and other related information regarding crop 
insurance in the county.
* * * * *
    Agricultural commodity. Any crop or other commodity produced, 
regardless of whether or not it is insurable.
* * * * *
    Annual crop. An agricultural commodity that normally must be 
planted each year.
* * * * *
    Code of Federal Regulations (CFR). The codification of general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. Rules published in 
the Federal Register by FCIC are contained in 7 CFR chapter IV. The 
full text of the CFR is available in electronic format at http://www.access.gpo.gov/ or a successor Web site.
* * * * *
    Contract change date. The calendar date by which changes to the 
policy, if any, will be made available in accordance with section 4 of 
these Basic Provisions.
* * * * *
    Crop year. The period within which the insured crop is normally 
grown, regardless of whether or not it is actually grown, and 
designated by the calendar year in which the insured crop is normally 
harvested, unless otherwise specified in the Crop Provisions.
* * * * *
    Delinquent debt. Any administrative fees or premiums for insurance 
issued under the authority of the Act, and the interest on those 
amounts, if applicable, that are not postmarked or received by us or 
our agent on or before the termination date unless you have entered 
into an agreement acceptable to us to pay such amounts or have filed 
for bankruptcy on or before the termination date; any other amounts due 
us for insurance issued under the authority of the Act (including, but 
not limited to, indemnities, prevented planting payments or replanting 
payments found not to have been earned or that were overpaid), and the 
interest on such amounts, if applicable, which are not postmarked or 
received by us or our agent by the due date specified in the notice to 
you of the amount due; or any amounts due under an agreement with you 
to pay the debt, which are not postmarked or received by us or our 
agent by the due dates specified in such agreement.
    Disinterested third party. A person that does not have any familial 
relationship (parents, brothers, sisters, children, spouse, 
grandchildren, aunts, uncles, nieces, nephews, first cousins, or 
grandparents, related by blood, adoption or marriage, are considered to 
have a familial relationship) with you or who will not benefit 
financially from the sale of the insured crop. Persons who are 
authorized to conduct quality analysis in accordance with the Crop 
Provisions are considered disinterested third parties unless there is a 
familial relationship.
* * * * *

[[Page 48741]]

    Earliest planting date. The initial planting date contained in the 
Special Provisions, which is the earliest date you may plant an insured 
agricultural commodity and qualify for a replanting payment if such 
payments are authorized by the Crop Provisions.
* * * * *
    Enterprise unit. All insurable acreage of the insured crop in the 
county in which you have a share on the date coverage begins for the 
crop year. To qualify, an enterprise unit must contain all of the 
insurable acreage of the same insured crop in:
    (1) One or more basic units that are located in two or more 
separate sections, section equivalents, FSA farm serial numbers, or 
units established by written agreement, with at least some planted 
acreage in two or more separate sections, section equivalents, FSA farm 
serial numbers, or two or more separate units as established by written 
agreement; or
    (2) Two or more optional units established by separate sections, 
section equivalents, FSA farm serial numbers, or as established by 
written agreement, with at least two optional units containing some 
planted acreage.
    Field. All acreage of tillable land within a natural or artificial 
boundary (e.g., roads, waterways, fences, etc.). Different planting 
patterns or planting different crops do not create separate fields.
* * * * *
    Household. A domestic establishment including the members of a 
family (parents, brothers, sisters, children, spouse, grandchildren, 
aunts, uncles, nieces, nephews, first cousins, or grandparents, related 
by blood, adoption or marriage, are considered to be family members) 
and others who live under the same roof.
    Insurable loss. Damage for which coverage is provided under the 
terms of your policy, and for which you accept an indemnity payment.
* * * * *
    Insured crop. The crop in the county for which coverage is 
available under your policy as shown on the application accepted by us.
* * * * *
    Liability. The dollar amount of insurance coverage used in the 
premium computation for the insured agricultural commodity.
    Limited resource farmer. A person with:
    (1) Direct or indirect gross farm sales not more than $100,000.00 
in each of the previous two years (to be increased starting in fiscal 
year 2004 to adjust for inflation using Prices Paid by Farmer Index as 
compiled by National Agricultural Statistical Service (NASS)); and
    (2) A total household income at or below the national poverty level 
for a family of four, or less than 50 percent of county median 
household income in each of the previous two years (to be determined 
annually using Commerce Department Data).
* * * * *
    Non-contiguous. Acreage of an insured crop that is separated from 
other acreage of the same insured crop by land that is neither owned by 
you nor rented by you for cash or a crop share. However, acreage 
separated by only a public or private right-of-way, waterway, or an 
irrigation canal will be considered as contiguous.
    Offset. The act of deducting one amount from another amount.
* * * * *
    Perennial crop. A plant, bush, tree or vine crop that has a life 
span of more than one year.
* * * * *
    Policy. The agreement between you and us to insure an agricultural 
commodity and consisting of the accepted application, these Basic 
Provisions, the Crop Provisions, the Special Provisions, other 
applicable endorsements or options, the actuarial documents for the 
insured agricultural commodity, the Catastrophic Risk Protection 
Endorsement, if applicable, and the applicable regulations published in 
7 CFR chapter IV. Insurance for each agricultural commodity in each 
county will constitute a separate policy.
    Practical to replant. Our determination, after loss or damage to 
the insured crop, based on all factors, including, but not limited to 
moisture availability, marketing window, condition of the field, and 
time to crop maturity, that replanting the insured crop will allow the 
crop to attain maturity prior to the calendar date for the end of the 
insurance period. It will be considered to be practical to replant 
regardless of availability of seed or plants, or the input costs 
necessary to produce the insured crop such as those that would be 
incurred for seed or plants, irrigation water, etc.
* * * * *
    Price election. The amounts contained in the Special Provisions, or 
an addendum thereto, that is the value per pound, bushel, ton, carton, 
or other applicable unit of measure for the purposes of determining 
premium and indemnity under the policy.
* * * * *
    Replanting. Performing the cultural practices necessary to prepare 
the land to replace the seed or plants of the damaged or destroyed 
insured crop and then replacing the seed or plants of the same crop in 
the same insured acreage. The same crop does not necessarily mean the 
same type or variety of the crop unless different types or varieties 
constitute separate crops or it is otherwise specified in the policy.
* * * * *
    Second crop. * * * A cover crop, planted after a first insured crop 
and planted for the purpose of haying, grazing or otherwise harvesting 
in any manner or that is hayed or grazed during the crop year, or that 
is otherwise harvested is considered to be a second crop. * * *
* * * * *
    Substantial beneficial interest. An interest held by any person of 
at least 10 percent in you. The spouse of any individual applicant or 
individual insured will be considered to have a substantial beneficial 
interest in the applicant or insured unless the spouses can prove they 
are legally separated or otherwise legally separate under state law. 
Any child of an individual applicant or individual insured will not be 
considered to have a substantial beneficial interest in the applicant 
or insured unless the child has a separate legal interest in such 
person. For example, there are two partnerships that each have a 50 
percent interest in you and each partnership is made up of two 
individuals, each with a 50 percent share in the partnership. In this 
case, each individual would be considered to have a 25 percent interest 
in you, and both the partnerships and the individuals would have a 
substantial beneficial interest in you (The spouses of the individuals 
would not be considered to have a substantial beneficial interest 
unless the spouse was one of the individuals that made up the 
partnership). However, if each partnership is made up of six 
individuals with equal interests, then each would only have an 8.33 
percent interest in you and although the partnership would still have a 
substantial beneficial interest in you, the individuals would not for 
the purposes of reporting in section 2.
* * * * *
    Whole farm unit. All insurable acreage of two or more insured crops 
planted in the county in which you have a share on the date coverage 
begins for each crop for the crop year. All crops for which the whole 
farm unit structure is available must be included in the whole farm 
unit. At least two of the

[[Page 48742]]

insured crops must each constitute at least 10 percent of the total 
liability of all insured crops in the whole farm unit, and all crops in 
the unit must be insured under the same plan of insurance and with the 
same insurance provider.
* * * * *
    2. Life of Policy, Cancellation, and Termination.
* * * * *
    (b) Your application for insurance must contain your social 
security number (SSN) if you are an individual or employer 
identification number (EIN) if you are a person other than an 
individual, and all SSNs and EINs, as applicable, of all persons with a 
substantial beneficial interest in you, the coverage level, price 
election, crop, type, variety, or class, plan of insurance, and any 
other material information required on the application to insure the 
crop. If you or someone with a substantial beneficial interest is not 
legally required to have a SSN or EIN, you must request and receive an 
identification number for the purposes of this policy from us or the 
Internal Revenue Service (IRS) if such identification number is 
available from the IRS. If any of the information regarding persons 
with a substantial beneficial interest changes during the crop year, 
you must revise your application by the next sales closing date 
applicable under your policy to reflect the correct information.
    (1) Applications that do not contain your SSN, EIN or 
identification number, or any of the other information required in 
section 2(b) are not acceptable and insurance will not be provided 
(Except if you fail to report the SSNs, EINs or identification numbers 
of persons with a substantial beneficial interest in you, the 
provisions in section 2(b)(2) will apply);
    (2) If the application does not contain the SSNs, EINs or 
identification numbers of all persons with a substantial beneficial 
interest in you, you fail to revise your application in accordance with 
section 2(b), or the reported SSNs, EINs or identification numbers are 
incorrect and the incorrect SSN, EIN or identification number has not 
been corrected by the acreage reporting date, and:
    (i) Such persons are eligible for insurance, the amount of coverage 
for all crops included on this application will be reduced 
proportionately by the percentage interest in you of such persons, you 
must repay the amount of indemnity, prevented planting payment or 
replanting payment that is proportionate to the interest of the persons 
whose SSN, EIN or identification number was unreported or incorrect for 
such crops, and your premium will be reduced commensurately; or
    (ii) Such persons are not eligible for insurance, except as 
provided in section 2(b)(3), the policy is void and no indemnity, 
prevented planting payment or replanting payment will be owed for any 
crop included on this application, and you must repay any indemnity, 
prevented planting payment or replanting payment that may have been 
paid for such crops. If previously paid, the balance of any premium and 
any administrative fees will be returned to you, less twenty percent of 
the premium that would otherwise be due from you for such crops. If not 
previously paid, no premium or administrative fees will be due for such 
crops.
    (3) The consequences described in section 2(b)(2)(ii) will not 
apply if you have included an ineligible person's SSN, EIN or 
identification number on your application and do not include the 
ineligible person's share on the acreage report.
* * * * *
    (e) Any amount due to us for any policy authorized under the Act 
will be offset from any indemnity or prevented planting payment due you 
for this or any other crop insured with us under the authority of the 
Act.
    (1) Even if your claim has not yet been paid, you must still pay 
the premium and administrative fee on or before the termination date 
for you to remain eligible for insurance.
    (2) If we offset any amount due us from an indemnity or prevented 
planting payment owed to you, the date of payment for the purpose of 
determining whether you have a delinquent debt will be the date that 
you submit the claim for indemnity in accordance with section 14(c) 
(Your Duties).
    (f) A delinquent debt for any policy will make you ineligible to 
obtain crop insurance authorized under the Act for any subsequent crop 
year and result in termination of all policies in accordance with 
section 2(f)(2).
    (1) With respect to ineligibility:
    (i) Ineligibility for crop insurance will be effective on:
    (A) The date that a policy was terminated in accordance with 
section 2(f)(2) for the crop for which you failed to pay premium, an 
administrative fee, or any related interest owed, as applicable;
    (B) The payment due date contained in any notification of 
indebtedness for any overpaid indemnity, prevented planting payment or 
replanting payment, if you fail to pay the amount owed, including any 
related interest owed, as applicable, by such due date;
    (C) The termination date for the crop year prior to the crop year 
in which a scheduled payment is due under a payment agreement if you 
fail to pay the amount owed by any payment date in any agreement to pay 
the debt; or
    (D) The termination date the policy was or would have been 
terminated under sections 2(f)(2)(i)(A), (B) or (C) if your bankruptcy 
petition is dismissed before discharge.
    (ii) If you are ineligible and a policy has been terminated in 
accordance with section 2(f)(2), you will not receive any indemnity, 
prevented planting payment or replanting payment, if applicable, and 
such ineligibility and termination of the policy may affect your 
eligibility for benefits under other USDA programs. Any indemnity, 
prevented planting payment or replanting payment that may be owed for 
the policy before it has been terminated will remain owed to you, but 
may be offset in accordance with section 2(e), unless your policy was 
terminated in accordance with sections 2(f)(2)(i)(D) or (E).
    (2) With respect to termination:
    (i) Termination will be effective on:
    (A) For a policy with unpaid administrative fees or premiums, the 
termination date immediately subsequent to the billing date for the 
crop year;
    (B) For a policy with other amounts due, the termination date 
immediately following the date you have a delinquent debt;
    (C) For each policy for which insurance has attached before you 
become ineligible, the termination date immediately following the date 
you become ineligible;
    (D) For execution of an agreement to pay any amounts owed and 
failure to make any scheduled payment, the termination date for the 
crop year prior to the crop year in which you failed to make the 
scheduled payment; or
    (E) For dismissal of a bankruptcy petition before discharge, the 
termination date the policy was or would have been terminated under 
sections 2(f)(2)(i)(A), (B) or (C).
    (ii) For all policies terminated under sections 2(f)(2)(i)(D) and 
(E), any indemnities, prevented planting payments or replanting 
payments paid subsequent to the termination date must be repaid.
    (iii) Once the policy is terminated, it cannot be reinstated for 
the current crop year unless the termination was in error. Failure to 
timely pay because of illness, bad weather, or other such extenuating

[[Page 48743]]

circumstances is not grounds for reinstatement in the current year.
    (3) To regain eligibility, you must:
    (i) Repay the delinquent debt in full;
    (ii) Execute an agreement to pay any amounts owed and make payments 
in accordance with the agreement (We will not enter into an agreement 
with you to pay the amounts owed if you have previously failed to make 
a scheduled payment under the terms of any other agreement to pay with 
us or any other insurance provider); or
    (iii) File a petition to have your debts discharged in bankruptcy 
(Dismissal of the bankruptcy petition before discharge will terminate 
all policies in effect retroactive to the date your policy would have 
been terminated in accordance with section 2(f)(2)(i));
    (4) After you become eligible for crop insurance, if you want to 
obtain coverage for your crops, you must submit a new application on or 
before the sales closing date for the crop (Since applications for crop 
insurance cannot be accepted after the sales closing date, if you make 
any payment after the sales closing date, you cannot apply for 
insurance until the next crop year);
    (5) For example, for the 2003 crop year, if crop A, with a 
termination date of October 31, 2003, and crop B, with a termination 
date of March 15, 2004, are insured and you do not pay the premium for 
crop A by the termination date, you are ineligible for crop insurance 
as of October 31, 2003, and crop A's policy is terminated as of that 
date. Crop B's policy does not terminate until March 15, 2004, and an 
indemnity for the 2003 crop year may still be owed. If you enter an 
agreement to repay amounts owed on September 25, 2004, the earliest 
date by which you can obtain crop insurance for crop A is to apply for 
crop insurance by the October 31, 2004, sales closing date and for crop 
B is to apply for crop insurance by the March 15, 2005, sales closing 
date. If you fail to make a payment that was scheduled to be made on 
April 1, 2005, your policy will terminate as of October 31, 2004, for 
crop A, and March 15, 2005, for crop B, and no indemnity, prevented 
planting payment or replanting payment will be due for that crop year 
for either crop. You will not be eligible to apply for crop insurance 
for any crop until after the amounts owed are paid in full or you file 
a petition to discharge the debt in bankruptcy.
    (6) If you are determined to be ineligible under section 2(f), 
persons with a substantial beneficial interest in you may also be 
ineligible until you become eligible again.
* * * * *
    (k) * * * You are still responsible for the accuracy of all 
information provided on your behalf and may be subject to the 
consequences in section 6(g), and any applicable consequences, if any 
information has been misreported.
    3. Insurance Guarantees, Coverage Levels, and Prices.
    (a) Unless adjusted or limited in accordance with your policy, the 
production guarantee or amount of insurance, coverage level, and price 
at which an indemnity will be determined for each unit will be those 
used to calculate your summary of coverage for each crop year.
    (b) You must select the same coverage, catastrophic risk protection 
or additional coverage, and select one level of additional coverage for 
all acreage of the crop in the county unless one of the following 
applies:
    (1) The applicable Crop Provisions allow you the option to 
separately insure individual crop types or varieties. In this case, 
each individual type or variety insured by you will be subject to 
separate administrative fees. For example, if two grape varieties in 
California are insured under the Catastrophic Risk Protection 
Endorsement and two varieties are insured under an additional coverage 
policy, a separate administrative fee will be charged for each of the 
four varieties. Although insurance may be elected by type or variety in 
these instances, failure to insure a type or variety that is of 
economic significance may result in the denial of other farm program 
benefits unless you execute a waiver of any eligibility for emergency 
crop loss assistance in connection with the crop.
    (2) If you have additional coverage for the crop in the county and 
the acreage has been designated as ``high risk'' by FCIC, you will be 
able to obtain a High Risk Land Exclusion Option for the high risk land 
under the additional coverage policy and insure the high risk acreage 
under a separate Catastrophic Risk Protection Endorsement, provided 
that the Catastrophic Risk Protection Endorsement is obtained from the 
same insurance provider from which the additional coverage was 
obtained.
    (c) In addition to the price election or amount of insurance 
available on the contract change date, we may provide an additional 
price election or amount of insurance no later than 15 days prior to 
the sales closing date. You must select the additional price election 
or amount of insurance on or before the sales closing date for the 
insured crop. These additional price elections or amounts of insurance 
will not be less than those available on the contract change date. If 
you elect the additional price election or amount of insurance, any 
claim settlement and amount of premium will be based on this amount.
    (d) You may change the coverage level, price election, or amount of 
insurance for the following crop year by giving written notice to us 
not later than the sales closing date for the insured crop. Since the 
price election or amount of insurance may change each year, if you do 
not select a new price election or amount of insurance on or before the 
sales closing date, we will assign a price election or amount of 
insurance which bears the same relationship to the price election 
schedule as the price election or amount of insurance that was in 
effect for the preceding year. (For example: If you selected 100 
percent of the market price for the previous crop year and you do not 
select a new price election for the current crop year, we will assign 
100 percent of the market price for the current crop year.)
    (e) You must report production to us for the previous crop year by 
the earlier of the acreage reporting date or 45 days after the 
cancellation date unless otherwise stated in the Special Provisions:
    (1) If you do not provide the required production report, we will 
assign a yield for the previous crop year. The yield assigned by us 
will not be more than 75 percent of the yield used by us to determine 
your coverage for the previous crop year. The production report or 
assigned yield will be used to compute your approved yield for the 
purpose of determining your coverage for the current crop year.
    (2) If you have filed a claim for any crop year, the documents 
signed by you which state the amount of production used to complete the 
claim for indemnity will be the production report for that year unless 
otherwise specified by FCIC.
    (3) Production and acreage for the prior crop year must be reported 
for each proposed optional unit by the production reporting date. If 
you do not provide the information stated above, the optional units 
will be combined into the basic unit.
    (4) Appraisals obtained from only a portion of the acreage in a 
field that remains unharvested after the remainder of the crop within 
the field has been destroyed or put to another use will not be used to 
establish your actual yield unless representative samples are required 
to be left by you in accordance with the Crop Provisions.
    (f) It is your responsibility to accurately report all information 
that is used to determine your approved yield. You must certify to the 
accuracy of this information on your production report.

[[Page 48744]]

    (1) If you do not have written verifiable records to support the 
information on your production report, you will receive an assigned 
yield in accordance with section 3(e)(1) and 7 CFR part 400, subpart G 
for those crop years for which you do not have such records.
    (2) If you misreport any material information used to determine 
your approved yield:
    (i) We will correct the unit structure, if necessary; and
    (ii) You will be subject to the provisions regarding misreporting 
contained in section 6(g), unless we correct the information because 
the incorrect information was the result of our error or the error of 
someone from USDA.
    (g) In addition to any consequences in section 3(f), at any time 
the circumstances described below are discovered, your approved yield 
will be adjusted:
    (1) By including an assigned yield determined in accordance with 
section 3(e)(1) and 7 CFR part 400, subpart G, if the actual yield 
reported in the database is excessive for any crop year, as determined 
by FCIC under its procedures, and you do not provide verifiable records 
to support the yield in the database (If there are verifiable records 
for the yield in your database, the yield is significantly different 
from the other yields in the county or your other yields for the crop 
and you cannot prove there is a valid basis to support the differences 
in the yields, the yield will be the average of the yields for the crop 
or the applicable county transitional yield if you have no other yields 
for the crop, and you may be subject to the provisions of section 27);
    (2) By reducing it to an amount consistent with the average of the 
approved yields for other databases for your farming operation with the 
same crop, type, and practice or the county transitional yield, as 
applicable, if:
    (i) The approved APH yield is greater than 115 percent of the 
average of the approved yields of all applicable databases for your 
farming operation that have actual yields in them or it is greater than 
115 percent of the county transitional yield if no applicable databases 
exist for comparison; and
    (ii) The current year's insured acreage (including applicable 
prevented planting acreage) is greater than 400 percent of the average 
number of acres in the database or the acres contained in two or more 
individual years in the database are each less than 10 percent of the 
current year's insurable acreage in the unit (including applicable 
prevented planting acreage); or
    (3) To an amount consistent with the production methods actually 
carried out for the crop year if you use a different production method 
than was previously used and the production method actually carried out 
is likely to result in a yield lower than the average of your previous 
actual yields. The yield will be adjusted based on your other units 
where such production methods were carried out or to the applicable 
county transitional yield for the production methods if other such 
units do not exist. You must notify us of changes in your production 
methods by the acreage reporting date. If you fail to notify us, in 
addition to the reduction of your approved yield described herein, you 
will be considered to have misreported information and you will be 
subject to the consequences in section 6(g). For example, for a non-
irrigated unit, your yield is based upon acreage of the crop that is 
watered once prior to planting, and the crop is not watered prior to 
planting for the current crop year. Your approved APH yield will be 
reduced to an amount consistent with the actual production history of 
your other non-irrigated units where the crop has not been watered 
prior to planting or limited to the non-irrigated transitional yield 
for the unit if other such units do not exist.
    (h) Unless you meet the double cropping requirements contained in 
section 17(f)(4), if you elect to plant a second crop on acreage where 
the first insured crop was prevented from being planted, you will 
receive a yield equal to 60 percent of the approved yield for the first 
insured crop to calculate your average yield for subsequent crop years 
(Not applicable to crops if the APH is not the basis for the insurance 
guarantee). If the unit contains both prevented planting and planted 
acreage of the same crop, the yield for such acreage will be determined 
by:
    (1) Multiplying the number of insured prevented planting acres by 
60 percent of the approved yield for the first insured crop;
    (2) Adding the totals from section 3(h)(1) to the amount of 
appraised or harvested production for all of the insured planted 
acreage; and
    (3) Dividing the total in section 3(h)(2) by the total number of 
acres in the unit.
    (i) Hail and fire coverage may be excluded from the covered causes 
of loss for an insured crop only if you select additional coverage of 
not less than 65 percent of the approved yield indemnified at the 100 
percent price election, or an equivalent coverage as established by 
FCIC, and you have purchased the same or a higher dollar amount of 
coverage for hail and fire from us or any other source.
    (j) The applicable premium rate, or formula to calculate the 
premium rate, and transitional yield will be those contained in the 
actuarial documents except, in the case of high risk land, a written 
agreement may be requested to change such transitional yield or premium 
rate.
    4. Contract Changes.
* * * * *
    (b) Any changes in policy provisions, amounts of insurance, premium 
rates, program dates, and price elections (except as allowed herein or 
as specified in section 3) can be viewed on the RMA Web site at http://www.rma.usda.gov/ or a successor Web site not later than the contract 
change date contained in the Crop Provisions. We may only revise this 
information after the contract change date to correct clear errors (For 
example, the price election for corn was announced at $25.00 per bushel 
instead of $2.50 per bushel or the final planting date should be May 10 
but the final planting date in the Special Provisions states August 
10).
    (c) After the contract change date, all changes specified in 
section 4(b) will also be available upon request from your crop 
insurance agent. You will be provided, in writing, a copy of the 
changes to the Basic Provisions and Crop Provisions and a copy of the 
Special Provisions not later than 30 days prior to the cancellation 
date for the insured crop. Acceptance of the changes will be 
conclusively presumed in the absence of notice from you to change or 
cancel your insurance coverage.
* * * * *
    5. [Reserved]
    6. Report of Acreage.
* * * * *
    (d) Regarding the ability to revise an acreage report you have 
submitted to us:
    (1) For planted acreage, you cannot revise any information 
pertaining to the planted acreage after the acreage reporting date 
without our consent (Consent may only be provided when no cause of loss 
has occurred; our appraisal has determined that the insured crop will 
produce at least 90 percent of the yield used to determine your 
guarantee or the amount of insurance for the unit (including reported 
and unreported acreage), except when there are unreported units (see 
section 6(f)); the information on the acreage report is clearly 
transposed; you provide adequate evidence that we or someone from USDA 
have committed an error regarding the information on your

[[Page 48745]]

acreage report; or if expressly permitted by the policy);
    (2) For prevented planting acreage reported on the acreage report, 
you cannot revise any information pertaining to the prevented planting 
acreage after the report is initially submitted to us without our 
consent (Consent may only be provided when information on the acreage 
report is clearly transposed or you provide adequate evidence that we 
or someone from USDA have committed an error regarding the information 
on your acreage report);
    (3) For prevented planting acreage not reported on the acreage 
report, you cannot revise your acreage report to add prevented planting 
acreage;
    (4) If you request an acreage measurement prior to the acreage 
reporting date and submit documentation of such request and an acreage 
report with estimated acreage by the acreage reporting date, you must 
provide the measurement to us, we will revise your acreage report if 
there is a discrepancy, and no indemnity, prevented planting payment or 
replant payment will be paid until the acreage measurement has been 
received by us (Failure to provide the measurement to us will result in 
the application of section 6(g) if the estimated acreage is not correct 
and estimated acreage under this section will no longer be accepted for 
any subsequent acreage report);
    (5) If there is an irreconcilable difference between:
    (i) The acreage measured by FSA or a measuring service and our on-
farm measurement, our on-farm measurement will be used; or
    (ii) The acreage measured by a measuring service, other than our 
on-farm measurement, and FSA, the FSA measurement will be used; and
    (6) If the acreage report has been revised in accordance with 
section 6(d)(1), (2), (4), or (5), the information on the initial 
acreage report will not be considered misreported for the purposes of 
section 6(g).
* * * * *
    (g) You must provide all required reports and you are responsible 
for the accuracy of all information contained in those reports. You 
should verify the information on all such reports prior to submitting 
them to us.
    (1) If you submit information on any report that is different than 
what is determined to be correct and such information results in:
    (i) A lower liability than the actual liability determined, the 
production guarantee or amount of insurance on the unit will be reduced 
to an amount consistent with the reported information (In the event the 
insurable acreage is under-reported for any unit, all production or 
value from insurable acreage in that unit will be considered production 
or value to count in determining the indemnity); or
    (ii) A higher liability than the actual liability determined, the 
information contained in the acreage report will be revised to be 
consistent with the correct information.
    (2) In addition to the other adjustments specified in section 
6(g)(1), if you misreport any information that results in liability 
greater than 110.0 percent or lower than 90.0 percent of the actual 
liability determined for the unit, any indemnity, prevented planting 
payment, or replanting payment will be based on the amount of liability 
determined in accordance with section 6(g)(1)(i) or (ii) and will be 
reduced in an amount proportionate with the amount of liability that is 
misreported in excess of the tolerances stated in this section (For 
example, if the actual liability is determined to be $100.00, but you 
reported liability of $120.00, any indemnity, prevented planting 
payment or replanting payment will be reduced by 10.0 percent ($120.00 
/ $100.00 = 1.20, and 1.20 - 1.10 = 0.10)).
    (h) If we discover you have incorrectly reported any information on 
the acreage report for any crop year, you may be required to provide 
documentation in subsequent crop years substantiating your report of 
acreage for those crop years, including, but not limited to, an acreage 
measurement service at your own expense. If the correction of any 
misreported information would affect an indemnity, prevented planting 
payment or replant payment that was paid in a prior crop year, such 
claim will be adjusted and you will be required to repay any overpaid 
amounts.
* * * * *
    7. Annual Premium and Administrative Fees.
    (a) The annual premium is earned and payable at the time coverage 
begins. You will be billed for the premium and administrative fee not 
earlier than the premium billing date specified in the Special 
Provisions.
    (b) Premium or administrative fees owed by you will be offset from 
an indemnity or prevented planting payment due you in accordance with 
section 2(e).
* * * * *
    (d) The premium will be computed using the price election or amount 
of insurance you elect or that we assign in accordance with section 
3(d). The information needed to determine the premium rate and any 
premium adjustment percentages that may apply are contained in the 
actuarial documents or an approved written agreement.
    (e) * * *
    (1) * * *
    (2) * * *
    (3) * * *
    (4) The administrative fee will be waived if you request it and:
    (i) You qualify as a limited resource farmer; or
    (ii) You were insured prior to the 2005 crop year or for the 2005 
crop year and your administrative fee was waived for one or more of 
those crop years because you qualified as a limited resource farmer 
under a policy definition previously in effect, and you remain 
qualified as a limited resource farmer under the definition that was in 
effect at the time the administrative fee was waived.
* * * * *
    (f) If the amount of premium (gross premium less premium subsidy 
paid on your behalf by FCIC) and administrative fee you are required to 
pay for any acreage exceeds the liability for the acreage, coverage for 
those acres will not be provided (no premium or administrative fee will 
be due and no indemnity will be paid for such acreage).
    8. Insured Crop.
* * * * *
    (b) * * *
    (1) That is not grown on planted acreage (except for the purposes 
of prevented planting coverage), or that is a type, class or variety or 
where the conditions under which the crop is planted are not generally 
recognized for the area (For example, where agricultural experts 
determine that planting a non-irrigated corn crop after a failed small 
grain crop on the same acreage in the same crop year is not appropriate 
for the area);
    (2) For which the information necessary for insurance (price 
election, premium rate, etc.) is not included in the actuarial 
documents, unless such information is provided by a written agreement;
    (3) * * *
    (4) Planted following the same crop on the same acreage and the 
first planting of the crop has been harvested in the same crop year 
unless specifically permitted by the Crop Provisions or the Special 
Provisions (For example, the second planting of grain sorghum would not 
be insurable if grain sorghum had already been planted and harvested on 
the same acreage during the crop year);
* * * * *

[[Page 48746]]

    (c) Although certain policy documents may state that a crop type, 
class, variety or practice is not insurable, it does not mean all other 
crop types, classes, varieties or practices are insurable. To be 
insurable the crop type, class, variety or practice must meet all the 
conditions in this section.
    9. Insurable Acreage.
    (a) * * *
    (1) That has not been planted and harvested or insured (including 
insured acreage that was prevented from being planted) in at least one 
of the three previous crop years unless you can show that:
    (i) Such acreage was not planted:
    (A) In at least two of the previous three crop years to comply with 
any other USDA program;
    (B) Because of crop rotation, (e.g., corn, soybeans, alfalfa; and 
the alfalfa remained for four years before the acreage was planted to 
corn again); or
    (C) Because a perennial tree, vine, or bush crop was grown on the 
acreage;
    (ii) The Crop Provisions or a written agreement specifically allow 
insurance for such acreage; or
    (iii) Such acreage constitutes five percent or less of the insured 
planted acreage in the unit;
* * * * *
    (3) For which the actuarial documents do not provide the 
information necessary to determine the premium rate, unless insurance 
is allowed by a written agreement;
* * * * *
    (8) Of a second crop, if you elect not to insure such acreage when 
an indemnity for a first insured crop may be subject to reduction in 
accordance with the provisions of section 15 and you intend to collect 
an indemnity payment that is equal to 100 percent of the insurable loss 
for the first insured crop acreage. This election must be made on a 
first insured crop unit basis. For example, if the first insured crop 
unit contains 40 planted acres that may be subject to an indemnity 
reduction, then no second crop can be insured on any of the 40 acres. 
In this case:
    (i) If the first insured crop is insured under this policy, you 
must provide written notice to us of your election not to insure 
acreage of a second crop at the time the first insured crop acreage is 
released by us (if no acreage in the first insured crop unit is 
released, this election must be made by the earlier of the acreage 
reporting date for the second crop or when you sign the claim for 
indemnity for the first insured crop) or, if the first insured crop is 
insured under the Group Risk Protection Plan of Insurance (7 CFR part 
407), this election must be made before the second crop insured under 
this policy is planted, and if you fail to provide such notice, the 
second crop acreage will be insured in accordance with the applicable 
policy provisions and you must repay any overpaid indemnity for the 
first insured crop;
* * * * *
    10. Share Insured.
    (a) * * *
    (1) * * *
    (2) * * * For each landlord or tenant that is an individual, you 
must report the landlord's or tenant's social security number. For each 
landlord or tenant that is a person other than an individual or for a 
trust administered by the Bureau of Indian Affairs, you must report 
each landlord's or tenant's social security number, employer 
identification number, or other identification number assigned for the 
purposes of this policy.
* * * * *
    12. Causes of Loss.
    The insurance provided is against only unavoidable loss directly 
caused by specific causes of loss contained in the Crop Provisions. All 
specified causes of loss, except where the Crop Provisions specifically 
cover loss of revenue due to a reduced price in the marketplace, must 
be due to a naturally occurring event. All other causes of loss, 
including but not limited to the following, are NOT covered:
* * * * *
    (c) Water that is contained by or within structures that are 
designed to contain a specific amount of water, such as dams, locks or 
reservoir projects, etc., on any acreage when such water stays within 
the designed limits (For example, a dam is designed to contain water to 
an elevation of 1,200 feet but you plant a crop on acreage at an 
elevation of 1,100 feet. A storm causes the water behind the dam to 
rise to an elevation of 1,200 feet. Under such circumstances, the 
resulting damage would not be caused by an insurable cause of loss. 
However, if you planted on acreage that was above 1,200 feet elevation, 
any damage caused by water that exceeded that elevation would be caused 
by an insurable cause of loss);
    (d) Failure or breakdown of the irrigation equipment or facilities 
unless the failure or breakdown is due to a cause of loss specified in 
the Crop Provisions (If damage is due to an insured cause, you must 
make all reasonable efforts to restore the equipment or facilities to 
proper working order within a reasonable amount of time unless we 
determine it is not practical to do so. Cost will not be considered 
when determining whether it is practical to restore the equipment or 
facilities);
* * * * *
    (f) Any cause of loss that results in damage that is not evident or 
would not have been evident during the insurance period, including, but 
not limited to, damage that only becomes evident after the end of the 
insurance period unless expressly authorized in the Crop Provisions. 
Even though we may not inspect the damaged crop until after the end of 
the insurance period, damage due to insured causes that would have been 
evident during the insurance period will be covered.
* * * * *
    14. Duties in the Event of Damage, Loss, Abandonment, Destruction, 
or Alternative Use of Crop or Acreage.
    Your Duties--
    (a) * * *
    (3) If representative samples are required by the Crop Provisions, 
leave representative samples intact of the unharvested crop if you 
report damage less than 15 days before the time you begin harvest or 
during harvest of the damaged unit (The samples must be left intact 
until we inspect them or until 15 days after completion of harvest on 
the unit, whichever is earlier. Unless otherwise specified in the Crop 
Provisions or Special Provisions, the samples of the crop in each field 
in the unit must be 10 feet wide and extend the entire length of the 
row, if the crop is planted in rows, or if the crop is not planted in 
rows, the longest dimension of the field. The period to retain 
representative samples may be extended if it is necessary to accurately 
determine the loss. You will be notified in writing of any such 
extension); and
* * * * *
    (c) In addition to complying with the notice requirements, you must 
submit a claim for indemnity declaring the amount of your loss not 
later than 60 days after the end of the insurance period unless you 
request an extension in writing and we agree to such extension. 
Extensions will only be granted if the amount of the loss cannot be 
determined within such time period because the information needed to 
determine the amount of the loss is not available. The claim for 
indemnity must include all information we require to settle the claim. 
Failure to submit a claim or provide the required information will 
result in no indemnity, prevented planting payment or replant payment 
(Even though no indemnity or other payment is due, you will still be 
required to pay the premium due under the policy for the unit).
    (d) * * *

[[Page 48747]]

    (2) Upon our request, or that of any USDA employee authorized to 
conduct investigations of the crop insurance program, submit to an 
examination under oath.
* * * * *
    (h) It is your duty to prove you have complied with all provisions 
of this policy.
    (1) Failure to comply with the requirements of section 14(c) (Your 
Duties) will result in denial of your claim for indemnity or prevented 
planting or replant payment for the acreage for which the failure 
occurred. Failure to comply with all other requirements of this section 
will result in denial of your claim for indemnity or prevented planting 
or replant payment for the acreage for which the failure occurred, 
unless we still have the ability to accurately adjust the loss (Even 
though no indemnity or other payment is due, you will still be required 
to pay the premium due under the policy for the unit); and
    (2) Failure to comply with other sections of the policy will 
subject you to the consequences specified in those sections.
    Our Duties--
    (a) * * *
* * * * *
    (3) Completion of any investigation by USDA, if applicable, of your 
current or any past claim for indemnity if no evidence of wrongdoing 
has been found (If any evidence of wrongdoing has been discovered, the 
amount of any indemnity, prevented planting or replant overpayment as a 
result of such wrongdoing may be offset from any indemnity or prevented 
planting payment owed to you); or
* * * * *
    15. Production Included in Determining an Indemnity and Payment 
Reductions.
* * * * *
    (b) Appraised production will be used to calculate your claim if 
you are not going to harvest your acreage. Such appraisals may be 
conducted after the end of the insurance period. If you harvest the 
crop after the crop has been appraised:
    (1) You must provide us with the amount of harvested production; 
and
    (2) If the harvested production exceeds the appraised production, 
claims will be adjusted using the harvested production, and you will be 
required to repay any overpaid indemnity; or
    (3) If the harvested production is less than the appraised 
production, and:
    (i) You harvest after the end of the insurance period, your 
appraised production will be used to adjust the loss unless you can 
prove that no additional causes of loss or deterioration of the crop 
occurred after the end of the insurance period; or
    (ii) You harvest before the end of the insurance period, your 
harvested production will be used to adjust the loss.
* * * * *
    (e) * * *
    (1) * * *
    (2) * * *
    (i) * * *
    (ii) Be responsible for premium that is 35 percent of the premium 
that you would otherwise owe for the first insured crop; and
* * * * *
    (f) * * *
    (1) * * *
    (2) * * *
    (i) * * *
    (ii) Be responsible for premium that is 35 percent of the premium 
that you would otherwise owe for the first insured crop.
    (g) * * *
    (1) * * *
    (2) * * *
    (3) * * *
    (i) If a volunteer crop or cover crop is hayed or grazed from the 
same acreage, after the late planting period (or after the final 
planting date if a late planting period is not applicable) for the 
first insured crop in the same crop year, or is otherwise harvested 
anytime after the late planting period (or after the final planting 
date if a late planting period is not applicable); or
* * * * *
    (j) If any Federal or State agency requires destruction of any 
insured crop or crop production, as applicable, because it contains 
levels of a substance, or has a condition, that is injurious to human 
or animal health in excess of the maximum amounts allowed by the Food 
and Drug Administration, other public health organizations of the 
United States or an agency of the applicable State, you must destroy 
the insured crop or crop production, as applicable, and certify that 
such insured crop or crop production has been destroyed prior to 
receiving an indemnity payment. Failure to destroy the insured crop or 
crop production, as applicable, will result in you having to repay any 
indemnity paid and you may be subject to administrative sanctions in 
accordance with section 515(h) of the Act and 7 CFR part 400, subpart 
R, and any applicable civil or criminal sanctions.
* * * * *
    17. Prevented Planting.
    (a) * * *
    (1) You were prevented from planting the insured crop (Failure to 
plant when other producers in the area were planting will result in the 
denial of the prevented planting claim) by an insured cause that 
occurs:
* * * * *
    (d) * * *
    (1) * * *
    (2) For irrigated acreage, there is not a reasonable expectation of 
having adequate water to carry out an irrigated practice. If you knew 
or had reason to know that your water is reduced before the final 
planting date, no reasonable expectation existed.
    (e) * * *
    (1) * * *
    (i) * * *
    (A) The maximum number of acres certified for APH purposes, or 
insured acres reported, for the crop in any one of the 4 most recent 
crop years (not including reported prevented planting acreage that was 
planted to a second crop unless you meet the double cropping 
requirements in section 17(f)(4)). * * * No cause of loss that would 
prevent planting may be evident at the time you lease the acreage 
(except acreage you leased the previous year and continue to lease in 
the current crop year); you buy the acreage; the acreage is released 
from a USDA program which prohibits harvest of a crop; you request a 
written agreement to insure the acreage; or you otherwise acquire the 
acreage (such as inherited or gifted acreage).
* * * * *
    (ii) * * *
    (A) The number of acres of the crop specified in the processor 
contract, if the contract specifies a number of acres contracted for 
the crop year; or the result of dividing the quantity of production 
stated in the processor contract by your approved yield, if the 
processor contract specifies a quantity of production that will be 
accepted. If a minimum number of acres or amount of production is 
specified in the processor contract, this amount will be used to 
determine the eligible acres. If a processor cancels or does not 
provide contracts, or reduces the contracted acreage or production from 
what would have otherwise been allowed, solely because the acreage was 
prevented from being planted due to an insured cause of loss, we may 
elect to determine the number of acres eligible based on the number of 
acres or amount of production you had contracted in the county in the 
previous crop year. If you did not have a processor contract in place 
for the previous crop year, you

[[Page 48748]]

will not have any eligible prevented planting acreage for the 
applicable processor crop. The total eligible prevented planting acres 
in all counties cannot exceed the total number of acres or amount of 
production contracted in all counties in the previous crop year. If the 
applicable crop provisions require that the price election be based on 
a contract price, and a contract is not in force for the current year, 
the price election may be based on the contract price in place for the 
previous crop year.
* * * * *
    (f) * * *
    (1) That does not constitute at least 20 acres or 20 percent of the 
insurable crop acreage in the unit, whichever is less, and any 
prevented planting acreage within a field that contains planted acreage 
will be considered to be acreage of the same crop, type, and practice 
that is planted in the field except that the prevented planting acreage 
may be considered to be acreage of a crop, type, and practice other 
than that which is planted in the field if:
    (i) The acreage that was prevented from being planted constitutes 
at least 20 acres or 20 percent of the total insurable acreage in the 
field and you produced both crops, crop types, or followed both 
practices in the same field in the same crop year within any one of the 
four most recent crop years;
    (ii) You were prevented from planting a first insured crop and you 
planted a second crop in the field (There can only be one first insured 
crop in a field unless the requirements in section 17(f)(1)(i) or (iii) 
are met); or
    (iii) The insured crop planted in the field would not have been 
planted on the remaining prevented planting acreage (For example, where 
rotation requirements would not be met or you already planted the total 
number of acres specified in the processor contract);
    (2) For which the actuarial documents do not provide the 
information needed to determine a premium rate unless a written 
agreement designates such premium rate;
    (3) Used for conservation purposes, intended to be left unplanted 
under any program administered by the USDA or other government agency, 
or required to be left unharvested under the terms of the lease or any 
other agreement (The number of acres eligible for prevented planting 
will be limited to the number of acres specified in the lease for which 
you are required to pay either cash or share rent);
    (4) On which the insured crop is prevented from being planted, if 
you or any other person receives a prevented planting payment for any 
crop for the same acreage in the same crop year (It is your 
responsibility to determine whether a prevented planting payment had 
previously been made for the crop year on the acreage for which you are 
now claiming a prevented planting payment and report such information 
to us before any prevented planting payment can be made), excluding 
share arrangements, unless:
* * * * *
    (5) * * *
    (i) Any crop is planted within or prior to the late planting period 
or on or prior to the final planting date if no late planting period is 
applicable, unless:
    (A) You meet the double cropping requirements in section 17(f)(4);
    (B) The crop planted was a cover crop; or
    (C) No benefit, including any benefit under any USDA program, was 
derived from the crop; or
* * * * *
    (6) For which planting history or conservation plans indicate that 
the acreage would remain fallow for crop rotation purposes or on which 
any pasture or other forage crop is in place on the acreage during the 
time that planting of the insured crop generally occurs in the area;
* * * * *
    (12) If a cause of loss has occurred that would prevent planting at 
the time:
    (i) You lease the acreage (except acreage you leased the previous 
crop year and continue to lease in the current crop year);
    (ii) You buy the acreage;
    (iii) The acreage is released from a USDA program which prohibits 
harvest of a crop;
    (iv) You request a written agreement to insure the acreage; or
    (v) You acquire the acreage through means other than lease or 
purchase (such as inherited or gifted acreage).
* * * * *
    (h) * * *
    (1) * * *
    (2) * * * However, if you were prevented from planting any non-
irrigated crop acreage and you do not have any remaining eligible 
acreage for that crop and you do not have any other crop remaining with 
eligible acres under a non-irrigated practice, no prevented planting 
payment will be made for the acreage.
* * * * *
    18. Written Agreements.
* * * * *
    (c) If approved by FCIC, the written agreement will include all 
variable terms of the contract, including, but not limited to, crop 
practice, type or variety, the guarantee (except for a written 
agreement in effect for more than one year) and premium rate or 
information needed to determine the guarantee and premium rate, and 
price election (Price elections will not exceed the price election 
contained in the Special Provisions, or an addendum thereto, for the 
county that is used to establish the other terms of the written 
agreement. If no price election can be provided, the written agreement 
will not be approved by FCIC);
    (d) Each written agreement will only be valid for the number of 
crop years specified in the written agreement, and a multi-year written 
agreement:
    (1) Will only apply for any particular crop year designated in the 
written agreement if all terms and conditions in the written agreement 
are still applicable for the crop year and the conditions under which 
the written agreement has been provided have not changed prior to the 
beginning of the insurance period (If conditions change during or prior 
to the crop year, the written agreement will not be effective for that 
crop year but may still be effective for a subsequent crop year if 
conditions under which the written agreement has been provided exist 
for such year);
    (2) May be canceled in writing by:
    (i) FCIC not less than 30 days before the cancellation date if it 
discovers that any term or condition of the written agreement, 
including the premium rate, is not appropriate for the crop; or
    (ii) You or us on or before the cancellation date;
    (3) That is not renewed in writing after it expires, is not 
applicable for a crop year, or is canceled, then insurance coverage 
will be in accordance with the terms and conditions stated in this 
policy, without regard to the written agreement; and
    (4) Will be automatically cancelled if you transfer your policy to 
another insurance provider (No notice will be provided to you and for 
any subsequent crop year, for a written agreement to be effective, you 
must timely request renewal of the written agreement in accordance with 
this section);
    (e) A request for a written agreement may be submitted:
    (1) After the sales closing date, but on or before the acreage 
reporting date, if you demonstrate your physical inability to submit 
the request prior to the sales closing date (For example, you have been 
hospitalized or a blizzard has made it impossible to submit the written 
agreement request in person or by mail);
    (2) For the first year the written agreement will be in effect 
only:

[[Page 48749]]

    (i) On or before the acreage reporting date, to:
    (A) Insure unrated land, or an unrated practice, type or variety of 
a crop (Such written agreements may be approved only after inspection 
of the acreage by us and the written agreement may only be approved by 
FCIC if the crop's potential is equal to or exceeds 90 percent of the 
yield used to determine the production guarantee or the amount of 
insurance and you sign the agreement on the same day the appraisal is 
made); or
    (B) Establish optional units in accordance with FCIC procedures 
that otherwise would not be allowed, change the premium rate or 
transitional yield for designated high risk land, change a tobacco 
classification, or insure acreage that is greater than five percent of 
the planted acreage in the unit where the acreage has not been planted 
and harvested or insured in any of the three previous crop years; or
    (ii) On or before the cancellation date, to insure a crop in a 
county that does not have actuarial documents for the crop (If the Crop 
Provisions do not provide a cancellation date for the county, the 
cancellation date for other insurable crops in the same state that have 
similar final planting and harvesting dates will be applicable); or
    (iii) On or before the date specified in the Crop Provisions or 
Special Provisions;
    (3) On or before the sales closing date, for all requests for 
renewal of written agreements, except as provided in section 18(e)(1);
    (4) To add land or a crop to an existing written agreement or to 
add land or a crop to a request for a written agreement provided the 
request is submitted by the deadlines specified in this subsection;
    (f) A request for a written agreement must contain:
    (1) For all written agreement requests:
    (i) A completed ``Request for Actuarial Change'' form;
    (ii) An APH form (except for policies that do not require APH) 
containing all the information needed to determine the approved yield 
for the current crop year (completed APH form), signed by you, or an 
unsigned, completed APH form with the applicable production reports 
signed and dated by you that are based on verifiable records of actual 
yields for the crop and county for which the written agreement is being 
requested (the actual yields do not necessarily have to be from the 
same physical acreage for which you are requesting a written agreement) 
for at least the most recent crop year during the base period and 
verifiable records of actual yields if required by FCIC;
    (iii) Evidence from agricultural experts or the organic 
agricultural industry, as applicable, that the crop can be produced in 
the area if the request is to provide insurance for practices, types, 
or varieties that are not insurable, unless we are notified in writing 
by FCIC that such evidence is not required by FCIC;
    (iv) The legal description of the land (in areas where legal 
descriptions are available), FSA Farm Serial Number including tract 
number, and a FSA aerial photograph, acceptable Geographic Information 
System or Global Positioning System maps, or other legible maps 
delineating field boundaries where you intend to plant the crop for 
which insurance is requested;
    (v) For any perennial crop, an inspection report completed by us; 
and
    (vi) All other information that supports your request for a written 
agreement (including but not limited to records pertaining to levees, 
drainage systems, flood frequency data, soil types, elevation, etc.);
    (2) For written agreement requests for counties without actuarial 
documents for the crop, the requirements in section 18(f)(1) (except 
section 18(f)(1)(ii)) and:
    (i) A completed APH form (except for policies that do not require 
APH) based on verifiable records of actual yields for the crop and 
county for which the written agreement is being requested (the actual 
yields do not necessarily have to be from the same physical acreage for 
which you are requesting a written agreement) for at least the most 
recent three consecutive crop years during the base period;
    (ii) Acceptable production records for at least the most recent 
three consecutive crop years;
    (iii) The dates you and other growers in the area normally plant 
and harvest the crop, if applicable;
    (iv) The name, location of, and approximate distance to the place 
the crop will be sold or used by you;
    (v) For any irrigated practice, the water source, method of 
irrigation, and the amount of water needed for an irrigated practice 
for the crop; and
    (vi) All other information that supports your request for a written 
agreement (such as publications regarding yields, practices, risks, 
climatic data, etc.); and
    (3) Such other information as specified in the Special Provisions 
or required by FCIC;
    (g) A request for a written agreement will not be accepted if:
    (1) The request is submitted to us after the deadline contained in 
sections 18(a) or (e);
    (2) All the information required in section 18(f) is not submitted 
to us with the request for a written agreement (The request for a 
written agreement may be accepted if any missing information is 
available from other acceptable sources); or
    (3) The request is to add land to an existing written agreement or 
to add land to a request for a written agreement and the request to add 
the land is not submitted by the deadlines specified in sections (a) or 
(e);
    (h) A request for a written agreement will be denied if:
    (1) FCIC determines the risk is excessive;
    (2) Your APH history demonstrates you have not produced at least 50 
percent of the transitional yield for the crop, type, and practice 
obtained from a county with similar agronomic conditions and risk 
exposure;
    (3) There is not adequate information available to establish an 
actuarially sound premium rate and insurance coverage for the crop and 
acreage;
    (4) The crop was not previously grown in the county or there is no 
evidence of a market for the crop based on sales receipts, 
contemporaneous feeding records or a contract for the crop (applicable 
only for counties without actuarial documents); or
    (5) Agricultural experts or the organic agricultural industry 
determines the crop is not adapted to the county;
    (i) A written agreement will be denied unless:
    (1) FCIC approves the written agreement;
    (2) The original written agreement is signed by you and sent to us 
not later than the expiration date; and
    (3) The crop meets the minimum appraisal amount specified in 
section 18(e)(2)(i)(A), if applicable;
    (j) Multiyear written agreements may be canceled and requests for 
renewal may be rejected if the severity or frequency of your loss 
experience under the written agreement is significantly worse than 
expected based on the information provided by you or used to establish 
your premium rate and the loss experience of other crops with similar 
risks in the area;
    (k) With respect to your and our ability to reject an offer for a 
written agreement:
    (1) When a single Request for Actuarial Change form is submitted, 
regardless of how many requests for changes are contained on the form, 
you and we can only accept or reject the written agreement in its 
entirety (you

[[Page 48750]]

cannot reject specific terms of the written agreement and accept 
others);
    (2) When multiple Request for Actuarial Change forms are submitted, 
regardless of when the forms are submitted, for the same condition or 
for the same crop (i.e., to insure corn on ten legal descriptions where 
there are no actuarial documents in the county or the request is to 
change the premium rates from the high risk rates) all these forms may 
be treated as one request and you and we will only have the option of 
accepting or rejecting the written agreement in its entirety (you 
cannot reject specific terms of the written agreement and accept 
others);
    (3) When multiple Request for Actuarial Change forms are submitted, 
regardless of when the forms are submitted, for the different 
conditions or for different crops, separate agreements may be issued 
and you and we will have the option to accept or reject each written 
agreement; and
    (4) If we reject an offer for a written agreement approved by FCIC, 
you may seek arbitration or mediation of our decision to reject the 
offer in accordance with section 20;
    (l) Any information that is submitted by you after the applicable 
deadlines in sections 18(a) and (e) will not be considered, unless such 
information is specifically requested in accordance with section 
18(f)(3);
    (m) If the written agreement or the policy is canceled for any 
reason, or the period for which an existing written agreement is in 
effect ends, a request for renewal of the written agreement must 
contain all the information required by this section and be submitted 
in accordance with section 18(e), unless otherwise specified by FCIC; 
and
    (n) If a request for a written agreement is not approved by FCIC, a 
request for a written agreement for any subsequent crop year that fails 
to address the stated basis for the denial will not be accepted (If the 
request for a written agreement contains the same information that was 
previously rejected or denied, you will not have any right to 
arbitrate, mediate or appeal the non-acceptance of your request).
* * * * *
    [For FCIC Policies]
    20. Appeal, Reconsideration, Administrative and Judicial Review.
    (a) All determinations required by the policy will be made by us.
    (b) If you disagree with our determinations, you may:
    (1) Except for determinations specified in section 20(b)(2), obtain 
an administrative review in accordance with 7 CFR part 400, subpart J 
(administrative review) or appeal in accordance with 7 CFR part 11 
(appeal); or
    (2) For determinations regarding whether you have used good farming 
practices (excluding determinations of the amount of assigned 
production for uninsured causes for your failure to use good farming 
practices), request reconsideration in accordance with the 
reconsideration process established for this purpose and published at 7 
CFR part 400, subpart J (reconsideration). To appeal or request 
administrative review of determinations of the amount of assigned 
production, you must use the appeal or administrative review process.
    (c) If you fail to exhaust your right to appeal or for 
reconsideration, as applicable, you will not be able to resolve the 
dispute through judicial review.
    (d) If reconsideration or appeal has been initiated within the time 
frames specified in those sections and judicial review is sought, any 
suit against us must be:
    (1) Filed not later than one year after the date of the decision 
rendered in the reconsideration or appeal; and
    (2) Brought in the United States district court for the district in 
which the insured farm involved in the decision is located.
    (e) You may only recover contractual damages from us. Under no 
circumstances can you recover any attorney fees or other expenses, or 
any punitive, compensatory or any other damages from us in 
administrative review, appeal, reconsideration or litigation.
    [For Reinsured Policies]
    20. Mediation, Arbitration, Appeal, Reconsideration, and 
Administrative and Judicial Review.
    (a) If you and we fail to agree on any determination made by us 
except those specified in section 20(d), the disagreement may be 
resolved through mediation in accordance with section 20(g). If 
resolution cannot be reached through mediation, or you and we do not 
agree to mediation, the disagreement must be resolved through 
arbitration in accordance with the rules of the American Arbitration 
Association (AAA), except as provided in sections 20(c) and (f), and 
unless rules are established by FCIC for this purpose. Any mediator or 
arbitrator with a familial, financial or other business relationship to 
you or us, or our agent or loss adjuster, is disqualified from hearing 
the dispute.
    (1) All disputes involving determinations made by us, except those 
specified in section 20(d), are subject to mediation or arbitration. 
However, if the dispute in any way involves a policy or procedure 
interpretation, regarding whether a specific policy provision or 
procedure is applicable to the situation, how it is applicable, or the 
meaning of any policy provision or procedure, either you or we must 
obtain an interpretation from FCIC in accordance with 7 CFR part 400, 
subpart X or such other procedures as established by FCIC.
    (i) Any interpretation by FCIC will be binding in any mediation or 
arbitration.
    (ii) Failure to obtain any required interpretation from FCIC will 
result in the nullification of any agreement or award.
    (iii) An interpretation by FCIC of a policy provision is considered 
a rule of general applicability and is not appealable. If you disagree 
with an interpretation of a policy provision by FCIC, you must obtain a 
Director's review from the National Appeals Division in accordance with 
7 CFR 11.6 before obtaining judicial review in accordance with 
subsection (e).
    (iv) An interpretation by FCIC of a procedure may be appealed to 
the National Appeals Division in accordance with 7 CFR part 11.
    (2) Unless the dispute is resolved through mediation, the 
arbitrator must provide to you and us a written statement describing 
the issues in dispute, the factual findings, the determinations and the 
amount and basis for any award and breakdown by claim for any award. 
The statement must also include any amounts awarded for interest. 
Failure of the arbitrator to provide such written statement will result 
in the nullification of all determinations of the arbitrator. All 
agreements reached through settlement, including those resulting from 
mediation, must be in writing and contain at a minimum a statement of 
the issues in dispute and the amount of the settlement.
    (b) Regardless of whether mediation is elected:
    (1) The initiation of arbitration proceedings must occur within one 
year of the date we denied your claim or rendered the determination 
with which you disagree, whichever is later;
    (2) If you fail to initiate arbitration in accordance with section 
20(b)(1) and complete the process, you will not be able to resolve the 
dispute through judicial review;
    (3) If arbitration has been initiated in accordance with section 
20(b)(1) and completed, and judicial review is sought, suit must be 
filed not later than one year after the date the arbitration decision 
was rendered; and

[[Page 48751]]

    (4) In any suit, if the dispute in any way involves a policy or 
procedure interpretation, regarding whether a specific policy provision 
or procedure is applicable to the situation, how it is applicable, or 
the meaning of any policy provision or procedure, an interpretation 
must be obtained from FCIC in accordance with 7 CFR part 400, subpart X 
or such other procedures as established by FCIC. Such interpretation 
will be binding.
    (c) Any decision rendered in arbitration is binding on you and us 
unless judicial review is sought in accordance with section 20(b)(3). 
Notwithstanding any provision in the rules of the AAA, you and we have 
the right to judicial review of any decision rendered in arbitration.
    (d) If you do not agree with any determination made by us or FCIC 
regarding whether you have used a good farming practice (excluding 
determinations by us of the amount of assigned production for uninsured 
causes for your failure to use good farming practices), you may request 
reconsideration by FCIC of this determination in accordance with the 
reconsideration process established for this purpose and published at 7 
CFR part 400, subpart J (reconsideration). To resolve disputes 
regarding determinations of the amount of assigned production, you must 
use the arbitration or mediation process contained in this section.
    (1) You must complete reconsideration before filing suit against 
FCIC and any such suit must be brought in the United States district 
court for the district in which the insured farm is located.
    (2) Suit must be filed not later than one year after the date of 
the decision rendered in the reconsideration.
    (3) You cannot sue us for determinations of whether good farming 
practices were used by you.
    (e) Except as provided in section 20(d), if you disagree with any 
other determination made by FCIC, you may obtain an administrative 
review in accordance with 7 CFR part 400, subpart J (administrative 
review) or appeal in accordance with 7 CFR part 11 (appeal). If you 
elect to bring suit after completion of any appeal, such suit must be 
filed against FCIC not later than one year after the date of the 
decision rendered in such appeal. Under no circumstances can you 
recover any attorney fees or other expenses, or any punitive, 
compensatory or any other damages from FCIC.
    (f) In any mediation, arbitration, appeal, administrative review, 
reconsideration or judicial process, the terms of this policy, the Act, 
and the regulations published at 7 CFR chapter IV, including the 
provisions of 7 CFR part 400, subpart P, are binding. Conflicts between 
this policy and any state or local laws will be resolved in accordance 
with section 31. If there are conflicts between any rules of the AAA 
and the provisions of your policy, the provisions of your policy will 
control.
    (g) To resolve any dispute through mediation, you and we must both:
    (1) Agree to mediate the dispute;
    (2) Agree on a mediator; and
    (3) Be present, or have a designated representative who has 
authority to settle the case present, at the mediation.
    (h) Except as provided in section 20(i), no award or settlement in 
mediation, arbitration, appeal, administrative review or 
reconsideration process or judicial review can exceed the amount of 
liability established or which should have been established under the 
policy, except for interest awarded in accordance with section 26.
    (i) In a judicial review only, you may recover attorneys fees or 
other expenses, or any punitive, compensatory or any other damages from 
us only if you obtain a determination from FCIC that we, our agent or 
loss adjuster failed to comply with the terms of this policy or 
procedures issued by FCIC and such failure resulted in you receiving a 
payment in an amount that is less than the amount to which you were 
entitled. Requests for such a determination should be addressed to the 
following: USDA/RMA/Deputy Administrator of Compliance/Stop 0806, 1400 
Independence Avenue, SW., Washington, DC 20250-0806.
    (j) If FCIC elects to participate in the adjustment of your claim, 
or modifies, revises or corrects your claim, prior to payment, you may 
not bring an arbitration, mediation or litigation action against us. 
You must request administrative review or appeal in accordance with 
section 20(e).
    21. Access to Insured Crop and Records, and Record Retention.
    (a) We, and any employee of USDA authorized to investigate or 
review any matter relating to crop insurance, have the right to examine 
the insured crop and all records related to the insured crop and any 
mediation, arbitration or litigation involving the insured crop as 
often as reasonably required during the record retention period.
    (b) You must retain, and provide upon our request, or the request 
of any employee of USDA authorized to investigate or review any matter 
relating to crop insurance:
    (1) Complete records of the planting, replanting, inputs, 
production, harvesting, and disposition of the insured crop on each 
unit for three years after the end of the crop year (This requirement 
also applies to all such records for acreage that is not insured); and
    (2) All records used to establish the amount of production you 
certified on your production reports used to compute your approved 
yield for three years after the end of the crop year for which you 
initially certified such records, unless such records have already been 
provided to us (For example, if your approved yield for the 2003 crop 
year was based on production records you certified for the 1997 through 
2002 crop years, you must retain all such records through the 2006 crop 
year, unless such records have already been provided to us).
    (c) We, or any employee of USDA authorized to investigate or review 
any matter relating to crop insurance, may extend the record retention 
period beyond three years by notifying you of such extension in 
writing.
    (d) By signing the application for insurance authorized under the 
Act or by continuing insurance for which you have previously applied, 
you authorize us or USDA, or any person acting for us or USDA 
authorized to investigate or review any matter relating to crop 
insurance, to obtain records relating to the planting, replanting, 
inputs, production, harvesting, and disposition of the insured crop 
from any person who may have custody of such records, including but not 
limited to, FSA offices, banks, warehouses, gins, cooperatives, 
marketing associations, and accountants. You must assist in obtaining 
all records we or any employee of USDA authorized to investigate or 
review any matter relating to crop insurance request from third 
parties.
    (e) Failure to provide access to the insured crop or the farm, 
authorize access to the records maintained by third parties or assist 
in obtaining such records will result in a determination that no 
indemnity is due for the crop year in which such failure occurred.
    (f) Failure to maintain or provide records will result in:
    (1) The imposition of an assigned yield in accordance with section 
3(e)(1) and 7 CFR part 400, subpart G for those crop years for which 
you do not have the required production records to support a certified 
yield;
    (2) A determination that no indemnity is due if you fail to provide 
records necessary to determine your loss;

[[Page 48752]]

    (3) Combination of the optional units into the applicable basic 
unit;
    (4) Assignment of production to the units by us if you fail to 
maintain separate records:
    (i) For your basic units; or
    (ii) For any uninsurable acreage; and
    (5) The imposition of consequences specified in section 6(g), as 
applicable.
    (g) If the imposition of an assigned yield under section 21(f)(1) 
would affect an indemnity, prevented planting payment or replant 
payment that was paid in a prior crop year, such claim will be adjusted 
and you will be required to repay any overpaid amounts.
    22. Other Insurance.
    (a) Other Like Insurance--Nothing in this section prevents you from 
obtaining other insurance not authorized under the Act. However, unless 
specifically required by policy provisions, you must not obtain any 
other crop insurance authorized under the Act on your share of the 
insured crop. If you cannot demonstrate that you did not intend to have 
more than one policy in effect, you may be subject to the consequences 
authorized under this policy, the Act, or any other applicable statute. 
If you can demonstrate that you did not intend to have more than one 
policy in effect (For example, an application to transfer your policy 
or written notification to an insurance provider that states you want 
to purchase, or transfer, insurance and you want any other policies for 
the crop canceled would demonstrate you did not intend to have 
duplicate policies), and:
    (1) One is an additional coverage policy and the other is a 
Catastrophic Risk Protection policy:
    (i) The additional coverage policy will apply if both policies are 
with the same insurance provider or, if not, both insurance providers 
agree; or
    (ii) The policy with the earliest date of application will be in 
force if both insurance providers do not agree; or
    (2) Both are additional coverage policies or both are Catastrophic 
Risk Protection policies, the policy with the earliest date of 
application will be in force and the other policy will be void, unless 
both policies are with:
    (i) The same insurance provider and the insurance provider agrees 
otherwise; or
    (ii) Different insurance providers and both insurance providers 
agree otherwise.
* * * * *
    [For FCIC policies]
    24. Amounts Due Us.
* * * * *
    (b) Interest will accrue at the rate of 1.25 percent simple 
interest per calendar month, or any part thereof, on any unpaid premium 
amount or administrative fee due us. With respect to any premiums or 
administrative fees owed, interest will start to accrue on the first 
day of the month following the premium billing date specified in the 
Special Provisions.
* * * * *
    [For reinsured policies]
    24. Amounts Due Us.
    (a) Interest will accrue at the rate of 1.25 percent simple 
interest per calendar month, or any portion thereof, on any unpaid 
amount owed to us or on any unpaid administrative fees owed to FCIC. 
For the purpose of premium amounts owed to us or administrative fees 
owed to FCIC, interest will start to accrue on the first day of the 
month following the premium billing date specified in the Special 
Provisions. We will collect any unpaid amounts owed to us and any 
interest owed thereon and, prior to the termination date, we will 
collect any administrative fees and interest owed thereon to FCIC. 
After the termination date, FCIC will collect any unpaid administrative 
fees and any interest owed thereon.
* * * * *
    (e) The portion of the amounts owed by you for a policy authorized 
under the Act that are owed to FCIC may be collected in part through 
administrative offset from payments you receive from United States 
government agencies in accordance with 31 U.S.C. chapter 37. Such 
amounts include all administrative fees, and the share of the overpaid 
indemnities and premiums retained by FCIC plus any interest owed 
thereon.
* * * * *
    25. [Reserved.]
* * * * *
    30. Subrogation (Recovery of Loss From a Third Party)
    Since you may be able to recover all or a part of your loss from 
someone other than us, you must do all you can to preserve this right. 
If you receive any compensation for your loss, excluding private hail 
insurance payments and payments covered by section 35, and the 
indemnity due under this policy plus the amount you receive from the 
person exceeds the amount of your actual loss, the indemnity will be 
reduced by the excess amount, or if the indemnity has already been 
paid, you will be required to repay the excess amount, not to exceed 
the amount of the indemnity. The total amount of the actual loss is the 
difference between the value of the insured crop before and after the 
loss, based on your production records and the highest price election 
or amount of insurance available for the crop. If we pay you for your 
loss, your right to recovery will, at our option, belong to us. If we 
recover more than we paid you plus or expenses, the excess will be paid 
to you.
* * * * *
    34. Unit Division.
    (a) * * *
    (1) * * *
    (2) For an enterprise unit:
    (i) * * *
    (ii) * * *
    (iii) You must comply with all reporting requirements for the 
enterprise unit (While separate records of acreage and production for 
basic or optional units must be maintained, if you want to change your 
unit structure in subsequent crop years, it is not required to qualify 
for an enterprise unit);
* * * * *
    (vii) The discount contained in the actuarial documents will only 
apply to acreage in the enterprise unit that has been planted.
    (3) * * *
    (i) * * *
    (ii) * * *
    (iii) At any time we discover you do not qualify for a whole farm 
unit, we will assign the basic unit structure.
* * * * *
    (b) * * *
* * * * *
    (3) You have records, that are acceptable to us, for at least the 
previous crop year for all optional units that you will report in the 
current crop year (You may be required to produce the records for all 
optional units for the previous crop year);
* * * * *

    Signed in Washington, DC, on August 3, 2004.
Ross J. Davidson, Jr.,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 04-18056 Filed 8-4-04; 4:24 pm]
BILLING CODE 3410-08-P