FEDERAL CROP INSBRANCE
FEDERAL SEED ACT
JAMES McMILLON
FEDERAL CROP INSURANCE
I ntroduction
As all t oo many farmers each year are able to attest,
not even a perfect job of farming carries any promise of
profits.
itself.
The dangers of farming are as old as the occupation
From the time man first broke ground with a pOinted
stick, he has gambled h i s e fforts against such ever-present
risks as too much or too little moisture, scorching heat,
sudden freeze, and hail that can rip and shred the healthiest
of crops.
The idea of crop insurance was developed as early as
1888,1 but a functional program failed to materialize until
Congress enacted the Federal Crop Insurance Act of 1938.
Private companies which had adopted the practice of insuring
crops failed because of d1ff1culties in administrat1on.
Several reasons were given for such fa1lure: 2
1.
limited spread of risk over a limited geographical
area subject ed companies to the danger of serious
crop failures for the first years of operation;
2.
attempts to insure income rather than yield losses
alone proved disastrous; and
3.
inadequate data for determining risk.
2
The original Federal Crop Insurance Act of 1938 only
provided i ns urance for wheat farmers.
The President's
committee wh ich s tudied the crop insurance situation knew
that wheat farmers strongly favored such a plan, and the
committee had eompiled extensive data on the commodity.
Since the program would be more or less experimental, it
was decided to limit coverage to one commodity.
However,
other crops were added by the 1941 Federal Crop Insurance
Act, Section 1 . 3
The provisio ns passed in 1947 allowed three
different types of crops to be added to the coverage of
the Act 1n anyone year. 4
The stated purpose of the Act was "to promote the
national welfare by improving the economic $tabllity of
agriculture through a sound system of crop insurance and
providing the means for the research and experience helpful in devising and establishing such insurance.· 5
The remainder of this pape r will discuss the prov1s1ons
of the Act, the procedure i nvolved in obtaining crop insurance, and areas of litigat10n involv ing the Federal
Crop Insurance Corporation.
Provisions of the Ae t
The orig1nal Act of 1938 established the Federal Crop
Insurance Corporation to carry out the purposes of the Act. 6
It is an agency of and. within the Department of Agriculture.
The management of the Corporation is vested in a Board of
Director$ subject to the general supervision of the Secretary
of Agriculture.?
Each memQer is appointed by and holds
office at the pleasur e of the Secretary.
The Corporation
1s author1zed to insure against crop loss, f1x adequate
premiums, and adjust and pay claims for losses. 8
In
add1t10n, the Board may ·purchase, handle, store, 1nsure,
provide storage fac1lit1es for, and sell the agr1cultural
comllodity."9
Federal Crop Insurance is an "all-r isk" crop 1nsurance
aga1nst loss of the insured commodity due to "unavoidable
causes, including drought, flood, hail, wind, frost, winterk1ll, lightning, fire, excessive rain, snow, Wildlife,
hurr1cane, tornado, insect infestat1on, plant disease, and
such other unavoidable causes as may be determined by the
Board. "10
The causes of loss not i nsured aga1nst are
specifically set out 1n the insurance contract:
"The contract shall not cover any loss due
to the neglect or malfeasance of the insured, any
member of his household, his tenants, sharecroppers
or employees, or failure to follow recogn1zed good
farming practices, or to damage resulting from the
backing up of the water by any governmental or
public uti11ties dam or reservo1r project or due
to any cause not specif1ed as an 1nsured cause in
th1s policy as l1mited by the app11cable endorsement or actuarial table."ll
In addition, the insurance coverage does not extend "beyond
the period the 1nsured commod1ty 1s in the fieid."12
4
The continuous contract defines an insured crop as
"a crop for which the insured has applied for insurance,
for whlch the actuarlal table shows a production guarantee
or an amount of insurance per acre and a premium rate, for
which an endorsement to this pollcy ls in force and whlch
is grown on insured acreage. "13
In 1975 the F'C!C offered
insurance on 21 different crops.14
are ln~urable in all counties. 15
However, not all crops
Priority ls given to those
that are the main sources of income.
In addition, crop
1nsura~ce may be offered each year 1n only 150 new count1es."16
Premiums for 1nsurance are fixed at such rates "as the
Board deems suffic1ent to cover claims fOT crop losses on
such 1~surance."17
The Board is also authorized to establish
"a reasonable reserve against unforeseen ~osses."16
The
total annual premlum for an lnsured crop may be reduced if
a farmer ls fortunate enough to have few losses.
The appllcable
discounts are as follows:
Percent Eremlum
reduction
Consecutive years
with no loss
5 percent after
1 year
5 percent after
2 years
10 percent after
3 years
10 percent after
4 years
15 percent after
5 years ·
20 percent after
6 years
25 percent after
7 years or more
5
Premiums are established "on the basis of the parity or
comparable price for the commodity as determined and published
by the Secretary of Agriculture, or on the basis of an average
market price designat ed by the Board."19
The premium for
an insured crop is earned and payable when the crop is
planted.
The policy contract is of a continuous type and remains
in effect unless canceled or terminated. 20 E1ther party may
cancellnsurance on any insured crop f or any crop year by
glvl~
~
written and signed notice to t he other party.
Termination may occur if any premium due the Corporation
on the insured crop remains unpaid, or if no premium is earned
on that crop for three consecutive crop years.21
The payment of claims are determined on the same price
basis as premiums. 22
The Corporation is required to annually
post in each county at the courthouse a list of claims paid
for losses on farms in that county.23
If any claim for
indemnity is denied by the Corporation, suit may be brought
against the Corporation in "the United States district
court, or in any court of record of the State having general
jurisdiction,sitting in the district or county in which the
insured farm is located. n24
In Odessa Trading CompanY v.
Federal Crop Insurance Corporation,25 the farmer argued that
suit could be brought in any state court within the "district",
6
includ1ng any county court.
However, the court ruled that to
g1ve the statute this construction would render the words
"or county" meaningless and mere surplusage.
If the farmer
chooses to br1ng act i on in state court, he must bring 1t 1n
the county in which the insured farm 1s located.
Suit must be brought within one year after the date when
not1ce of denial of the claim 1s mailed to and received by
the claimant. 26
The one-year li mitation period is strictly
construed as seen 1n Godbold v. Fede ral Crop Insurance
corporatlon~27
The pla1nt1ff cotton f a r mer b~ought su1t
against the Corporat1on on a claim for damage to his crop
which was
in~ured
by the Corporat1on.
The defendant was
granted summary judgment based on the fact
th~t
some 18
months prior to the f1l1ng of the su1t, the farmer had
received not1ce that his cla1m for
rejected.
1rid~ity
had been
The farmer claimed there had been no "denial"
w1thin the meaning of 7 U.S.C. 1508(c).
He offered evidence
that he continued h1s efforts to persuade the Corporation :
to recons1der his claim. and that the Corporation did 1n
fact have a meet1ng w1th him.
Although no other commun1cat1ons
were made between the farmer and the Corporat1on, he ma1nta1ned that at the conclus1on of the meet1ng 1t was h1s
understanding that the cla1m would be reconsidered.
court ruled that the lim1tation per10d of one year is
The
7
unequivocal and must be adhered to strictly.
The court also
stated that there is no distinction between a "rejection"
and "denial" of a claim.
obtainins Federal Crop Insurance
A prerequisite to obtaining Federal Crop Insurance is
that the insured must
time of plantin.g.28
~ve
an interest in the crop at the
Those ~ersons having suchan interest
are owner-operators, landlords, tenants, or sharecroppers. 2S
To be insured, the faraer must have an insurable interest
and be ,t8 years of age. JO
Upon completing an application for crop insurance, it
must be accepted by the county committee in order to create
a binding contract of insuranoe. J1
In Frier y. Federal Crop
Insurance cqrporation,J2 the plaintiff applied for insurance
on the standard form whioh was
sub.itt~d
County Agricultural Committee Office.
to the clerk in the
After suffering a crop
loss, the farmer returned to the offIce and found that his
appllc~tion , had
been lost.
The members qf the County
Committee, who were supposed to consIder the
applicatlo~,
testified that they did not remember signing the application.
Evidence of ,the acceptance of the application was a copy
signed by a member of the County Committee delivered to the
applicant.
The plaintiff had received no such copy.
The
8
oourt held that the plaint1ff had a duty to know whether or
not he had insurance, and that he could not rely on the clerk
to aooept the appl1cation.
Thus, the plaint1ff's lack of
d1l1genoe barred h1m from any recovery.
The importance of
proper acoeptance of the applicat10n and the duty of the
applioant to secure acceptance 1s apparent.
Another example of caution applicants must take 1n
reliance on the agents of FCIC is illustrated by Hubert v.
Federal Crop Insuranoe Corporat10n. JJ
pla1nt1ffs
~pp11ed
In this case, the
for crop 1nsurance on four insurance
units thought to be in a coverage area with the highest
production guarantee.
At the t1me of the
s1~ning
of the
appl1cat1on ,both the pla1nt1ffs and the agent were of the
belief that ,pla1nt1ffs' lands were ent1tled to the higher. ,
coverage.
Upon plaint1ffs' giving not1ce of loss for all
l
four insurance units, It .was d1scovered that two of the
un1ts
~ere
aetuallyln a lower coverage area w1th a lower
product1on guarantee, and the plaint1ffs rece1ved $J,547 J*C
less than expected.
Rely1ng on a rule la1d down in Federal
Crop Insurance Corporation v. Merrlll,J4 the court held tbat
tr.~
defendant corporation vas ne1 ther bound nor estopped
i
:'~Y
, I.
the erroneous. statements aade by 1ts agents to the plaint;1ff
• I
concerning its acreage coverage at the
of the crop insurance policy.
t1 !l'; ~ {"If
the issuance
: 1.
9
Under recent regulations, Frier and Hubert m1ght have
had different outcomes.
The regulations prov1de that an
insured person shall be entitled to indemnity "whenever an
insured under any contract of crop insurance entered 1nto
under these regulations, • • • has suffered a loss to a
crop which is not insured, or for which he is not entitled
to an indemn1ty because of failure to comply w1th the terms
of the insurance contract, but which he believed to be
insured, orbe11eved the terms of the insurance contract
to have been complied w1 th or waJ ved ,. because of a misrepresentation or other erroneous aotion or advice by an
agent or employee of the corporatlt;n~ .. 35
The regulation
states that the Board or the Mana8\i- must find:
(a)
that an agent or employe" of the Corporation did
in fact make such misrepresentation or take
other erroneous action or give erroneous advice;
(b)
that said insured person relied thereon 1n good
faith; and
(c)
that to deny said insured's claim for indemnity
would not be fair and eqUitab1e. 36
Upon receiving approval from the County Committee, a
farmer can plant his crop, at which time the insured's interest
in the crop is established.
The insured must submit an acreage
report containing such information as name of the crop, insured's
10
interest in the crop, description of the farm, and when the
crop was planted. J ?
on the 1nsured.
DeCell,J8
Once submitted, this report is blnding
In Federal Crop Insurance Corporation v.
the pla1ntiff signed the acreage report wh1ch
contained an error as to the amount of acreage in a un1t of
h1s 1nsured property.
The report was filled 1n by a FCIC
adjuster after he had 1nspected the insured's planting.
The report erroneously stated the number of acres covered
by the 1nsurance contract.
The court ruled that the Federal
Crop Insurance Corporation's regulations specifically
provide that, once the acreage report is submitted, it 1s
not subject to change.
The faraer
~as
thus limited in his
recovery to the lesser number of -a -cres reported.
'I'his result
would probably be changed by the recent regulations on good
faith re11ance on m1srepresentat1on. J9
If the crop is damaged, the insured is required to
"promptly give written notice of damage to the Corporation
at the office of the county if, during the period before
harvest, the 1nsured crop on any un1t is damaged to the
extent that the insured does not expect to further care
for the crop or harvest any part of it, or he wants the
consent of the Corporation to put the acreage to another
use.,,40
No acreage can be put to another use w1thout the
Corporation making an appraisal of the potential product1on
11
of such acreage and giving its oonsent in wrltlng. 41
Such
consent will be given only if it is too late to replant the
same crop.
If the crop 1s to be threshed or harvested, the
insured must give written notice thereof to the
Corpora~lon
not later than 15 days after such threshIng or harvesting
1s completed. 42 Any insured acreage whIch is not to be
harvested shall be left intact until the CorporatIon makes
an InspectIon. 43
If these provisions are not adhered to and
the loss cannot be satisfactor11y .determ1ned, the Corporation
reserves the right to reject the cla1m. 44
Ih the recent case of Howard v. Federal Crop Insurance
corporatlen45 the plalntlffs were denled their claim for crop
loss·. s.
In the stilt, plalntlft':s Bstabllshed productIon of
tobacco on thelr acreage, but alleEed that the1r 1973 crop was
extensIvely dama«ed by 1\eavy ralns resultIng In los~s whllOh
they cla1medtotalea $35,738.92.
Hav1ng harvested and sold the
depleted crop, plalntlffs t1mely filed notlce and proof · of loss
but proceded to plow under the remalning stalks and plant: la
cover crop of rye to preserve the soil.
An PCIC adjuster
thereafter inspected the f1elds as required by the policy, but,
.I
findIng the stalks had been destroyed, denIed the clalm on
grounds that the plaintIffs had YIolated the terms of the policy
endorsement.
~o~d
The court dld
n~t
discuss the recently enacted
falth provlsion of the regulations in holdIng that the pollcy
12
provision of the Corporation's inspect10n right was a condition
precedent to recovery and failure of the insureds to comply
woked a forfeiture of benefits for the alleged loss.
Conclusion
Th~
Federal Crop Insurance program has had limited success.
lack of widespread participation in the
~ricultural
cOlUlunity
is accounted for by the fact that most farmers view it as an
unwanted additional expense.
Since
lendi~
institutions do
not generally require such insurance even when taking a security
interest in the crop, the farmer will often decide to gamble
and not in.ure.
Another reason for the lack of participation
in the FCIC is that cheaper coverage for limited types of
lo••es, ie • .ha,ll only, etc., is available from private companies.
With the increase in corporate farming, the popularity of crop
insurance should be on the rise since the cost can be treated
as a business expense.
13
FOOTNOTES (Fe r )
1•
H.R. Doc. 150, 75th Cong., 1st Sess. (1938).
2.
Id.
55 STAT. 255(1941), 7 U.S.C. 1502 (1952).
4.
61 STAT. 719 (1947), 7 U.S.C. 1502 (1952).
5.
52 STAT. 72 (1938), 7 U.S.C. 1502 (1952).
6.
7U~~~~~
1503 (1952).
7 U.S.C. 1505 (1952).
8.
7 U.S.C. 1508(a)-(c) (1952).
7 U.S.C. 1508(d) (1952).
. 10.
7 U.S.C. 1508(a) (1952), Federal Crop Insurance Policy Continuous Contract.
11.
Federal Crop Insurance Policy - Continuous Contract.
12.
7 U.S.C. 1508(a) (1952).
1~.
Federal Crop Insurance Policy - Continuous
7 C.F.R. 401.111.
I
14.
7 C.F.R. 401.101.
Id.
If·
7 U.S.C. 1508(a) (1952).
17.
7 U.S.C. 1508(b) (1952).
18.
Id.
19.
7 C.F.R. 401.111.
20.
Id.
21.
Id.
22.
7 U.S.C. 1508(c) (1952).
23.
Id.
contract~
14
24.
Id.
25.
493 P.2d 809 (1912).
26.
1 U.S.C. 1508(c) (1952).
21.
365 F.Supp. 836 (1913).
28.
1 C.F.R. 401.103.
30.
1 U.S.C. 1520 (1972).
31.
1 C.F.R. 401.103
32.
152 F.2d 149 (1945).
3J.
299 F.SUpp. 467 (1968).
34.
332
35~
1 C.F.R. 401.107.
36.
Id.
31.
7 C.F.R. 401.103.
3~ •
.·
u.s.
380 (1941).
76 So.2d 826 (1955).
39.
? C.P.R.
40~
7
C.F.R~
~01.10?
401.111.
41. · Id.
42.
Id.
43.
Id.
44.
Id.
45.
386 F.SUpp. 570 (1974).
FEDERAL SEED ACT
Introduction
The market fluctuations and lack of commodity surplus which
existed during the Great Depression greatly alarmed the governmental as well as the agricultural sectors of America.
It was
at this t1me that var10us safeguards were proposed to be incorporated into the agricultural economy.
One need was the
regulat10n and control of seed transactions.
The seventy-s1xth
Congress enacted the Federal Seed Act in 1939 "to regulate
interstate and foreign commerce in seeds; to requ1re labeling
and to prevent m1srepresentation of seeds in interstate commerce;
. and to require certa1n standards with respect to certain 1mported
seeds."l
Interstate Commerce
. .
'
'
The Act proh1bits any person from transport1ng or de11vering
for transpor~at1on in 1nterstate co_erce "any agricultural
seeds for seedJng purposes, unless each container bears a label."2
Informat1on required on each label includes the name of the k1nd
of ' a~ricultural
seed component present 1n excess of 5 per cent
of the whole, an 1dentif1cation number, or1gin of the seed,
perce~tage
by we1ght of weed seeds, and kinds of nox1ous-weed
2
seeds and the rate of occurence of each.)
The label must also
include percentage of germinatlon, excluslve of hard seed,
percentage of hard seed, lf any, and the calender year and
month the test was completed to determlne such peroentage;
the name and address of the person who transports, or dellv.rs
for transportatlon, sald seed ln lnterstate commerce, or the
person to whom the seed ls sold or shipped for resale; and the
year and month beyond which an 1noculant, if shown ln the label,
ls no lonser etfectlve. 4 Sim1lar labeling requirements for
vegetable seeds used for seeding purposes are also contained
ln the Aot. 5
Another provls10n proh1blts sales 1n interstate commerce
of "any agricultural or vegetable seed unless the test to determ1ne the percentage of germination required • • • shall have
been completed withln a f1ve month period • • • immediately
prior to transportation or delivery for transportation in interstate commerce."6
Delivery of "any agricultural seeds or veg-
etable seeds having a false labe11ng, or pertainlng to which
there has been a false advertlsement, or to sell or offer for
sale such seed for lnterstate shipment by himself or others"
is also prohiblted in interstate commeroe.?
For all purposes
the Act defines "lnterstate commerce" as commerce between and
within "any state, Territory, possession, or the District of
Columb1a, and any other State, Territory, possesslon, or the
J
D1strict of Columb1a."8
In E. K. Hard1son Seed Co. v. Jones~ the pet1tioner sought
to have a cease and des1st order set as1de wh1ch prohib1ted
hi. from sh1pp1ng falsely labeled agr1cultural seeds to another
state.
He had made numerous shipments 1n interstate commerce
of seeds 1n bags w1th labels on each showing the nox1ous-weed
content and the germination percentage of the seed.
Upon test1ng
by an in,s pector in the receiving state, the seed was found to
have a germ1nation percentase less than that labeled, and contained nox1ous-weeds not listed on the label.
In aff1rming the
order, the court stated;
"The basic philosophy of the Federal Se~d Act is to
inform the user of what he is buying and to protect h1m
asalnst adulteration. The burden of knowing what is for
sale and telling the truth about it is plaoed on the distributor under the Act because he is presumed to have the
better facilities for asoertaining the facts."
Even though a distrlbutorcorrectly labels a seed, he is
not immune from liability if he sends the wrong seed.
Dessert Seed Co. v. Drew Farmers SUpply, Inc.
10
In
the d1stributor
sh1pped seed labeled as one variety which in fact was of another
var1ety but was not d1scovered unt1l the seed had germinated
and begun to sprout.
The court held that the distributor which
certified on the label the variety of the seed was performing a
duty. imposed on it by statute, and could not immunize itself
from liability for negligence in shipping the wrong variety
by attempting to limit its liability to the purchase price of
the seed.
4
FInally, wIth respect to interstate commerce, the Act
prohib1ts the shipment of lmproperly stained seeds, as requ1red
by the Act, and the screenings of any seed subject to the Act
unless they are not intended for seeding purposes. 11 "Screenings"
is defined as including "chaff, sterile florets, immature seed,
weed seed, lnert matte,r , and any other materials removed in any
way from any seeds ln any klnd of cleaning or porcessing and
wh1ch contain less than 25 per centum of live agricultural or
vegetable seeds."12
All persons transporting agr1cultural seeds in interstate
commerce are required to keep for three years a complete record
of orig1n, treatment, germination, and purity of each lot of
such seeds. 1 ) Siml1ar record requirements exlstfor vegetable
seeds.
Certaln exemptions to the prohlb1t1ons relating to interstate commerce transportat1on of certa1n seeds and to the
record requlrements are provided in the Act!4 Some of these
are:
(1) any carrier in respect to any seed transported or delivered for transportation in the ordinary course of
its business as a carrier;
(2) seeds produced by a farmer on his own premises and
sold by him directly to the consumer, provided such
farmer is not engaged in the business of selling
5
seeds not produced by him;
(3) to seed or grain not intended for seeding purposes; and
(4) to seed intended for seeding purposes when transported
or offered
f~r
transportation in 1nterstate commerce
(a) if in containers and in quantities of twenty
thousand pounds or more,
(b) if in bulk, or
(c) 1f consigned to a seed clean1ng or processing
establishment, to be cleaned or processed for
seeding purposes.
Foreign Commerce
The importation of certa1n seed into ¥he Un1ted States
is prohibited by the Federal Seed Act.
~r~mar1ly
Such proh1b1tion is
,I
a1med at "any seed containing 10 per centum or f.9re
of any agrioultural or
ve~etable
seeds if any such seed 1s ;
adulterated or unfit for seeding purposes, or is required to
be . stained, or the labeling of which is false or mislead~~g
fn! any respect_"1S Seeds subject to this provision are cQ~sldered
to be adulterated 1f "any kind of such seed contains more : than
5 per centUm by weight of seed or seeds of another kind qt
kinds of simllarappearance."lb
6
General Prov1s1ons
The Secretary of Agriculture is authorized to make such
rules and regulations as he may deem necessary for the effective
enforcement of the Act. 1t In addit1on, the Act provides that
"any person who knowingly, or as a result of either of gross
negligence or of a failure to make a reasonable effort to inform h1mself of the pertinent facts, Violates any prov1sion of
th1s Act or the rules and regulations promulgated thereunder
$hall be deemed gu11ty of a misdemeanor and, upon conviction
thereof, shall pay a fine of not more than $1000, for the first
offense, and upon conviction for each subsequent offense not
more than $2000."18
Conclusion
Since its enactment in 19)9, the Federal Seed Act has
;
functioned with few amendments being necessary.
l~tigat1on
in the area of seed transportation and
cqntrol attests to the success of the Act.
The lack of
labeli~
.7
FOOTNOTES (FSA)
1.
53 STAT. 1275 (1939)
2.
7
3.
Id.
4.
Id.
5.
Id.
6.
Id.
7.
Id.
8.
Id.
9.
149 F.2d 252.
10.
454 S.W.2d 307
11.
7' U.S.C.A. 1571.
12.
7 U.S.C.A. 1561.
13.
7 U.S.C.A. 1572
14.
7 U.S.C.A. 1573
15.
7 U.S.C.A. 1581
16.
7 U.S.C.A. 1583
17.
7 U.S.C.A. 1592
18.
7 U.S.C.A. 1596
u.s.c •.f\. 1571.