Federal crop insurance provided by USDA’s Federal Crop Insurance Corporation (FCIC) and participating private companies (Approved Insurance Providers or AIPs) is often described as a program based on “self-certification.” Farmers annually report their own acreage, ownership, yield histories, and other key information, mostly on an honor system. FCIC and AIPs require support documents, and can investigate after the fact, but the system largely depends on honest people telling the truth.
To make it legally enforceable, participating farmers must sign the documents they submit to FCIC and their AIPs, certifying that information is accurate. If later investigation finds the farmer misreported, then penalties – sometimes severe – can be imposed.
AIPs often depend on these certifications in denying indemnity claims, especially claims based on errors or false statements in the farmer’s reports. But this protection for AIPs is far from absolute, especially where the AIP (or its agent) bears some responsibility for giving the farmer bad advice.
One recent Arbitration case tested the outer limits of this system. The AIP in this case had received an inquiry from RMA that one of its insured farmers was owned by a foreign national – a potential violation of FCIC ownership rules. But the farmer failed to report the foreign national on his insurance application as an SBI (Substantial Beneficial Interest) because the ownership interest was too distant. Simply put, the foreign national owned an owner of an owner of an owner of the farm (fourth tier). Most industry professionals understood the RMA rule to require reporting only of two tiers (the farm and its immediate owner). On first hearing RMA’s concern, the AIP studied the issue and stuck with its initial reading that the policy was correct – only two tiers of ownership needed to be reported. The farmer, based on this advice, continued not to report the distant owner.
A few years later, this case ended up in litigation. The AIP found itself opposing the farmer, claiming the coverage was void due to the undisclosed ineligible foreign owner. The AIP argued (among other things) that the farmer had failed in his “self-certification” duty by failing to report the foreign owner – even based on the advice of the AIP itself. RMA, talking through an expert witness, largely sided with the AIP.
This raised a question: Could the FCIC policy actually penalize an insured farmer for an incorrect certified answer on a crop insurance application, when the insured based that answer on advice from the AIP, which in turn had based its opinion on a reasonable reading of RMA rules? We assisted this farmer in arguing that, no, it can’t, and the Arbitrator agreed with us.
The fact is, RMA requires standardized language for AIPs to use in obtaining farmer certifications (see FCIC’s “Document and Supplemental Standards Handbook,” exhibit 2). This language contains an obvious escape clause: “to the best of my knowledge and belief.” If a farmer signs a certification in good faith, with a demonstrable basis of “knowledge and belief” that the information was correct – such as advice from his agent or AIP, a legitimate computer error, or some other factor — then the farmer has NOT violated the certification on its face.
Here’s how the Arbitrator explained it in our case:
“[The AIP] argued that, even though it never requested [the farmer] report SBI information for [the distant owner] at the time it applied for coverage during the three years in dispute, FCIC crop insurance nevertheless is a ‘self-certification’ program and [the farmer] was required to report the information despite [the AIP’s] assurances that it was not necessary.
“This argument falls to facts on the record. During the oral hearing, counsel for [the farmer] pointed to the text of the actual certification that [the farmer] was required to sign …. It says: ‘I certify that the information and answers on this application are correct to my knowledge and belief….’
“This ‘knowledge and belief’ certainly was informed by the advice [the farmer] had received from [the AIP] that the SBI information on [the distant owner] was not required, making the certification truthful and accurate on its face. There was no failure of ‘self certification’ by [the farmer].”
The lessons are clear. For AIPs defending against a farmer claim, be very careful in relying on a farmer’s signature to an RMA “self-certification” standing alone to prove a case. For farmers, if they can show “knowledge and belief” supporting their report, they have satisfied their duty of “self-certification” based on plain language as required by RMA.