[Federal Register Volume 70, Number 123 (Tuesday, June 28, 2005)]
[Rules and Regulations]
[Pages 37222-37247]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-12644]



[[Page 37221]]

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Part IV





Department of Agriculture





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Federal Crop Insurance Corporation



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7 CFR Part 457



Common Crop Insurance Regulations; Nursery Crop Insurance Provisions; 
Final Rule

  Federal Register / Vol. 70, No. 123 / Tuesday, June 28, 2005 / Rules 
and Regulations  

[[Page 37222]]


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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 457

RIN 0563-AB80


Common Crop Insurance Regulations; Nursery Crop Insurance 
Provisions

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes the 
Nursery Crop Insurance Provisions to make container and field grown 
practices separate crops; provide coverage for plants in containers 
that are equal to or greater than 1 inch in diameter; provide separate 
basic units by share for all coverage levels and basic units by plant 
type when additional coverage is purchased; permit insureds to select 
one coverage level for each plant type basic unit when additional 
coverage is purchased; allow increases to the Plant Inventory Value 
Report (PIVR) up to 30 days before the end of the crop year; allow 
acceptance of an application for insurance for any current crop year up 
to 30 days before the end of the crop year; change the starting and 
ending dates for the crop year to June 1st and May 31st, respectively; 
and make other policy changes to improve coverage of nursery plants. 
FCIC also finalizes the Nursery Peak Inventory Endorsement to reflect 
changes made in the Nursery Crop Provisions and adds a new 
Rehabilitation Endorsement to provide a rehabilitation payment for 
field grown plants to compensate them for rehabilitation costs for 
plants that will recover from an insured cause of loss.

DATES: Effective Date: June 28, 2005.

FOR FURTHER INFORMATION CONTACT: For further information or a copy of 
the Cost-Benefit Analysis, contact Stephen Hoy, Risk Management 
Specialist, Research and Development, Product Development Division, 
Risk Management Specialist, United States Department of Agriculture, 
6501 Beacon Drive, Stop 0812, Room 421, Kansas City, MO, 641-4676, 
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 the expected benefits associated with this proposed 
rule outweigh costs to the Government. The Nursery Policy changes will 
likely increase sales and encourage nursery growers to purchase higher 
levels of additional coverage.
    Government outlays were calculated based on, what were considered 
to be, the four most significant changes: (1) Insurability of plants in 
containers between 1 inch and 3 inches in diameter; (2) extension of 
the date for acceptance of an application for insurance; (3) extension 
of the date for acceptance of a revised PIVR; and (4) addition of a 
Rehabilitation Endorsement. The Cost-Benefit Analysis estimated, under 
the most likely scenario, these proposed policy changes would increase 
Government outlays by approximately 11.2 million dollars and would 
result in approximately 505 million dollars of increased liability 
purchased by nursery growers.
    Few problems are expected in servicing insurance policies and data 
reporting systems due to these policy changes.

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 
OMB under control number 0563-0053 through November 30, 2007.

Government Paperwork Elimination Act (GPEA) Compliance

    In its effort to comply with GPEA, FCIC requires all reinsured 
companies delivering the crop insurance program to make all insurance 
documents available electronically and to permit producers to transact 
business electronically. Further, to the maximum extent practicable, 
FCIC transacts its business with reinsured companies electronically.

Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. This rule contains no Federal 
mandates (under the regulatory provisions of title II of 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 that this regulation will not have a significant 
economic impact on a substantial number of small entities. Program 
requirements for the Federal crop insurance program are the same for 
all producers regardless of the size of their farming operation. For 
instance, all producers are required to submit an application and 
acreage report to establish their insurance guarantees, and compute 
premium amounts, or a notice of loss and production information to 
determine an indemnity payment in the event of an insured cause of crop 
loss. Whether a producer has 10 acres or 1000 acres, there is no 
difference in the kind of information collected. To ensure crop 
insurance is available to small entities, the Federal Crop Insurance 
Act authorizes FCIC to waive collection of administrative fees from 
limited resource farmers. FCIC believes this waiver helps to ensure 
small entities are given the same opportunities to manage their risks 
through the use of crop insurance. A Regulatory Flexibility Analysis 
has not been prepared since this regulation does not have an impact on 
small entities, and, therefore, this regulation is exempt from the 
provisions of the Regulatory Flexibility Act (5 U.S.C. 605).

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

[[Page 37223]]

on civil justice reform. The provisions of this rule will not have a 
retroactive effect. The provisions of this rule preempts State and 
local laws to the extent such State and local laws are inconsistent 
herewith. With respect to any direct action taken by FCIC 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 must be exhausted before any 
action for judicial review of any determination made by FCIC may be 
brought.

Environmental Evaluation

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

Background

    This rule finalizes changes to the Common Crop Insurance 
Regulations (7 CFR part 457) by revising 7 CFR 457.162 (Nursery crop 
insurance provisions) and 7 CFR 457.163 (Nursery peak inventory 
endorsement) and adds a new Nursery rehabilitation endorsement at 7 CFR 
457.164 as published by FCIC on August 9, 2004, at 69 FR 48166-48174.

1. Current Program

    Multiple peril crop insurance (MPCI) is available to wholesale 
nursery growers to assist in the management of nursery plant production 
risks against losses from specific perils. MPCI coverage for nursery 
has been available since 1989 and covered wholesale nurseries that 
received 50 percent or more of their gross income from the wholesale 
marketing of plants.
    The initial insurance program only covered container grown plants 
that were classified as woody, herbaceous, or foliage landscape plants. 
That program required nursery growers to provide a nursery plant 
inventory report with their application or prior to the start of the 
crop year that projected the amount of inventory in the nursery on a 
month-by-month basis. If an insured cause of loss occurred, the 
wholesale market value for the insurable plants in the unit immediately 
after the occurrence of a loss was subtracted from the lesser of: (1) 
Ninety percent of the wholesale market value for the insurable plants 
in the unit immediately prior to the occurrence of a loss; or (2) the 
highest monthly market value for the unit reported on the nursery plant 
inventory summary multiplied by 0.9.
    Between 1989 and 1999, the nursery crop insurance program was not 
utilized by a large number of growers. Effective for the 1999 and 
subsequent crop years, a new insurance program was offered that greatly 
expanded and modified coverage under the nursery policy, including 
expanding coverage to field grown nursery crops. These changes have 
resulted in liabilities increasing from approximately $ 803 million in 
1998 crop year to approximately $ 3.7 billion in the 2005 crop year.
    The current FCIC nursery program covers field grown and 
containerized nursery plants. Structures, equipment, supplies, etc. are 
not covered under this program. In contrast to many crop insurance 
programs (e.g., wheat, corn, soybeans, cotton, etc), coverage is not 
based on a yield guarantee that is established using an historical 
average crop yield per acre. Likewise, the nursery program is not a 
form of revenue insurance coverage (e.g., Adjusted Gross Revenue and 
Crop Revenue Coverage). No minimum income guarantee is established. 
Loss of revenue due to plant price fluctuation is not a covered 
component under the nursery program.
    The program functions as an asset-based form of insurance coverage. 
Each insured grower provides a plant inventory value report (PIVR) that 
establishes the plant inventory value for all plants in the basic unit. 
However, unlike the previous insurance program, nursery growers only 
report the plant inventory value for the plants in the unit once a year 
instead of projecting such values on a monthly basis. This 
significantly reduces the burden on growers to have to project the 
expected monthly values of their plants.
    For the year of application, coverage begins 30 days after the 
reinsured company receives a signed application. However, no 
application is accepted after May 31st of the crop year. If an 
application is submitted after May 31st, coverage will begin on October 
1st for the next crop year. Like other crop insurance policy, coverage 
is continuous from crop year to crop year, unless the coverage is 
cancelled or terminated, and coverage begins on October 1st.
    Insurance ends at the earliest of: (1) The date of final adjustment 
of a loss when the total indemnities due equal the amount of insurance; 
(2) removal of bare root nursery plant material from the field; (3) 
removal of all other insured plant material from the nursery; or (4) 
11:59 p.m. on September 30th. Therefore, the maximum time an insurance 
period can extend in a crop year is from October 1st of one calendar 
year to September 30th of the next calendar year. The crop year is 
designated by the calendar year in which it ends. Therefore, if the end 
of the insurance period is September 30, 2005, it is considered the 
2005 crop year.
    Both additional and catastrophic risk protection (CAT) coverage are 
available under the nursery program. Under additional coverage, the 
grower selects a coverage level percentage (50 percent to 75 percent in 
5 percent increments) and a percentage of the insurable price. CAT 
coverage provides 50 percent coverage at 55 percent of the insurable 
price. A dollar amount of insurance coverage is calculated by 
multiplying the grower's plant inventory value times the selected 
coverage level, times the selected price election, and times ownership 
share. This amount determines the maximum amount of losses paid in a 
year and the premium. For example:

    A nursery grower reports a plant inventory value on the PIVR of 
$1,000,000, selects the 75 percent coverage level, selects 100 
percent of the insurable price, and has a 100 percent ownership 
share in the nursery. The amount of insurance provided would be 
$750,000 ($1,000,000 plant inventory value x 0.75 coverage x 1.00 
price x 1.000 share), and the deductible would be $250,000 
($1,000,000 plant inventory value x (1-.75)). Accumulated insurable 
losses would be paid up to a maximum of $750,000 over the insurance 
period.

    To assist in valuing the plant inventory, FCIC publishes an 
Eligible Plant List and Plant Price Schedule (EPLPPS) that lists all 
insurable plants by genus, species, subspecies, variety, or cultivar. 
For the 2005 crop year, there are approximately 20,500 insurable plants 
on the EPLPPS. The insurable price for each plant is the lesser of the 
catalog or price list price or the maximum insurable price in the 
EPLPPS. Insurable plant prices are held constant over the crop year. 
The maximum insurable price is used to calculate the plant inventory 
value for the purposes of determining the amount of insurance and the 
amount of indemnity at time of loss.
    A maximum insurable price is established for each insurable plant 
to avoid the potential for large variations in price for the same plant 
between insured growers thereby affecting the amount of insurance 
provided. Establishing a maximum price also avoids potential abuse of 
the program through inflated plant values. For price verification 
purposes, two copies of the nursery's most recent wholesale catalog or 
price list must be submitted to the insurance agent each crop year.

[[Page 37224]]

    All plants on the EPLPPS are categorized into one of thirteen 
insurable plant types for insurance pricing purposes. For each type, 
plants are further categorized by container size (volumetric 
measurement) for containerized plants, caliper size for field grown 
plants; or high/wide size for field grown plants. Plants not listed on 
the EPLPPS may be insurable under a written agreement approved by FCIC. 
However, bulbs, cut flowers, aquatic plants, and air plants are not 
insurable and written agreements are not available for these plants.
    Basic and optional unit are available under the policy, depending 
on the coverage level selected. Growers with additional coverage are 
provided basic units consisting of all insurable plants in the county 
for each practice (containerized or field grown). For additional 
premium, growers can divide basic units into separate optional units by 
plant type. The dollar amounts of loss on optional units are 
accumulated and applied against the amount of insurance on the 
insured's basic unit.
    Under CAT coverage, the basic unit is established on ownership 
share and not by practice; i.e., field grown and containerized plants 
are combined into one basic unit. The basic unit cannot be subdivided 
into optional units.
    Basic units are larger in size and usually have a reduced potential 
for loss. Insureds with only basic units are provided a ten percent 
discount to the base premium rates. Optional units are smaller and 
usually have a greater potential for loss due to the fact that 
indemnity payable is calculated independently on each optional unit.
    Growers with additional coverage may purchase up to two Peak 
Inventory Endorsements, although more than two endorsements may be 
purchased if one or more losses have occurred and the nursery is 
restocked. A Peak Inventory Endorsement allows growers to temporarily 
increase the dollar amount of inventory reported on their PIVR. The 
premium amount for the Peak Inventory Endorsement is prorated over the 
specified peak period, so a full year's premium is not paid on the Peak 
Inventory Endorsement amount. Growers declare the dollar amount of 
inventory value increase and the dates the Peak Inventory Endorsement 
is to begin and end. Peak Inventory Endorsements must be submitted on 
or before May 31st of the crop year.
    The nursery policy covers similar causes of loss as other crop 
insurance policies. However, nursery is unique in that multiple 
indemnity payments may be made during a crop year if there are multiple 
losses. This is because the plants are valued individually and plants 
that are not damaged in one loss occurrence may be damaged in another. 
However, the total amount of indemnities that can be paid in any crop 
year cannot exceed the amount of insurance.
    While trying to optimize coverage, there were several problems that 
had to be resolved. The first is fluctuating plant inventories during 
the crop year. This means that at time of loss, the total plant 
inventory values in the unit could be radically different than the 
amount of insurance. While the policy allows for increases to the plant 
inventory values if requested in writing by May 31st, insurance does 
not attach until 30 days after the request was received, and it did not 
totally solve the problem of fluctuating plant inventories.
    To solve this problem, like the previous nursery policy, 
indemnities are not established based on the amount of insurance. 
Indemnities are established using the total of the plant inventory 
values of the insurable plants in the unit immediately prior to the 
loss and after the loss. This ensures that indemnities are based on the 
actual amount of loss suffered by the grower for the plants present at 
the time the insurable cause of loss occurs.
    Another problem is that the premium is established based on the 
amount of insurance while losses are not. This means growers have an 
incentive to under-report their plant inventory values to pay less 
premium. FCIC solved this problem by including an under-report factor 
when calculating losses. This factor was determined by taking the 
lesser of 1.0 or the amount determined by taking the plant inventory 
value reported on the PIVR and subtracting any previous losses and 
dividing this total by the actual value of plants in the basic unit 
immediately prior to the loss occurrence. Use of the under-report 
factor provides an incentive for growers to avoid under-reporting their 
plant inventory values.
    An additional problem is the amount of insurance contains a 
reduction for the coverage level but the amount of insurance is not 
used to calculate losses. To remedy this situation, FCIC developed the 
loss occurrence deductible, which is the smaller of the crop year 
deducible (deductible percent times the total plant inventory values 
for the basic unit) or an amount determined by multiplying the 
deductible percent (100 percent--the coverage level selected) times the 
value of plants in the unit immediately prior to the loss occurrence. 
This allows the application of the coverage level when calculating 
losses.
    For example, a grower with 100 percent share reports a total plant 
inventory value of $100,000 and chooses a 75 percent coverage level and 
100 percent price election. At time of loss, the plant inventory value 
immediately prior to the loss is $125,000, and the plant inventory 
value after the loss is $80,000. The crop year deductible is $25,000 
($100,000 x 0.25). The loss would be calculated as follows:
    1. The under-report factor is 0.80 ($100,000/$125,000).
    2. The occurrence deductible is $25,000 ($125,000 x 0.25 x 0.80).
    3. The plant inventory value immediately prior to the loss--the 
plant inventory value after the loss is $45,000 ($125,000-$80,000).
    4. The result of (3) multiplied by the under-report-factor = 
$36,000 ($45,000 x .80).
    5. The result of (3)--the occurrence deductible = $11,000 ($36,000-
$25,000).
    6. Indemnity = $11,000 ($11,000 x 1.00 price election x 1.000 
share).

2. Major Changes

    Section 1--Definitions. A definition of ``liners'' is added to 
provide coverage for plants in containers that are equal to or greater 
than one inch in diameter. Also, the definition of ``standard nursery 
containers'' is amended to include containers equal to or greater than 
one inch in diameter.
    Most nursery plants are started as liners; i.e., small plants 
produced in nursery trays or flats. As a plant matures, it is usually 
repotted, or upgraded, into a larger container or placed into the 
ground. The current nursery program only insures plant in container 
that are three inches or greater at the widest point of the container 
interior. This limitation precludes a significant segment of the 
nursery industry from crop insurance coverage. Insuring plants in 
containers down to one inch in diameter will provide coverage to the 
majority of liner plants produced by the nursery industry.
    Section 2--Unit Division. Basic units are provided by share which 
may be further divided into basic units by plant type when additional 
coverage is purchased. Optional units are eliminated.
    Under the current Nursery Crop Provisions, a grower with additional 
coverage may elect optional units by plant types. However, it was 
discovered that it was possible for growers to receive coverage in 
excess of the coverage level selected because most calculations still 
occurred at the basic unit level even though optional units were 
selected. In some cases, growers

[[Page 37225]]

were able to obtain coverage that exceeded the amount permitted in the 
Act.
    Instead of by optional units, the new Nursery Crop Provisions allow 
basic units to be split into additional basic units by type if the 
grower has elected additional coverage. The policy now lists 14 plant 
types for field grown material and 15 plant types for container grown 
material, including liners. The number of plant types produced in most 
small to medium sized nursery operations is limited. However, large 
nursery operations often produce a number of different plant types. In 
meetings with FCIC, nursery growers indicated a preference to 
selectively insure by type, since risk of loss varies to some degree 
between plant types. However, insufficient data on degree of risk by 
plant type precluded designating the types as separate crops. This 
change will enhance coverage provided to growers with additional 
coverage and permit growers to better structure their risk management 
options. It will also permit FCIC to gather experience data on both the 
inventory and loss sides of the program, and adjust premium rate by 
plant type.
    Section 3--Insurance Guarantees, Coverage Levels, and Prices for 
Determining Indemnities. Growers may select a separate coverage level 
for each basic unit. Under the current Nursery Crop Provisions, only 
one coverage level can be selected and this same coverage level is 
applicable to all basic and optional units. However, nursery growers 
have indicated a preference to selectively insure plants by type, 
including selecting different price elections and coverage levels by 
type. FCIC considered both options in the proposed rule and, as a 
result of comments stated below, FCIC has elected to offer only 
different coverage levels by type. This will still provide growers 
ability to select the coverage level that best meets their risk 
management needs for the unit.
    Section 6--Plant Inventory Value Report. The provision that 
precludes revision of the PIVR after May 31st of the crop year is 
removed from these provisions, and premium will be prorated for a PIVR 
increase.
    The starting and ending dates of the crop year are being changed in 
these provisions, and growers will be permitted to apply for coverage 
up to 31 days before the end of the insurance period. In light of these 
changes, FCIC believes growers should have the option of increasing the 
PIVR up to 30 days before the end of the crop. Unlike the current 
provisions, growers will be limited to two PIVR revisions to minimize 
any burden to reinsured companies. Additional premium for the amount of 
PIVR increase will be prorated based on the time period remaining in 
the crop year and the additional amount of inventory reported. FCIC 
believes allowing two PIVR increases throughout the crop year and 
prorating premium for the additional reported amounts over the 
remainder of the crop year will significantly enhance risk management 
options for nursery growers.
    Section 8--Insured crop and Plants. The crop insured will be all 
insurable nursery plants in each practice; i.e., container grown or 
field grown.
    Wholesale nursery growers use specific management practices to grow 
container grown plants and field grown plants. Each practice is unique, 
requiring growers to use separate plant production methods to grow the 
plants to a marketable size. Because production methods vary between 
the two practices, risk of loss also varies accordingly. To reflect the 
separate and unique characteristics of each practice, FCIC has 
designated each practice as a separate nursery crop. This change 
structures the Nursery Crop Provisions to correspond with how the 
nursery industry views these practices. Nursery growers who utilize 
both practices in their operation will have the option of insuring one 
or both practices. Growers' risk management options will also be 
enhanced because of the ability to insure each practice at either the 
CAT level or an additional level of coverage.
    Section 9--Insurance Period. The starting and ending dates for the 
crop year are changed from October 1st and September 31st to June 1st 
and May 31st, respectively. Also, the provision that precludes 
acceptance of an application after May 31st is removed.
    The current crop year starting date of October 1st and ending date 
of September 30th of the next calendar year places the start and end of 
the crop year during the hurricane season. If a hurricane occurs in 
September, growers may not be able to provide an accurate PIVR for the 
next crop year by the October 1st due date. Since a PIVR can only be 
increased during the crop year, growers may be forced to under report 
inventory. Also, if plants are partially damaged, a grower must wait 
until the loss adjuster has valued these plants before reporting their 
value for the subsequent crop year. Changing the starting and ending 
dates to June 1st and May 31st, respectively, will eliminate a number 
of potential reporting problems for insured growers.
    For these and other less significant changes, the public was 
initially afforded a 60-day period to submit written comments and 
opinions after the proposed rule was filed in the Office of the Federal 
Register. Based on specific requests to extend the comment period, FCIC 
published a notice in the Federal Register at 69 FR 60320 on October 8, 
2004, extending the initial 60-day comment period for an additional 45 
days to November 22, 2004. A total of 187 comments were received from 
21 commenters. The commenters were nursery growers, reinsured 
companies, crop insurance agents, an insurance service organization, 
nursery trade associations, a State Department of Agriculture, and an 
interested party.
    The specific comments received and FCIC's responses are as follows:
Section 1--Definitions
    Comment: A nursery trade association stated the American Nursery 
and Landscape Association is identified by its old name, ``American 
Association of Nurserymen,'' in the definition of ``American Standards 
for Nursery Stock.''
    Response: FCIC has revised the definition to reference the American 
Nursery and Landscape Association or a subsequent successor 
organization.
    Comment: An insurance service organization recommended the 
sentences in the definition of ``container grown'' be combined to 
eliminate repetition.
    Response: The sentences have been combined to make clear that 
container grown applies to both plants in standard nursery containers 
above ground or grown in such containers in the ground.
    Comment: An insurance service organization recommended the word 
``it'' in the definition of ``crop year'' be clarified.
    Response: Although this provision was not included in the proposed 
changes, the requested change is insignificant and would provide 
greater clarity. Therefore, FCIC has replaced the word ``it'' with the 
phrase ``the insurance period'' to be consistent with other Crop 
Provisions.
    Comment: An insurance service organization recommended the last 
sentence in the definition of ``eligible plant list'' that states, ``A 
paper copy of the eligible plant list is also available from your 
agent'' be deleted.
    Response: Although this provision was not included in the proposed 
changes, the requested change is necessary because FCIC has not 
required agents to maintain a paper copy of the Eligible Plant List 
because, depending on location, the Eligible Plant List may contain 
from a few thousand to over

[[Page 37226]]

20,500 plants; therefore, size precludes use of a paper copy for 
distribution to insured growers. The provision is clarified to state 
that the Eligible Plant List is available on RMA's Web site and on 
compact disk from crop insurance agents.
    Comment: An insurance service organization and a reinsured company 
stated that contradictions exist between the definitions of ``container 
grown,'' ``fabric grow bag,'' and ``field grown'' regarding use of a 
fabric grow bag.
    Response: FCIC agrees a conflict exists between the definitions of 
``fabric grow bag'' and ``field grown'' in the proposed provisions 
because the proposed definition of ``fabric grow bag'' indicates the 
bag is a ``root control bag.'' The term ``root control bag'' is not 
applicable when a bag is placed in-ground; therefore, FCIC has removed 
the term ``root control bag'' from the definition of ``fabric grow 
bag.'' FCIC does not believe a conflict exists between the definition 
of ``container grown'' and the definitions of ``fabric grow bag'' and 
``field grown,'' because above ground fabric grow bags are considered 
standard nursery containers. It is only in-ground fabric grow bags that 
are excluded as standard nursery containers. The provisions have been 
clarified.
    Comment: An insurance service organization asked if fabric grow 
bags must be porous.
    Response: The definition of ``fabric grow bags'' requires there be 
adequate drainage. This can be accomplished through the use of porous 
bags or other appropriate means to permit such drainage, such as 
drainage holes.
    Comment: An insurance service organization recommended the period 
following the term ``fabric grow bag'' (in that definition) be moved to 
follow the term ``(root control bag).'' The same commenter also 
recommended that the phrase ``including a woven or matted bag'' be set 
off in parentheses rather than commas.
    Response: As stated above, FCIC has removed the phrase ``(root 
control bag)'' from the definition of ``fabric grown bag'' because it 
conflicts with the definition of ``field grown.'' FCIC has also added 
parentheses to set-off the phrase ``including a woven or matted bag 
with a plastic or fabric bottom'' in the definition of ``fabric grow 
bag.''
    Comment: An insurance service organization and a reinsured company 
recommended the definitions of ``field market value A,'' ``field market 
value B,'' and ``field market value C'' be revised to indicate these 
values are based on the lesser of: 1) the prices contained in the Plant 
Price Schedule, or 2) the prices contained in your wholesale catalog or 
price list.
    Response: Although this provision was not included in the proposed 
changes, section 6(e) of the Nursery Crop Provisions specifies that the 
plant values cannot be greater than those contained in the Plant Price 
Schedule. FCIC agrees that the policy needs to be revised to make it 
clearer that this means the plant values are based the lesser of the 
price in the Plant Price Schedule or the prices in the grower's 
wholesale catalog or price list and has revised the definitions 
accordingly.
    Comment: An insurance service organization recommended the phrase 
``optional or basic unit'' in the second sentence of the definition of 
``field market value A'' in the proposed rule be changed to ``basic or 
optional unit,'' and the same phrase be changed in the definition of 
``field market value B. The same commenter recommended the phrase ``for 
the purpose of determining'' in the last sentence of the definitions of 
``field market value A'' and ``field market value C'' in the proposed 
rule be changed to ``to determine.''
    Response: Although this provision was not included in the proposed 
changes, for the reasons stated more fully below, FCIC has elected to 
eliminate optional units to reduce the complexity of the policy and 
protect program integrity.
    Comment: An insurance service organization recommended capitalizing 
the term ``plant price schedule'' in the definition of ``field market 
value B'' in the current provisions.
    Response: Since ``plant price schedule'' is the title of a 
document, FCIC agrees and has capitalized this term throughout these 
provisions.
    Comment: Two insurance service organizations and a reinsured 
company recommended the under report factor be determined on the basic 
unit instead of the crop and recommended the definition of ``field 
market value C'' be revised to reflect this determination. The 
commenters stated the amount of insurance and other calculations are at 
the basic unit level. They stated that determining ``field market value 
C'' at the crop level would be time consuming and burdensome for 
adjusters, because adjusters would be required to determine the value 
of all undamaged plants in all basic units, even if a loss is not 
widespread, to correctly calculate ``field market value C'' on a crop 
basis.
    Response: Since losses are indemnified separately for each basic 
unit there is no need to determine the under report factor for basic 
units that may not involve a loss. FCIC has removed the definition of 
``field market value C'' because, as stated above, optional units have 
been eliminated.
    Comment: Three nursery trade associations recommended that the 
definition of ``good nursery practices'' be expanded to include ``best 
management practices'' for production nurseries.
    Response: Use of the term ``best management practices'' would 
suggest there is a single management practice that is needed to be 
considered a good nursery practice. This is not the case; any practice 
that would meet the standards in the definition of ``good nursery 
practices'' is permitted. FCIC has changed the word ``county'' to 
``area'' to correspond with language used in the definition of ``good 
farming practice'' in the Basic Provisions.
    Comment: An insurance service organization asked if organic farming 
practices need to be referenced in the definition of ``good nursery 
practices.''
    Response: FCIC has revised the definition of ``good nursery 
practices'' to include provisions for organic farming.
    Comment: An interested party and an insurance service organization 
recommended the definition of ``liners'' be clarified by adding the 
phrase ``in diameter'' after the word ``inch'' and enclosing the phrase 
``including trays containing 288 or fewer individual cells'' in 
parentheses.
    Response: FCIC agrees and has revised the definition of ``liners'' 
to add the phrase ``in diameter'' after the word ``inch.'' With respect 
to the 288 or fewer individual cells, FCIC has discovered that the use 
of a one inch limitation on cell size corresponds more closely to 200 
cells per tray, not 288 cells per tray. However, there may be some 
variability in nursery tray sizes so FCIC has revised the provisions to 
allow a different number of individual cells if permitted by the 
Special Provisions.
    Comment: A nursery trade association asked if the definition of 
``liners'' excluded rooted cuttings and seedlings grown in flats that 
have no individual cells.
    Response: To be insurable, the liner must have a standard nursery 
container size that is greater than one inch but less than three inches 
in diameter. This could include individual cell in trays, pots or other 
appropriate containers. However, since flats or trays without 
individual cells are not, by definition, considered standard nursery 
containers, they cannot be considered liners.
    Comment: A reinsured company asked if the definition of ``nursery 
crop'' will require the current crop code for nursery to be replaced by 
two crop codes.

[[Page 37227]]

    Response: To maintain consistency in data processing and record 
keeping, FCIC has retained the 0073 crop code for nursery. The 007 
field grown practice code and 008 container grown practice code are 
retained on the actuarial documents. However, now each of these 
practices will be treated as if it were a separate crop. To accomplish 
this, FCIC has: (1) Added a new section 8(a) to clarify the insured 
crop will be each practice in which the insured grower has a share that 
is insured and for which a premium rate is provided by the actuarial 
documents; and (2) removed the proposed definition of ``nursery crop.'' 
The term ``practice'' has been added back into the policy and specifies 
that plants grown in standard nursery containers and field grown are 
separate practices.
    Comment: A reinsured company asked if growers will have the options 
of selecting insurance coverage on one or both nursery crops and 
choosing buy-up coverage on one crop and CAT coverage on the other 
crop. The commenter also asked if all plant types within the crop must 
be insured.
    Response: As stated above, the term nursery crop is no longer used. 
The field grown practice and container grown practice are treated as 
separate crops, so the crop insured will be each practice the grower 
elects to insure. Because each practice is treated as a crop, a grower 
can select additional coverage on one practice and CAT coverage on the 
other practice. However, a grower that selects CAT for a practice must 
insure all plant types grown with that practice under such coverage. If 
a grower selects additional coverage for a practice, the growers must 
insure all plant types grown with that practice under additional 
coverage but the actual additional coverage level may vary by plant 
type.
    Comment: An insurance service organization and a reinsured company 
stated that removal of the term ``practice'' and separation of field 
grown and container grown plants into separate crops could result in 
adverse selection. One commenter stated that container grown material 
will be insured at higher coverage levels, while field grown material 
will not be insured or insured under CAT.
    Response: As stated above, the term practice has been added back to 
the policy but the separate practices are still considered separate 
crops and can be insured separately. However, the production methods 
and risks are considerably different between field grown and container 
grown plants. Because of these differences, producers must be given the 
option to select the coverage that best meets their risk management 
needs. To mitigate the potential for adverse selection, FCIC has 
adjusted premium rates considering the risks associated with field 
grown and container grown separately.
    Comment: An insurance service organization asked if the phrase ``in 
electronic format'' in the definition of ``Plant Price Schedule'' could 
be removed. The same commenter suggested removal of the last sentence 
in this same definition.
    Response: FCIC has revised the definition to eliminate the 
reference to electronic format but it does specify it is available on 
RMA's Web site and on compact disk from crop insurance agents. This 
provision is necessary because growers must be informed of where they 
can obtain the information. For clarity and consistency with the 
definition of ``Plant Price Schedule,'' the definition of ``Eligible 
Plant List'' is also revised to remove the reference to electronic 
format.
    Comment: An insurance service organization asked if the phrase 
``that is appropriate for the plant'' in the definition of ``standard 
nursery containers'' is intended to exclude different plant types 
together in one container.
    Response: Nothing in this definition is intended to address the 
issue of insurability for containers with different types of plants. 
Insurability for this practice has previously been excluded in the 
underwriting guidelines. However, this provision is more appropriately 
contained in the policy and FCIC has revised section 8 to add this 
exclusion. The phrase ``that is appropriate for the plant'' was 
intended to refer to the drainage requirements and is not necessary 
because the term ``adequate'' is sufficient to address the drainage 
requirements. Therefore, the phrase has been removed.
    Comment: An insurance service organization and a reinsured company 
recommended the term ``percentage'' in the definition of ``survival 
factor'' be defined in the Crop Provisions. One of the commenters asked 
if the survival factor will vary by region. The other commenter stated 
a grower may be unable to sell a flat if a certain percentage of the 
plants are destroyed, and a definition of ``percentage'' is needed to 
determine if an entire flat can be considered destroyed in order to 
accurately determine the survival factor.
    Response: FCIC does not insure flats that do not contain individual 
cells. FCIC only insures liners grown in individual containers. FCIC 
does not agree with the recommendation to consider all liners destroyed 
if a certain percentage of the plants are destroyed. Such plants can 
still be sold and, therefore, have value. Failure to consider this 
value when determining losses would increase indemnity payments on 
liners, negatively impact premium rates, and adversely affect program 
integrity. Therefore, the term ``percentage'' is given its common usage 
meaning and a definition is not necessary. FCIC is currently evaluating 
information on survival factors for liners, and, if there are 
variations by region, they will be reflected on the Special Provisions. 
No change has been made in response to this comment.
    Comment: An insurance service organization recommended inserting a 
hyphen between the words ``under'' and ``report'' or ``reporting'' or 
combining the two words into one word. The commenter recommended 
removal of the colon after the word ``of'' and removal of the semicolon 
after ``1.000'' for clarity.
    Response: FCIC agrees the term ``under report'' should be 
hyphenated. FCIC agrees that the punctuation is not correct in the 
third sentence in the definition of ``under factor.'' However, FCIC has 
elected to designate the two provisions as (a) and (b) so there is a 
clear distinction.
    Comment: A crop insurance agent recommended the definition of 
``wholesale'' include growers selling large quantities of plants at a 
reduced price to government offices.
    Response: FCIC agrees and has revised the definition of 
``wholesale'' to include a plant sale to end-users, including 
government offices, if the sale is for a large quantity of plants at a 
reduced price. The purpose of the provisions is to ensure that 
insurance is only provided for producers of the plants. Therefore, as 
long as the grower produces the plants and otherwise qualifies as a 
wholesale marketer (i.e., sells in large quantities at lower prices) 
there is no basis to deny insurance for such growers simply because 
they sell to end users.
    Comment: An insurance service organization recommended the 
definition of ``wholesale'' be restructured so the wording is not 
separated into subparagraphs. If the subparagraphs are retained, the 
commenter recommended capitalizing the first word in subparagraphs (b) 
and (c).
    Response: FCIC agrees and has revised the definition to eliminate 
the subparagraphs.
Section 2--Unit Division
    Comment: An insurance service organization recommended the phrase

[[Page 37228]]

``if the plants are not liners'' in proposed section 2(a)(1) be changed 
to ``for plants that are not liners.''
    Response: All references to liners are removed from section 2(a) 
because a type code for liners is required for reporting purposes. 
Instead, basic units may be established by plant type and FCIC has 
added liners as a plant type in section 2(c). Therefore, the 
recommended change is not necessary.
    Comment: An insurance service organization stated the phrase ``the 
basic unit'' in section 2(b) reflects only one basic unit in a county. 
The same commenter asked if the phrase in proposed section 2(b) that 
states ``the basic unit will be used to establish the amount of 
insurance, crop year deductible, premium, and the total amount of 
indemnity payable under this policy'' means that all optional units 
within one of these basic units will have the same guarantee, rate, 
etc.
    Response: There may be more than one basic unit in a county because 
basic units are now permitted by share and plant type. Section 2(b) 
specifies that each of these basic units may be divided into optional 
units as provided in section 2(d). However, FCIC agrees that it is 
difficult to ascertain how the amount of insurance, premium rates, 
deductibles determined at the basic unit level will apply to optional 
units. This level of complexity will make it difficult for agents to 
explain the policy to growers and reinsured companies to defend the 
policy provisions. For these reasons and those stated below, FCIC has 
elected to remove optional units from the policy and has redesignated 
the provisions in section 2 accordingly.
    Comment: An insurance service organization stated that limiting 
optional units by location to field grown material may not preclude 
balled and burlapped plants from being shifted between locations.
    Response: FCIC concurs that balled and burlapped plants could be 
shifted between locations. This would adversely affect program 
integrity. Because FCIC does not know of any reasonable means to 
eliminate this potential shifting of production, and for the other 
reasons stated above, FCIC has elected to eliminate optional unit.
    Comment: An insurance service organization asked if the language in 
section 2(d) precluded insuring organic and conventional nurseries as 
optional units.
    Response: For the reasons stated above, FCIC has elected to 
eliminate optional units. Therefore, this is no longer an issue.
    Comment: Three nursery trade associations stated that optional 
units should be offered by location for plants in containers in a 
manner that significantly mitigates the potential for shifting of 
container grown plants between growing locations to facilitate losses.
    Response: FCIC is not aware of any method or process that would 
significantly mitigate the potential for shifting plants between 
locations to facilitate a loss if optional units by location are 
offered for containerized plants. As stated above, since the risk 
associated with the shifting of production is so great and they add an 
increased level of complexity, FCIC cannot permit optional units at 
this time and has eliminated them from the policy. If the nursery trade 
associations have suggestions of how optional units may be offered 
without the risk of shifting production, they should provide them to 
their local Regional Office for future consideration.
    Comment: An insurance service organization recommended the premium 
rates be adjusted to reflect division of basic units by share and plant 
type.
    Response: FCIC contracted a study to evaluate the impact of these 
changes on the premium rates and will make appropriate adjustments. 
Also, as experience data are compiled for each crop, plant type, and 
coverage level, premium rates will be adjusted accordingly to maintain 
an actuarially sound program.
    Comment: Two insurance service organizations and two reinsured 
companies expressed concern on allowing basic units by plant type and 
all liners. Two of the commenters stated collecting PIVRs on basic 
units by plant type would require more work by the reinsured company, 
be burdensome to administer, and could make the loss adjustment process 
impossible to complete. One commenter recommended plant values continue 
to be aggregated on all container grown plants and all field grown 
plants, and plant types should remain optional units. Two of the 
commenters stated premium rates should be adjusted to reflect these 
changes.
    Response: Most nurseries have a limited number of plant types. 
Therefore, FCIC believes reporting the plant inventory value by plant 
type will, in most instances, not be overly burdensome to growers or 
reinsured companies to administer. It is true that more losses may have 
to be calculated. However, in some instances the amount of work 
required for loss adjustment will be reduced. If there are basic units 
by plant type, and not all types suffer a loss, field market value A 
and B and the under-report factors will only have to be calculated for 
the plant types with a loss. If there is a basic unit by container 
grown and field grown, field market values A and B would have to be 
calculated for all types in the unit, regardless of whether they had a 
loss. Further, reporting plant inventory values for each plant type 
will improve the accuracy of the PIVR, thereby increasing accuracy in 
determining the amount of insurance, premium owed, and indemnity 
payable. This will benefit growers and reinsured companies. To allow 
basic units by field grown and container plants and optional units by 
plant type would not significantly decrease the work load because field 
market value A and B would have done by type. As stated above, FCIC has 
contracted for a rate study, including units by plant type, and rates 
will be adjusted appropriately to reflect the risks. Section 2(a) is 
amended to specify that unless there is a premium rate for the type on 
the actuarial document, insurance is not provided. Further, as 
experience data are compiled for each plant type, premium rates will be 
adjusted to reflect the risks associated with insuring each type.
    Comment: A nursery grower recommended that palms and cycads be 
placed in a separate plant type.
    Response: FCIC agrees a separate plant type to include all plants 
classified as palms and cycads is appropriate because the morphological 
characteristics of these plants are unique and, therefore, they are 
more appropriately typed separately. Redesignated section 2(b) of these 
provisions is revised to reflect this additional plant type.
    Comment: A reinsured company stated that liners are not a plant 
type but are listed as a type for basic unit division purposes. The 
commenter recommended that liners be added to the plant type list in 
section 2(c) (redesignated as section 2(b)).
    Response: FCIC agrees that it is better to include liners as a 
plant type than to try to distinguish basic units by whether liners 
were present. Although liners may be a composite of a number of plant 
types, for insurance coverage and data processing purposes a single 
type code will be assigned for all liners. FCIC has added liners to the 
list of plant types in redesignated section 2(b).
    Comment: An insurance service organization asked if removal of the 
``other plant types listed in the Special Provisions'' from the list of 
plant types in section 2 would preclude using written agreements to 
insure plants not listed on the Eligible Plant List.

[[Page 37229]]

    Response: Use of a written agreement to insure a plant not listed 
on the Eligible Plant List is not affected by the plant types listed in 
redesignated section 2(b) of these provisions. However, information 
provided to FCIC by the nursery industry, subsequent to publication of 
the proposed rule, suggests that FCIC may need to add one or more new 
plant types to redesignated section 2(b) to enhance plant pricing 
accuracy. To expedite possible inclusion of a new plant type, FCIC has 
not removed ``other plant types listed in the Special Provisions'' from 
redesignated section 2(b).
Section 3--Insurance Guarantees, Coverage Levels, and Prices for 
Determining Indemnities
    Comment: Two insurance service organizations, two reinsured 
companies, and a crop insurance agent questioned the proposed provision 
that allows different coverage level and price election percentage for 
each basic unit. These commenters stated the nursery policy should not 
allow a different coverage level and price election percentage for each 
basic unit because it would lead to adverse selection. One commenter 
stated allowing a separate price election percentage for each plant 
type would create a vast opportunity for moral hazard. One commenter 
stated different coverage levels and price elections would add 
complexity to the use of Peak Endorsements and to the loss adjustment 
process. One commenter indicated different coverage levels and price 
election percentages by plant type would create administrative burdens.
    Response: FCIC agrees that different price election percentages 
should not be allowed by plant type. FCIC concurs with the commenter 
regarding the opportunity for moral hazard to increase significantly if 
the price election percentage is permitted to vary by plant type. Also, 
FCIC agrees that allowing price election to vary by plant type could 
increase the administrative burden on reinsured companies. Crop 
insurance experience data indicates insureds rarely elect less than 100 
percent of the insurable plant price. During the 2004 crop year, less 
than one percent of insureds with additional coverage selected a price 
election percentage that was less than 100 percent of the insurable 
plant price. Therefore, to reduce administrative burden and to be 
consistent with the large majority of crop policies providing coverage 
on a dollar amount of insurance, FCIC has removed the option of 
selecting less than 100 percent of the insurable plant price on nursery 
plants. However, growers with additional coverage and basic units by 
plant type should be permitted to select different coverage levels for 
plant types. The risks with each type may be different and growers 
should be able to select the appropriate coverage level to meet their 
risk management needs. Premium rates will be established for each 
practice, plant type and coverage level shown on the actuarial 
document. As experience data are compiled for each practice, plant 
type, and coverage level, premium rates will be adjusted accordingly to 
maintain an actuarially sound program. FCIC agrees that some additional 
work will be required of the reinsured company and loss adjuster. 
However, allowing separate coverage levels is not what increases the 
burden. The burden is increased because separate types are considered 
separate basic units. Further, most growers do not produce many 
different types so the burden should not be substantially increased.
    Comment: Three commenters stated clarification is needed to 
indicate whether each basic unit can have a separate coverage level and 
price election percentage or all basic units must have the same 
coverage level and price election percentage. Two commenters indicated 
clarity is needed regarding eligibility for the option of separate 
coverage level and price election percentage on an additional level of 
coverage and ability to vary coverage level and price election 
percentage on a basic unit level by share or plant type. One commenter 
recommended coverage level, if allowed by plant type, be identified on 
the application by crop or crop/type, since basic units are not 
identified on the application. One commenter stated establishing 
coverage level by plant type might be acceptable if premium rates are 
adequate. One commenter stated reinsured companies must be allowed to 
set fund designations by basic unit if insureds can select coverage 
level and price election by basic unit.
    Response: FCIC agrees additional clarification is needed to avoid 
confusion on selecting coverage level on a basic unit and has revised 
sections 3(c) of the proposed provisions to specify that different 
coverage levels only apply to plant types, not other types of basic 
units. FCIC also agrees that coverage level must also be included on 
the application so FCIC has revised section 3 to require growers to 
list each plant type and the coverage level selected for each type on 
the application. The Standard Reinsurance Agreement does not permit 
reinsured companies to select fund designations on a basic unit level. 
Therefore, FCIC cannot include this provision in these Crop Provisions.
    Comment: A reinsured company asked if the intent of the policy is 
to insure nursery crops similar to Idaho, Oregon, and Washington 
grapes. If this is the intent, the commenter indicated it should be 
stated more concisely.
    Response: The Grape Crop Provisions permit insured growers in 
Idaho, Oregon, and Washington to select a price election and coverage 
level for each grape varietal group specified in the Special 
Provisions. As stated above, the language in proposed section 3(b) is 
revised to clarify that a coverage level can be selected for each plant 
type insured under a practice. Operationally the Nursery Crop 
Provisions are similar to the Grape Crop Provisions in that separate 
types/varieties have separate units. However, under the Grape Crop 
Provisions applicable to all states except California, basic units are 
divided into optional units by variety. Under the Nursery Crop 
Provisions, basic units are divided into other basic units by plant 
type. The provisions have been revised to clarify that the insured crop 
is determined by the practice and, at the election of the grower, basic 
units can be established by plant type if additional coverage is 
elected.
    Comment: An insurance service organization recommended the word 
``policy'' not be used in proposed section 3(b) because container and 
field grown plants are separate crops and the word ``policy'' could be 
misleading. The commenter stated FCIC needed to review the terms 
``policy'' and ``crop'' in these provisions to make sure it fits the 
new definitions.
    Response: FCIC is not sure what the issue is because each different 
practice is considered a different crop. This means each practice would 
also be considered a different policy since only one crop is insured 
per policy. However, references to ``policy'' have been removed from 
section 3(b). FCIC will review other provisions to ensure that the term 
``policy'' is correctly used.
    Comment: An insurance service organization and a reinsured company 
asked if administrative fees would be charged for each plant type.
    Response: Pursuant to sections 508(b)(5) and 508(c)(10) of the 
Federal Crop Insurance Act, administrative fees are payable on a crop 
and county basis. Since different plant types are not considered 
different crops, separate administrative fees for each plant type would 
not be owed. However, each practice is considered a separate crop so 
section 3(b) of these provisions is revised to clarify an 
administrative fee

[[Page 37230]]

is owed for each practice (field grown and container grown) insured.
    Comment: An insurance service organization stated coverage under 
CAT needs clarification, since the policy language appears to restrict 
a grower from purchasing additional coverage for the rest of the 
nursery if CAT coverage is chosen for one type.
    Response: The policy is intended to restrict the grower from 
purchasing additional coverage for the rest of the practice if CAT 
coverage is chosen for one type. FCIC has revised proposed section 3(b) 
to state insureds may select either CAT or an additional level of 
coverage on each insured practice. This means a grower can select CAT 
coverage for field grown plants and additional coverage for 
containerized plants, or vice versa. However, growers who select CAT 
coverage on a practice must insure all plant types under that practice 
at the CAT coverage. An insured cannot select CAT for one or more plant 
types under a practice and select additional coverage on other plant 
types under the same practice.
    Comment: An insurance service organization asked if any other 
multiple peril crop policies permit coverage level and price election 
percentage to vary besides those crops listed in section 4A(4) of the 
Crop Insurance Handbook. This commenter asked if allowing coverage 
level and price election percentage to vary by basic unit would 
establish a precedent for other crops, and recommended leaving plant 
types as optional units.
    Response: As stated above, growers will no longer be able to select 
different price elections by plant type but growers will be permitted 
to select different coverage levels by plant type. Section 4A(4) of the 
Crop Insurance Handbook lists Crop Provisions with more than one 
insurable crop. The Grape Crop Provisions applicable to all states 
except California permit variation in coverage level and price election 
by varietal group with all insurable varieties being designated as one 
crop. Therefore, allowing coverage level to vary by basic units of the 
same crop in the Nursery Crop Provisions does not establish a 
precedent. Such precedent was already set.
    Comment: An insurance service organization recommended language be 
considered to address what coverage level and price election percentage 
should be used for new plant types added on a revised PIVR.
    Response: As stated above, price elections will not be permitted to 
differ between plant types but coverage levels will. Section 3(c) is 
revised to specify that if an insured with an additional level of 
coverage submits a revised PIVR or Peak Inventory Endorsement that 
includes a plant that is categorized under a plant type (basic unit) 
not on the initial PIVR, the insured must select the coverage level for 
insuring the new plant type. Language that precludes coverage level 
changes after the sales closing date is not applicable, because 
selecting a coverage level for a new plant type is not a change to an 
existing coverage level.
    Comment: An insurance service organization recommended revising 
proposed section 3(c)(1) and (2) to read as follows:
    (1)``For the initial crop year, after the date of application; and
    (2) For subsequent crop years, after September 30th.''
    Response: FCIC cannot accept the suggestions. Sections 3(c)(1) and 
(2) (now redesignated as sections 3(d)(1) and (2)) apply to the first 
crop year the provisions are in effect because at that time some 
producers will be new applicants and others will have carryover 
policies. Since the insurance period is changing, the first year there 
needs to be an interim date by which changes may be made. However, FCIC 
has revised redesignated section 3(d) to clarify that the September 30 
date applies to the first crop year the provisions take effect and the 
sales closing date applies to all subsequent crop years.
    Comment: An insurance service organization recommended that 
language in proposed section 3(f) be revised to clarify an increase to 
the insured's coverage level must be requested on or before September 
30th prior to the start of the crop year. The commenter also 
recommended combining proposed sections (c) and (f) or moving section 
(f) to follow section (c). The commenter also recommended removing the 
phrase ``whichever is later,'' in proposed section 3(f) and adding the 
phrase ``the later of'' between the words ``on'' and ``October.''
    Response: FCIC has removed proposed section 3(f) because, except 
for carryover policies for the 2006 crop year, all coverage level 
changes must be submitted by the sales closing date and section 3 has 
been revised to clarify the date by which the changes requested for the 
2006 crop year take effect and the date by which the changes for all 
subsequent crop years date effect.
    Comment: An insurance service organization and a reinsured company 
asked whether a coverage level increase could be denied if a loss 
occurs within the 30-day waiting period for the higher coverage level 
to attach but the reinsured company is not made aware of the loss until 
after the higher coverage level attached.
    Response: A request for a higher coverage level can be denied if a 
loss occurs during the 30-day waiting period even if the reinsured 
company is not notified of the loss until after the 30-day waiting 
period has elapsed.
    Comment: An insurance service organization stated that newly 
redesignated section 3(e) should reference ``section 6(g)'' and not 
``section 6(f).''
    Response: FCIC agrees and has revised newly redesignated section 
3(e) accordingly.
    Comment: A crop insurance agent stated the Eligible Plant List must 
use adequate (plant) pricing, as well as offer coverage on all items.
    Response: It is not possible to cover all items at this time. 
Without adequate pricing information to ensure that the plants receive 
the proper amount of insurance and are not over or under insured, 
plants cannot be added to the Eligible Plant List. As such information 
is obtained, FCIC continues to update and expand the Eligible Plant 
List to provide additional plants and plant price data. Each crop year, 
the Eligible Plant List is expanded to include new plant varieties and 
cultivars, including plants covered by written agreements the previous 
crop year. No changes are made in response to this comment.
Section 6--PIVR
    Comments: An insurance service organization asked if inventory 
revisions are required when liners are put in larger containers or 
planted in the field.
    Response: When liner plants are repotted into larger containers or 
placed in the field, the insured should increase the PIVR to reflect 
the increased value of the larger plant. If the PIVR is not increased 
to reflect higher plant values and an insurable loss occurs, an under-
report factor may be applied to reduce the payable indemnity.
    Comment: An insurance service organization and a reinsured company 
suggested that cancellation of policies for the subsequent crop year 
due to failure to submit a PIVR by September 1st prior to the start of 
the crop year could lead to higher costs for companies and less 
coverage for growers. One commenter stated that growers may 
intentionally not provide a PIVR to get partial year coverage and 
prorated premiums. The commenter asked whether an insured grower will 
be treated as a new applicant if the grower is cancelled because of 
failure to timely submit a PIVR but then submits a report later in the 
crop year. The commenter

[[Page 37231]]

expressed concern that year after year of repeated cancellations and 
applications would result in added time and costs for the reinsured 
company.
    Response: Since the crop year has been revised, the provisions 
regarding when PIVRs must be submitted must also be changed. To ease 
administration of the policy, section 6(b) has been revised to require 
the PIVR be submitted with the application or by the sales closing date 
for each subsequent crop year. However, there may be legitimate times 
when the grower cannot submit the PIVR, or the catalog or price lists, 
because the grower does not know the inventory, such as after a loss 
has occurred or the catalog has not been finalized by the crop year. 
RMA agrees that cancellation of the policy and reapplication may impose 
a burden on the reinsured company and grower. FCIC has revised the 
provisions to specify that if the grower does not submit the PIVR, or 
the catalog or price lists, by the sales closing date, insurance will 
not attach until 30 days after the grower submits the required 
information. This should mitigate the burden on reinsured companies and 
growers. While it may still be possible for growers to delay providing 
the necessary documentation in order to get partial insurance for the 
year and pay a partial premium, the legitimate inability of some 
growers to timely provide such documentation outweighs the likelihood 
that growers will risk suffering losses while insurance has not 
attached. However, the risk associated with such conduct is already 
included in the premium rates.
    Comment: An insurance service organization recommended carrying 
over the plant inventory value from the previous year if the renewal 
plant inventory is signed less than 30 days prior to the sales closing 
date and an inspection is required. This commenter stated new values 
should attach 30 days after new inspection. If no inspection is 
required, the new values take effect on the sales closing date.
    Response: For all years after the year of application, PIVRs must 
be submitted by the sales closing date, which is 30 days before the 
start of the insurance period. As stated above, if the grower fails to 
provide a PIVR by the sales closing date, insurance does not attach for 
such plants until 30 days after the PIVR is received by the agent. FCIC 
chose this revision instead of the recommendation to use the previous 
year's plant inventory value because plant inventory values for most 
nurseries are seldom, if ever, the same from one crop year to the next. 
Therefore, carrying-over plant inventory values from one crop year to 
the next could lead to misreporting penalties and introduce significant 
errors in amounts of insurance coverage provided and amount of premium 
owed, including the amount of imputed premium paid by the Federal 
government for polices with CAT coverage. FCIC also believes the 30-day 
waiting period between submission of a Plant Inventory Value Report and 
insurance attachment is an adequate time period for the reinsured 
company to complete an inspection. To delay until 30 days after the 
reinsured company has made an inspection will subject the grower to the 
additional risks that a loss may occur before insurance has attached. 
Further, reinsured companies have been operating under the 30 day 
deadline to complete their inspections since 1999. Therefore, this 
requirement does not impose any additional hardships on reinsured 
companies.
    Comment: An insurance service organization asked if separate PIVRs 
are required if field grown and container grown are separate crops. The 
commenter asked if both nursery crops can be reported on one PIVR. The 
commenter stated that clarification is needed if a PIVR is provided 
timely for one nursery crop but not the other; i.e. would the entire 
policy be cancelled or coverage be cancelled on the applicable nursery 
crop.
    Response: The format of the PIVR form will be revised to reflect 
Nursery Program changes contained in this rule. A PIVR will be required 
for each practice, because each is a separate crop covered under 
separate policies. If an insured fails to timely submit a PIVR on a 
practice, as stated above, insurance does not attach for all nursery 
plants insurable under that practice. Insurance is not affected for 
nursery plants insurable under the other practice if a report is 
submitted timely for that practice.
    Comment: An insurance service organization asked if separate PIVRs 
will be required for additional coverage and CAT coverage. The 
commenter also asked if all basic units are reported on one PIVR.
    Response: As stated above, PIVRs must be separately filed for each 
practice, regardless of whether the practices are both insured under 
additional coverage or one under CAT and the other under additional 
coverage. The policy has been revised to clarify that regardless of 
whether an insured has additional coverage or CAT coverage on a 
practice, an inventory value must be provided for each basic unit, 
including by plant type, insurable under the practice. This is 
necessary to calculate total premium for additional and CAT coverage 
and producer premium for additional coverage.
    Comment: Three nursery trade associations recommended basing the 
insurable prices of plants on the insured's wholesale catalog or price 
list price when an additional level of coverage is purchased.
    Response: FCIC does not currently have the experience to determine 
the effect of allowing such prices on coverage or premium rates. 
Therefore, the use of such prices cannot be allowed in this final rule. 
However, FCIC is developing a Pilot Nursery Grower's Price Endorsement 
that would permit growers with additional coverage to establish the 
insurable price of select plants on their catalog or price list prices. 
If approved, this pilot endorsement may be available for the 2006 crop 
year in select areas. The pilot would operate for several years and, if 
FCIC determines the pilot is successful, the endorsement will be 
codified in the Federal Register and could be made available to all 
growers with additional coverage. No changes are made in response to 
this comment.
    Comment: An insurance service organization requested that the Plant 
Price Schedule be updated to provide an appropriate pricing reference 
for all sizes and types of plants, so coverage of larger plants is not 
limited.
    Response: The Plant Price Schedule base price tables are 
established using plant price data available to FCIC from grower 
catalogs and price lists. If such data is not available for a plant 
size or type, they cannot be included on the Plant Price Schedule. FCIC 
will continue to expand the sizes listed on base price tables as price 
data becomes available. If the pilot endorsement discussed above is 
approved, growers in the pilot area with additional coverage who elect 
this endorsement will be able to price containerized and field grown 
plants on their catalog or price list prices even though they exceed 
the size limitations and prices contained in the Plant Price Schedule. 
No changes are made in response to this comment.
    Comment: One reinsured company stated that clarification is needed 
on whether plant inventory value is reported on the inventory value at 
time of submission of the PIVR or is based on the expected plant 
inventory value for the crop year.
    Response: Because inventory valuation can vary throughout the crop 
year, these provisions cannot stipulate the point in time on which the 
dollar amount reported on the PIVR must be based. Requiring the 
reported values be fixed in time would arbitrarily cause

[[Page 37232]]

growers to be in an under-reporting or over-reporting situation. 
Growers must be given some flexibility in determining how to report 
their inventory, considering the ramifications of under-reporting or 
over-reporting of inventory. To mitigate the problem of selecting a 
specific value when the inventory and values change, growers are 
permitted to increase their PIVR during the crop year. Language is 
added to section 6(g) to limit the number of inventory revisions during 
the crop year to two. This is to reduce the administrative burden on 
reinsured companies and growers to track an unlimited amount of changes 
during the crop year. FCIC believes the large majority of wholesale 
nurseries do not require more than two inventory revisions for a basic 
unit during the crop year to maintain an accurate amount of insurance. 
This should be sufficient to permit growers to more specifically tailor 
their reported values to the actual values present at the time. 
However, to allow changes more often would increase the complexity and 
burden on reinsured companies and growers. Insureds with additional 
coverage can also utilize a Peak Inventory Endorsement to increase 
their plant inventory valuation. No changes are made in response to 
this comment.
    Comment: An insurance service organization and a nursery trade 
association asked for clarification regarding required documentation 
and proof of the PIVR. One commenter also asked if the type and value 
of coverage will be restricted for a grower who does not have three 
years of history on a new nursery or new plant varieties.
    Response: The reinsured company has the option of requiring 
documentation in support of the plant inventory value, including a 
detailed listing of plants on the PIVR, sales and purchase records for 
the three previous crop years, and the grower's ability to obtain and 
maintain nursery stock. Such records are not required. However, if the 
reinsured company requests documentation and the grower fails to 
provide it, the provision is clarified to specify that insurance is 
denied for the crop year for any basic units for which such 
documentation was not provided. This means if the grower fails to 
provide documentation for any plants within a basic unit, insurance 
will be denied for the unit. Insurance will not be affected for other 
basic units for which applicable documentation have been provided. If 
the grower obtains a new nursery, insurance may be provided after an 
inspection of the facilities if the reinsured company determines a 
grower has the ability to properly obtain and maintain nursery stock, 
the insurance provider may bind coverage in the absence of records. 
Further, three years of records are not required to insure a new plant 
variety and no adjustment will be made or insurance denied.
    Comment: An insurance service organization and a crop insurance 
agent stated that flexibility should be allowed when determining 
insurability of a plant that is partially damaged, because this cannot 
be accurately established at the time inventory is reported.
    Response: Language in section 11 of these provisions permits a loss 
adjuster to defer the determination of amount of damage to a plant up 
to one year after the end of the insurance period for the crop year in 
which the damage occurred. A plant that is damaged but will recover to 
its pre-damaged stage of growth must be insured at a reduced value 
until fully recovered. Section 6(e) has been revised to clarify that if 
a loss adjuster is unable to determine whether a plant is damaged prior 
to the time the grower submits the PIVR for the subsequent crop year, 
the plant is insurable at full value based on the lesser of the 
Eligible Plant List price or the catalog/price list price. The 
reinsured company may, however, reduce the insurable value of a plant 
later in the crop year if the extent of damage can be determined. This 
should allow the maximum flexibility and avoid the potential for over-
insurance.
    Comment: Four nursery growers expressed opposition to the change 
that will require inventories to be updated six times each year. They 
indicated it would be a time consuming burden.
    Response: There were no provisions in the proposed rule, nor are 
there provisions in this final rule, that require plant inventories to 
be updated six times each year. The grower must report inventory once 
with the application or by the sales closing date and the grower has 
the option to revise it twice during the crop year. Therefore, no 
change is required.
    Comment: An insurance service organization recommended that ``a 
liner value be established for all policies and coverage levels.''
    Response: Liners in standard nursery containers are classified as a 
plant type and will constitute a separate basic unit when insured under 
a policy with an additional level of coverage. This means that the 
liner value will be established for the basic unit, which can have only 
one coverage level. Liners are insurable under CAT coverage. However, 
CAT policies are limited to basic units by share, so liners are not a 
separate basic unit under CAT. This means the liners will receive the 
same CAT level of coverage as other plants in the practice. No changes 
are made in response to this comment.
    Comment: A reinsured company asked how and in what manner plant 
prices in the Plant Price Schedule will be available since they are not 
published in the actuarial documents.
    Response: The Eligible Plant List and Plant Price Schedule is part 
of the actuarial documents and is available on RMA's Web site at http://www.rma.usda.gov. The Eligible Plant List and Plant Price Schedule is 
also available on compact disk from the crop insurance agent.
    Comment: An insurance service organization recommended replacing 
the phrase ``for the subsequent crop year'' in the second sentence of 
proposed section 6(b) with the phrase ``for that crop year.''
    Response: The recommended change does not reflect the actual intent 
of the provision. For the year of application, the PIVR must be 
submitted with the application. For each crop year after the year of 
application, the PIVR must be submitted by the sales closing date. 
Section 6(b) has been revised to clarify this distinction.
    Comment: An insurance service organization recommended the phrase 
``of each basic unit'' in the first sentence of proposed section 6(c) 
is not necessary since basic unit value is defined.
    Response: FCIC agrees and has removed the phrase ``of each basic 
unit'' from the sentence. The word ``value'' is made plural for 
clarity. However, the provision is revised to specify that all 
information, such as growing locations, share, etc., must be reported 
by basic unit. This will make it much simpler to identify the different 
basic units and eliminate potential errors that can result with 
information is not segregated.
    Comment: An insurance service organization asked if the 
misreporting penalty addressed in proposed section 6(c) is to be 
applied for any inadvertent reporting omission. The commenter asked if 
``any indemnity'' will be denied if an error is discovered on the PIVR, 
but the error does not affect the basic unit with a loss. This 
commenter asked if misreporting on one nursery crop would result in 
denial of coverage on the other nursery crop. Another insurance service 
organization and an insurance agent recommended the word 
``Intentional'' be added to the beginning of the last sentence in 
section 6(c) that addresses misreporting on the PIVR and denial of an 
indemnity due to the misreporting.
    Response: FCIC recognizes the dollar amount of plant inventory in 
many wholesale nurseries varies considerably during the crop year. 
Growers should

[[Page 37233]]

not be penalized because of this expected variability. Further, 
differentiating between intentional and unintentional misreporting on 
the PIVR would be very difficult for the reinsured company to 
determine. Therefore, FCIC has removed language from these provisions 
regarding misreporting of material information on the PIVR.
    Comment: An insurance service organization recommended the last two 
sentences in proposed section 6(c) be moved to section 6(d) or section 
6(c) and (d) be combined.
    Response: As stated above, the provisions relating to misreporting 
have been removed from the policy. However, section 6(c) pertains to 
the contents and verifiability of the PIVR, which includes the 
requirement to provide documentation if requested. This is unrelated to 
section 6(d), which pertains to the use of the PIVR to determine 
premium and the amount of insurance. Because the requirement to provide 
documentation upon request is contained in section 6(c), the 
consequences for failure to provide such documentation should remain in 
section 6(c). No changes are made in response to this comment.
    Comment: An insurance service organization recommended changing the 
sentence structure of proposed section 6(f) by removing the comma and 
word ``or'' after the word ``coverage'' and inserting a semicolon.
    Response: FCIC agrees that redesignated section 6(h) need 
clarification and has revised them to specify that if insurable plants 
are damaged, the price may be reduced if the plants are accepted or the 
plants will be removed from the PIVR if they are not accepted.
    Comment: An insurance service organization requested clarification 
of the term ``applicable price'' in section 6(f).
    Response: FCIC has added the phrase ``, as determined in accordance 
with section 6(e),'' after ``applicable price'' in redesignated section 
6(h) of these provisions because section 6(e) contain the provisions 
regarding how the price for each plant is determined.
    Comment: An insurance service organization recommended cutting-off 
acceptance of revisions to the PIVR no less than 2 months prior to the 
renewal date to allow time for inspections for increases in inventory.
    Response: As stated above, FCIC believes the 30-day waiting period 
between submission of a revised PIVR and insurance attachment is an 
adequate time period for the reinsured company to complete an 
inspection. To extend this date would increase the risk for growers 
that a loss may occur before insurance attaches and could force the 
grower to purchase increased coverage before such a need arises. One of 
the intent of the changes to the policy has been to permit growers to 
have the flexibility to tailor their insurance to their needs. No 
change has been made in response to this comment.
    Comment: An insurance service organization asked if the phrase 
``increased 50 percent or more from the previous values on a policy 
basis'' in the third sentence in section 6(g) of the proposed 
provisions means an increase on both nursery crops together or 
separately.
    Response: The term ``policy'' in section 6(g) actually refers to 
each nursery practice because each practice is insured under a separate 
policy. However, although increases can be reported for each basic 
unit, to determine whether there has been a 50 percent increase, the 
total value of all basic units in the practice is used. For clarity, 
FCIC has revised the language in section 6(g) to be more specific and 
state inspection requirements for increases on the PIVR apply when the 
total of all the basic unit values contained on the PIVR is increased 
50 percent or more from the previous total of all the basic unit 
values. Specific reference to practice is not necessary because the 
provisions refer to a revised PIVR and section 6(b) has been revised to 
clarify that each practice is contained on a separate PIVR.
    Comment: An insurance service organization requested clarification 
on the requirements in proposed section 6(g) if a grower decreases the 
PIVR.
    Response: The purpose of the revision to the plant inventory value 
is to allow producer to adjust their inventory when they restock 
plants. Such plants would not be insured under the original inventory 
values because such plants did not exist at the time and coverage on 
the original plants that were sold or damaged was included in the 
original inventory value so when new plants are added to the nursery, 
there must be a mechanism to provide coverage for such plants. It was 
not the intent of the policy to permit decreased plant inventory values 
so section 6(g) has been revised to clarify that it applies only to 
increases and specify that the PIVR cannot be revised to decrease 
inventory values after the start of the crop year. As stated above, 
FCIC has also added language to clarify that inventory values cannot be 
increased more than twice during the crop year to reduce the potential 
administrative burden that could result from unlimited revisions during 
the crop year.
    Comment: An insurance service organization recommended the term 
``appropriate sized'' in the first sentence of proposed section 6(i) be 
hyphenated.
    Response: FCIC agrees and has hyphenated the term in redesignated 
section 6(j) of these provisions.
    Comment: One interested party requested the language in proposed 
section 6(j) be modified to require that a nursery grower's wholesale 
catalog or price list is ``machine generated'' and the issue date be 
shown on the catalog or price list.
    Response: FCIC agrees that wholesale catalogs and price lists must 
be type-written and show an issue date. The issue date of the catalog 
or price list shows the time-period for which the catalog or price list 
was first issued (e.g. 2004, fall 2003, etc). The issue date can be 
handwritten on the front of the catalog. Further, FCIC has revised the 
provisions to require the catalog or price list be provided to 
customers and used in the sale of plants. Reinsured companies will be 
able to now verify the prices used in the sale of the plants because 
FCIC has revised the documentation provisions to require sales records 
contain the name and telephone number of purchasers.
    Comment: A reinsured company stated that it is unclear whether the 
application and PIVR will be processed, resulting in premium earned, if 
the insured fails to submit a catalog or price list.
    Response: FCIC has revised section 6(b) to make it clear that the 
PIVR and the catalog and price list must be submitted at the same time. 
Further, as stated above, FCIC determined that the proposed sanction of 
no indemnity being due or the denial of insurance was too harsh because 
there are legitimate reasons why such documents could not be timely 
provided. Further, it imposed too great a burden to require 
reapplication. Instead, failure to provide any one of these required 
documents with the application or by the sales closing date, as 
applicable, will result in insurance not attaching until 30 days after 
all the documents have been received by the crop insurance agent. In 
such case, premium would not be earned until insurance attached.
Section 7--Premium
    Comment: An insurance service organization and a reinsured company 
asked if the reference to prorated premium in section 7 applies to new 
applicants, insureds with revised inventories, Peak Endorsements, or 
all of these.
    Response: Under section 7(b), premium amounts are prorated the 
first

[[Page 37234]]

year of coverage for new insureds with partial year coverage and for 
coverage terms of Peak Inventory Endorsements. FCIC believes that 
premium amounts should also be prorated, based on the time remaining in 
the crop year, if the grower submits a PIVR or wholesale catalog or 
price list after the sales closing date or if the insured's PIVR is 
revised. Section 7(b) is revised to include proration of an insured's 
premium if the PIVR or wholesale catalog or price list is submitted 
after the sales closing date or a revised PIVR is submitted.
    Comment: An insurance service organization and a reinsured company 
stated that section 7(b) should be revised to state premium will be 
prorated, rather than adjusted, for the partial crop year.
    Response: FCIC agrees that the term ``prorated'' is more 
appropriate than the term ``adjusted,'' and section 7(b) of these 
provisions is revised to provide the conditions under which premium 
will be prorated.
    Comment: A crop insurance agent stated that some factors currently 
used in determining premium are missing and clarification seems 
appropriate.
    Response: The commenter is correct that FCIC has other premium 
adjustment factors on the actuarial document besides the monthly 
proration factor and FCIC will continue to use such factors under the 
new rule as appropriate. Therefore, FCIC has revised section 7(a) to 
add such factors.
    Comment: An insurance service organization stated proposed language 
in section 7(c), as written, removes section 7(a) of the Basic 
Provisions; therefore, this section does not address when nursery 
premiums are earned and payable or when the premium and administrative 
fee will be billed when an application is made prior to July 1st.
    Response: FCIC agrees that, as drafted, the provision eliminated 
all the requirements contained in section 7(a) of the Basic Provisions. 
However, it was only intended to be in lieu of section 7(a) of the 
Basic Provisions when new applications are submitted after July 1st 
(now April 1st as a result of a change to the insurance period 
explained more fully below under section 9) of the crop year. FCIC has 
revised section 7(c) to add the provisions found in section 7(a) of the 
Basic Provisions for applications submitted before April 1st. FCIC has 
also added a provision stating that if the PIVR or wholesale catalog or 
price list is submitted after April 1st the premium is owed and payable 
when such documents are submitted. This change was made because filing 
these documents after April 1st has the same effect as if application 
were made after April 1st. FCIC also clarified that if premium was not 
paid when the application or PIVR or wholesale catalog or price list is 
submitted, not only would there be no insurance or indemnity owed for 
the crop year, the grower could not apply again for insurance until the 
next crop year.
Section 8--Insured Crop and Plants
    Comment: A reinsured company asked if growers will be required to 
insure their liners.
    Response: As stated above, growers only have the option of insuring 
or not insuring their plants at the crop level, which means by 
practice. If a grower elects to insure a practice, such as container 
grown, growers will be required to insure all applicable plant types 
under that practice, including liners. However, the producer has the 
option to insure one practice and not the other. Therefore, section 8 
needs to be clarified to specify that the insured crop is the practice 
the insured elects to insure and in which the insured has a share to be 
consistent with the Basic Provisions. Section 8 has been revised to 
make these changes.
    Comment: An insurance service organization recommended the word 
``section'' in the introductory paragraph of section 8 be changed to 
``sections.''
    Response: FCIC agrees and has revised redesignated section 8(b) 
accordingly.
    Comment: An insurance service organization stated that proposed 
sections 8 and 8(j) appear to exclude from insurance any nursery plants 
that do not provide edible fruits/nuts. The commenter recommended 
revision of proposed section 8(j) to state ``Are intended for sale as 
plants (not just the edible fruits or nuts produced by the plant).''
    Response: FCIC agrees that the provision could be read to require 
the plant produce edible fruit or nuts to be insurable but that is not 
the intent. Previously, plants that produced edible fruit or nuts were 
only insurable if they were not harvested while they were in the 
nursery. However, FCIC has determined that harvest of the edible fruit 
or nuts does not affect the quality or marketability of the trees. 
Therefore, the intent is to make it clear that plants that produce 
edible fruit and nuts may be insurable even if they are harvested while 
in the nursery as long as they are made available for sale. To 
accomplish this, FCIC has revised the provision to so specify.
    Comment: A reinsured company requested clarification regarding 
whether growers can harvest and sell fruits and nuts from trees if the 
trees are intended for sale.
    Response: As stated above, whether the fruits or nuts are harvested 
or not is no longer material. Insurability is determined by whether the 
plants producing the edible fruits or nuts are made available for sale 
during the crop year. The provision has been revised to make this 
clearer.
Section 9--Insurance Period
    Comment: Two insurance service organizations, a reinsured company, 
and a crop insurance agent stated the crop year starting date of 
October 1st is a problem because that date is in the middle of the 
hurricane season. Two commenters recommended changing the date for 
areas susceptible to hurricanes.
    Response: FCIC agrees and has moved the starting date for the crop 
year from October 1st to June 1st and has moved the ending date from 
September 30th to May 31st. This change will allow the crop year to 
start before the beginning of the hurricane season and allow the entire 
hurricane season to be covered in a single crop year. To initiate new 
crop year dates, the 2006 crop year ending date is May 31, 2006. The 
2007 and subsequent crop years will begin on June 1st and end on May 
31st of the calendar year following the starting date. The contract 
change date will be January 31 prior to the start of the crop year, the 
sales closing date will be May 1, and the cancellation date will be May 
31 prior to the start of the crop year. The termination date will be 
May 31 of the crop year. The billing date will be April 1 of the crop 
year. The PIVR and catalogs must be submitted on or before the sales 
closing date for each crop year following the year of application. The 
actuarial documents for the 2006 crop year will show premium proration 
factors for calculating the premium amount for the shortened crop year.
    Comment: A State Department of Agriculture and a crop insurance 
agent stated that some producers have no plants in their greenhouses 
during some months but are charged premium for 12 months of coverage. 
One commenter stated October through January is a period with high 
premium proration factors so premium paid during this time period may 
be substantial, unwarranted, and not needed. The commenters stated that 
coverage periods are being adjusted through cancellation and 
reapplication and use of Peak Inventory Endorsements. However, the peak 
amount of insurance is limited by the plant valuation of the basic 
unit. The commenters requested that nursery crop insurance provisions 
allow for changes in inventory values to address

[[Page 37235]]

the needs of growers who have limited inventory during certain time 
periods.
    Response: As stated above, the crop year has been changed from 
October 1 through September 30 to June 1 through May 31. As a result of 
this change, the proration factors for October through January should 
also change. This should mitigate the complained of effect. FCIC also 
agrees that limitation of the amount of insurance under the Peak 
Inventory Endorsement may limit its benefit to growers who have high 
variability in their inventory and has increased the amount of 
insurance permitted to 200 percent of the basic unit value. However, 
complete removal of the liability limitation on the Peak Inventory 
Endorsement or revising the Nursery Crop Provisions to permit insureds 
to select coverage periods with starting and ending dates within the 
crop year would introduce adverse selection into the program. If 
coverage was permitted under shortened, select insurance periods or the 
peak liability limitation was completely removed, FCIC believes many 
insureds would either carry coverage only during high risk periods or 
would carry minimum year-round coverage and maximized Peak Inventory 
Endorsements during high risk periods. This could significantly affect 
indemnities paid and amount of premium that would have to be collected 
to maintain an actuarially sound program. Further, FCIC is unable to 
respond to the commenters' statement of how coverage periods are 
adjusted through cancellation and reapplication. Growers are permitted 
to cancel coverage prior to the cancellation date and submit a new 
application after the start of the crop year. Once coverage attaches, 
it cannot be cancelled for the current crop year. Therefore, insurance 
periods cannot be adjusted through cancellation and reapplication. No 
changes have been made in response to this comment.
    Comment: An insurance service organization recommended combining 
sections 9(a)(1) and 9(a)(3) and adding a hyphen between ``30'' and 
``day'' in section 9(a)(3).
    Response: FCIC agrees that since both section 9(a)(1) and (3) 
involve the date coverage begins for the year of application, FCIC can 
combine the two sections into one and has done so. However, because 
FCIC also revised the crop year, FCIC has also included provisions 
specific for the 2006 crop year. FCIC has also inserted a hyphen 
between ``30'' and ``day'' in section 9(a)(3) as recommended.
    Comment: An insurance service organization recommended fixing the 
two-minute coverage gap resulting from language in section 9(a)(2) that 
ends the insurance period on September 30th at 11:59 p.m. and starts 
the next insurance period on October 1st at 12:01 a.m.
    Response: FCIC agrees that there is no need to reference a time for 
the start of the insurance period because it is clearly understood that 
a particular date starts at 12 a.m. However, the time is still needed 
for the end of the insurance period to make it clear that it ends at 
the end of the day. Sections 9(a) and (b) have been revised 
accordingly.
Section 10--Causes of Loss
    Comment: Three nursery industry trade associations recommended 
insurance coverage be expanded to cover inability to market plants due 
to a Federal or State order prohibiting sale, including, but not 
limited to, a quarantine, stop sales order, or phytosanitary 
restriction. Another commenter stated the policy should be amended to 
cover plants order destroyed by a Government organization.
    Response: Under section 508(a)(1) of the Federal Crop Insurance Act 
(Act), FCIC can only cover losses to the crop due to a ``drought, 
flood, or other natural disaster (as determined by the Secretary).'' 
Under a Federal or State quarantine, stop sales order, or phytosanitary 
restriction, some losses may be covered if the plant has been infected 
or exposed to a covered natural disaster, such as disease. However, 
quarantines, stop sales orders, and phytosanitary restrictions 
frequently affect plants that have not been infected or exposed to a 
pathogen. There is no authority under the Act to provide coverage for 
such plants.
    Comment: A reinsured company stated that section 10(a)(2) should be 
revised to clarify that fire must be due to natural causes.
    Response: According to sections 508(a)(1) and (b)(1) of the Act, 
all insurable causes of loss must be due to natural causes. This 
requirement is implemented in section 12 of the Basic Provisions, which 
states: ``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.'' The 
causes of loss listed in the Nursery Crop Provisions specifically state 
they are in accordance with the Basic Provisions. Therefore, the 
requirement that fire be due to natural causes is already contained in 
the policy and to repeat the reference on for fire could create the 
mistaken impression that other causes of loss listed do not have to be 
from natural causes. No change is made in response to this comment.
    Comment: An insurance service organization stated the reference to 
section 10(b) in section 10(a)(1) should be changed to 10(c).
    Response: FCIC agrees and has revised the reference accordingly.
    Comment: An insurance service organization recommended proposed 
section 10(b) be expanded to exclude losses due to failure of the 
irrigation water supply and failure of the power supply unless due to 
an insurable cause of loss in section 10(a). The commenter recommended 
the section start with the phrase ``Insurance is also provided against 
the following, if due to a cause of loss specified in section 10(a).'' 
The commenter recommended the phrase ``if such plants would have been 
marketed during the crop year'' in the first sentence of section 10(b) 
be enclosed in parentheses instead of commas. The commenter also 
recommended the last sentence of section 10(b) be revised by removing 
the phrase ``coverage is provided for reduced value, due to an insured 
cause of loss.''
    Response: FCIC agrees and has revised section 10(b) to state that 
coverage is provided against inability to market nursery plants, 
failure of the irrigation water supply, and failure of the power supply 
if due to a cause of loss specified in section 10(a) and has 
reorganized the paragraph as suggested. Section 10(b) has been revised 
to remove the ``For example * * *'' and just include the example for 
poinsettias. This removes the redundancies in the provision, making it 
clearer and easier to read. As a result of these changes, FCIC does not 
believe enclosing the phrase ``if such plants would have been marketed 
during the crop year'' in parentheses is necessary. Therefore, this 
change is not made.
    Comment: An insurance service organization stated the semicolon and 
word ``or'' at the end of section 10(a)(6) in the current provisions 
should be removed and a period added.
    Response: As stated above, section 10(a)(6) of the current 
provisions has been moved into section 10(b) as section 10(b)(2).
    Comment: An insurance service organization stated that proposed 
section 10(c) should be amended to: (1) Reference sections or 
subsections 12(a) and (c) through (f) of the Basic Provisions; (2) 
change the periods at the end of proposed sections 10(c)(3) and (6) to 
semicolons to be consistent with the other subsections in section 10 of 
the current Nursery Crop Provisions; (3) insert the word ``the'' before 
the word ``refusal'' in section 10(c)(3); (4) change

[[Page 37236]]

the commas to semicolons after the words ``production'' and ``boycott'' 
in section 10(c)(3); and (5) move the word ``or'' from the end of 
section 5 to section 6.
    Response: FCIC has revised the language in section 10(c) of these 
provisions to reference sections 12(a) and (c) through (f) of the Basic 
Provisions; changed the periods to semicolons at the end of 
redesignated sections 10(c)(2) and (5); added the word ``the'' before 
the word ``refusal'' in redesignated section 10(c)(2); and removed the 
word ``or'' at the end of redesignated section 10(c)(4) and added the 
word ``or'' at the end of redesignated section 10(c)(5). FCIC has 
restructured redesignated section 10(c)(2) for clarity and readability. 
Therefore, the use of semicolons is no longer necessary.
    Comment: An insurance service organization recommended the phrase 
``In lieu of 12(b) of the Basic Provisions'' be added at the beginning 
of section 10(c)(6) of these provisions.
    Response: FCIC agrees and has revised the provision accordingly.
Duties in Event of Damage or Loss--Section 11
    Comment: An insurance service organization recommended changing the 
term ``11(a)(2)'' to the phrase ``this section'' in section 
11(a)(2)(i).
    Response: To avoid ambiguity, crop insurance policy provisions 
generally use the exact section identification when referring to a 
section. While it may appear to be redundant, there is no confusion 
over what term is being cross-referenced. No change is made in response 
to this comment.
    Comment: An insurance service organization recommended inserting 
the word ``the'' or the word ``an'' between the words ``determine'' and 
``amount'' in section 11(a)(2)(ii). The commenter also recommended 
replacing the numeral ``1'' with the word ``one'' in the same 
subsection.
    Response: FCIC agrees and revised the provision accordingly.
Settlement of Claim--Section 12
    Comment: An insurance service organization and a reinsured company 
asked if the new misreporting factor in the 2005 Basic Provisions 
applies in addition to or instead of the under-report factor.
    Response: Section 6 of these provisions states that section 6 of 
the Basic Provisions is not applicable. Section 3(a) of these 
provisions states the production reporting requirements contained in 
section 3 of the Basic Provisions are also not applicable. However, to 
avoid any ambiguity because other provisions in section 3 of the Basic 
Provisions remain in effect, FCIC has revised section 3 to clarify that 
the provisions not applicable also include the misreporting provisions.
Written Agreement--Section 14
    Comment: An insurance service organization stated the written 
agreement section needs to be revised to be consistent with the 
language in the 2005 Basic Provisions.
    Response: While FCIC has not proposed any changes to the written 
agreement provisions, FCIC agrees that the provisions must be revised 
to conform to the 2005 Basic Provisions.
    Comment: An insurance service organization recommended revising 
section 14(a) of these provisions as follows: ``In lieu of section 
18(a) of the Basic Provisions, you must request (in writing) a written 
agreement with the application for the initial crop year, and not later 
than the cancellation date for each subsequent crop year.''
    Response: While FCIC has not proposed any changes to the written 
agreement provisions, the requested change is technical in nature and 
would not change the meaning of the provision. Therefore, FCIC has 
revised section 14(a) to require requests in writing.
    Comment: An insurance service organization recommended adding a 
comma after the word ``Provisions'' in section 14(b).
    Response: FCIC agrees and has inserted a comma between the words 
``Provisions'' and ``any'' in section 14(b) of these provisions. FCIC 
has also revised the provisions to clarify that section 14(b) is in 
lieu of section 18(d) of the Basic Provisions. Section 18(d) of the 
Basic Provisions permits multi-year written agreements and contains 
provisions applicable if multi-year agreements are provided. However, 
section 14(b) of the Nursery Crop Provisions restricts the written 
agreement to that portion of the crop year remaining after the request 
for written agreement is accepted.
    Comment: An insurance service organization recommended changing the 
words ``initial year'' to ``initial crop year'' in section 14(c) of the 
current provisions. The commenter also recommended breaking section 
14(c) of the current provisions into sections following the word ``if'' 
to read as follows:
    ``(1) You demonstrate your physical inability to have applied 
timely; and
    (2) After physical examination of the nursery plant inventory''
    Response: While FCIC has not proposed any changes to the written 
agreement provisions, the requested change is technical in nature and 
would not change the meaning of the provision. FCIC agrees with adding 
the word ``crop'' between the words ``initial'' and ``year'' in section 
14(c). FCIC also agrees with the recommendation to restructure section 
14(c) and has revised the provisions accordingly.
Examples--Section 15
    Comment: An insurance service organization stated FCIC may need to 
consider changes to the settlement of claim examples based on proposed 
policy changes. The commenter also recommended enclosing the step 
numbers referenced in the examples in parentheses.
    Response: FCIC agrees that revisions to the examples are necessary 
to remove the references to price election because, as stated above, 
amounts of insurance will not be provided on less than 100 percent of 
the insurable plant prices. FCIC agrees that since there are 
parentheses around the numbers in the steps, all references to such 
steps should also have the numbers in parentheses.

Peak Inventory Endorsement

    Comment: An insurance service organization asked if separate Peak 
Inventory Endorsements would be written by basic unit (plant type) 
within each nursery crop.
    Response: Peak Inventory Endorsements are considered separate for 
each plant type basic unit. However, if more than one Peak Inventory 
Endorsement is being sought at a time for a practice, separate Peak 
Inventory Value Reports for each plant type basic unit within that 
practice do not have to be submitted. A single Peak Inventory Value 
Report can be submitted for each practice that contains multiple plant 
type basic units and each such basic unit will be considered a separate 
Peak Inventory Endorsement. However, if the Peak Inventory Endorsements 
are sought at a different time, a new Peak Inventory Value Report 
containing the new plant type basic units must be submitted. The 
provisions are revised to clarify the operation of the Peak Inventory 
Endorsement and the Peak Inventory Value Report. The Peak Inventory 
Value Report form will also be structured to permit a grower to apply 
for peaks on more than one plant type under a practice using a single 
form.
    Comment: An insurance service organization recommended the term ``7 
CFR 457.162'' be removed from section 2(a), and the word ``that'' 
between the words ``year'' and ``this'' be removed

[[Page 37237]]

and the words ``for which'' or ``to which'' added in its place.
    Response: While FCIC has not proposed any changes to section 2(a), 
the requested changes are technical in nature and would not change the 
meaning of the provision. Therefore, the term ``7 CFR 457.162'' is 
removed and the word ``this'' is removed, and the phrase ``for which'' 
is added in its place.
    Comment: An insurance service organization recommended replacing 
the words ``and is'' between the words ``loss'' and ``limit'' in 
section 2(d) of the proposed provisions with a comma.
    Response: As stated above, Peak Inventory Endorsements can be used 
to provide maximum flexibility in tailoring the policy to meet the 
grower's risk management needs because it can be used to increase plant 
inventory values to avoid under-reporting. However, the grower is 
limited to two Peak Inventory Endorsements per basic unit unless the 
basic unit has suffered a loss and the grower has restocked the 
nursery. In the proposed rule, the Peak Inventory Endorsement is 
limited to covering the amount of the restock. Under the current 
provisions of the Peak Inventory Endorsement, there is no limitation on 
what the endorsement may cover except that liability cannot exceed the 
practice value reported on the PIVR. To maximize the usefulness of the 
Peak Inventory Endorsement, FCIC believes the liability limitation 
should not be restricted to the amount of restock following a loss 
because it could result in a grower being under-reported if a 
subsequent loss occurs. Therefore, FCIC has revised section 2(d) to 
remove the phrase ``and is limited to the amount of restock.'' 
Therefore, the recommended word change is no longer applicable.
    Comment: A reinsured company stated that allowing 28 Peak Inventory 
Endorsements on one policy would make loss adjustment extremely 
difficult.
    Response: The commenter is correct that because the number of 
potential basic units has increased from two per crop to 14 for the 
field grown crop and 15 for the container grown crop, there could be up 
to 30 Peak Inventory Endorsements on one policy. FCIC agrees the sheer 
number of potential Peak Inventory Endorsements, coupled with the 
allowable changes to the PIVR, could significantly impact loss 
adjustment. Therefore, section 2(d) of the Nursery Peak Inventory 
Endorsement is revised to limit the number of Peak Inventory 
Endorsements that may be purchased for each plant type during the crop 
year to one unless a loss is suffered and the nursery is restocked. 
Flexibility is still maintained because, along with the permitted 
revisions to the PIVR, growers are permitted to change their inventory 
values at least three times during the crop year even if there has not 
been a loss.
    Comment: Three crop insurance industry trade associations 
recommended that peak season adjustments be offered to embrace 
production expansion in addition to seasonal production increases.
    Response: Section 3(c) of the proposed rule restricted the use of 
the Peak Inventory Endorsement to situations where there was a 
temporary increase in the values reported on the PIVR. FCIC agrees that 
such a limitation would be unduly restrictive, especially in light of 
the limitations on the number of changes in inventory that can not be 
made through the revised PIVR and the Peak Inventory Endorsement. 
Therefore, FCIC has removed section 3(c) from the Peak Inventory 
Endorsement.
    Comment: An insurance service organization recommended inserting a 
comma after the term ``e.g.'' in section 3(c).
    Response: As stated above, since this provision has been removed 
from the Peak Inventory Endorsement, the requested change is no longer 
applicable.
    Comment: An insurance service organization recommended fixing the 
two minute coverage gap resulting from language in section 4 that 
begins coverage at 12:01 AM on the coverage commencement date and ends 
at 11:59 on the coverage termination date. The commenter also 
recommended the references to ``AM'' and ``PM'' be stated consistently 
between the Crop Provisions and the Peak Inventory Endorsement.
    Response: FCIC agrees that the Crop Provisions and Peak Inventory 
Endorsement should be consistent in the manner that they state the 
beginning of the coverage period. As stated above, the hour and time is 
not necessary for the beginning of the insurance period. However, the 
date and time is still required for the end of the insurance period. 
Therefore, FCIC has revised section 4 accordingly.
    Comment: An insurance service organization stated the third 
sentence of the example in section 5 of the Peak Endorsement is 
difficult to follow and recommended it be amended by inserting a comma 
between the words ``month'' and ``and'' and the phrase ``for the'' be 
inserted between the words ``and'' and ``month.''
    Response: FCIC agrees that the example is difficult to follow and 
has revised it to make it more easily read and understandable. Further, 
because premium adjustment factor is already a term included in the 
Basic Provisions, and which, as stated above, has been added to the 
Nursery Crop Provisions, FCIC has revised name of the adjustment factor 
to the ``peak inventory premium adjustment factor.''
    Comment: A crop insurance agent recommended the size of the Peak 
Inventory Endorsement (peak amount of insurance) not be limited to the 
amount of the basic unit value.
    Response: FCIC agrees that there will be regular situations where 
the value of the inventory added exceeds the basic unit value and the 
current limitation would result in a situation where the grower has 
under-reported. However, to allow an unlimited increase could result in 
excessive risks under the policy. Therefore, FCIC has changed the 
limitation in section 7 to permit the peak amount of insurance to be 
200 percent the basic unit value declared under the Nursery Crop 
Insurance Provisions.

Nursery Rehabilitation Endorsement

    Comment: An insurance service organization stated the adjustment 
costs may be excessive in relation to the rehabilitation payment if the 
under-report factor is on a crop basis.
    Response: FCIC agrees with the commenter. However, as stated above, 
the under-report factor is now calculated on a basic unit basis, not 
crop basis. Therefore, this should no longer be an issue.
    Commenter: Three nursery trade associations and four nursery 
growers stated that a Rehabilitation Endorsement should be offered on 
containerized plants that will recover to their pre-damaged stage of 
growth.
    Response: Since this is new coverage, FCIC determined this 
endorsement should initially cover rehabilitation costs for pruning and 
set-up of field grown plants because it has sufficient data to properly 
rate the coverage. FCIC may evaluate the feasibility of extending the 
Rehabilitation Endorsement to containerized material as it obtains 
information compiled on rehabilitation measures used and costs incurred 
for rehabilitation of containerized plants.
    Comment: An insurance service organization and a reinsured company 
asked if a rehabilitation payment reduces the crop year deductible.
    Response: As currently drafted, any deductibles paid under the 
Rehabilitation Endorsement would be included in the crop year 
deductible but this was not the intent of FCIC. Not all growers will 
have to pay a deductible under the Rehabilitation Endorsement

[[Page 37238]]

so it would be unfair to only include those that do against the crop 
year deductible. As a result, FCIC is revising the definition of ``crop 
year deductible'' to exclude any deductibles paid under the 
Rehabilitation Endorsement.
    Comment: An insurance service organization recommended deleting 
``Crop Insurance'' from the heading.
    Response: FCIC believes the term ``Crop Insurance'' should be 
retained in the heading of the endorsement, so the heading format is 
consistent with other nursery crop endorsements. No change is made in 
response to this comment.
    Comment: An insurance service organization recommended that 
sections 1(b) and (c) be reversed, so it is clearly stated the 
endorsement is only available for field grown plants. The commenter 
also recommended proposed section 1(b) be rearranged for clarity to 
specify: ``You must elect this endorsement:
    (1) At the time of application for the initial crop year;
    (2) By October 1st if your field grown plants are already insured * 
* *''
    Response: FCIC agrees with both recommendations and has reversed 
proposed section 1(b) and 1(c) and separated new section 1(c) into two 
paragraphs. Because of the change in the crop year, language is added 
to clarify the endorsement must be elected by October 1, 2005, for the 
2006 crop year and by the sales closing date for each subsequent crop 
year.
    Comment: An insurance service organization asked who makes the 
determination of ``reasonable expectation of recovery'' addressed in 
section 2(a)(2). The commenter asked if ``reasonable expectation'' 
includes consideration of whether it is ``practical to rehabilitate'' 
according to section 2(b)(3). The commenter stated that some kind of 
definition or indication of the limitation might be helpful. The 
commenter cited an example of a tree that is 18 months of age but would 
take 24 months to recover.
    Response: The loss adjuster will determine if damaged nursery 
plants covered by the Rehabilitation Endorsement have a reasonable 
expectation of recovery. The loss adjuster should first determine 
whether the plant will live or die. If it will live, the loss adjuster 
must determine whether it can recover to the point that it is a 
marketable plant. In some cases it may be easily determined based on 
the type and extent of damage of the plant. In other cases, loss 
adjusters will have to consult with agricultural experts. The policy is 
revised to provide some clarification and procedures will also be 
included in the loss adjustment handbook. FCIC also agrees the proposed 
rule does not clarify the relationship between expectation of recovery 
and the practicality of rehabilitation and had restructured section 2 
to make it clear that there must be a reasonable expectation of 
recovery and it must be practical to rehabilitate the plant before any 
payment can be made and redesignated the sections. In the example cited 
by the commenter, the type and severity of damage would be considered 
and whether the cost of rehabilitation would exceed the value of the 
plant.
    Comment: An insurance service organization recommended adding the 
word ``the'' before the phrase ``occurrence of damage'' and the word 
``and'' after the phrase ``occurrence of damage'' in section 2(b)(2).
    Response: FCIC agrees with adding the word ``the'' before the 
phrase ``occurrence of damage'' and the word ``and'' after the same 
phrase in redesignated section 2(c)(3).
    Comment: An insurance service organization and a reinsured company 
stated that one rehabilitation payment (on insurable plants that are 
rehabilitated on each basic or optional unit during the crop year) is 
too limited. The commenters stated there should not be a minimum number 
of payments, just a maximum dollar amount that can be paid on the unit.
    Response: As stated above, insurance is now only provided on a 
basic unit basis. FCIC agrees that there may be situations where 
multiple insurable causes of loss occur during the years and the other 
conditions for payment in the endorsement are still met. Proposed 
section 2(d) of the endorsement that limited the number of 
rehabilitation payments on an insurable plant during the crop year is 
removed. Instead of limiting the number of payments, a new section 2(d) 
is added to limit the total dollar amount of all rehabilitation 
payments for the basic unit for the crop year.
    Comment: Four nursery growers expressed dissatisfaction with 
changes to a rehabilitation payment or time to recover payments for 
containerized material, because all nurseries can currently obtain a 
payment for damage without losing the plant. These same commenters 
stated that the 7.5 percent cap will greatly reduce the number of 
plants that are able to be rehabilitated, and it will be a disincentive 
to salvaging plants.
    Response: The indemnity payment that growers currently receive is 
for the loss of value of damaged plants. Nothing in this endorsement 
changes or limits that indemnity payment. The Rehabilitation 
Endorsement is a new optional endorsement to the Nursery Crop 
Provisions for field grown material that would provide an additional 
payment to cover the costs associated with rehabilitating the plants. 
Since this payment was not previously available to growers, it should 
not provide a disincentive for growers to rehabilitate damaged plants.
    Comment: An insurance service organization stated the two percent 
or $5,000 trigger to qualify for the first dollar of rehabilitation 
costs could have unintended consequences on growers' rehabilitation 
decisions.
    Response: Rehabilitations costs covered by the endorsement are 
limited to labor and material for pruning and setup and growers are 
required to provide verifiable records of rehabilitation expenditures. 
To mitigate the possibility that growers will inflate their costs, or 
incur greater costs than are necessary to rehabilitate the plant, to 
qualify for a payment, loss adjusters will be required to determine if 
reported expenditures are reasonable and correspond with expected 
rehabilitation measures and their costs before any payments are made. 
Loss adjusters can consult with agricultural experts to determine 
reasonable costs. Redesignated section 2(c)(2) has been revised 
accordingly.
    Comment: An insurance service organization recommended removing 
commas before and after the phrase ``contained in the Nursery Crop 
Provisions'' in section 3 of the proposed Rehabilitation Endorsement 
and enclosing the phrase in parentheses.
    Response: FCIC believes commas are appropriate for setting off the 
nonrestrictive phrase ``contained in the Nursery Crop Provisions.'' No 
change is made in response to this comment.
    Comment: An insurance service organization asked at what point a 
rehabilitation payment is no longer a rehabilitation payment and 
becomes an indemnity payment. The commenter asked if a rehabilitation 
payment ever reduced an indemnity payment.
    Response: An indemnity pays for the loss of value of the plant. 
However, the rehabilitation payment pays for the costs associated with 
rehabilitation of the plant. These are two totally separate payments. A 
rehabilitation payment never becomes an indemnity payment, nor does it 
reduce an indemnity payment. Section 12(g) has been revised to clarify 
that the rehabilitation payment is not an indemnity payment and is not 
considered when totaling all indemnities for the purposes of 
determining whether such amounts exceed the amount of insurance.

[[Page 37239]]

    Comment: An insurance service organization stated it was not clear 
if the Rehabilitation Endorsement will be available to growers with CAT 
coverage.
    Response: Section 1(a) of the Rehabilitation Endorsement states an 
insured must purchase additional coverage for the Endorsement to 
attach. Therefore, it is not available to growers with CAT coverage.
Other Comments
    Comment: A reinsured company stated that premium rates for liner 
coverage must be commensurate with the increased risk exposure.
    Response: FCIC agrees and has contracted a study to evaluate the 
impact of the changes to the Nursery Crop Provisions, including liner 
coverage, and appropriate premium rate adjustments will be made.
    Comment: Three nursery trade associations recommended that, prior 
to policy renewal, a nursery be inspected and improvements required 
when excess moisture is an insured cause of loss more than twice in a 
three-year period unless caused by a named tropical storm or disaster 
declaration.
    Response: Interested parties affiliated with nursery industries and 
reinsured companies have reported that nursery crop insurance losses 
due to excess moisture or flood have been excessive and prevalent in 
certain areas, and recommended controls be implemented to minimize 
future losses. Under section 10(a)(1), coverage for adverse weather 
conditions can be limited in the Special Provisions. One such 
limitation can be to require growers in areas susceptible to large 
amounts of rainfall and flooding take adequate measures to minimized 
losses for these perils to be covered.
    Comment: Three nursery trade associations recommended that 
vegetable and herb plants in standard containers be provided coverage.
    Response: Many vegetable and herb plants are currently on the 
Eligible Plant List and are covered. A plant not on the Eligible Plant 
List can be covered by written agreement under an additional coverage 
policy.
    Comment: Four nursery growers stated opposition to liner coverage 
because additional coverage and premium would be required, and coverage 
under the noninsured disaster assistance program (NAP) would not be 
available.
    Response: An additional level of coverage is not required for 
liners to be provided insurance coverage. Growers have the option of 
purchasing CAT or additional coverage for a specific practice. If 
producers elect additional coverage for a practice, then the liners in 
that practice must also be insured under additional coverage and the 
grower can elect to have a separate basic unit for the plant types, 
including liners. If the grower elects to insure a practice under CAT, 
then the liners in that practice must also be insured under CAT and no 
additional premium would be owed. However, additional basic units by 
type are not available. The commenter is correct that the availability 
of CAT coverage for liners precludes coverage under the NAP program.
    Comment: One nursery grower stated that the insurable prices for 
field grown English Boxwoods are low and should be raised to reflect 
actual market conditions.
    Response: FCIC will review prices for English Boxwoods to determine 
if a higher maximum insurable price is appropriate.
    Comment: An insurance service organization asked if a grower would 
be eligible for a container policy for liners if the liners are not for 
resale (i.e. the liners will be used for grow-out within the nursery), 
but there are established values for the liner plants.
    Response: Liners used for grow-out in a nursery are insurable. 
However, the grower will be required to provide a catalog or price list 
that specifies wholesale values of the insurable liners.
    Comment: Three nursery industry trade associations recommended the 
Nursery Crop Provisions be amended to offer a program based on adjusted 
gross income rather than the Plant Price Schedule.
    Response: Nursery crops are covered under the Adjusted Gross 
Revenue (AGR) and AGR-Lite programs where such programs are offered. 
Since AGR is still in the pilot stage, AGR has not been offered in all 
states and counties. AGR-Lite was submitted by a private submitter for 
approval for reinsurance and subsidy under section 508(h) of the Act. 
As a private submission, the submitter determines the terms of 
insurance and where it will be offered. However, even where these 
programs are offered, there are liability limitations, coverage and 
payment rate limitations, reporting requirements, and claim submission 
timelines in the AGR program that may make coverage not suitable for 
nursery growers. Once the AGR pilot program is completed, it will be 
evaluated to determine whether the terms of insurance are appropriate 
and whether it should be expanded to all states and counties.
    Comment: Three nursery industry trade associations recommended that 
FCIC should work to increase crop adjusters' familiarity and knowledge 
of nursery plants and trees by encouraging them to take an appropriate 
nursery professional certification program.
    Response: Loss adjusters must complete specific training courses 
and take continuing education courses on adjusting crop losses. 
Reinsured companies, not FCIC, establish specific training requirements 
for adjusters in accordance with guidelines specified by FCIC. However, 
FCIC is evaluating the feasibility of sponsoring one or more training 
classes, taught by university extension service personnel, for loss 
adjusters, on identifying and evaluating damage on nursery plants.
    Comment: One nursery industry trade association recommended that 
FCIC work directly with the University of Florida to establish 
realistic values for damaged Florida plants. Another nursery industry 
trade association made the same recommendation but suggested that FCIC 
work with the Texas A&M University system for damaged Texas plants.
    Response: As stated above, FCIC has removed the proposed provisions 
regarding the establishment of values for damaged plants and will 
include such determinations in the loss adjustment manual. FCIC intends 
to work with nursery experts to refine the methodology for making such 
determinations. However, language currently in the loss adjustment 
manual recommends loss adjusters consult with such experts to assist 
them in valuing damaged plants.
    In addition to the changes described above, FCIC has made the 
following changes:
    1. Amend the definition of ``nursery'' to clarify the nursery must 
be engaged in both the growing and wholesale marketing of plants. This 
purpose of the definition was to specify that at least 50 percent of 
the gross income had to come from wholesale marketing but there was 
confusion regarding whether nurseries that only sell the plants but do 
not produce them are eligible for insurance. This change makes clear 
that to qualify as a nursery, the nursery must also produce the plants.
    2. Remove the proposed definition of ``nursery plants.'' FCIC 
believes the definition is redundant and provides no useful 
information.
    3. Amend the definition of ``plant inventory value report'' to 
change the defined term to the acronym ``PIVR.''
    4. Revise the definition of ``plant price schedule'' to clarify 
that insurable plant prices published by FCIC establish the maximum 
insurable value of undamaged plants.
    5. Amend the definition of ``practice'' in the current provisions 
to remove the

[[Page 37240]]

words ``Standard nursery.'' This change is made to because throughout 
the policy, FCIC uses the term ``container grown'' to identify the 
practice. Standard nursery containers do not specify the insurable 
practice, they specify the type of container necessary to qualify for a 
container grown practice.
    6. Add a definition of ``sales closing date'' because FCIC has 
removed the previous May 31 sales closing date and now allows sales all 
year round. However, for subsequent crop years, certain documents must 
be filed by the sales closing date and there must be a means to 
identify that date.
    7. Revise the proposed definition of ``survival factor'' to specify 
the factor is shown on the Special Provisions instead of the actuarial 
documents. The survival factor for liners may vary by region. 
Therefore, it should be specified accordingly in the Special 
Provisions.
    8. Revise the definition of ``wholesale'' to require determinations 
be made on a county-by-county basis. Insurance is provided on a county 
basis and, under the proposed definition, it is possible for multiple 
nurseries comprising a single business enterprise to qualify as a 
wholesale marketer even though some individual nurseries insured in 
different counties would be considered retail nurseries. Because the 
determination is made at the enterprise level such retail nurseries 
would qualify for insurance. Therefore, to ensure that only wholesale 
nurseries are insured, such determinations must be made on a county-by-
county basis.
    9. Amend proposed section 2(a) to clarify that a basic unit, as 
defined in section 1 of the Basic Provisions, will be divided into 
additional basic units if additional coverage is elected for a practice 
to conform to the responses to other comments above. It was always the 
intent of FCIC to limit basic units for CAT coverage to shares and to 
only allow additional basic units by type if the grower elected 
additional coverage. This amendment is needed to clarify that intent.
    10. Amend sections 3(c) and (d) by structuring the provisions so 
they are more readable and easily understood and redesignating the 
sections accordingly.
    11. Amend section 5 to clarify the cancellation date is May 31 
preceding the crop year and the termination date is May 31 of the crop 
year. This change is necessary to conform to the change to the 
beginning and end of the insurance period.
    12. Amend proposed section 6(b) to clarify that an insured must 
submit two copies of the most recent wholesale catalog along with the 
PIVR at time of application and on or before the sales closing date for 
each crop year following year of application. Also, FCIC added language 
to clarify that an insured will be notified in writing if an 
application for insurance is refused because the inventory or the 
wholesale catalog or price list is not acceptable.
    13. Amend section 6(c) by structuring the provisions so they are 
more readable and easily understood.
    14. Add a new section 6(f), applicable to CAT policies only, that 
limits the total of the insured's basic unit values for each practice 
to 110 percent of the higher of the greatest amount of plant sales in 
any of the three previous years or the actual inventory value for the 
crop year at the time the PIVR is submitted. The insured must report on 
the PIVR for each practice the greatest amount of plant sales in any of 
the three previous years. The current Nursery Crop Insurance Provisions 
limit the PIVR of an insured with CAT coverage to 150 percent of the 
previous year's sales for container grown material and 250 percent of 
the previous year's sales for field grown material. Available 
information suggests these limitations are set too high, and plant 
inventory values of CAT polices are often over reported. FCIC believes 
limiting the PIVR of insureds with the CAT coverage to 110 percent of 
the higher of their greatest amount of plant sales in any of the 
previous three years or the inventory value at time the PIVR is 
submitted is fair and equitable, and the 110 percent limitation also 
coincides with the limitation in section 6(g) of the Basic Provisions 
that addresses misreporting of liability on other insurable crops.
    15. Amend proposed section 6(f) (redesignated as section 6(h) to 
remove the last sentence, including sections (1) through (5) that 
address the methodology to determine the insurable value of plants that 
are damaged but will fully recover (partial damage). No comments were 
received on the last sentence of proposed sections 6(f) and 6(f)(1) 
through (5). However, RMA is currently working with nursery industry 
personnel and crop reinsured companies to evaluate if the calculation 
procedure to determine the insurable value of partial damage plants 
should be revised. This evaluation will not be completed prior to 
publication of this final rule. The procedure to determine the 
insurable value of partial damaged plants will be included in the 
Special Provisions.
    16. Amend proposed section 6(g) to clarify an insured may increase 
their PIVR by submitting a revised report prior to 30 days before the 
end of the crop year. This will permit growers to have the maximum 
flexibility in insuring their nurseries and will correspond to the 
changes in the policy that eliminate the date by which applications 
must be submitted. Language is also added to clarify that an increase 
to the PIVR of 50 percent or more does not trigger an inspection if the 
increase is due to restocking subsequent to an insured loss. This 
change is made because reinsured companies should not have to go 
through the administrative burden of an inspection simply because a 
grower restocks after a loss.
    17. Amend section 12(f) to clarify that fifty-five percent of the 
insurable plant price is used in the settlement of claims calculation 
if CAT coverage is elected.
    18. Amend the title of the Nursery Crop Insurance Rehabilitation 
Endorsement as proposed to remove the word ``Optional.'' FCIC believes 
this word is redundant and unnecessary. For clarity, FCIC has removed 
the phrase ``In return for payment of'' in the introductory paragraph 
of the proposed provisions and added ``If you elect this endorsement 
and pay * * *.''
    19. Amend section 2(b) of the Nursery Crop Insurance Rehabilitation 
Endorsement, as proposed, to remove the phrase ``under this 
endorsement.'' FCIC believes this phrase is redundant and provides no 
meaningful information.
    20. Amend section 2(c)(2) of the Nursery Crop Insurance 
Rehabilitation Endorsement, as proposed, (redesignated as section 
2(d)(2)) to remove the phrase ``based on the lower of the Plant Price 
Schedule price or the lowest wholesale price listed in your nursery 
catalog or price list'' and replace it with ``based on the insurable 
plant prices determined in accordance with section 6 of the Nursery 
Crop Insurance Provisions.'' This change is made to avoid any potential 
policy conflicts.
    21. Amend section 2(b)(4) of the Nursery Crop Insurance 
Rehabilitation Endorsement, as proposed, (redesignated as section 
2(c)(5)) to clarify the insured's total rehabilitation cost for each 
loss occurrence must be at least the lesser of 2.0 percent of field 
market value A or $5,000 to be eligible for a rehabilitation payment. 
Clarifying that rehabilitation costs are applicable to each loss 
occurrence on the basic unit avoids the potential for any confusion on 
eligibility for a rehabilitation payment.
    22. Amend section 3 of the Nursery Crop Insurance Provisions 
Rehabilitation Endorsement, as proposed, to clarify that the

[[Page 37241]]

endorsement will continue in effect until cancelled or coverage under 
the Nursery Crop Insurance Provisions is cancelled or terminated.
    Good cause is shown to make this rule effective upon filing for 
public inspection at the Office of the Federal Register. Good cause to 
make the rule effective upon filing at the Office of Federal Register 
exists when the 30 day delay in the effective date is impracticable, 
unnecessary, or contrary to the public interest.
    With respect to the provisions of this rule, it would be contrary 
to the public interest to delay implementation. To make implementation 
effective for the 2006 crop year, this rule must be published prior to 
the June 30, 2005, contract change date for the crop year. The public 
interest will be served by providing better insurance coverage to 
nursery growers. Changes to the Nursery Crop Insurance Provisions 
contained in this final rule include: (1) Making container and field 
grown separate crops; (2) providing coverage in plants in containers 
that are equal to or greater than one inch in diameter; (3) providing 
separate basic units by share for all coverage levels and basic units 
by plant type when additional coverage is purchased; (4) permitting 
insureds to select one coverage level for each plant type basic unit 
when additional coverage is purchased; (5) allowing increases to the 
Plant Inventory Value Report up to 30 days before the end of the crop 
year; (6) allowing acceptance of an application for insurance for any 
current crop year up to 30 days before the end of the crop year; and 
(7) changing the starting and ending dates for the crop year to June 
1st and May 31st, respectively. These changes will allow nursery 
growers to better structure coverage to their individual risk 
management needs. In addition, it will give insurance providers 
adequate time to prepare necessary insurance documents, train 
personnel, and inform insureds of these policy changes.
    If FCIC is required to delay implementation of this rule 30 days 
after the date it is published, publication would occur after the 
contract change date for the 2006 crop year; therefore, the provisions 
in this rule could not be implemented until the next crop year. This 
would mean nursery growers would be without the benefits to the nursery 
program for an additional year.

List of Subjects in 7 CFR Part 457

    Crop insurance, Nursery, Reporting and recordkeeping requirements.


0
Accordingly, as set forth in the preamble, the Federal Crop Insurance 
Corporation amends 7 CFR part 457 for the 2006 and succeeding crop 
years as follows:

PART 457--COMMON CROP INSURANCE REGULATIONS

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

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


0
2. Revise the introductory text of Sec.  457.162 to read as follows:


Sec.  457.162  Nursery Crop Insurance Provisions.

    The Nursery Crop Insurance Provisions for the 2006 and succeeding 
crop years are as follows:
* * * * *

0
3. Amend section 1 of Sec.  457.162 as follows:
0
a. Add definitions of ``American Standard for Nursery Stock,'' ``basic 
unit value,'' ``container grown,'' ``fabric grow bag,'' ``FCIC,'' 
``good nursery practices,'' ``liners,'' ``monthly proration factors,'' 
``PIVR,'' ``sales closing date,'' ``survival factor,'' and 
``wholesale'';
0
b. Revise the definitions of ``amount of insurance,'' ``crop year,'' 
``crop year deductible,'' ``Eligible Plant List,'' ``field grown,'' 
``field value market A,'' ``field value market B,'' ``nursery,'' 
``occurrence deductible,'' ``Plant Price Schedule,'' ``practice,'' 
``standard nursery containers,'' and ``under report factor''; and
0
c. Remove the definition of ``field market value C,'' ``in-ground 
fabric bag,'' ``price election,'' ``plant inventory value report,'' and 
``practice value.''
0
d. Amend the definition of ``irrigated practice'' to capitalize the 
phrase ``eligible plant list.''
    The revised and added text reads as follows:
1. Definitions
* * * * *
    American Standard for Nursery Stock. A publication of the American 
Nursery and Landscape Association, or a subsequent successor 
organization, issued in accordance with the rules of the American 
National Standards Institute, Inc. that provides common terminology and 
standards for nurseries.
    Amount of insurance. For each basic unit, your basic unit value 
multiplied by the coverage level percentage you elect and multiplied by 
your share.
    Basic unit value. The full value of all insurable plants in each 
basic unit as shown on your PIVR, including any revision that increases 
the value of your insurable plant inventory.
    Container grown. Nursery plants planted and grown in standard 
nursery containers either above ground or that are placed in the 
ground, either directly or when placed in another pot in the ground 
(i.e., pot-in-pot).
    Crop year. The period beginning the day insurance attaches and 
extending until the following May 31. Crop year is designated by the 
year in which the insurance period ends.
    Crop year deductible. The deductible percentage multiplied by the 
sum of all plant inventory values for each basic unit. The crop year 
deductible will be increased for any increases in the inventory value 
on the PIVR or through the purchase of a Peak Inventory Endorsement, if 
in effect at the time of loss. The crop year deductible will be reduced 
by any previously incurred deductible, except any incurred under the 
Rehabilitation Endorsement, if you timely report each loss to us.
* * * * *
    Eligible Plant List. A list that includes the botanical and common 
names of insurable plants, the winter protection requirements for 
container grown material and the areas in which they apply, the 
hardiness zone to which field grown material is insurable, the 
designated hardiness zone for each county, and the unit classification 
for each plant on the list, published by FCIC on RMA's Web site at 
http://www.rma.usda.gov. It is also available on compact disk from your 
crop insurance agent.
    Fabric grow bag. A fabric bag (including a woven or matted bag with 
a plastic or fabric bottom) used for growing woody plants in-ground or 
as an above-ground nursery plant container that provides adequate 
drainage and is appropriate in size for the plant.
    FCIC. The Federal Crop Insurance Corporation, a wholly owned 
corporation within the USDA, or a successor agency.
    Field grown. Nursery plants planted and grown in the ground without 
the use of an artificial root containment device. Plants grown in in-
ground fabric grow bags, plants that are balled and burlapped or plants 
grown in containers that allow the plants to root (excluding fibrous 
roots) into the ground (for example, a container without a bottom) are 
also considered field grown.
    Field market value A. The value of undamaged insurable plants, 
based on the lesser of: (1) The prices contained in the Plant Price 
Schedule; or (2) the prices contained in your catalog or price list in 
the basic unit immediately prior to the occurrence of any loss, as

[[Page 37242]]

determined by our appraisal. This allows the amount of insurance under 
the policy to be divided among the individual units in accordance with 
the actual value of the plants in the unit at the time of loss to 
determine whether you are entitled to an indemnity for insured losses 
in the basic unit. This value is also used to calculate the actual 
value of the plants in the basic unit at the time of loss to ensure 
that you have not under-reported your plant values. For liners, the 
total value of undamaged liners is multiplied by the survival factor to 
determine the value of undamaged insurable plants.
    Field market value B. The value of insurable plants, based on the 
lesser of: (1) The prices contained in the Plant Price Schedule; or (2) 
the prices contained in your catalog or price list in the basic unit 
following the occurrence of a loss, as determined by our appraisal, 
plus any reduction in value due to uninsured causes. This is used to 
determine the loss of value for each individual unit so that losses can 
be paid on an individual unit basis.
    Good nursery practices. In lieu of the definition of ``good farming 
practices'' contained in section 1 of the Basic Provisions, the 
horticultural practices generally in use in the area for nursery plants 
to make normal progress toward the stage of growth at which marketing 
can occur and: (1) For conventional practices, generally recognized by 
agricultural experts for the area as compatible with the nursery plant 
production practices and weather conditions in the county; or (2) for 
organic practices, generally recognized by the organic agricultural 
industry for the area as compatible with the nursery plant production 
practices and weather conditions in the county or contained in the 
organic plan. We may, or you may request us to, contact FCIC to 
determine whether or not production methods will be considered to be 
``good nursery practices.''
* * * * *
    Liners. Plants produced in standard nursery containers that are 
equal to or greater than 1 inch in diameter (including trays containing 
200 or fewer individual cells, unless specifically provided by the 
Special Provisions) but less than 3 inches in diameter at the widest 
point of the container or cell interior, have an established root 
system reaching the sides of the containers, are able to maintain a 
firm root ball when lifted from the containers, and meet all other 
conditions specified in the Special Provisions.
* * * * *
    Monthly proration factors. Factors contained in the actuarial 
documents that are used to calculate premium when you do not insure the 
nursery plants for an entire crop year.
    Nursery. A business enterprise that grows the nursery plants and 
derives at least 50 percent of its gross income from the wholesale 
marketing of such plants.
    Occurrence deductible. This deductible allows a smaller deductible 
than the crop year deductible to be used when the inventory value is 
less than the reported basic unit value. The occurrence deductible is 
the lesser of: (1) The deductible percentage multiplied by field market 
value A multiplied by the under-report factor; or (2) the crop year 
deductible.
    PIVR. The plant inventory value report, your report that declares 
the value of insurable plants in accordance with section 6.
    Plant Price Schedule. A schedule of insurable plant prices that 
establishes the maximum insurable value of undamaged insurable plants, 
published by FCIC as an actuarial document available on RMA's Web site 
at http://www.rma.usda.gov. It is also available on compact disk from 
your crop insurance agent.
    Practice. A cultural method of producing plants. Container grown 
and field grown are considered separate insurable practices.
    Sales closing date. In lieu of the definition in section 1 of the 
Basic Provisions, the date shown in the Special Provisions. New-policy 
applications may be filed at any time. However, all applications, 
including those for new or amended coverage, are subject to a 30-day 
waiting period before commencement of coverage as specified in sections 
3(d) and 9(a).
    Standard nursery containers. Rigid containers not less than 1 inch 
in diameter at the widest point of the container interior (including 
trays that contain 200 or fewer individual cells, unless specifically 
provided by the Special Provisions), above-ground fabric grow bags, and 
other types of containers specified in the Special Provisions that are 
appropriate in size and provide adequate drainage for the plant. In-
ground fabric grow bags, balled and burlapped, and trays (flats) 
without individual cells are not considered standard nursery 
containers.
* * * * *
    Survival factor. A factor shown on the Special Provisions that 
specifies the expected percentage of liners that normally survive the 
period from insurance attachment to market.
    Under-report factor. The factor that adjusts your indemnity for 
under-reporting of inventory values. The factor is always used in 
determining indemnities. For each basic unit, the under-report factor 
is the lesser of: (1) 1.000; or (2) the basic unit value, including a 
Peak Inventory Value Report during the coverage term of a Peak 
Inventory Endorsement, minus the total of all previous losses, as 
adjusted by any previous under-report factor, divided by field market 
value A. Payments made under the Rehabilitation Endorsement will not be 
considered a previous loss when calculating the under-report factor.
    Wholesale. To sell nursery plants in large quantities at a price 
below that offered on low-quantity sales to retailers, commercial 
users, governmental end-users, or other end-users for business purposes 
(e.g. sales to landscape contractors and commercial fruit producers). 
This determination will be based on a county-by-county basis.

0
4. Revise section 2 of Sec.  457.162 to read as follows:
2. Unit Division
    (a) If you elect additional coverage for a practice, a basic unit, 
as defined in section 1 of the Basic Provisions, may be divided into 
additional basic units by each insurable plant type designated in 
section 2(b) for which a premium rate is provided by the actuarial 
documents.
    (b) Only the following plant types contained on the Eligible Plant 
List are insurable:
    (1) Deciduous Trees (Shade and Flower);
    (2) Broad-leaf Evergreen Trees;
    (3) Coniferous Evergreen Trees;
    (4) Fruit and Nut Trees;
    (5) Deciduous Shrubs;
    (6) Broad-leaf Evergreen Shrubs;
    (7) Coniferous Evergreen Shrubs;
    (8) Small Fruits;
    (9) Herbaceous Perennials;
    (10) Roses;
    (11) Ground Cover and Vines;
    (12) Annuals;
    (13) Foliage;
    (14) Palms and Cycads;
    (15) Liners (container grown only and inclusive of all insurable 
plant types); and
    (16) Other plant types listed in the Special Provisions.

0
5. Amend section 3 of Sec.  457.162 as follows:
0
a. Amend paragraph (a) by adding the phrase ``, including the 
misreporting provisions,'' between the words ``requirements'' and 
``contained'';
0
b. Redesignate paragraphs (b), (c) and (d) as paragraphs (c), (e) and 
(f), respectively, and add new paragraphs (b) and (d);

[[Page 37243]]

0
c. Revise redesignated paragraph (c); and
0
d. Amend redesignated paragraph (f) by removing the term ``6(f)'' and 
adding ``6(g)'' in its place.
    The revised and added text reads as follows:
    3. Insurance Guarantees, Coverage Levels, and Prices for 
Determining Indemnities
* * * * *
    (b) In addition to the requirements of section 3 of the Basic 
Provisions, you may select either catastrophic risk protection or 
additional coverage for each insured practice. An administrative fee 
established in accordance with section 7(e) of the Basic Provisions 
will be owed for each practice insured.
    (c) In lieu of section 3(b) of the Basic Provisions:
    (1) If you select additional coverage for a practice:
    (i) You may select one coverage level for each plant type insured 
in that practice if you elect basic units by plant type;
    (ii) You will receive 100 percent of the price election for all 
plant types in that practice;
    (iii) You must provide on the application a coverage level 
percentage for each plant type that will be insured; and
    (iv) You must select a coverage level if:
    (A) A new plant is added under a revised PIVR or Peak Inventory 
Endorsement; and
    (B) The plant is not categorized under a plant type reported on the 
initial PIVR.
    (2) If you select catastrophic risk protection for a practice, all 
plant types under the practice must be insured at the catastrophic risk 
protection level.
    (d) In lieu of section 3(d) of the Basic Provisions, you may 
request changes to the coverage level for a plant type by submitting 
them in writing to us as follows:
    (1) For new policies, changes cannot be made for the crop year 
after the date of the application; and
    (2) For carryover policies:
    (i) For the 2006 crop year only, changes must be requested on or 
before September 30th prior to the start of the crop year;
    (ii) For all subsequent crop years, changes must be requested on or 
before the sales closing date; and
    (iii) Unless we reject the proposed increase because a loss occurs 
within 30 days of the date the request is made (Rejection can occur at 
any time we discover such loss has occurred), requested changes will 
take effect:
    (A) For the 2006 crop year, 30 days after the date you submitted 
your request; and
    (B) For all subsequent crop years, on the date of the start of the 
crop year.
* * * * *

0
6. Amend section 4 of Sec.  457.162 by removing the phrase ``June 30'' 
and adding ``January 31'' in its place and adding the word ``crop'' 
between the words ``each'' and ``year.''

0
7. Amend section 5 of Sec.  457.162 by removing the phrase ``September 
30'' and adding ``May 31'' in its place.

0
8. Amend section 6 of Sec.  457.162 as follows:
0
a. Revise the heading of section 6;
0
b. Revise paragraph (b);
0
c. Revise paragraph (c);
0
d. Amend paragraph (d) by removing the phrase ``plant inventory value 
report'' and adding ``PIVR'' in its place and capitalizing the phrase 
``peak inventory value report'';
0
e. Revise paragraph (e);
0
f. Remove paragraph (h), and redesignating paragraphs (f) and (g) as 
paragraphs (g) and (i), respectively;
0
g. Add new paragraphs (f) and (h);
0
h. Revise redesignated paragraph (g);
0
i. Amend redesignated paragraph (i) by removing the word ``practice'' 
wherever it apears and adding the phrase ``basic unit'' in its place 
and removing the word ``your'' wherever it appears and adding the word 
``each'' in its place; and
0
j. Add new paragraphs (j) and (k).
    The revised and added text reads as follows:
6. PIVR
* * * * *
    (b) You must submit a PIVR for each insured practice, as 
applicable, and two copies of your most recent wholesale catalogs or 
price lists in accordance with subsection (k) to us with your 
application on or before the sales closing date for each crop year 
following the year of application.
    (1) You will be notified in writing if an application for insurance 
is refused because the inventory or wholesale catalog or price list is 
not acceptable.
    (2) If you fail to provide a PIVR or applicable catalog or price 
list on or before the sales closing date for any crop year, insurance 
will not attach until 30 days after all such documents have been 
received by your crop insurance agent and we will not be liable for any 
losses that occur before insurance has attached.
    (c) The PIVR must include, by basic unit, all growing locations, 
basic unit value, coverage level selected, as applicable, and your 
share.
    (1) If you do not elect additional basic units by plant type or you 
elect CAT coverage, the plant inventory values for each plant type in 
the basic unit must be separately reported on the PIVR and totaled to 
determine the basic unit value.
    (2) At our option, you will be required to provide documentation in 
support of your PIVR, including, but not limited to, a detailed plant 
inventory listing that includes the name, the number, and the size of 
each plant; acceptable records of sales and purchases of plants for the 
three previous crop years in the amount of detail we require; and your 
ability to properly obtain and maintain nursery stock. Acceptable 
records must contain the name and telephone number of the purchaser or 
seller, as applicable, names of the plants, the number of each plant 
sold or purchased, and the sales price for each plant.
    (3) Failure to provide documentation when requested or providing 
inadequate documentation will result in denial of insurance for the 
crop year for any basic units for which such documentation was not 
provided. This provision does not apply to:
    (i) Plant varieties you have not previously grown; or
    (ii) New nurseries where an inspection has determined you have the 
ability to properly obtain and maintain the nursery stock.
* * * * *
    (e) Your PIVR must reflect your insurable nursery plant inventory 
value by basic unit.
    (1) The price for each plant and size listed on your PIVR will be 
the lower of the Plant Price Schedule price or the lowest wholesale 
price in your nursery catalog or price list submitted in accordance 
with section 6(k).
    (2) In no instance will we be liable for plant values greater than 
those contained in the Plant Price Schedule.
    (3) If you have previously made a claim and the loss adjuster is 
unable to determine whether a plant was damaged prior to submission of 
your PIVR for the current crop year, the plant will be insurable at 
full value based on the lesser of the Eligible Plant List price or the 
catalog or price list price. The value of the plant may be reduced at 
any time during the crop year if the extent of damage is discovered.
    (f) For catastrophic level policies only, you must report, on the 
PIVR for each practice insured, your greatest plant sales in any of the 
previous 3 years and the actual inventory value on the date insurance 
attaches.
    (1) You may be required to provide documentation to support the 
above reporting requirements. To be considered adequate, sales 
documents

[[Page 37244]]

must contain the name and telephone number of the purchaser, names of 
the plants, the number of each plant sold, and the sales price for each 
plant.
    (2) For each applicable practice, the total of your basic unit 
values cannot exceed 110 percent of the higher of your:
    (i) Greatest amount of plant sales in any of the previous 3 years; 
or
    (ii) Actual inventory value on the date insurance attaches.
    (3) Failure to provide documentation when requested or providing 
inadequate documentation will result in denial of insurance for the 
crop year for any basic unit for which such documentation was not 
provided. This provision does not apply to:
    (i) Plant varieties you have not previously grown; or
    (ii) New nurseries where an inspection has determined you have the 
ability to properly obtain and maintain the nursery stock.
    (g) You may increase your reported inventory value for each basic 
unit no more than twice during the crop year by submitting a revised 
PIVR prior to 30 days before the end of such crop year.
    (1) Any requested increase must be made in writing and contain the 
same information as required in section 6(c). The limitations in 
section 3(d) regarding making changes to the coverage level after a 
specified date are not applicable to a revised PIVR that adds new plant 
types. The limitations continue to apply if plants are added for a 
specific plant type.
    (2) An inspection will be performed when the total of all the basic 
unit values contained on the revised PIVRs is increased 50 percent or 
more from the previous total of all the basic unit values on the PIVR, 
and the increase is not due to restocking subsequent to an insured 
loss.
    (3) At our discretion, we may inspect the inventory if an increase 
of less than 50 percent is reported on the revised PIVR.
    (4) Your revised PIVR will be considered accepted by us and 
insurance will attach on any proposed increase in inventory value 30 
days after your written request is received unless we reject the 
proposed increase in your plant inventory value in writing.
    (5) We will reject any requested increase if a loss occurs within 
30 days of the date the request is made.
    (6) You cannot revise your PIVR to decrease the plant inventory 
value after the start of the insurance period specified in section 9.
    (h) For insurable plants that were damaged prior to the attachment 
of insurance coverage:
    (1) The applicable price, as determined in accordance with section 
6(e), will be reduced for inventory reporting purposes if we accept 
such plants for insurance coverage;
    (2) The plants will be removed from the PIVR if they are not 
accepted;
    (3) The procedure for calculating the insurable value of damaged 
plants that are accepted for coverage is contained in the Special 
Provisions.
* * * * *
    (j) Insurable plants in over-sized containers will be valued for 
purposes of reporting inventory and loss adjustment as if the plants 
were in appropriate-sized containers in accordance with the standards 
contained in the current American Standard for Nursery Stock. Each cell 
in a multiple-cell container is considered a separate container. (See 
the Eligible Plant List at http://www.rma.usda.gov/ for additional 
information and requirements on container specifications and volume 
calculation.)
    (k) At a minimum, your wholesale catalog or price list must:
    (1) Be type-written and legible;
    (2) Show an issue date on the cover page (may be handwritten);
    (3) Contain the name, address, and phone number of your nursery;
    (4) Be provided to customers and used in the sale of your plants; 
and
    (5) List each plant's name (scientific or common), plant or 
container size, and wholesale price.

0
9. Revise section 7 of Sec.  457.162 to read as follows:
7. Premium
    (a) In lieu of section 7(c) of the Basic Provisions, we will 
determine your premium by multiplying the amount of insurance by the 
appropriate premium rate, any premium adjustment factor, and the 
monthly proration factor contained in the actuarial documents, if 
applicable.
    (b) In addition to the provisions in section 7 of the Basic 
Provisions, we will prorate your premium based on:
    (1) The time remaining in the crop year after insurance attaches:
    (i) If you have made application after the start of the insurance 
period specified in section 9; or
    (ii) If you submit a PIVR or wholesale catalog or price list after 
the sales closing date;
    (2) The time remaining in the crop year after insurance attaches 
and the additional amount of inventory reported, if you submit a 
revised PIVR to report an increase in inventory value for a basic unit; 
and
    (3) The time period for which insurance is provided under the Peak 
Inventory Endorsement.
    (c) If your premium is prorated, premium will be charged for the 
entire month for any calendar month during which any amount of coverage 
is provided under these provisions or the Peak Inventory Endorsement.
    (d) In lieu of section 7(a) of the Basic Provisions:
    (1) If you apply for insurance before April 1st, 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.
    (2) If you apply for insurance, or submit your PIVR or wholesale 
catalog or price list, on or after April 1st, the premium for the 
partial crop year will be due and must be paid at the time of 
application.
    (3) Failure to pay the premium at the time of application, or when 
you submit your PIVR or wholesale catalog or price list, will result in 
no insurance and no indemnity being owed for the crop year.

0
10. Amend section 8 of Sec.  457.162 as follows:
0
a. Revise the heading of section 8;
0
b. Revise the introductory text of section 8;
0
c. Revise section 8(i);
0
d. Revise section 8(j); and
0
e. Add a new section 8(k).
    The revised and added text reads as follows:
8. Insured Crop and Plants
    In lieu of the provisions of sections 8 and 9 of the Basic 
Provisions, the crop insured will be all nursery plants and plant types 
in each practice, contained on the Eligible Price List, in which you 
have a share, that you elect to insure, and that:
* * * * *
    (i) Are not stock plants or plants being grown solely for harvest 
of buds, flowers, or greenery;
    (j) May produce edible fruits or nuts provided the plants are made 
available for sale (Harvest of the edible fruit or nuts does not affect 
insurability); and
    (k) Are not produced in nursery containers that contain two or more 
different genera, species, subspecies, varieties or cultivars.

0
11. Amend section 9 of Sec.  457.162 as follows:
0
a. Revise section 9(a); and
0
b. Revise section 9(b)(4).
    The revised text reads as follows:
9. Insurance Period
    (a) In lieu of section 11 of the Basic Provisions:

[[Page 37245]]

    (1) For the year of application, if you apply for coverage:
    (i) On or before August 31, 2005, for the 2006 crop year, coverage 
begins on October 1, 2005, unless we notify you in writing that your 
inventory is not acceptable;
    (ii) After August 31, 2005, and on or before May 1, 2006, for the 
2006 crop year, or on or before May 1st of the crop year for any 
subsequent crop year, coverage begins 30 days after your crop insurance 
agent receives an application signed by you, unless we notify you in 
writing that your inventory is not acceptable;
    (iii) After May 1, 2006, or after May 1st for any subsequent crop 
year, coverage will not begin until the next crop year, subject to the 
30-day delay specified in subparagraph (ii); and
    (2) For continuous policies:
    (i) For the 2006 crop year, the insurance period begins on October 
1, 2005.
    (ii) For the 2007 crop year, the insurance period begins on June 1, 
2006, and for each subsequent crop year, the insurance period begins on 
each June 1st.
    (b) * * *
    (4) 11:59 p.m. on May 31, 2006, for the 2006 crop year, and on May 
31st for each subsequent crop year.

0
12. Amend section 10 of Sec.  457.162 as follows:
0
a. Amend section 10(a)(1) by removing ``(b)'' after the numeral ``10'' 
and adding ``(c)'' in its place;
0
b. Amend section 10(a)(4) by adding the word ``or'' at the end;
0
c. Amend section 10(a)(5) by removing ``; or'' and adding a period in 
its place;
0
d. Remove sections 10(a)(6) and (7);
0
e. Amend section 10 by redesignating sections 10(b) introductory text, 
10(b)(1), and 10(b)(3) through (6) as sections 10(c), 10(c)(1), and 
10(c)(2) through (5), respectively, removing 10(b)(2), and adding a new 
section 10(b);
0
f. Amend redesignated section 10(c) introductory text by changing the 
word ``section'' to ``sections'' and adding the phrase ``(a) and (c) 
through (f)'' between the numeral ``12'' and the word ``of'';
0
g. Revise redesignated section 10(c)(2);
0
h. Amend redesignated section 10(c)(4) by removing the word ``or'' at 
the end;
0
i. Revise redesignated section 10(c)(5); and
0
j. Add a new section 10(c)(6).
    The revised and added text reads as follows:
10. Causes of Loss
* * * * *
    (b) Insurance is also provided against the following if due to a 
cause of loss specified in section 10(a) that occurs within the 
insurance period:
    (1) A loss in plant values because of an inability to market such 
plants, provided such plants would have been marketed during the crop 
year (e.g. poinsettias that are not marketable during their usual and 
recognized marketing period of November 1st through December 25th);
    (2) Failure of the irrigation water supply; or
    (3) Failure of, or reduction in, the power supply.
    (c) * * *
* * * * *
    (2) The inability to market the nursery plants as a result of:
    (i) The refusal of a buyer to accept production;
    (ii) Boycott; or
    (iii) An order from a public official prohibiting sales including, 
but not limited to, a stop sales order, quarantine, or phytosanitary 
restriction on sales;
* * * * *
    (5) Any cause of loss, including those specified in section 10(a), 
if the only damage suffered is a failure of plants to grow to an 
expected size; or
    (6) In lieu of section 12(b) of the Basic Provisions, failure to 
follow recognized good nursery practices.

0
13. Amend Sec.  457.162 by revising section 11(a)(2) to read as 
follows:
11. Duties in the Event of Damage or Loss
    (a) * * *
    (2) You must submit a claim for indemnity to us on our form, not 
later than 60 days after the date of your loss, but in no event later 
than 60 days after the end of the insurance period. This requirement 
will be waived by us if the final adjustment of your claim is totally 
or partially deferred because we are unable to make an accurate 
determination of the amount of damage to the insured plants. If within 
the time frame specified we notify you that we are unable to make an 
accurate determination of damage on all or some of your damaged plants:
    (i) For those damaged plants on which the loss adjustment and claim 
have not been deferred, you must submit a partial claim within the time 
frame specified in section 11(a)(2) and we will settle your claim on 
such plants;
    (ii) For those damaged plants on which the loss adjustment and 
claim have been deferred, we will determine the amount of damage at the 
earliest possible date but no later than one year after the end of the 
insurance period for the crop year in which the damage occurred; and
    (iii) You must maintain the identity of the plants on which loss 
adjustment is deferred throughout the deferral period.
* * * * *

0
14. Amend section 12 of Sec.  457.162 as follows:
0
a. Amend sections 12(a) and (d) by inserting a hyphen between the words 
``under'' and ``report'';
0
b. Revise section 12(f); and
0
c. Revise section 12(g).
    The revised text reads as follows:
12. Settlement of Claim
* * * * *
    (f) If the result of section 12(e) is greater than zero, and 
subject to the limit of section 12(g);
    (1) For other than catastrophic risk protection coverage, your 
indemnity equals the result of section 12(e), multiplied by your share.
    (2) For catastrophic risk protection coverage, your indemnity 
equals the result of section 12(e) multiplied by fifty-five percent, 
multiplied by your share.
    (g) The total of all indemnities for the crop year will not exceed 
the amount of insurance, including any peak amount of insurance during 
the coverage term of the Peak Inventory Endorsement, if this 
endorsement is elected.

0
15. Revise section 14 of Sec.  457.152 to read as follows:
14. Written Agreements
    (a) In lieu of section 18(a) of the Basic Provisions, you must 
request in writing a written agreement with the application for the 
initial crop year, and not later than the cancellation date for each 
subsequent crop year, except as provided in section 14(c).
    (b) In lieu of the requirements of section 18(d) of the Basic 
Provisions, any written agreement is valid only until the end of the 
insurance period for the crop year such written agreement applies; and
    (c) In lieu of section 18(e) of the Basic Provisions, an 
application for a written agreement submitted after the date of 
application for the initial crop year and the cancellation date for all 
subsequent crop years may be approved if:
    (1) You demonstrate your physical inability to have applied timely; 
and
    (2) After physical examination of the nursery plant inventory, we 
determine the inventory will be marketable at the value shown on the 
PIVR.

0
16. Revise section 15 of Sec.  457.162 to read as follows:
15. Examples
Single Unit Example
    Assume you have a 100 percent share and the plant inventory value 
reported

[[Page 37246]]

by you is $100,000, and your coverage level is 75 percent. Your amount 
of insurance is $75,000 ($100,000 x .75). At the time of loss, field 
market value A is $125,000, and field market value B is $80,000. The 
under-report factor is .80 ($100,000 divided by $125,000). The 
deductible percentage is 25 percent (100 - 75), the crop year 
deductible is $25,000 (.25 x $100,000) and the occurrence deductible is 
$25,000 (.25 x $125,000 x .80). Your indemnity would be calculated as 
follows:
    Step (1) Determine the under-report factor $100,000 / $125,000 = 
.80;
    Step (2) Field market value A minus field market value B $125,000 - 
$80,000 = $45,000;
    Step (3) The result of step (2) multiplied by the result of step 
(1) $45,000 x .80 = $36,000;
    Step (4) The result of step (3) minus the occurrence deductible 
$36,000 - $25,000 = $11,000; and
    Step (5) Result of step (4) multiplied by your share $11,000 x 
1.000 = $11,000 indemnity payment.
Peak Inventory Value Report Example
    Assume you have a second loss on the same basic unit. Your amount 
of insurance has been reduced by subtracting your previous indemnity 
payment of $11,000 from your amount of insurance ($75,000 - $11,000 = 
$64,000). Your crop year deductible has been reduced to zero by the 
previous loss ($25,000 - $36,000, but not less than zero). You purchase 
a Peak Inventory Endorsement and report $60,000 in inventory. Your peak 
amount of insurance is your reported inventory times your coverage 
level ($60,000 x .75 = $45,000). The combined amount of insurance for 
the coverage term of the peak endorsement is $64,000 + $45,000 = 
$109,000. Your crop year deductible is increased by $15,000 ($60,000 x 
.25). At the time of loss, field market value A is $124,000, and field 
market value B is $58,000. The under-report factor is 1.00 [($160,000 - 
$36,000)/$124,000]. The crop year deductible is $15,000 (.25 x $60,000) 
and the occurrence deductible is $15,000 (the lesser of field market 
value A x .25 or the crop year deductible). Your indemnity would be 
calculated as follows:
    Step (1) Determine the under-report factor $160,000 - $36,000) / 
$124,000 = 1.00;
    Step (2) Field market value A minus field market value B $124,000 - 
$58,000 = $66,000;
    Step (3) The result of step (2) multiplied by the result of step 
(1) $66,000 x 1.0 = $66,000;
    Step (4) The result of step (3) minus the occurrence deductible 
$66,000 - $15,000 = $51,000; and
    Step (5) Result of step (4) multiplied by your share $51,000 x 
1.000 = $51,000 indemnity payment.
    Your peak amount of insurance is reduced to zero. Your amount of 
insurance is reduced by the amount the indemnity exceeds the peak 
amount of insurance. $64,000 - ($51,000 - 45,000) = $64,000 - $6,000 = 
$58,000.


Sec.  457.163  [Amended]

0
17. Amend section 1 of Sec.  457.163 as follows:
0
a. Revise the definitions of ``coverage commencement date,'' ``peak 
amount of insurance,'' and ``peak inventory value report''; and
0
b. Add a definition of ``peak inventory premium adjustment factor.''
    The revised and added text reads as follows:


Sec.  457.163  Nursery peak inventory endorsement.

* * * * *
1. Definitions
    Coverage commencement date. The later of the date you declare as 
the beginning of the coverage or 30 days after a properly completed 
Peak Inventory Value Report is received by us.
* * * * *
    Peak amount of insurance. The additional inventory value reported 
on the Peak Inventory Value Report for each basic unit multiplied by 
your coverage level and by your share.
    Peak Inventory Value Report. A report that increases the value of 
insurable plants over the value reported on the PIVR, declares the 
coverage commencement and coverage termination dates, and the other 
requirements of section 6 of the Nursery Crop Insurance Provisions.
    Peak inventory premium adjustment factor. A factor calculated by 
subtracting the monthly proration factor for the month following the 
month containing the coverage termination date from the proration 
factor for the month in which coverage commenced. Peak Inventory 
Endorsements with a coverage termination date during the month of May 
will have a premium adjustment factor equal to the proration factor for 
the month containing the coverage commencement date.
* * * * *

0
18. Amend paragraph 2 of Sec.  457.163 as follows:
0
a. Amend paragraph 2(a) by removing ``7 CFR 457.162'';
0
b. Amend section 2(b) by removing the phrase ``either the limited or'' 
and adding the word ``an'' in its place;
0
c. Revise paragraph 2(c); and
0
d. Revise paragraph 2(d).
    The revised text reads as follows:
2. Eligibility
* * * * *
    (c) You must submit a Peak Inventory Value Report, which will serve 
as the application for coverage under this endorsement.
    (1) The Peak Inventory Value Report may contain one or more plant 
type basic units and each plant type basic unit will be considered a 
separate Peak Inventory Endorsement.
    (2) We may reject the Peak Inventory Value Report if all 
requirements in this endorsement and the Nursery Crop Insurance 
Provisions are not met.
    (d) You may purchase no more than one Peak Inventory Endorsement 
for each basic unit during the crop year unless you have suffered 
insured losses and have restocked your nursery, in which case an 
additional Peak Inventory Endorsement may be purchased after each 
insured loss.

0
19. Amend section 3 of Sec.  457.163 by revising paragraph (a) to read 
as follows:
3. Coverage
    (a) The amount of insurance provided under the Nursery Crop 
Provisions for each basic unit is increased by the peak amount of 
insurance for such unit for the coverage term.
* * * * *

0
20. Amend section 4 of Sec.  457.163 by removing the phrase ``at 12:01 
a.m.''

0
21. Amend section 5 of Sec.  457.163 by revising paragraph (a) and 
adding an example of a Peak Inventory Endorsement premium calculation 
at the end of this paragraph to read as follows:
5. Premium
    (a) The premium for this endorsement is determined by multiplying 
the peak amount of insurance by the appropriate premium rate and by the 
peak inventory premium adjustment factor.

Example of Peak Inventory Endorsement Total Premium Calculation

    Assume a grower reports a peak amount of insurance on a basic unit 
of $100,000 with a 65 percent coverage level and a share of 1.000. The 
base premium rate is $0.051. The proration factors for the Peak 
Inventory Endorsement are 0.68 for the month that coverage commenced 
and 0.52 for the month following the month containing the coverage 
termination date, as stated in the actuarial documents. The peak

[[Page 37247]]

premium adjustment factor is 0.16 (0.68--0.52). The total premium 
amount for the Peak Inventory Endorsement is $530.40 ($100,000 x 0.65 x 
1.000 x $0.051 x 0.16).
* * * * *

0
22. Amend section 6 of Sec.  457.163 by capitalizing the phrase ``peak 
inventory value report.''

0
23. Amend section 7 of Sec.  457.163 by removing the phrase ``the 
practice'' and adding the phrase ``200 percent of the basic unit'' in 
its place.
0
24. Add a new Sec.  457.164 to read as follows:


Sec.  457.164  Nursery rehabilitation endorsement.

Nursery Crop Insurance Rehabilitation Endorsement

    If you elect this endorsement and pay the additional premium 
designated in the actuarial documents, this endorsement is attached to 
and made a part of your Nursery Crop Insurance Provisions subject to 
the terms and conditions herein. In the event of a conflict between the 
Nursery Crop Insurance Provisions and this endorsement, this 
endorsement will control.
1. Eligibility
    (a) You must have purchased additional coverage under the Nursery 
Crop Insurance Provisions, and you must comply with all terms and 
conditions contained in the applicable Nursery Crop Insurance 
Provisions and endorsements.
    (b) All field grown nursery plants insured under the Nursery Crop 
Insurance Provisions must be insured under this endorsement. Nursery 
plants produced in standard nursery containers are not covered under 
this endorsement.
    (c) You must elect this endorsement:
    (1) At the time of application for the initial crop year your field 
grown nursery plants will be insured under the Nursery Crop Insurance 
Provisions; or
    (2) By October 1, 2005, for the 2006 crop year and by the sales 
closing date for each subsequent crop year if your field grown plants 
are already insured under the Nursery Crop Insurance Provisions.
2. Coverage
    (a) This endorsement is only applicable to field grown plants 
damaged by an insured cause of loss specified in section 10 of the 
Nursery Crop Insurance Provisions.
    (b) Rehabilitation costs covered by this endorsement are limited to 
expenditures for labor and materials for pruning and setup (righting, 
propping, and staking).
    (c) To be eligible for a rehabilitation payment:
    (1) The damaged plants must have a reasonable expectation of 
recovery based on:
    (i) The type of damage (e.g., broken limbs from high winds, trees 
uprooted by hurricane, etc.);
    (ii) The extent of damage (e.g., twenty percent of the limbs 
broken, half the canopy removed, etc.); and
    (iii) Whether the plant can recover to the point it is marketable;
    (2) Verifiable records must be provided showing actual expenditures 
for rehabilitation and such expenditures must be reasonable and 
customary for the type and extent of damage sustained by the plants;
    (3) Rehabilitation procedures must be performed directly following 
the occurrence of damage and before additional deterioration of the 
damaged plants occurs;
    (4) We must determine it is practical to rehabilitate the damaged 
plants (It is not practical if the costs of rehabilitation are greater 
than the value of the plant); and
    (5) The total actual rehabilitation costs for each loss occurrence 
on the basic unit must be at least the lesser of 2.0 percent of field 
market value A or $5,000.
    (d) The maximum amount of each rehabilitation payment for each 
basic unit will be the lesser of:
    (1) Your total actual rehabilitation costs multiplied by the under-
report factor contained in the Nursery Crop Insurance Provisions; or
    (2) An amount equal to 7.5 percent of the value (based on insurable 
plant prices determined in accordance with section 6 of the Nursery 
Crop Insurance Provisions) of all your insurable field grown plants 
that were rehabilitated subsequent to an insured cause of loss, 
multiplied by the under-report factor described in the Nursery Crop 
Insurance Provisions, multiplied by the coverage level percentage you 
elect, and multiplied by your share. Insurable, rehabilitated plants 
that have not recovered from damage that occurred prior to attachment 
of this endorsement will have a reduced value in accordance with 
section 6(h) of the Nursery Crop Insurance Provisions.
    (e) The total of all rehabilitation payments for the crop year for 
the basic unit will not exceed 7.5 percent of the value (based on 
insurable plant prices determined in accordance with section 6 of the 
Nursery Crop Insurance Provisions) of all your insurable field grown 
plants in such basic unit, multiplied by the under-report factor 
described in the Nursery Crop Insurance Provisions, multiplied by the 
coverage level percentage you elect, and multiplied by your share.
3. Cancellation
    This endorsement will continue in effect until canceled or coverage 
under the Nursery Crop Insurance Provisions is cancelled or terminated. 
This endorsement may be canceled by you or us for any succeeding crop 
year by giving written notice to the other party on or before the 
cancellation date, contained in the Nursery Crop Insurance Provisions, 
preceding the crop year for which the cancellation of this endorsement 
is to be effective.

    Signed in Washington, DC, on June 21, 2005.
Ross J. Davidson, Jr.,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 05-12644 Filed 6-27-05; 8:45 am]
BILLING CODE 3410-08-P