Droogers v. Agricorp, 1999 ONAFRAAT 12

Agriculture, Food and Rural Affairs

Appeal Tribunal

1Stone 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

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Droogers v Agricorp

Droogers v Agricorp 1999 ONAFRAAT 12

STATUTE:

Crop Insurance Act

HEARING:

May 11, 1999

DATE OF DECISION:

May 27, 1999

1999-12

NEUTRAL CITATION:

1999 ONAFRAAT 12

Droogers v Agricorp

IN THE MATTER OF:

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

Sched. C.

AND IN THE MATTER OF:

An Appeal to the Crop Insurance Appeal Board by Case Droogers, Salford, Ontario from the decision of AGRICORP concerning the adjustment of loss under Ontario Regulation 380/97 and the 1998 Apple Production Plan.

Before:

James Rickard, Chair; Anna Andres, Member; Edward Mailloux, Member; Dr. Denis O’Connor, Member.

Appearances:

Case Droogers, appellant.

Ian McKenzie, General Manager of The Apple Marketing Commission, on behalf of the appellant.

John Barkovic, Mike Virage and Bob Birtch, on behalf of the respondent, AGRICORP.

DECISION OF THE BOARD

This appeal was heard in Guelph, Ontario on Tuesday, May 11, 1999.

Case Droogers, Salford, Ontario appealed to the Crop Insurance Appeal Board (the Board) the decision of AGRICORP concerning the adjustment of loss under Ontario Regulation 380/97 and the 1998 Apple Production Plan.

The Background

The Apple Production Plan (the Plan) insures all varieties of apples grown in Ontario for fresh market, processing and juice, except crab-apples. If the value of the actual production is less than the value of the guaranteed production, due to an insured peril, a claim is paid on the difference.

Insured perils are: drought, frost, freeze injury, hail, excessive moisture, adverse weather resulting in pollination failure, excessive wind causing structural damage, russeting caused by adverse weather (not due to chemical application), except on the Golden Delicious and Russet varieties. Quality losses due to insured perils are covered in this Plan.

An optional hail rider can be purchased for an additional premium fee. The hail rider is a quality rider to provide coverage when apples are reduced to juice grade by hail. When a hail storm significantly damages one or all of the apple orchards, a claim is paid for the value of the fresh fruit that is reduced to juice grade by hail. Apples that are already juice grade are considered normal juice and are not included in the hail claim payment.

The Final Average Yield (FAY) is the adjusted average of the six most recent years of historical fresh and juice production. These histories are maintained separately. The fresh history includes all apples sold on the fresh market and all processing apples (peelers). The insured’s history also includes all apples sold for juice or cider. When there is a hail rider claim, the production recorded will reflect the hail claim, which will not necessarily be the declared production.

The guaranteed production (GP) in pounds is calculated by multiplying the FAY for fresh apples and for juice apples by the coverage level selected. This guarantee refers to actual fresh and juice yield produced in the orchard, up to the point of harvest, and does not imply any guarantee of markets for the apples. Any production in the orchard for which there is not a market, will be assessed at an appropriate potential yield and recorded as yield for the current year.

The guaranteed value (GV) for a contract of insurance is the total of guaranteed production of fresh apples, multiplied by the fresh price. The guaranteed production of juice apples is multiplied by the juice price. The maximum indemnity is the total guaranteed value for the contract.

If an insured peril reduces the value of total production below the total guaranteed value, a claim payment is made on the difference.

When there is a hail claim:

◼ counts are made as close to harvest as possible to accurately determine the percentage of apples reduced from fresh grade to juice grade by hail.

◼ claims are settled after harvest, based on the lesser of actual harvested production and guaranteed production for each orchard.

◼ unharvested early apples affected by hail are excluded from the total production.

◼ there is a 10% damage threshold before a claim is triggered.

◼ recorded production will reflect the hail rider claim, which will not necessarily be the declared production.

◼ yield loss is not covered by the hail rider.

◼ bumper crop provision does not apply to hail rider claims.

If the grower harvests a bumper crop that is damaged by an insured peril, the final average yields and guaranteed values are recalculated. The total guaranteed value is increased at no additional cost but the maximum potential claim amount is the original total guaranteed value.

Mr. Droogers purchased the following coverage:

Combined Fresh (all orchards)

Final average yield was 466,927 lb. x 80% coverage for a guaranteed production of

373,542 lb. x fresh price of 0.15¢ = guaranteed value of $56,031.30

Combined Juice (all orchards)

Final average yield was 121,214 lb. x 80% coverage for a guaranteed production of 96,971 lb. x juice price of 0.04¢ = guaranteed value of $3,878.84

Total Guaranteed Value $59,910.14

Hail Rider coverage was also purchased.

The Evidence

Mr. Droogers told the Board that he emigrated to Canada 12 years ago. He said he has 35 acres of apple trees and has purchased crop insurance since 1992. His harvesting practice is to have the pickers pick only fancy grade apples. Another crew then comes in, shakes the tree and picks the balance of apples for juice.

Mr. Droogers stated that when calculating his claim AGRICORP used his hail count as the first peril damage and frost as a second peril damage when this is not how it occurred. He said his orchard was first hit by frost and then he got hail. He is also concerned that when calculating his claim, AGRICORP took for granted the apples were damaged by both hail and frost. He said hail damage was paid according to his damage count. However, he received very little payout for his frost damage. He said he spent a great deal of time sorting the apples to get a bin of fancy apples. However, some damaged apples got into the bin and the packers sent those for juice. As a result he gets a lower payout for his apples and no money for the juice.

He also told the Board that:

◼ the total amount he collected for his juice is $6,536.00. AGRICORP set his guaranteed value for juice at $19,661.76.

◼ growers are left in the dark the entire year when damage occurs. The guaranteed value on paper means the grower will never get the guaranteed amount.

◼ he had so much damage, 75.1%, that AGRICORP should have made his crop a write-off.

◼ he would consider his crop a write-off if there was 50% damage.

◼ he was unable to make good harvesting decisions because he did not know what his claim payout was going to be. He said he had 75% damage, thus his payout should have been $61,730 x 54.5% = $33,626.50. Instead, $11,733.75 is the amount of the claim as calculated by AGRICORP.

◼ when the adjuster came to his orchard, they calculated the frost damage as 51.9%. The adjuster then came back two days later and made up a bumper crop sheet. He does not understand why a second settlement sheet was made up two days later.

◼ frost damage occurred in late April on the blossoms and frost occurred again in early June, and hail damage occurred in late June. On July 23rd AGRICORP staff took hail and frost damage counts.

◼ he made several calls to AGRICORP and spoke to the adjuster to get information about the claim payout but was ignored.

◼ he had previous claims in 1993, 1994, 1996 and 1998 but they were all single peril claims. He was satisfied with the claims settlements in those years.

◼ if only one peril damages a crop, the payout is explained in the Plan. In his opinion, the problem occurs when there is a second peril, as how these claims are calculated is not explained in the Plan.

◼ he said it was never explained to him how a claim settlement is arrived at if there is more than one peril involved. He said AGRICORP came up with a new claim settlement sheet after he had signed the contract.

◼ after his crop is harvested, he finds out how his claim is calculated. He said it is like signing an open contract.

Ian McKenzie, General Manager of the Apple Marketing Commission (the Commission), told the Board that apple growers who purchase insurance get copies of the Apple Production Plan but do not receive enough information about how claims are calculated. He said the Commission would like to see the Plan explained in greater detail so that growers know what they are purchasing. He also stated that the contract does not say that a floating juice price could not be used.

John Barkovic, Territory Manager for AGRICORP, told the Board that:

◼ the 1998 Plan explains how claims are settled. He referred to the printed examples of a payout in the event of a hail rider claim and bumper crop settlement.

◼ clients have an opportunity, several times throughout the year, to ask questions of AGRICORP. First at underwriting time, second when the adjuster comes to settle the claim and again when the claim is settled.

◼ the 1998 Plan clearly states that apple insurance prices are 15¢ for fresh apples and 4¢ per pound for juice apples. The Plan forms part of the contract purchased by Mr. Droogers.

◼ if AGRICORP had settled all apple claims in 1998, as outlined in the Plan, apple claims would have been settled at substantially lesser amounts than occurred. In 1998 the level of frost and hail damage in Ontario was high. He said the reason AGRICORP took a while to come up with the methodology to settle complex claim situations was to give adjusters the opportunity to get a handle on the extent of the problem.

◼ if the Commission has suggestions for improving the Plan, they should put them forward to the AGRICORP Board of Directors with whom the Commission meets regularly.

◼ an apple crop is never considered totally damaged as there is always salvage value for juice.

◼ hail is assessed first if the client has purchased the hail rider.

◼ a secondary peril claim is calculated following harvest when production records are available.

◼ the grower makes the management decisions as to when and how to harvest.

◼ AGRICORP did not have an open contract with Mr. Droogers. In his opinion, the terms of settlement are clearly outlined in the Plan and examples are given.

◼ AGRICORP’s methodology for calculating claims is complex but sound. He said they calculated Mr. Droogers claim in the same manner as for other clients throughout Ontario.

Mike Virag, Senior Fruit Adjuster for AGRICORP, told the Board that the Plan is mailed out to growers by the end of November of the previous crop year along with a renewal form. At that time, the grower is expected to confirm, by December 1, whether or not he will be insuring.

Mr. Virag told the Board that:

◼ in the spring, prior to May, the adjuster establishes with the client a final average farm yield and guaranteed value of crop.

◼ hail is an insured peril as part of the basic plan. However, clients can also purchase a hail rider. Mr. Droogers purchased the hail rider.

◼ a hail rider claim is paid on the value of the fresh fruit that is reduced to juice grade by the hail. Apples that are already juice grade are considered normal juice and are not included in the hail claim payout.

◼ a hail rider claim is settled separately as it is a rider to the basic insurance policy. He reviewed the example in the brochure as to how a hail rider claim is calculated.

◼ frost damage is also paid on fresh fruit reduced to juice grade by frost. Apples that are already juice grade are considered normal juice and are not included in the frost claim payout He also reviewed the printed example, in the Plan, of how a claim is calculated.

◼ if the producer harvests a bumper crop that is damaged by an insured peril, the final average yields and guaranteed values are recalculated. The total guaranteed value is increased at no additional cost, but the maximum potential claim amount is the original total guaranteed value.

◼ once damages are reported to AGRICORP, the adjuster visits the orchard during the summer months, prior to harvest, to assess the damage. Once damages have been assessed, and recorded, the grower is advised that the next visit will be at completion of harvest.

◼ the adjuster does not know what the claim amount will be until harvest is completed.

◼ if the grower has purchased the hail rider, it is dealt with separately to any other peril and is paid separately.

◼ it is standard procedure to complete all production claim forms at the same time. The instructions to field staff are to complete all forms and allow the greatest claim to the grower.

◼ all secondary perils are included as one settlement with the exception when a client purchases the hail rider.

◼ field staff are instructed not to advise the grower how to harvest his crop.

Bob Birtch, fruit crops adjuster with AGRICORP, told the Board that:

◼ he visited Mr. Droogers’ orchard July 23 to inspect the frost damage that occurred in late April early June.

◼ during that visit, he observed hail damage and advised Mr. Droogers to report this right away.

◼ his observation was that the orchard management is excellent with no significant uninsured perils affecting the crop.

◼ he conducted a hail/frost damage count on four samples total1ing 416 apples; 145, or 34.86%, were damaged by hail; 216, or 51.92%, were damaged by frost.

◼ when he completes a damage count, he tries to get representative samples, taking into account the topography, windbreaks, age of trees, kinds of apples, etc.

◼ Mr. Droogers was present when the damage count was conducted.

◼ once the hail count had been completed AGRICORP made an interim payment, under the hail rider, which was 50% of the claim. He said Mr. Droogers would have received a cheque near the end of September, before harvest. The balance of the hail rider claim was paid pending collection of yields.

◼ AGRICORP had to wait until harvest was completed to determine the final yield.

◼ the form called “Insured Declared Total Production for Apples” was completed by him and was signed by Mr. Droogers. This form states that Mr. Droogers’ production was 383,350 lb. of fresh apples and 271,170 lb. of juice for a total yield of 654,520 lb.

◼ the form used by AGRICORP to calculate Mr. Droogers’ claim is the same form that is used for all clients that had two insured perils that affected their crop.

◼ he completed the Proof of Quality Loss - Hail Rider form which indicated a total indemnity of $14,340.26.

◼ he also completed the Proof of Production Loss for Apples form which indicated a Total Indemnity of $1,461.72 for frost damage. Therefore, the total claim, including the hail rider was determined to be $15,801.98 ($14,340.26 + $1,461.72).

◼ shortly after he left the Droogers’ farm, he realized he should also have completed the Proof of Quality Loss - Bumper Crop Settlement form. When he discovered this, he called the Droogers’ farm the same day to relay this information and two days later delivered the form to Mr. Droogers.

◼ the Bumper Crop Settlement form indicated a Total Indemnity of $7,552.52 for frost damage. This, added to the hail rider claim of $14,340.26 meant a total claim payout of $21,892.78.

◼ using the Bumper Crop Settlement form increased Mr. Droogers’ payout by $6,090.80 and since Mr. Droogers’ crop yielded well above his normal yield he is entitled to a larger payout.

◼ the insured declared total production is collected from every grower and those numbers become part of their history.

◼ claims for all insured perils, other than hail rider claims, are calculated after the harvest is completed.

◼ how to harvest is a management decision of the grower.

The Findings

Mr. Droogers argued that the contract he purchased was an open contract. Mr. Barkovic disputed those allegations stating that it was not an open contract that Mr. Droogers purchased and that the Plan clearly outlines the terms of the contract. The Board was persuaded that it was not an open contract that Mr. Droogers purchased. The terms of the contract and method for calculating claims are outlined in the Plan.

Mr. Droogers did not dispute the “hail and frost count” used to calculate his claim. In fact he participated in the count. However, he doesn’t agree with the method used to calculate his claim. AGRICORP staff agreed that the Plan is very complex. When calculating a claim, the hail rider payout is calculated first. Damage from other perils is calculated after harvest. AGRICORP applied a bumper crop settlement which increased the amount of payout by $6,090.80. The Board finds that AGRICORP did follow through on the terms of the contract and arrived at a claim settlement in a manner consistent with the contract that was purchased. In the opinion of the Board, Mr. Droogers was treated fairly and in the same manner as other insureds who purchased the 1998 Plan and hail rider.

In the opinion of the Board, some of the confusion in settling this claim occurred when the hail and frost count was completed. The count included the number of apples damaged by frost and the number of apples damaged by hail. The count did not include the number of apples affected by both perils, or the number of apples not affected by either peril. If this count had been taken, it may have made the claim settlement more understandable for the client. (If there had been only one peril, Mr. Droogers would have known the number of apples not affected by a peril.) The Board suggests that when more than one peril is involved in a claim settlement, there should be a count taken of apples with no damage or of those apples damaged by both perils, to make it clearer to a producer how a claims settlement is arrived at.

Only fresh quality apples that are reduced to juice grade get compensated under the Plan whether damaged by one or more insured perils. When calculating a claim, normal juice apple production for a particular orchard is separated first. Mr. Droogers had 51% hail damage and 34% frost damage. But, some of the frost damaged apples were still on the tree and were damaged by the hail. While these apples received double damage they can only be reduced to juice grade once. For this reason, these apples can not be double counted when adjusting a claim.

Mr. Droogers was concerned about the poor communication between himself and AGRICORP. The Board accepts the fact that due to the size of the area of Ontario affected with two perils, frost and hail, communication could have been better, but AGRICORP handled the situation in a reasonable manner. Mr. Droogers was to have received an interim payout for his hail claim prior to harvest. (He stated it arrived early in October.) He was not given information on his “frost damage” payout until after harvest in the same manner as other producers who were in a claim situation.

The Board only has jurisdiction to hear and determine disputes arising out of the adjustment of a loss under a contract of insurance and does not have jurisdiction to make any changes to the Plan. Therefore, the Board encourages the Apple Marketing Commission to forward any suggestions for revisions to the Plan to the AGRICORP Board of Directors.

The Plan is very complex and can be confusing for the client. The Board feels more information sessions for producers may be a helpful forum to further explain the Plan.

Decision and Reasons

After careful consideration of all the evidence and submissions before it, the Board decided to deny the appeal for the following reason:

In the opinion of the Board, AGRICORP settled Mr. Droogers’ claim consistent with the terms of the contract that he purchased and in the same manner as other growers who experienced damage from two perils.