Reducing E&O Exposure in Placement of Crop Insurance

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1 Reducing E&O Exposure in Placement of Crop Insurance

2 Reducing E&O Exposure in Placement of Crop Insurance Objectives: Understand the areas that can create E&O exposure with the placement of crop insurance. Highlight dates and forms that are important when placing coverage, including risk management tips. Offer a crop risk management checklist to help agents avoid potential E&O claims. What s Covered: Introduction... 2 The Common Crop Policy... 2 What is Covered... 3 What is Not Covered... 3 Deadlines and Forms... 3 Deadlines... 4 Sales Closing Date... 4 Final Planting Date... 4 Acreage Reporting Date... 4 Date to File Notice of Crop Damage... 4 End of Insurance Period... 5 Payment Due Date... 5 Production Reporting Date... 5 Crop Insurance Forms... 5 Application/Coverage Change Forms... 5 Acreage Reporting Form Summary of Coverage P age

3 Production Report Provisions and Coverage Extensions/Endorsements Provisions Policy Endorsements and Options Appeals Crop Quick Reference Risk Management Checklist Crop Insurance FAQ s from RMA Introduction Agent E&O claims stemming from the placement of crop insurance are very similar to other underlying coverages, however the unique nature of the crop program can create additional exposure for agents. This module will explore some basic background and information on the common crop policy, important deadlines, crop insurance forms, as well as crop insurance policy provisions and appeal procedures. It will use E&O claim scenarios to show where E&O claims may occur along with risk management tips. The goal of this information is to help agencies avoid E&O claims and reduce an agency's potential liability exposure if faced with an E&O claim. While this module cannot prevent all E&O claims being made against an agency, recognizing where errors or omissions could occur, as well as utilizing the risk management tips outlined, should provide the agency with tools to effectively defend itself against such a claim, reduce exposure and better serve customers. The Common Crop Policy Some basic background and basic information will be covered in this section. The Risk Management Agency (RMA) administers the Federal Crop Insurance Program. The Common Crop Insurance policy contains 37 Sections and is similar to other insurance policies in basic form. For example, Section 1 is Definitions, Section 9 is Insurable Acreage (all acreage planted to the insured crop), and Section 11 is Insurance Period (date application accepted or date crop is planted). The multi peril crop insurance (MPCI) policy is a continuous policy until cancelled. It renews each year, as is, unless a change is made prior to the sales closing date. The Application/Coverage Change form must include the following: 1. coverage level 2. coverage elections, 3. coverage type, 4. any coverage endorsements for each crop year. 2 P age

4 All of this information must be submitted no later than the sales closing date. What is Covered Many E&O claims occur when agents go outside of their expertise or dabble in coverage or industries that they don t understand. Agents should make sure they understand the product they are selling. This is especially important in offering crop coverage because of its unique nature, including critical date requirements. The policy provides coverage for unavoidable loss directly caused by specific causes of loss contained in the "Crop Provisions." Some examples of specified causes of loss are: Adverse weather conditions Fire (natural causes) Insects Earthquake Decline in harvest price Plant disease Wildlife Earthquakes Volcanic eruption Failure of irrigation water supply What is Not Covered All other causes of loss, including but not limited to the following are NOT covered. Negligence, mismanagement or wrongdoing by the insured Failure to follow recognized good farming practices for the insured crop Water that is contained by or within structures that are designed to contain a specific amount of water such as dams, etc. Failure or breakdown of irrigation equipment Failure to carry out a good irrigation practice Any cause of loss that results in damages that is not evident or would not have been evident during the insurance period. Taking the time upfront to assist customers in understanding what is and is not covered can go a long way in preventing a future E&O claim or at least aiding in its defense. Deadlines and Forms 3 P age

5 Below are deadlines associated with the placement of crop insurance along with associated forms that are required to be filed with the insurance carrier before coverage attaches to a specified crop. There are a lot of if s, and s and but s in the placement of a crop policy. The RMA sets the below deadlines that are firm. A missed deadline can equal an E&O claim for the agency. Unlike other P&C coverage in the traditional insurance marketplace where an effective date that may be unintentionally missed and a letter of no known losses used to implement coverage, this is not the case under the crop program. Being familiar with these deadlines and required forms is the first step in preventing an E&O claim. Deadlines Sales Closing Date What is it? The last day to apply for crop insurance coverage. When is it? *March 15 for common spring crops and *September 30 for common fall/winter crops *(Refer to RMA guidelines for your specific region and crop.) Final Planting Date What is it? The last date the RMA sets for a specific crop to be initially planted in order for it to be insured for the full production guarantee or amount of insurance per acre. When is it? Changes each year for each crop. Check regional guidelines for the specific date. Acreage Reporting Date What is it? The last date to report the acreage planted and various other information on the Acreage Report. If deadline is missed, there may be no insurance coverage for that crop that year. When is it? This depends on the crop being planted. You will need to refer to your regional guidelines for the date. Date to File Notice of Crop Damage What is it? Claim for indemnity due to crop damage or revenue loss. When is it? The RMA requires that the crop carrier be placed on notice of crop damage or potential crop damage no later than 72 hours after discovery of damage for a planted crop but not later than 15 days after the insurance period; if not crop damage or loss of production but a revenue loss on a revenue protection plan, no later than 45 days after the latest date the harvest price is released. For prevented 4 P age

6 planting claims, no later than 72 hours after the final planting date or it is determined that replanting is not possible during the late planting period. End of Insurance Period What is it? Last date the insurance coverage ceases for the crop. When is it? Total destruction of the insured crop; harvest of the insured crop; final adjustment of a loss on a unit; the calendar date contained in the crop provisions or special provisions; the end of the insurance period; or abandonment of the insured crop. Payment Due Date What is it? Last day to pay the premium without being charged interest. When is it? Unlike other types of insurance, premium is not owed in advance of the MPCI policy providing coverage until after harvest. If there is an indemnity payment owed to the named insured, the carrier will automatically reduce this indemnity payment by the premium owed. Production Reporting Date What is it? Last day to report production for Actual Production History; Actual Revenue History, Revenue Protection, and Revenue Protection with Harvest Price Exclusion Option. When is it? By the earlier of the acreage report or 45 days after the cancellation of the policy. Crop Insurance Forms Application/Coverage Change Forms The application/change in coverage form is completed for multi peril crop insurance for a new policy or is filled out each year for any renewal policy that has changes from the previous year. This application must be completed and signed by March 15 of each year for common spring crops (corn, soybean, grain sorghum, etc.) or NO CROP INSURANCE CAN BE PLACED for a new policy or if a renewal, no changes will be accepted for that crop year. Fall crops, such as winter wheat, have a deadline of September 30th of the planting year. The agent has up to three weeks to transmit the application to the insurance carrier. Being organized and proactive are important so that customers don t miss the application deadline. Agents should plan ahead and develop a plan for contacting their customers so there is plenty of time to complete applications on a timely basis. They should also always inquire about changes in their operation 5 P age

7 that may affect their insurance needs. Don t let your customer s schedule force you in to an E&O situation. All information must be listed on the application/coverage change form except the amount of planted acres. The application/coverage change form has many boxes, lines, and spaces that must be filled in. Unlike other types of insurance, no changes can be made to the application/coverage change form after the respective sales closing date. Due to this strictly enforced deadline set by the RMA, the application is basically "set in stone" and is a prime place for errors to occur due to the amount of information that must be completed. One missed box can have a great impact on the coverage for that crop year. Below is a list of some pertinent information that is required on the application/coverage change form: County and state acreage/farm is located Type of crop being planted The named insured(s) along with Social Security number or tax I.D. Entity Type Selection of the type and level of coverage: Any broadening of coverage, i.e., green snap endorsement, prevented planting endorsement, etc. Farm & tract number (Farm Service Agency assigns this number and stays constant) Type of units Share interest in the crop Spouse along with Social Security number New Producer? Crop insurance agents that fill out applications for customers must take extra precautions to check that the application contains the required information as well as the type and level of coverage being requested by the customer. A customer's signature on an application will not thwart an E&O claim if a claim for an indemnity payment is denied by the crop insurance carrier due to the application containing inaccurate or omitted information. However, the following E&O examples have Best Practice Tips that will assist the agency in defending an E&O claim and eliminate or reduce the agency's liability exposure. 6 P age

8 E&O Case Study Example: Application/Coverage Change Form The agency presented a blank application of insurance for a new multi peril crop insurance policy (MPCI) to the clients operating as Three Good Farmers partnership. The client signed the application and then the agent filled out the application. The partners were listed on the application individually. When checking the entity type on the application, the agent checked individual rather than the correct entity type. The policy was issued with coverage for only the first named insured as an individual. When a claim was reported, the claim was denied in its entirety on the basis that the wrong entity was checked. Of course, we know what happened! The Three Good Farmers filed an E&O claim against the agency for its inaccurate completion of the application. The E&O carrier determined this to be a liability claim for the agency. Risk Management Tip: Always have the client review the completed application, initial each page, and sign and date the application. This will provide proof that the client had an opportunity to review each page as noted by the initials on each page prior to signing. It will also encourage your client to take some time and review each page. The signature is confirmation that the client agrees that the information on the application is correct. Do not have clients sign blank applications! E&O Case Study Example: Application/Coverage Change Form The agency prepared a Coverage Change form for a renewal of a crop insurance policy for Farmer Mike as he desired to change his coverage from Enterprise Units to Optional Units. Farmer Mike was provided the application and the agent requested he review the Coverage Change form, initial each page, and sign and date the form. Farmer Mike complied with this request and made no mention of any further changes to the coverage. The agency submitted this Application/Coverage Change form by the sales closing date of March 15. At harvest Farmer Mike had a revenue loss and the insurance carrier paid him 50% of the loss. Apparently Farmer Mike had been recently married and failed to advise the agency of same. The spouse was not listed on the Coverage Change form and not listed on the policy. Therefore, Farmer Mike was only entitled to 50% of his revenue loss on his crops. Farmer Mike was upset with the agency as he believed due to the size of the town, the agency personnel should have known he had married. He believed the agency should have listed his spouse on the Coverage Change form at the same time he changed his unit coverage. The agency's E&O carrier had a different point of view. The agency personnel advised the E&O adjuster that neither the agent nor the CSR that handled Farmer Mike's policy had any knowledge of his nuptials. Had the agency had such information, it would have confirmed this with Farmer Mike prior to making such a change to the policy. Furthermore, the agency would have required the wife's Social Security number as well. Also, Farmer Mike had been given the opportunity to review the application, initialed each page, and signed the application representing all changes Farmer Mike had requested to his coverage. The agency's E&O carrier denied that the agency had any liability for this 7 P age

9 oversight on Farmer Mike's part. Farmer Mike had a duty to notify the agency of the change in his marital status. Risk Management Tip: The agency did all the right things here in order to defend itself from the E&O claim being presented. The agency made the changes Farmer Mike requested, presented him the Coverage Change form for review, and had him initial each page prior to signing the form. Insurance agents have no duty to make changes to an insurance policy without an instruction to do so. According to the RMA guidelines, an insurance agent can rely on the information that a customer provides without verifying this information through independent sources. E&O Case Study Example: Application/Coverage Change Form The Crops R' Us Insurance Agency was meeting fast and furious with all its customers attempting to complete all Applications and Coverage Change forms prior to the March 15 sales closing date for placement or changes to multi peril crop insurance policies. The agency personnel claimed it mailed a group of these forms to the carrier via regular first class mail. As it came time to prepare Acreage Reports the agency personnel noticed that some customers did not receive an Acreage Reporting Form and some were received without any evidence of the changes that had been requested to the coverage for that crop year. Upon further investigation, the carrier advised the agency that it had never received the envelope that contained the new Applications and Coverage Change forms. The carrier advised the agency if it could prove the date the forms had been mailed, it could correct the issue. As the agency had no proof that these forms were ever mailed to the carrier, the agency had to give some unpleasant news to its customers affected by this. The agency and its customers had to endure the stress of whether there were going to be losses to the now uninsured crops. There was further exposure to the agency for the loss of potential subsidies provided for these crops by the USDA since all insurable crops were not insured. Risk Management Tip: The deadline for crop insurance Application/Coverage Change forms is firm. If this deadline is missed this could be catastrophic for a farmer and the agency if losses occur. MPCI is often a condition for farmers qualifying for USDA subsidies as well. All forms should be photocopied and mailed via a method that confirms the date of mailing and confirmation of receipt by addressee. In the alternative, fax the forms and keep a record of the fax confirmation or scan and e mail the forms to the carrier. Be sure the e mail is retrievable as proof. Had the agency utilized any of these methods, the agency could have proven the mailing date was within the RMA guidelines. Also the agency would not be reporting multiple E&O claims to its E&O carrier. 8 P age

10 E&O Case Study Example: Application/Coverage Change Form Farmer Young had only been farming for a couple of years. He acquired some new acreage in a county he had never planted before. He had no prior production history for the acreage he was going to start farming. He came to the local crop insurance agency to procure crop insurance. The agent went over all the questions and had Farmer Young initial each page and signed the Application. Farmer Mature came in at approximately the same time. Farmer Mature was new to the agency. The agent completed Farmer Mature's application and Farmer Mature certified that he was a new producer and had not planted this crop in the designated county for more than two years previously. Farmer Mature initialed each page and signed the Application. The agency timely submitted both Applications to the insurance carrier. At harvest, the crop adjuster was talking to Farmer Young and it came to light that he had never farmed this acreage previously. The crop adjuster advised Farmer Young that he should have been classified as a New Producer on his Application and would have received 100% of the county T yield for his crop instead of the 70% that he had elected. He also would have paid a lower premium for this higher coverage level. Farmer Young contacted the agency to discuss why the agency did not ask him if he was a New Producer or explain how New Producer status would benefit him. The agency turned in a claim to its E&O carrier. The E&O carrier determined this was a liability claim for the agency as Farmer Young was not experienced in crop insurance, the agency did not discuss the New Producer qualifications, and despite the agency knowing this was acreage in a new county for Farmer Young, never covered the question on the application. The E&O carrier paid the difference between what the insurance carrier paid and what Farmer Young should have received, plus the difference in the overpaid premium. Farmer Mature filed a crop claim and was paid as a New Producer and paid the lower premium associated with being classified as a New Producer. Some months later, the crop insurance carrier determined that Farmer Mature had been part of an entity that had planted the crop that was insured in the designated county for five previous years. An audit revealed Farmer Mature's Social Security number was related to this entity that had previously procured crop insurance. The crop carrier reduced Farmer Mature's crop claim indemnity payment down to the 65% level as Farmer Mature had been overpaid on his indemnity payment and undercharged for the premium. The crop carrier demanded payment of the overpayment and the additional premium owed within 30 days or Farmer Mature would not be allowed to participate in the crop insurance program until payment had been received. Farmer Mature contacted the agency and attempted to place blame on the agency for not properly explaining the definition of a New Producer. After the E&O carrier investigated the claim, it disagreed with Farmer Mature and found the agent did not have liability. Risk Management Tip: Always cover all questions on the Application and be prepared to answer any questions, especially with novice farmers. Ask new clients if they have any questions after completion of the Application. If a customer is new to the agency, it is even more important for the agent to familiarize himself/herself with the customer's prior farming 9 P age

11 history. It is also suggested that the agency track customer's policies by Social Security number and related entities in order to avoid inadvertently classifying a customer as a New Producer. Acreage Reporting Form The Acreage Reporting form is a mandatory form established by the RMA that must be submitted to the carrier for each insured crop on or before the acreage reporting date. This form lists the amount of acres of each crop that is planted by the named insured, as well as other pertinent information. The filing of the Acreage Report is the trigger for attachment of coverage for the crops planted. While most insurance policies attach coverage immediately upon issuance of the policy, a Multi Peril Crop Insurance policy does not. In short, there could be an MPCI policy in force with no coverage for any crops. Of course, the carrier would not be owed any premium. The Acreage Reporting form is due 30 days after the final planting date established by the RMA for that crop in your region. Check the regional guidelines for the exact date for your region. The Acreage Report is another prime place for an error. The named insured certifies all acres with the local Farm Service Agency (FSA) and then provides an FSA 578 and aerial map of these certified acres to the agency. The Acreage Report that is submitted to the crop insurer must match the FSA 578 report exactly. Keying data from the FSA 578 to the carrier's Acreage Report can be full of pitfalls. A missed deadline for submitting the Acreage Report = NO INSURANCE for that crop year. Omitted acreage can greatly impact the indemnity payment on a crop or revenue loss. The following is information that is required to be on the acreage report: All acreage of an insured crop in the county whether insurable or not insurable; The share interest in each crop of the named insured; The date the crop was planted; The last date any timely planted acreage was planted; The number of acres planted; Farming Practice; Type of crop; Legal description for the land or unit identifier. Omission of acreage, calculation errors, and clerical errors by the agency can be corrected if no claim has been filed prior to the request to correct the amount of acreage. Time is ticking so do not delay if there is any indication there may be any inaccuracies on the Acreage Reporting form. The named insured is required to sign the completed form prior to submission. 10 P age

12 E&O Case Study Example: Acreage Report Farmer Fred certified his acres with his local FSA Office and brought his FSA 578 forms to the agent. The agent keyed the information from the FSA 578 to the Acreage Reporting form. Farmer Fred signed the Acreage Report and the agent submitted it to the crop carrier by the Acreage Report deadline. However, when a claim was filed for crop damage, the crop adjuster noticed some acreage that was not listed on the Acreage Report and shifted the production from the omitted acreage to the total production for the scheduled fields. This resulted in there being no shortage of production on the reported acreage and there was no indemnity payment made to Farmer Fred. Farmer Fred and the agent requested the Acreage Reporting form be corrected as the agent had the information in the file. The crop insurance carrier denied this request since a claim had already been reported prior to the omitted acreage being discovered. Of course, Farmer Fred was very unhappy and filed an E&O claim against the agency. The agency was found to be 80% liable to Farmer Fred by the E&O carrier as the insured had been provided the accurate information by the client and had made a keying error on the acreage report submitted to the carrier. However, Farmer Fred had signed the Acreage Report attesting to the accuracy of the information and had the last clear opportunity to make any corrections. This resulted in comparative negligence on Farmer Fred's part of 20%. Risk Management Tip: While it is the agent's duty to enter the information off the FSA 578 accurately, it is critical that you give the client an opportunity to review the form prior to signing. Having the client initial each page of the Acreage Report prior to signing will provide proof that the client had an opportunity to review each page as noted by the initials prior to signing. The signature is confirmation that the client agrees that the information on the Acreage Report is correct. Encourage your client to review the Acreage Report and to not just sign the report. Remind your client that any error on this form could impact any indemnity payment if a claim is filed. Another risk management tip is to compare the FSA 578 and the Acreage Reporting form one last time with your customer prior to filing a notice of claim. While this does take some additional time, an ounce of prevention is worth a pound of cure. E&O Case Study Example: Acreage Report Farmer Mae certified the acreage with the local FSA office. Farmer Mae had never purchased MPCI before and her crop insurance agent had explained the procedure she needed to follow to ensure she had coverage on her crops. She brought the FSA 578 forms and aerial maps to her crop insurance agency as instructed by the agency personnel. The agent requested Farmer Mae write the amount of acreage planted on each aerial map. The agent then completed the Acreage Reporting form, presented it to Farmer Mae and requested she review it prior to signing. The agent had Farmer Mae initial each page of the Acreage Report as well. Farmer 11 P age

13 Mae signed the Acreage Report and the agent submitted it to the crop insurance carrier for keying. At some point, Farmer Mae certified some additional acres with the local FSA office. However, she never brought the FSA 578 and aerial map for the additional acres to the agency as she had been instructed to do previously. The agency did have an internal worksheet that listed all acreage by unit. However, as Farmer Mae had not provided an FSA 578 or an aerial map to the agency, the agency did not report these acres to the crop insurance carrier. Farmer Mae had a revenue loss when corn harvest price was lower than spring price. The crop adjuster noted the omitted acres, moved the production from the omitted acreage onto the reported acreage which resulted in a much lower indemnity payment than Farmer Mae would have received had the acreage not been omitted. Farmer Mae alleged that the agency had committed an error for not requesting the FSA 578 and aerial map on this acreage since it had this acreage listed on an internal worksheet. The E&O carrier disagreed with Farmer Mae since it was her duty to provide the agency with the FSA 578 and had never provided same for the omitted acreage. The E&O carrier noted to Farmer Mae that despite her being a new crop insurance purchaser, she had been instructed by the crop insurance agency as to the procedures and she had followed those procedures when she completed the initial Acreage Reporting form. The E&O carrier did not pay Farmer Mae for her revenue loss. Risk Management Tip: The agency followed good operating procedures by taking the time to educate Farmer Mae as to what was required in order to secure coverage for her crop since she was inexperienced with crop insurance procedures. The customer's own handwriting was on each aerial map which helped confirm that she had looked over the information and had confirmed the amount of planted acres for that field. The agency then gave Farmer Mae an opportunity to review the Acreage Report, as well as had her initial each page of the Acreage Report prior to her signing. All of the above provided a good defense for the agency after Farmer Mae filed an E&O claim. While there was an internal worksheet that had listed all acres Farmer Mae had advised the agency she would be farming when she completed the Application, ultimately, it was her responsibility to notify the crop insurance agency of all acreage. 12 P age

14 E&O Case Study Example: Acreage Report Farmer John receives the renewal of the crop insurance policy and did not notice the 50% share interest in the crops. His father was previously a 50% share owner, but his father died this past year and he inherited the entire farm. Farmer John requested his agent make some changes to his MPCI policy unrelated to the share interest. The crop insurance agent made the changes and had Farmer John sign the Application/Coverage Change form and timely submitted it to the crop insurance carrier. Farmer John's insurance agent had attended the father's funeral several months prior to the sales closing date and knew Farmer John had inherited all the acreage. Farmer John dropped off the FSA 578 report and aerial map which noted Farmer John as having 100% interest in the planted crops prior to the Acreage Report deadline. The insurance agent was quite busy with the Acreage Report deadline drawing near and had Farmer John sign the acreage report without it being completed. Later the insurance agent completed the Acreage Report off of the previous year's Acreage Report and only changed the acres planted. The Acreage Report was timely submitted. At harvest, Farmer John had a crop loss. The crop adjuster reviewed the coverage and share owner interest and paid Farmer John his 50% share of the loss. Farmer John was quite unhappy and made a claim to the agency's E&O carrier. Despite the fact that Farmer John had signed the Application/Coverage Change form without requesting any change to the share owner interest, the E&O carrier determined this to be a liability claim for the agency. The fact that the agent had Farmer John sign a blank Acreage Report, did not review the completed Acreage Report with Farmer John, and utilized old information to complete the Acreage Report rather than reviewing the current FSA 578 that noted Farmer John's 100% share owner interest outweighed the oversight of Farmer John on the Application/Coverage Change form. Risk Management Tip: Always go over ALL forms with customers prior to signing and never have a client sign a blank form. Also, review each FSA 578 and compare the information indicated on the Acreage Report to see that it matches the information on the FSA 578. This was a correctable error as well. Share owner interest is one of the few pieces of information that may be corrected prior to a claim being filed. Had the Acreage Report been reviewed prior to the notice of claim being filed, the policy would have been corrected and the agency would have avoided this claim entirely. Summary of Coverage The Summary of Coverage is equivalent to a Declarations Page. It lists the following information: The premium due Level of coverage Type of coverage 13 P age

15 County and State Type of crop % of share interest** Amount of acres reported** Planting Pattern** **(This is the only information that can be changed up to this point if due to a clerical error, but it must be proven that it was a clerical error, IF NO CLAIM HAS BEEN FILED PREVIOUSLY.) The crop insurance carrier sends this document out shortly after the Acreage Report is submitted to the carrier. The Acreage Report is the source for the information that is placed on the Summary of Coverage. The agency should send a copy to the named insured immediately and keep a copy. The agency should review this Summary and compare it to the Application and Acreage Report. This is the last document that the named insured will receive in the MPCI policy cycle prior to harvest. It is the last opportunity for both the named insured and the agency to determine if there is any discrepancy in the coverage provided. E&O Case Study Example: Summary of Coverage Farmer Rose provided her agent with her FSA 578 and initialed and signed the Acreage Report after her agent completed the form. The Summary of Coverage was issued shortly after the Acreage Report was submitted to the carrier based on the information provided on the Acreage Report. The Summary of Coverage was mailed to the agent and delineated the acres reported by unit. The agent was then notified by Farmer Rose of a crop loss prior to the agent mailing the Summary of Coverage. The agent did not check the Application or the FSA 578 forms to see that the proper coverage was procured for Farmer Rose. The agent failed to mail the Summary of Coverage to Farmer Rose and immediately notified the crop carrier of the crop loss. The crop adjuster notified Farmer Rose of the shortage in reported acres. The agent requested the carrier correct the Acreage Report to reflect the correct acreage since he had been provided the correct information by Farmer Rose. The carrier declined this request due to a claim having already been reported. Farmer Rose ended up with a crop loss on this unreported acreage that was not covered under her MPCI policy. Furthermore, the production from the unreported acreage was then combined with the reported production on the insured acreage that resulted in no indemnity payment to Farmer Rose. Of course, Farmer Rose looked to her agent to recover the unpaid losses. The E&O carrier determined that this was a shared error on the part of the agency as well as Farmer Rose. Farmer Rose had been given an opportunity to review the Acreage Report prior to signing. However, she had provided the agency with all FSA 578 forms and the agent made an error while keying the information. The agent compounded the error by not checking that the Summary of Coverage reflected the correct acreage and did not forward this document to the client. The agency missed an opportunity to avoid this error. Farmer Rose was assessed a very small percentage of comparative fault for the acres being 14 P age

16 under reported on the acreage report. The agency bore the lion's share of this uncovered crop claim. Risk Management Tip: The summary of coverage is a good check point for the named insured and the agency to verify that the correct coverage was procured by comparing the Application as well as the FSA 578 forms to the Summary of Coverage. Upon receipt of a Summary of Coverage, the agent should double check the Application, FSA 578 forms provided by the named insured as well as the Acreage Report to see if there are any discrepancies PRIOR to any claim notice being filed. The agent should immediately mail the Summary of Coverage to the named insured to give another opportunity for the named insured to review the coverage as well. Once a claim notice is filed, no changes can be made to the policy. Production Report This report is a record of the annual production of each type of crop for the named insured. After the crop is harvested, the named insured utilizes receipts or reports from the coop, gin, mill, or combine yield monitor, to prepare the Production Report. The signed Production Report must be provided to the insurance agent. The Production Report determines if an indemnity payment is owed if a crop was harvested. It is also utilized to determine the average yield for that crop for that specific acreage for the next crop insurance year. If the named insured did not have a crop loss, the insurance carrier would not have the production numbers from the prior harvest. The agent has a duty to forward the production information to the crop insurance carrier and failure to forward the production history to the carrier will result in an assigned yield by the RMA which will be less than the actual yield. This assigned yield will impact an indemnity payment on a crop loss or can be the cause of the crop insurance carrier cancelling a policy for the failure to report production. The Production Report is required to be submitted by end of April each year. E&O Example Case Study: Production Report Two Farmers & A Plow LLC (Two Farmers) had harvested all crops in the fall and had receipts from the coop for all the grain harvested. The Two Farmers provided the agency with all production information in January. The agency completed the Application/Production Reporting form for Two Farmers in March, raised the coverage level form 75% to 80%, and submitted the signed form to the carrier for keying via regular mail. The agent kept a copy of the form in the file. The carrier attempted to penalize Two Farmers for not reporting the production from the prior year and claimed to have not received the new Application/Production Reporting form. The agent reported the issue to the E&O carrier. The E&O carrier's adjuster noted that the crop insurance carrier had increased the level of coverage for Two Farmers to 80% which confirmed that the carrier had received the newly completed 15 P age

17 Application/Production Reporting form. The E&O adjuster instructed the agent to submit the Application/Production Reporting form from its file to the carrier and ask the carrier for a copy of the document it had utilized to key the information. After the crop insurance carrier reviewed the information the insured provided, the policy was corrected and no penalty was assessed Two Farmers. The error occurred on the part of the crop insurance carrier's employee when the production information was not picked up when the Application/Production Report form was being keyed. However, it was up to the insured to prove it was the carrier's error and the agency avoided an E&O claim. Risk Management Tip: The agency should always keep a copy of any document being sent out of the office. Also, the agent was fortunate that he could prove that the carrier had received this new Application/Production Report since it had made a change to the coverage level. Otherwise, the agency could have been facing an E&O claim. It is best to send time sensitive documents in a manner that can be tracked or require a signature. Provisions and Coverage Extensions/Endorsements Provisions "Crop Provisions" is defined as the part of the policy that contains the specific provisions of insurance for each insured crop. Note: The common crop policy does not contain the crop provisions. One may access the provisions via RMA.USDA.GOV to obtain the specific crop provisions for the specific crop. Each type of insurable crop has specific provisions of insurance applicable to it. The Basic Crop policy references these provisions as they are more detailed as to what the terms and conditions apply to that specific crop. The Provisions are equivalent to the "nuts and bolts" relative to the specific crop being insured. Insurance agents placing crop insurance need to familiarize himself/herself with the provisions applicable to the type of crop your client is procuring coverage for. Being unfamiliar with these provisions could result in erroneous information being provided to your client or important information being omitted that could result in your client not receiving the proper indemnity payment and exposing the agency to compensatory damages. A misrepresentation could also expose the agent or agency to a claim for punitive damages. 16 P age

18 Policy Endorsements and Options Some crop provisions allow the addition of supplemental coverage, exclude coverage or otherwise modify coverage. These endorsements or options generally must be applied for on or before the sales closing date, i.e., on the Application/Coverage Change form. Once the Application is submitted, these endorsements or options are no longer available to be procured. Some examples of endorsements that must be elected by the sales closing date are: Catastrophic Risk Protection Endorsement (CAT Coverage) High Risk Alternate Coverage Endorsement (HR ACE) Prevented Planting Endorsement Green Snap Endorsement E&O Case Study Example: Endorsement Farmer Ivan completed his Application/Coverage Change form with his crop insurance agent prior to March 15. Farmer Ivan reviewed the application, initialed each page, and signed the completed form. Farmer Ivan and the agent were engaged in conversation prior to Farmer Ivan leaving the agency as to how wet the winter and spring had been in the area. Farmer Ivan was concerned over the Farmer's Almanac prediction of an unusually wet and cool spring. Farmer Ivan was worried he may not be able to get his crop into the ground if the prediction held true. The agent and Farmer Ivan discussed the prevented planting guarantee of 60% and Farmer Ivan decided to elect the 70% prevented planting guarantee. The agent assured Farmer Ivan he would make the change on the Application/Coverage Change form prior to submission. Farmer Ivan left the office and the phone rang.. The agent submitted Farmer Ivan's Application/Coverage Change form in a timely manner. Farmer Ivan reported a prevented planting claim. He could not get any crop into the ground due to the wet conditions. The crop insurance carrier paid an indemnity payment of 60%. Farmer Ivan was understandably confused as he had specifically requested the prevented planting guarantee of 70%. He contacted his crop insurance agent who reviewed the Application/Coverage Change form and suddenly had a very bad day. The crop insurance carrier would not amend the coverage as the prevented planting coverage guarantee of 70% had not been elected prior to submission of the Application/Coverage Change form. The E&O carrier determined this to be a liability claim for the agency. Risk Management Tip: If a customer decides to make a change to an already completed and signed form, make the change while the customer is there and have them initial the change. Do not rely on your memory to make changes as life happens and distractions occur. 17 P age

19 Appeals Crop insurance agents receive inquiries regularly from its customers regarding explanations of how basic or special provisions apply to a specific issue. Unfortunately, when a crop claim is denied contrary to the information provided by the insurance agent, customers tend to look to the insurance agency for resolution, i.e., payment. While the agency should place its E&O carrier on notice of a potential claim, if there appears to be some discrepancy with the interpretation of a crop policy or plan of insurance, assisting your customer with filing an Appeal or Final Agency Determination may resolve the matter and render the E&O claim moot. Appeal Process There is an appeal process regarding any decision made by the Federal Crop Insurance Corporation. Refer to the RMA website for these procedures or contact your underwriter of your AIP. Basically a request for an arbitration or mediation may be filed. The decision is final. Your E&O carrier may be able to help you through this process. Final Agency Determination (FAD) A FAD is a process for the RMA to handle interpretations of any portion of the Federal Crop Insurance Act. RMA may interpret crop policies or plans of insurance but they cannot interpret any specific factual situations, i.e., actions of individual producers under the terms of the policies or the actions of insurance companies. Any FAD will be final and binding. Refer to the RMA website under Laws & Regulations to review procedures to request a FAD. Crop Quick Reference Risk Management Checklist The following checklist includes reminders that can assist agency staff in avoiding potential E&O claims: Internal Crop Risk Management Checklist Customer Name: Date: 1. Was each question on the application gone over with the named insured prior to completing the application? Yes No 2. Was New Producer information shared and explained with the named insured? Yes No 18 P age

20 3. Did the named insured review the application prior to initialing each page and signing the application? Yes No 4. Were all changes made prior to obtaining the signature from the named insured? Yes No 5. Did you submit the signed application with a date of no later than March 15 to the crop carrier within the three week window for submission? 6. Did you carefully input the information on the Acreage Reporting form from the signed FSA 578 form provided by the named insured? 7. Did you review each box and line item on the Acreage Reporting form to see if any changes have occurred from the previous year? 8. Did you submit the Acreage Report to the carrier within the 30 day deadline set by the Risk Management Agency? Yes Yes Yes Yes No No No No 9. Did you compare the Summary of Coverage upon receipt with all FSA 578 forms? Yes No 10. Did you review the Summary of Coverage with the FSA 578 forms prior to notifying the carrier of a claim? 11. Did you mail the Summary of Coverage within a timely manner to the policy owner so the policy owner has a last chance to make allowed corrections if needed? Yes Yes No No 12. Did you inform the policy owner of the premium owed? Yes No 13. Did you obtain a copy of the signed Production Report and provide this information to the crop carrier before the end of April? Yes No 19 P age

21 14. Did you explain the claim reporting requirements and deadlines within policy? Yes No 15. Did the agent timely open a claim if the policy owner reports a crop loss? Yes No Crop Insurance FAQ s from RMA The Risk Management Agency s website has contains help information that can help both agents ad customers better understand crop insurance the requirements in writing it. The below information was copied from RMA s website. The more informed both you and your customer are, the less likely you are to experience an E&O claim when writing crop insurance. Q: Do I really need crop insurance? A: Buying a crop insurance policy is one risk management option. Producers should always carefully consider how a policy will work in conjunction with their other risk management strategies to insure the best possible outcome each crop year. Crop insurance agents and other agri business specialists in the private and public sectors can assist farmers in developing a good management plan. Q: Does crop insurance cover crops in the event of natural disasters? A: Producers who purchased crop insurance are covered for all natural causes of loss listed in their policies. For those without insurance, the Noninsured Crop Disaster Assistance Program (NAP), managed by USDA's Farm Service Agency, provides financial assistance to producers of non insurable crops when low yields, loss of inventory, or prevented planting occurs due to natural disasters. Q: How does the Federal crop insurance program work, and how do I apply for coverage? A: Federal Crop Insurance Corporation (FCIC) programs are administered by the Risk Management Agency (RMA), which underwrites crop insurance policies for hundreds of crops and livestock in the United States. Crop insurance policies are sold and serviced by private insurance companies. For information about insurance products available in your area, please contact a local insurance agent or one of the insurance companies that sell and service crop insurance policies in your state. RMA also has 10 Regional Offices in various locations across the country that you 20 P age

22 may contact for information specific to your area. Your local insurance agent can describe the different insurance products available, and the policy rates and terms. Your agent will help you choose the best coverage for your crop based on your particular farm operation and your risk management and budgetary needs. Q: My crop insurance company denied all or part of my claim after I experienced a loss. Can RMA help me get a payment on my claim? A: RMA has a Standard Reinsurance Agreement with insurance providers to sell and service crop insurance policies according to Federal Crop Insurance Corporation policies and procedures. As a reinsurer, RMA does not have an appeal process available for producers. Producers may seek to resolve their disputes by exercising their rights under Section 20 or Section 25, in the crop insurance policy Basic Provisions. Q: Crop insurance seems complicated. What are some of the common mistakes that producers make that can cost them money? A: Here are some of the most common mistakes that could cost the producer money: Underreporting your planted acreage per unit Production to count for an insured crop is derived from all planted acreage for that crop per unit, whether you reported all of the acres in that unit or not. Therefore, if you underreport your acres your yield will be artificially inflated and you will receive a lower indemnity payment. Over reporting your planted acreage per unit If you have over reported your acres, your production to count will be derived from all planted acreage for that crop per unit. The acreage will be reduced to the correct number of acres. Your indemnity will be slightly less due to the reduction in your total guarantee (not your per acre guarantee) and you will be refunded any overpayment of premium. 21 P age

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