Lang v. Agricorp, 1998 ONAFRAAT 19

Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone Road West

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1 Stone Road West

Guelph, (Ontario) N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: AFRAAT@ontario.ca

Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: AFRAAT@ontario.ca

Lang v Agricorp

Lang v Agricorp 1998 ONAFRAAT 19

Crop Insurance Act

April 8, 1998

DATE OF DECISION:

May 1, 1998

1998-19

1998 ONAFRAAT 19

Lang v Agricorp

Ontario Regulation 140/96 under the Crop Insurance Act (Ontario) 1996, S.1996,C.17,

Sched. C.

An Appeal to the Crop Insurance Appeal Board by Fred Lang, Shannonville, Ontario, from a decision of AGRICORP determining that he did not have a claim under Regulation 229, Crop Insurance Plan, for Hay and Pasture.

Before:

Andrew Wright, Vice-Chair; Douglas Flook, Member; Denis O'Connor, Member.

Appearances:

Fred Lang, appellant, in person.

Peter Ilnyckyj and Husseinali Shivji, on behalf of the respondent, AGRICORP.

DECISION OF THE BOARD

This appeal was heard in Guelph, Ontario, on Wednesday, April 8, 1998.

This was an appeal to the Crop Insurance Appeal Board (the Board) by Fred Lang, Shannonville, Ontario, from the decision of AGRICORP determining that he did not have a claim under Regulation 229, Crop Insurance Plan for Hay and Pasture (the Forage Plan).

The Background

The Forage Plan covers loss against drought only. Regulation 229 actually designates the perils covered by the Plan as lack of heat, lack of rainfall and lack of sunshine. AGRICORP has interpreted those perils to mean drought.

The Forage Plan is an area-based plan which does not guarantee an individual yield of hay on a farm.

The minimum amount of coverage one can purchase is $2,000. The maximum coverage is determined by the client and the local District Co-ordinator.

Because there are so many different forage crops, it is difficult to calculate an average farm yield which is appropriate for all insured growers. Therefore, a computer generated yield simulation is used to establish an area average which is used as the insured's yield for each crop year. Since 1977, the Commission (now called AGRICORP) has been using a computer program called "Soil Moisture-Based Simulation of Forage Yield (SIMFOY)" to calculate area averages for the purposes of the Forage Plan.

The forage simulation is based on the following variables: soil moisture, rainfall, temperature, and sunshine which are roughly the perils designated in Regulation 229.

Based on these variables, the computer simulates forage growth using assumptions about good farm management, the predominant soil type within the township where the insured grower is located, a 30" minimum soil depth and a specified species mix.

Each grower is tied to a weather main station, as well as a sub station in the geographic vicinity of the grower. Each grower is reqruied to submit rainfall information for their farm. Twenty-five main stations in the province supply temperature and sunshine data for the simulation. A number of sub stations in the province supply additional rainfall data for insured growers who do not report their own rainfall.

Each insured grower’s recorded rainfall, climatic data received from the main stations and the grower's recorded cutting dates form the basis of the forage computer simulation.

For the purposes of the simulation the computer uses cutting dates that are the average of all of the insured growers’ first cutting date for each main station. Dates for the second and/or third cut are assumed thereafter, at fixed intervals after the first and second cut respectively and are determined by the computer by reference to the average date of first cut. Second and third cuts are assumed in the computer simulation whether or not an insured grower actually takes a second or third cut.

An insured grower’s actual rainfall records are used in the model to simulate growth for that producer.

Also, to a certain extent, actual forage yields from the insured producers’ area are incorporated into the simulated results. For this purpose “co-operator” producers are identified. A "co-operator" is a producer for a given area who works with AGRICORP's field staff to provide actual yields on an annual basis. An average of the measured co-operators’ yields within 15 miles of the insured producer’s location accounts for 50% of the first cut growth and the computer simulated growth accounts for the other 50% of the first cut growth. If there is no co-operator within a 15-mile radius of the client, AGRICORP may use the average co-operator yields from the county/district in which that particular producer is located.

AGRICORP then brings to the area-based Forage Plan a process called “narrowing”. Narrowing involves a process in which extreme computer simulated yields are brought closer to the mean of the computer simulated yields for a main station. If the simulated yield of one of the insured growers is more than, or less than 20% of the average of all the insured producers’ simulated yields tied to the same main station, then narrowing takes place for those insureds.

Then circle searches are done within a three-mile radius of each insured producer (provided there are three or more in the area including the insured). If there are not three insured growers (including the insured) in the area, then the circle search exercise is undertaken using a six-mile radius. The insured's simulated yield accounts for 35% of a grower’s computed yields for a crop year with the remaining 65% coming from the average of the insureds within a three or six-mile radius, as the case may be.

In principle, the Forage Plan is intended to insure, on an area basis, a simulated yield that is at least 80% of the average simulated yield for the same area over the previous 30 years. To this end, statistics for the components used in the simulation have been collected for the past 30 years. The simulation calculates the current crop year's data as a percentage of the 30-year average. When the calculated yield is below the 80% guarantee, the difference is doubled and multiplied by the dollar value of coverage selected. For example, if the simulation result is 75%, the claim is the 80% guarantee less the 75% actual simulated yield for the crop year which equals 5. This difference is then multiplied by 2 to produce 10%. In this example, the 10% would then be multiplied by the amount of the coverage selected to determine the total claim amount.

In proposing and administering the Forage Plan AGRICORP derives its authority from Regulations 256 and 229. Specifically:

Regulation 256, Crop Insurance Plans General, Form 1, Section 10 (2) states:

"AGRICORP may cause the production of an insured crop to be appraised by any method that it considers proper."

Regulation 229, Crop Insurance Plan for Hay and Pasture, Form l, Section 2 states:

"The actual production of the insured acreage shall be computed by AGRICORP on the basis of daily temperature, hours of sunlight and rainfall for the area in which the insured acreage is situate, or on such other basis as AGRICORP approves."

For the 1997 crop year, Mr. Lang purchased $25,000 coverage for a premium of $1,000. In accordance with the Plan his guaranteed coverage level was 80%.

Mr. Lang has a dairy and beef cow operation as well as a beef feedlot. He farms between 400 and 500 acres in Hastings County.

The Issue

Did AGRICORP calculate Mr. Lang's forage growth in accordance with the coverage purchased?

The Evidence

Husseinali Shivji, gave evidence for AGRICORP. He is a Customer Solutions Representative.

Mr. Shivji described the 1997 Forage Plan in general terms as outlined in the preceding “Background” segment of this Decision. In doing so, he summarized that the 1997 Forage Plan is based on a three-cut system. The model simulates forage growth on a daily basis beginning when there are three consecutive days with temperatures of more than five degrees celcius. He emphasized that the Forage Plan is an area-based plan. Mr. Shivji introduced into evidence information as to the soil moisture content in Hastings County. He said this information goes into the computer model at the county level and that there was no initial soil moisture adjustment for Hastings County. He said the information for Mr. Lang’s area concerning cutting dates, species mix, etc., were taken from Marysville substation. Information for the computer model concerning temperature came from the main station in Trenton. Rainfall data comes from the insured grower. Cutting dates are area-based and are averaged from information reported by the producers. Because they are averages of what others in the area have done, the cutting dates used by the computer are not necessarily those of the insured producer. Mr. Shivji was candid to explain that, with so many assumptions going into the plan, the computer generated simulation does not always represent what actually happened on the insured’s own farm. Soil type is a particular variable because the computer assumes the soils are of the main type in the area and this is not necessarily reflective of the actual soil on the particular farm of an insured producer.

Mr. Shivji said the information AGRICORP uses in its computer model is sent to the producer. If the producer indicates an input error and it is verified, then it is corrected. He said the same model is used for all clients in southern Ontario. Mr. Shivji told the Board that he had checked the information used to calculate Mr. Lang's results for the 1997 crop year and that he had found no errors in the data used.

Mr. Shivji said the plan automatically pays if a producer’s simulated yield is below 80% of the 30-year average simulated yield for the same area. The producer does not have to submit a claim to get a cheque.

Mr. Shivji told the Board that there is a penalty for insured growers who do not send in their rainfall cards. That penalty is deducted from any payouts. Mr. Lang had reported his rainfall so this was not a factor in this case.

Mr. Shivji concluded by reporting that, for the 1997 crop year, Mr. Lang's simulated yield was 99.80% of the normal 30-year simulated average for that area and, therefore, Mr. Lang was not entitled to a payout under the Forage Plan for the 1997 crop year.

In response to a question of the Board, Mr. Shivji said that only the first cut simulation takes into account co-operator yields. He said when AGRICORP uses circle averaging, the circles can go across county borders and neighbours would not likely have the same producers in their circle averaging, as each producer is the center of their circle.

Peter Ilnyckyj also testified on behalf of AGRICORP. He said there is presently a review of the Forage Plan ongoing by a committee made up of representatives from Dairy Farmers of Ontario, Ontario Cattlemen's Association, Soil and Crop Improvement Association, the Forage Council and the Ontario Federation of Agriculture. Their mandate is to report their recommendations by September 30.

In response to questions of the Board, Mr. Ilnyckyj admitted that the participation rate in the Forage Plan is poor. That is why AGRICORP has gone to the producers for help in revising the Plan. He told the Board that only about 1,600 producers participated in the Forage Plan in 1997. He said the Plan is increasingly unpopular with growers and that participation has been steadily declining from one year to the next.

Mr. Ilnyckyj told the Board that in 1997 the insured growers paid about $600,000 and that, after Provincial and Federal government contributions the Plan had received $1.2 million in premiums, including the $600,000 paid by the producers themselves. The Board was told that against these premiums, the claims paid in 1997 under the Forage Plan were $3.5 million.

In response to the question of the Board as to why the regulation says the only insured perils are lack of rain and lack of sunshine and the brochure says the only peril insured is drought, Mr. Ilnyckyj said AGRICORP was trying to highlight the fact that diseases are not insured perils and that drought is a "catch all" phrase which includes sunshine and rain.

Mr. Fred Lang said he lives in Hastings County, and objected to the fact that some of the evidence given by AGRICORP had inadvertently referred to him as being in Northumberland County.

Mr. Lang stated that he believes AGRICORP has miscalculated the forage drought plan for his area, not just his farm. He told the Board that the simulated yields for the 1st and 3rd cuts had no relationship to the actual yield numbers for his area. He submitted into evidence Climatological Data from the Trenton station for May, June and July 1997. He said the information AGRICORP is showing is that the first cut simulation is close to 100%. He said the information he presented shows that temperatures are so cold that it is not possible for the area yield to be that large. He also submitted into evidence the Ontario Field Crop reports for Northumberland, Peterborough, Hastings, Prince Edward and Lennox & Addington counties. He read into evidence parts of these reports which he said supported his contention that the 3rd cut in his area was also grossly exaggerated by AGRICORP’s calculations.

Mr. Lang told the Board that when the plan started in 1977, there were options A or B and that there is now only one option. Mr. Lang said that dairy farmers are cutting for quality and usually take three cuts, whereas beef farmers cut for quantity and usually only take two cuts. He took his first cut June 23 whereas the beef farmers in his area don't cut until the end of the month. He does not understand how data taken from farmers who take three cuts can be fairly lumped with those who only take only one or two cuts.

In response, Mr. Shivji said when the plan started it did not have two options. Sometime later two options were instituted to attempt to take into account some of the things to which Mr. Lang had referred. Following criticism of the two option regime, it was eliminated in 1996. Mr. Shivji told the Board that the 1997 Forage Plan, which Mr. Lang purchased, has only one option.

Mr. Lang said the measured co-operator yield accounts for 50% of an insured person's yield and that his co-operator yield was 52.44%. Thus he does not understand how AGRICORP arrived at a simulated yield of 94.2%. He stated that this would mean the 30 year average would have to be around 140%. In his opinion, there has to be something wrong with the calculations.

He said the 1st cut of hay is the main cut, in fact he has never seen a 3rd cut greater than a 1st cut in volume. He said AGRICORP's records show a 119% yield on 3rd cut making it greater than the 1st cut. He said the crop had already bloomed in August when they got rain, so there was very little 3rd cut

Mr. Lang said that in the County just south of him, Prince Edward County, they had had similar numbers. He told the Board that it was his understanding that the insured producers in that County had complained to AGRICORP that the data did not represent the area and that, as a result, AGRICORP had made changes for that County. In Mr. Lang’s opinion, his area was therefore being treated differently from others in the Province.

Mr. Lang told the Board that he had been purchasing forage insurance since 1989 and that he was aware that it is an area-based plan. He told the Board, however, that his expectation was that the results of the area-based computer simulation would reflect the drought conditions actually experienced in the area. If it was just his farm he could understand but the whole area had suffered and there was still no insurance claim paid. Mr. Lang said that most hay growth occurs in late May, early June. In his area, it was cold and wet in the early part of the year and then in June it got warm and dry. He said his area had a poor hay crop because of this drought condition and yet they did not receive an insurance payout.

Mr. Lang gave evidence that, in his estimation, the forage crops in his area were off the norm by between 60% and 70% in 1997 because of the weather. He said that his figures represented the reality in the barns in his part of Hastings County in 1997. He told the Board that it was not possible that the computers, with their averaging and circle searching and everything else that they do, to turn such a shortfall into a simulated yield that was 99.80 % of the normal 30-year simulated average yield. He asked the Board to exercise discretion and allow his claim on the basis of a 60% and 70% yield as the Board might decide.

Mr. Ilnyckyj reviewed with Mr. Lang the Forage Drought Final Report which is the data on rainfall and sunshine that AGRICORP put into the computer module. Mr. Lang agreed with the data on this form was consistent with the information he had but his point was that the computer results did not represent what actually happened in his area.

Mr. Shivji also stated that the information he presented does show a larger actual 1st cut. The percentage of 3rd cut is higher but in actual kilograms per hectare it is not a higher yield than the 1st cut.

Mr. Shivji said that there were poorer yields in Hastings and Prince Edward and that Northumberland had higher yields. Depending on the insured producers in a 15-mile radius, a circle search can take the average down or up depending on what is happening in the area.

In response to Mr. Lang’s assertions about changes made as a result of complaints from producers, Mr. Shivji said that an error had in fact been brought to the attention of AGRICORP. He told the Board that there was an error in the start date for the 30-year average normal simulated yields. This error had been part of the original simulations for all of Ontario. When that error was identified, the 30-year average data that had been input was adjusted to correct the error. The normal simulations for the entire Province were recalculated and AGRICORP then issued amended final figures. He said the problem was corrected for all of Ontario. The error was regrettable, it was identified and it was corrected for the whole Province. If the correction benefitted some areas more than others, that was a function of the computer model and it had nothing to do with one area or County getting special treatment or selective adjustments to the data or calculation.

In his summation, Mr. Ilnyckyj said the Forage Plan is a frustrating plan to deliver. When a customer buys a plan, he expects to be able to file a claim when he is in a loss position. The Board was told that of all of the 55 plans of crop insurance administered by AGRICORP, the Forage Plan is the only one that is not based on individual farm yield. He said it is a difficult plan for insured producers to understand because it is not an individual plan but rather an area-based plan. He said the SIMFOY model is accurate based on average conditions. Where the model falls down is that the assumptions used do not match every producers situation. He said AGRICORP's crop insurance committee, and other provinces are struggling to find a fairer way to insure forage. He said AGRICORP did not change or manipulate any data. He said in some areas the model worked and some areas it didn't meet the expectations of producers. All producers throughout Ontario were treated equally and equitably by AGRICORP.

Mr. Ilnyckyj said in 1997 Mr. Lang purchased a forage insurance policy that covered drought. The contract stated how Mr. Lang's yield would be determined and how it would be paid out if in a claim position. This plan delivers not what happens on an individual's farm but what happens in the area. He said there are also occasions when producers who have a full barn get a payout.

In his summation, Mr. Lang said the 1997 season started out cold and wet with few heat units in May. June brought heat and dry conditions. He said he assumed simulation would bear some resemblance to what actually happened in his area. When he purchased this insurance he thought his area weather would have more influence. He said his area had drought conditions but there was no payout. He said his area suffered the same loss as the County to the south of him where payouts were made and he could not understand why his area did not receive a payout and he asked the Board to remedy the situation for him.

The Findings

The appellant took issue with the fairness of the system and suggested that the formulas adopted by AGRICORP did not take into consideration the weather conditions in his particular area. The Board has heard similar complaints in other areas of the Province where specific and localised weather conditions have caused substantial losses in the forage crop harvested. Claims were rejected because of the averaging steps taken in the SIMFOY model. In those other areas, this Board has decided not to grant specific relief unless it could be demonstrated that AGRICORP computers had miscalculated or had used incorrect information in arriving at its computer simulated averages.

The Board is convinced that the appellant’s farm experienced a drought in 1997. The appellants uncontested evidence is that his crop was 60% to 70% less than the 30-year norm and that this shortfall resulted from the drought conditions described to the Board.

However, the Board does not have before it any evidence that Mr. Lang’s Forage Plan coverage has been miscalculated by AGRICORP. As for the data input to the computer, Mr. Lang has agreed with the details.

Given that the Board is satisfied that AGRICORP has applied its adjustment policy in an even-handed way throughout the Province, the Board finds it difficult to grant specific relief to this appellant. The Board does not wish to make any exceptions that might have adverse consequences to the integrity of the Forage Plan.

The Board finds that this particular appellant has not been treated any differently than other insureds either in his general district or elsewhere in the Province.

That said, the Board cannot help but observe that this Forage Plan is a problematic aberration in AGRICORP’s crop insurance world. It is the only one of 55 crop insurance programmes that is not based on an insured’s actual crop. The evidence is that, against producer-paid premiums of $600,000, AGRICORP paid $3.5 million in claims in 1997. We have also heard that participation in the Forage Plan has fallen significantly over the last few years to something in the order of 1,600 producers in 1997, a very small number for a crop that is ubiquitous in this Province. Against that background, we now have Mr. Lang before us with actual yields that were off the 30-year norm by 60% to 70% because of drought conditions and yet he is denied coverage under this area-based, computer-driven Forage Plan. Mr. Lang’s evidence was uncontested as to his shortfalls and those of his neighbours and as to the reasons for the shortfalls.

In earlier decisions, when confronted with other difficult examples of how the Forage Plan works, the Board has made dispositions which were consistent with this decision on Mr. Lang’s appeal. However, in those earlier decisions, with almost equal consistency, the Board also made observations and recommendations about the need to develop a more satisfactory plan that will produce fairer results. To this panel of the Board, the evidence would suggest that the Forage Plan has not materially improved, that it is not working as a crop insurance plan and that it needs a major overhaul.

Decision and Reasons

After careful consideration of the evidence and submissions made, the Board decided to deny the appeal for the following reasons:

The appellant was aware that this was an area-based plan when he purchased his forage insurance.
AGRICORP applied the claim calculations for the Forage Plan in the same manner to all clients throughout Ontario.

DATED at London, Ontario THIS 1st day of May, 1998.