Farmers can avoid some tricky situations if they approach federal crop insurance properly.
• Prevented planting
A prevented planting payment is made when there is an insured cause of loss that prevents planting of a crop. However, there are two additional requirements.
“First, other producers must have been prevented from planting in the same area with similar characteristics. The words to remember are ‘area’ and ‘similar characteristics,’” says Grant Ballard, an attorney with Banks Law Firm in Little Rock.
According to the USDA’s Risk Management Agency (RMA), “area” is subject to multiple interpretations. “Generally, the RMA says the area isn’t defined by soil type but by your cause of loss. That means all acreage impacted by cause of loss can be included in this area for prevented planting purposes.”
The “similar characteristics” requirement is where comparable geography, topography, soil types and the like come into the equation.
An issue that’s come up with Ballard’s clients is prevented planting in drought. “Certain farmers will plant and pray for rain. There isn’t enough moisture, but you think rain is coming and you can get a good stand,” says Ballard, also a research consultant for the National Agricultural Law Center (NALC) at the University of Arkansas.
“Meanwhile, a neighboring farmer is saying, ‘I’m not going to plant. There isn’t enough moisture and it isn’t going to rain. I’m going to go with a prevented planting payment.’”
The RMA has decided that drought presents a situation where planting may not be a good farming practice, says Ballard. “And you can collect a payment even when your neighbor plants and prays for rain.
“However, you must document that planting at that time is a poor farming practice because of insufficient moisture. Get someone to back you up.”
Three things to remember, according to Ballard:
• Make prevented planting decisions on the basis of sound agronomic principles. Don’t make those decisions for economic reasons.
• Document, document, document. “You must have something to back up your claim. Weather data is always requested by the insurance provider when you get into a crop insurance dispute.”
• Prevented planting acreage can sometimes be found in the same areas as planted acreage.
Producers should seek out data from sources “whose business is to record and study the weather. Farm Service Agency county committee minutes are sometimes used. National Weather Service documents will satisfy the requirement. Extension agents, university employees can serve as agricultural experts.”
Make sure you’re paid up on the sales closing date, warns Ballard.
“Last summer, I had several calls from producers in the Midwest. They said ‘I went in prior to Feb. 28 and the insurance agent said I was paid up and they sold me a policy. Now it’s June and I’ve got a statement saying I’m not insured. I have no crop and if I don’t get the insurance money I won’t farm next year.’
No claim against agent
“They want to sue the insurance agent, sue the company, sue someone because things are so bad. But the fact is, there’s no claim against the agent. It’s not their responsibility to know you’re caught up on past payments. So, on the sales closing date make sure you’re caught up.”
• Dispute resolution
A producer can’t haul a crop insurance company into court, says Ballard. It’s been tried many times without success, except in very unique circumstances.
Instead, for general breach of contract or failure to pay a claim a producer will go to mandatory arbitration, an alternative dispute resolution method. Both sides are represented by attorneys and there is an arbitrator or panel of arbitrators making a final decision.
“It’s an adversarial proceeding, similar to a trial but not as formal. The rules are more lax.”
Mediation is also available. “That’s a negotiation trying to settle a claim. No ruling is made under mediation. If no deal is struck, it’s on to arbitration.”
There are two routes to arbitration under federal crop insurance: the American Arbitration Association (AAA) or the insurance company and the producer can agree on a neutral arbitrator. Ballard says there are problems with each approach.
Going with the AAA is expensive. “The filing fee is about $6,000 that a producer has to pay out of pocket to just get the case heard. You’ll have at least that much in arbitration fees by the time it’s all over — and that’s before the attorney is paid.
“People have raised a lot of stink about the cost and the RMA has come back and said, ‘You can avoid AAA arbitration if you can agree on an arbitrator.’
“So, you may request arbitration from your insurance company. They turn it over to a lawyer and you don’t hear anything for three months. The delay game starts so that’s something to consider. You may spend more money with AAA but it will provide more prompt resolution.
“If I was in Congress looking for an issue to jump on, the RMA’s treatment of arbitration for producers is unfair. The AAA is expensive and crop insurance companies need incentives to settle claims in a timely manner. … You can win at arbitration, but it isn’t the ideal route and it isn’t less expensive than going to court, no matter what anyone says.”
If a producer’s claim is denied for not following good farming practices, he doesn’t get to fight that at arbitration. That circumstance requires an administrative review process before the RMA.
This is another weakness in the federal crop insurance program, says Ballard. “I had one Extension agent tell me an RMA hearing officer traveled to northeast Louisiana looking into a good farming practices issue. The officer didn’t even know what a cotton boll was. That’s the environment we find ourselves in on occasion.”