The Complexities of Crop Insurance

Overview

Crop insurance for farmers is a complex mix of private insurance companies and government administration through the USDA and its sub-agencies.  The complexity can be confusing for farmers as well as the bureaucrats responsible for administering the crop insurance program.  A recent case illustrates those complexities as well as the challenges for attorneys trying to assist farmers with crop insurance legal issues.

Crop insurance and legal issues as illustrated by a recent case – it’s the topic of today’s post

Background

The Federal Crop Insurance Corporation (FCIC) is a wholly-owned government corporation that the Risk Management Agency (RMA) of the United States Department of Agriculture (USDA) manages.  The FCIC manages the federal crop insurance program and provides reinsurance for crop insurance policies that are approved under the Federal Crop Insurance Act. 7 U.S.C. §1501 et seq.  The FCIC itself is managed by a Board of Directors (Board) subject to the direction of the USDA Secretary.  The Board, in turn, delegates to the RMA Administrator (the manager of the FCIC) certain authorities and powers.  The Board approves any new policy, plan of insurance or major modification to an existing plan or other materials under procedures that the Board establishes.  Private parties design the policies and submit them to the Board via a “508(h) submission.”  The Board must approve a 508(h) submission if the Board determines that, among other things, the crop insurance policy will adequately protect the interests of producers. 

Recent Case

Elbert v. United States Department of Agriculture, No. 18-1574 (JRT/TNL), 2022 U.S. Dist. LEXIS 121433 (D. Minn. July 11, 2022) involved a set of acts where a private company along with the Northarvest Bean Growers Association and the USA Dry Pea and Lentil Council made a 508(h) proposed policy submission to the Board in 2011.  The submission proposed to offer revenue protection to pulse-crop farmers to insure against a drop in price of crops measured by the projected Spring price and the Fall harvest price.   The proposed policy also established a contingency in case there was not enough data to establish the harvest price from the AMS Bean Market News (AMS Method).  In that event, an agency would set the harvest price.  But, in the “rating methods” section of the proposed policy, the projected price was to be substituted for the harvest price if the AMS Method failed. 

While the proposed policy was being reviewed, it was noted that substituting the projected price would convert the policy into a yield protection policy even though farmers would have paid for revenue protection.  It was also noted that such a result would be unfair to farmers.  In response, the private company replied that the policy would have the harvest price set by the FCIC whenever a harvest price couldn’t be calculated, and that revenue protection would still be available. 

The Board approved the policy in 2012 but permitted the RMA to make technical changes to the policy to make it legally sufficient so that it could be sold to farmers.  In response to farmer questions, the private company stated that if the AMS method failed, the FCIC would set the harvest price instead of defaulting to the projected price.  However, for some unknown reason the contingency provision was rewritten to read that, “If the harvest price cannot be calculated in accordance with [the AMS Method,] the harvest price will be equal to the projected price.”  The change, however, was not resubmitted to the Board. 

The plaintiffs, dark red kidney been farmers in Minnesota, purchased the policy in 2015 thinking that the policy would provide protection against a decline in bean prices as measured by the difference between the Spring projected price and the Fall harvest price.  Dark red kidney beans dropped in price in 2015 and there was a lack of published pricing data to establish a harvest price.  As a result, the defendant (collectively the USDA, FCIC and RMA) set the harvest price equal to the spring projected price.  That had the effect of converting the policy from revenue coverage to yield protection and as a result, eliminated any payment under the policy. 

The plaintiffs filed an Administrative Procedure Act (APA) claim against the defendant arguing that it was arbitrary and capricious for the defendant to convert the policy from revenue coverage to yield protection. Both parties moved for summary judgment.  In 2020, the trial court granted summary judgment to the defendant, relying on regulatory language not yet in effect at the time of the policy’s creation.  But, the trial court also noted the additional key fact that substantial changes had been made to the relevant policy provision after the Board had approved a markedly different one.  That fact was introduced at the last minute, months after oral argument.  Consequently, the trial court gave the plaintiffs permission to file a motion to reconsider.  The trial court also ordered the parties to submit additional briefing to address what remedy the court should grant. On the remedy issue, the defendant sought a remand to the FCIC for further consideration without vacating the existing policy. Conversely, the plaintiffs wanted the court to order a reformation of the insurance policy to state that the FCIC will establish a harvest price when there is insufficient published data to otherwise set a harvest price and then order the FCIC to establish a price for 2015. Plaintiffs also moved to certify a class.

Upon reconsideration, the trial court determined that the policy language approved by the Board was not the same as that finalized in the policy offered for sale; that post-approval changes made to the language were "significant" under the regulations then in effect and therefore required resubmission to the Board, which did not occur.  The trial court also determined that the RMA did not have the authority to independently approve and help finalize the policy changes. As such, the defendant violated the APA.  The court denied summary judgment to the defendant and granted the plaintiffs’ summary judgment motion.  The court decided to vacate policy but not force the FCIC to announce a harvest price. The court vacated the agency action and remanded the matter to the FCIC for further consideration.   The court sought to place the responsibility of making the plaintiffs whole again on the FCIC and, on reconsideration, the FCIC must review the policy as if it were an entirely new 508(h) submission and ensure that the policy is not unfair to farmers who purchase the policy.

Conclusion

Crop insurance is very important to many farmers.  However, it is very complex and confusing.  Because it involves the USDA and sub-agencies, the APA must be complied with when approving and making changes to proposed policies.