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By Jeff Todd, Spencer Smith and Jeremiah Buettner*

In the March 2008 Update we addressed Group Risk Income Protection (GRIP) policy disputes (RMA’s Inconsistent Practices Cost Farmers) and described the inconsistent positions taken by the Risk Management Agency (RMA) in three cases involving claims made by several hundred Texas insureds for the 2006 crop year. At the time, the cases were involved in arbitration, litigation and administrative appeals. Now that the cases have been resolved, this article describes what can be learned from the disputes.

The GRIP Policy & RMA’s Inconsistent Payment Determinations

GRIP is a program of crop insurance intended to be a risk management tool to insure against widespread loss of revenue from the insured crop in a county, whether due to low yields, low prices, or both. The policies are issued by private insurance companies (Approved Insurance Providers or AIPs) and are federally reinsured by the RMA, a division of the USDA. Essentially, the insured farmer will be entitled to a payment when the revenue for the insured’s county is below a certain point, the “trigger revenue.”

The “trigger revenue” is derived from multiplying the coverage level (selected by the insured farmer) by the expected county revenue. The expected county revenue is the product of the expected harvest price as outlined in the crop provisions and the estimated county yield. The estimated county yield is provided by the National Agriculture Statistics Service (NASS) and represents NASS’s estimate of the total production of the crop in a county divided by its estimate of the total acres grown.

After the crop year, RMA determines the actual county revenue by multiplying the county’s harvest price by NASS’s estimate of the actual county yield. Ultimately, if the county revenue drops below the trigger revenue, an indemnity is due under the policy.

RMA’s calculation of the actual county revenue is perhaps the most important step in determining the insurers’ payment obligation to a GRIP policyholder. However, as described in our March 2008 article, RMA took inconsistent positions on whether or not it had the authority to manipulate NASS estimates of county yields. In some cases, RMA would argue that it had the authority to do so to get a “more accurate” higher yield, which consequently lowered the indemnity due the insureds. In other cases, RMA refused to adjust NASS yields to lower the yield (which would increase the indemnity) despite demonstrably inaccurate statistics. Now that the 2006 Texas GRIP matters have been resolved, there is valuable precedent outlining RMA’s obligations to GRIP policyholders.

Parmer County Corn

Parmer County irrigated corn producers were involved in the largest GRIP policy dispute for the 2006 crop year. Based on the NASS published county yield for corn, Parmer County irrigated corn farmers were entitled to an indemnity of approximately $235 per acre. Before directing payment for this amount, however, RMA made an after-the-fact determination that planting non-irrigated corn was not a “good farming practice” in west Texas, and was therefore uninsurable.

The express terms of the GRIP policy mandate that all corn planted in the county be used in setting the county actual county yield, regardless of insurability. Nevertheless, RMA unilaterally modified the NASS numbers by subtracting thousands of planted non-irrigated acres. In doing so, RMA artificially inflated the county yield and deflated indemnity payments due the insured farmers. When the insured farmers received their indemnity payments, they were only for $45 per acre. As a group, Parmer County irrigated corn producers received nearly $3 million less than was due under the GRIP policies. Moreover, RMA later retracted its “good farming practice” determination, but failed to pay the balance of the indemnity.

The producers initiated an arbitration proceeding against their AIPs, which led to the discovery that RMA had caused the lower payment. The arbitration was stayed and the producers pursued an administrative action against RMA before the USDA’s National Appeals Division (the NAD). The group sought a determination that RMA breached the terms of the GRIP policy by adjusting the published NASS yield.

The NAD held that RMA was allowed to adjust NASS yields as long as the adjustments were not arbitrary and capricious. In this case, the Director found that, in subtracting the non-irrigated acres because of a good farming practice determination that was later retracted, this revision was arbitrary and capricious. RMA subsequently agreed to pay the producers $2.5 million in indemnity plus the $45 per acre already paid, plus an additional $50,000 for their attorneys’ fees and costs. [1]

Parmer County Wheat

In addition to the Parmer County corn producers, several wheat producers in Parmer County were forced to resort to litigation when the RMA directed payment of the GRIP indemnity based on demonstrably inaccurate NASS data. Unlike the Parmer County corn case, where RMA defended itself by claiming it was entitled to adjust NASS data as it saw fit, RMA argued otherwise in the Parmer County wheat case.

Prior to the publication of the final county yield for Parmer County wheat, a few wheat producers had reviewed preliminary NASS yields and discovered that NASS had erroneously high production numbers. The producers contacted both NASS and RMA, ultimately convincing them to adjust the production estimates three times before issuing a final published yield. Even after the adjustments, the numbers were still too high, resulting in an erroneously low indemnity. Despite acknowledging the flawed data provided by NASS, RMA refused to modify the NASS numbers, arguing that it was “required” to use official NASS estimates, whether they reflected accurate production data or not.

Several wheat producers challenged RMA’s position in front of the NAD. The group sought a determination that by convincing NASS to alter its initial NASS numbers, RMA had committed itself to using accurate production data. According to the terms of the GRIP Policy, RMA was not allowed to recalculate indemnity payments even though the NASS yield may be subsequently revised. Because the insured producers, NASS and RMA had all acted outside the policy by changing the numbers to make them more accurate the producers argued, RMA had a duty to actually determine and use accurate yield data.

The NAD ultimately held that RMA did not violate the terms of the GRIP policy by calculating the indemnity based on revised NASS estimates. The Director noted that while RMA has the authority to adjust NASS yields, rather than simply adopting them, it is not under a duty to make such adjustments. However, the Director noted that RMA could not make post-payment revisions to NASS yields to the detriment of a producer.

Moore County and Dallam County Wheat

Under the Parmer County wheat case, it is clear that RMA cannot make post-payment revisions to NASS yields, which is exactly what it attempted to do to wheat producers in Moore and Dallam Counties.

In March 2007, NASS published its county yields for Moore and Dallam Counties for the 2006 crop year. RMA relied on the yields and calculated and paid

the producers’ indemnity. However, in July 2007, NASS revised its originally published estimates after further analysis of the data, significantly increasing the yield. In response, RMA recalculated the producers’ indemnity payments and directed the AIPs to demand refunds of “overpayments” from the insureds.

The wheat producers joined together and initiated an NAD appeal seeking a determination that RMA could not retroactively recalculate indemnity payments based on revised NASS yields and demand refunds of already paid indemnities.

The NAD again noted that, while RMA has the authority to adjust NASS yields, it does not have the authority under GRIP to recalculate a previously issued indemnity payment to the detriment of the producer. Thus, the producers obtained an order declaring the demands for refund improper and an award for the attorney fees in connection with the NAD appeal.

Conclusion

The lesson to be learned by the foregoing cases is that the NAD has held that RMA may make reasonable adjustments to the NASS final yields in calculating GRIP indemnity payments, but is not under a duty to do so. All adjustments must be based in fact and not be arbitrary and capricious, as RMA attempted to do in the Parmer County corn case. Furthermore, RMA’s ability to adjust NASS yields does not allow it to make post-payment recalculations of the indemnity to the detriment of the producer, as RMA attempted to do in the Moore County and Dallam County wheat case. Finally, GRIP insureds will be able to recover attorney fees in situations where they are forced to resort to litigation to enforce the provisions of the GRIP policy before the NAD.

While this may provide some assurance as to how a GRIP indemnity payment should be calculated, we will have to wait and see if RMA will consistently adhere to these rules.

ENDNOTES

[1]  Non-irrigated corn farmers in Parmer County, who were also contesting the RMA’s actions in federal court, clearly benefited from the irrigated producers’ NAD appeal. After the NAD’s decision, RMA agreed to settle with the non-irrigated corn farmers.

* Attorneys with the Oklahoma-based law firm of McAfee & Taft, represented groups of farmers in the Parmer, Moore and Dallam County, TX administrative actions. They have represented over one hundred wheat, corn and cotton farmers in all three forums (administrative appeals, arbitration, and federal court judicial reviews.)