McBride v. Agricorp, 2004 ONAFRAAT 13

Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone Road West Guelph, Ontario N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email:Tribunal@OMAF.gov.on.ca

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1, chemin Stone Ouest Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email:Tribunal@OMAF.gov.on.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL: McBride v Agricorp McBride v Agricorp 2004 ONAFRAAT 13

STATUTE: Crop Insurance Act

HEARING: March 29, 2004

DATE OF DECISION: April 21, 2004

2004-13

NEUTRAL CITATION: 2004 ONAFRAAT 13

McBride v Agricorp

IN THE MATTER OF: The Crop Insurance Act (Ontario) and Ontario Regulation 140/96 under the Crop Insurance Act (Ontario) 1996, S.O. 1996, C. 17, Schedule C.

AND IN THE MATTER OF: An Appeal to the Agriculture Food and Rural Affairs Appeal Tribunal by Henry McBride, Westmeath, Ontario, from the decision of AGRICORP concerning the adjustment of their claim for his 2002 corn crop under Regulation 380/97 and the Crop Insurance Plan For Grain and Oilseeds.

Before: Murray Cardiff, Chair; Terry Denison, Vice Chair; Doug Flook, Member.

Appearances: Mr. Henry McBride, appellant. Mr. Jim Zavitz, Senior Manager, Customer Service, AGRICORP, respondent. Mr. Robert Dick, Claims Adjuster, AGRICORP, respondent. Mr. Fred Thomson, Area Manager, on behalf of AGRICORP.

DECISION OF THE TRIBUNAL

This appeal was heard at the Town Hall, Perth, Ontario on Monday, March 29, 2004. Mr. Henry McBride appealed to the Tribunal from the decision of AGRICORP concerning the adjustment of his claim on his 2002 corn crop.

The Background

Mr. McBride's 2002 corn crop was grown over 362.14 acres, as measured by AGRICORP. The 2002 corn crop was produced on farmland owned by Mr. McBride. Mr. McBride purchased crop insurance with a 90 percent coverage rate. His average farm yield was 79.9 bushels of corn per acre and his Guaranteed Production (GP) was 71.91 bushels per acre in 2002.

The weather conditions in spring 2002 were wet followed by a summer that was very hot with little rainfall, causing drought conditions in Renfrew County where Mr. McBride's farming operation is located.

Statutory Context

Section 10 of the Crop Insurance Act of (Ontario) 1996, states:

10. (1) If AgriCorp and a person disagree whether the person qualifies for a contract of insurance, except if the disagreement relates to the time during which a person may apply for a contract of insurance or file a final acreage report or its equivalent, or if AgriCorp and an insured person fail to resolve a dispute arising out of the adjustment of a claim under a contract of insurance, either may appeal the matter in dispute to the Tribunal.

Under section 5(1),(2) of Crop Insurance Act of (Ontario) 1996, AgriCorp has the following powers, concerning the administration of contracts of insurance.

Contracts of insurance

5. (1) AgriCorp shall fix the terms of contracts of insurance, or proposed contracts of insurance, subject to section 4 and the regulations made under section 12.

Powers of AgriCorp

5(2) AgriCorp has all the powers necessary to perform its duties including the power to,

(a) determine the qualifications and requirements for a person to enter into a contract of insurance;

(b) enter into contracts of insurance;

(c) fix terms of contracts of insurance relating to replanting benefits and unplanted acreage benefits;

(d) fix premium rates payable by insured persons;

(e) fix the duration of contracts of insurance;

(f) specify the circumstances in which an insured person may terminate a contract of insurance and the methods that the person may use to terminate the contract;

(g) specify penalties imposed on an insured person who breaches the terms of a contract of insurance;

(h) reinsure with any other insurer the risk or any portion of the risk under its contracts of insurance; and

(i) terminate a contract of insurance on the terms that it considers appropriate.

The Issue

The issue before the Tribunal is:

1. Did AGRICORP adjust the claim of Mr. McBride based on calculations that were fair and equitable?

Preliminary Matter

Due to the limited material submitted by Mr. McBride, the Tribunal thought it expedient to have AGRICORP make its case first, in order to assist Mr. McBride. The parties agreed to change the order of presentation of evidence.

With the agreement of Mr. McBride and the Tribunal, Mr. Fred Thomson, Area Manager, AGRICORP, introduced the AGRICORP Crop Insurance Policy Book and one missing page of a three-page letter that was inadvertently left out of AGRICORP’s document brief.

The Evidence

Mr. Fred Thomson said that the evidence of AGRICORP would show that Mr. McBride's losses were due to inadequate crop management practices for the 2002 corn crop and that Mr. McBride failed to fully disclose the harvested yield. Mr. Thomson said that Mr. McBride was afforded every courtesy by AGRICORP staff, but that his total loss was not caused by an insured peril. Mr. Thompson said that AGRICORP had exercised due diligence under the legislation in attempting to settle Mr. McBride's claim dispute.

Mr. Robert Dick, Renfrew Area Claims Adjuster, stated that he owned a mixed farming operation in the Renfrew area producing seed grain, hay and cereal grains. Mr. Dick said that he had 30 years of experience in farming.

Mr. Dick said he first saw some of Mr. McBride's 2002 corn crop on July 26, 2002 and that Mr. McBride did not report any damage to the crop on that date. Mr. Dick referred to his notes and his Crop Inspection Report, dated December 12, 2002, and told the Tribunal:

• He had recorded that the crop had been sprayed with the herbicides, Accent and Peak Plus; but due to an area wide drought and earlier weed escapes, the crop was small, with fewer than normal cobs.
• The emergence stage of the plants was hampered by cool wet weather in the Spring.
• He had reviewed Mr. McBride's fertilizer application and found that good farm management practices were not followed with respect to applying sufficient fertilizer. He said that a generally recognized standard for application of fertilizer for corn is to apply one pound of nitrogen fertilizer for every bushel of corn produced.
• The Ontario Ministry of Agriculture and Food recommended the application of 90 units of nitrogen per acre, in its publication #811.

Mr. Dick explained that Mr. McBride's 2002 corn crop was grown on a total of 362.14 acres consisting of 262 acres grown on land that had been in corn production for several years and 100 acres grown on land that was previously in sod.

Mr. Dick said records from his investigation indicated that Mr. McBride purchased 16 tonne of fertilizer on May 16 2002; 18 tonne of fertilzer on May 31 2002; and 10 tonne of fertilizer on June 10, 2002. He stated that Mr. McBride had applied only 34 tonne of fertilizer to his corn crop. Mr. Dick explained that because 262 acres of land was not rotated out of corn and because of the low fertilizer application rate, AGRICORP reduced Mr. McBride's Guaranteed Total Production (GTP) by 20 bushels per acre, on those 262 acres.

Mr. Dick told the Tribunal that the December 12, 2002 report was signed by Mr. McBride as being correct to the best of his knowledge. Mr. Dick stated that he compiled information for the report from his working notes, supplier invoices and personal observations.

Mr. Dick explained that an Adjuster's Special Report dated December 19, 2002 indicated that Mr. McBride had agreed to a GTP of 71.91 bushels per acre over a measured 362.14 acres. He stated that the GTP was 26,041.49 bushels of corn in total.

Mr. Dick told the Tribunal that he filed an Adjuster's Special Report dated March 11, 2003 as a result of investigating the circumstances surrounding the yield. Mr. Dick stated that he measured the bin and wagon on January 29, 2003 and found discrepancies between the amount of corn that he was able to measure, and the amount declared. He said that Mr. McBride told him that a previously undeclared wagon load of corn had been harvested, that 40 tonne of corn had been fed to dairy cattle and that two loads of corn had been sold. Mr. Dick stated that Mr. McBride also indicated that some of the corn belonged to his son, Gordon McBride.

Mr. Dick told the Tribunal that the Proof of Loss form signed by Mr. McBride, on March 11, 2003 indicated a total yield of 10,128 bushels of corn, leaving a shortfall of 10,673.3 bushels. Mr. Dick referred to a comparison of Mr. McBride's yield with his historic, Average Farm Yield (AFV) which had been prepared by his supervisor, Mr. Fred Thomson, Area Manager. Mr. Dick said that the comparison showed Mr. McBride's 2002 yield was 15 percent less than his neighbours’ yields. He said that the comparison also indicated that Mr. McBride produced only 35 percent of his normal yield.

Mr. Dick told the Tribunal that he informed Mr. Fred Thomson of his findings with respect to Mr. McBride's previously undisclosed yield. He stated that Mr. Thomson confirmed this by way of letter to Mr. McBride dated March 21, 2003 and that Mr. Thomson asked Mr. McBride to review his sales and storage records and to report to AGRICORP any yield that may have been overlooked. Mr. Dick explained that the letter from Mr. Thomson advised Mr. McBride that if additional yield was revealed through investigation, his claim could be nullified. Mr. Dick stated that Mr. McBride did not respond to Mr. Thomson's letter. Mr. Dick said that Mr. Thomson questioned the accuracy of Mr. McBride's yield as declared.

Mr. Dick explained that he and Mr. Thomson spoke with Mr. Gordon McBride, son of Mr. Henry McBride, as part of the investigation. He submitted the Adjusters Special Report dated May 13, 2003 prepared after that interview. He said that Mr. Gordon McBride told them:

• His father's crop was poor where it was grown on hillsides.
• Some corn was left standing, but he did not say what amount of acreage was left standing.
• He estimated that the corn grown on land out of sod, yielded approximately two tonne per acre.
• He harvested all of his father's crop.
• His father did not use adequate fertilizer.
• He provided approximately 16 tonne of corn to his father from the corn dryer.

Mr. Dick explained to the Tribunal that there was no way of determining with certainty if the crop attributed to Mr. Gordon McBride was actually produced by Mr. Henry McBride so that AGRICORP decided, as was its discretion, to attribute the additional crop to Mr. Henry McBride.

Mr. Dick said that he met with Mr. Henry McBride and Mr. Thomson on May 13, 2003 in an attempt to settle the claim. Mr. Dick explained that Mr. McBride would not accept the settlement offer which amounted to $34,201.64. He said Mr. Thomson wrote to Mr. McBride on May 15, 2003 to confirm that the claim settlement offer was rejected and that, as a result, the offer was withdrawn. Mr. Dick said that the letter also advised Mr. McBride of the existence of AGRICORP's Internal Review Committee and of his right to appeal the decision to the Agriculture, Food and Rural Affairs Appeal Tribunal.

Mr. Dick pointed out that AGRICORP had prepared yield maps for a five km radius and a ten km radius of the McBride farm. He said the data from the five km radius map indicated that Mr. McBride's yield was 50 percent of his AFY compared with 67 percent for seven farms within the circle (including the data from Mr. McBride's farm). He interpreted the ten km radius map as indicating the surrounding farmers produced 74.52 percent of their Average Farm Yield (AFY) in comparison to Mr. McBride's 50 percent of AFY production. Mr. Dick said that AGRICORP acknowledged that yield data from the maps indicated that yields were approximately 25 percent less than average due to the drought conditions in the Renfrew area.

In response to questions, Mr. Dick said:

• On July 26, 2002 he met by happenstance with Mr. Henry McBride, Mr. Van Genderen and Mr. Gordon McBride and they discussed the need to spray the crop with herbicides.
• The five and ten km radius circle maps were prepared from data collected on AGRICORP-insured farms only. Data was collected from seven farmers in preparation of the five km radius map and from 25 farmers in preparation of the 25 km radius map.
• AGRICORP interprets the data from the 25 km radius map as indicative of drought in the area. As a result of the drought, yields were 75 percent of normal. The normal average yield is 75 to 125 bushels per acre; it was only 45 to 65 bushels per acre in 2002.
• Drought was not the only contributor to Mr. McBride's loss.
• Though herbicide was applied, weeds emerged to compete with the corn crop for nitrogen in the soil. Though Mr. McBride spent $50 per acre for herbicide spraying, the timing of its application was not advantageous.
• The corn was indistinguishable from the weeds, on the Schroder farm owned by Mr. McBride.
• At the impromptu meeting July 26, 2002, he mentioned that weeds were not an insured peril.
• The condition of the corn plants grown on 100 acres that had been planted in sod in 2001 was better than the condition of the plants grown on land that had been continuously planted in corn.
• He was satisfied that his investigation led to the discovery of yield that was not previously declared by Mr. McBride.
• No testing was done to determine the nitrogen levels in the soil; it is expected that good management practices include ensuring that sufficient soil nutrients are available to the crop.
• Mr. McBride purchased three loads of fertilizer formulated 19-19-19. In his view the load purchased on June 10, 2002 could not have been applied to the crop as it was after planting time. Mr. McBride had given assurances that he had applied 200 pounds of 19-19-19 to all the corn crop.
• Drought stress became evident in June.
• He lives half an hour drive from Mr. McBride's farm. Mr. McBride's farm has some of the best soil to be found in Renfrew County.

Mr. Jim Zavitz, Senior Manger of Customer Service, AGRICORP said he formerly held the position of Senior Manager Claims, AGRICORP and was familiar with Mr. Henry McBride’s claim. Mr. Zavitz explained to the Tribunal that he spoke with Mr. McBride on September 23, 2003 when Mr. McBride expressed his dissatisfaction with AGRICORP’s adjustment of his claim. Mr. Zavitz said he explained AGRICORP's position to Mr. McBride and followed up the conversation with a letter dated September 23, 2003, stating the amount of settlement offered and the reasoning behind AGRICORP's decision. He said he quoted AGRICORP's Crop Insurance Policy, Contract of Insurance definition of 'good farm management practices' in that letter. The definition is:

"good farm management practice includes, but is not limited to:

(a) using approved, reasonable methods or techniques of preparing and maintaining soil, planting, fertilizing, crop protection (including, but not limited to, controlling weeds, insects and disease), and harvesting in a manner that ensures reasonable yields,

(b) making ever reasonable attempt to ensure crop planting, crop protection and crop harvesting are adequate to provide a reasonable yield;

(c) using only chemicals registered in Ontario and approved for use in Ontario;

(d) using such chemicals in compliance wit the specification and recommendations on the product label including, but not limited to, recommended rates and timing, precautions, and application restrictions;

(e) making use of expert advice such as federal and provincial extension staff, crop consultants, industry representatives, and local agri-business personnel to assist in identifying and overcoming obstacles to reasonable crop yields;

He said the rationale used in adjusting Mr. McBride’s claim was:

• The GP for 2002 corn crop was 71.9 bushels per acre. The total measured acreage was 362.14 acres. The number of acres multiplied by the GP results in a total of 26,041.49 bushels.
• Mr. Dick calculated a reduction of GP based on Mr. McBride’s non-compliance with good farm management practices. The GP was 26,041.64 bushels, minus 5,240 bushels which equaled 20,801.49 bushels, which became his new GP.
• The total yield declared on the Proof of Loss was 10,128.19 bushels including 31.5 tonne that were not declared initially but were discovered by Mr. Dick during his review of the claim. It was discovered that 31.5 tonne were sold to a customer, Mr. Cull.
• Results of an investigation and comparison of yields from neigbouring farmers led Mr. Dick to believe that the yield attested to by Mr. McBride, on the Proof of Loss form, was unreliably reported. As a result of the faulty reporting AGRICORP rejected the Proof of Loss form. AGRICORP also rejected Mr. McBride's claims that 27.84 tonne observed at his farm was old crop and that 15.85 tonne belonged to Mr. Gordon McBride.

Mr. Zavitz quoted from the AGRICORP's Crop Insurance Policy, section H (1), (2) and (3):

H. Intermingling and Pro-Rated Production

1. If, for any reason whatsoever, an Insured fails to store harvested production of an insured crop separate from carryover production and AGRICORP cannot distinguish the current year's production from carry over production, AGICORP may, in its discretion, estimate the carryover production. The carryover production as estimated will be deducted from the adjusted yield by AGRICORP.

2. If, for any reason whatsoever, an Insured fails to store harvested production of an insured crop separate from any other producer’s production, and AGRICORP cannot distinguish what production belongs to the Insured, AGRICOPR may allocate the combined production in such reasonable proportions as AGRICORP deems appropriate.

3. AGRICORP may estimate carryover production and current year harvested production for the purpose of the Contract where AGRICORP is unable to determine the actual carryover production or current year harvested production and the inability is not due to any act or omission on the part of AGRICORP.

Mr. Zavitz explained that he also advised Mr. McBride in writing that the offer of settlement in the amount of $34,201.64 expired on October 10, 2003 and he should make his position known to AGRICORP before the offer expired. Mr. Zavitz said that his letter outlined the processes of AGRICORP's Issues Review Committee (IRC) and the option of appealing to the Tribunal if he wished to pursue a course of dispute resolution.

Mr. Zavitz referred to AGRICORP's discretion under Crop Insurance Policy, section K with regard to claims that are false or misrepresented. He submitted in such circumstances AGRICORP may reduce the amount of claim or refuse to pay any claim.

Mr. Zavitz said that he did not receive a response to his September 23, 2003 letter from Mr. McBride. Mr. Zavitz said that he referred Mr. McBride's case to the IRC which reported its findings on January 19, 2004. The IRC report stated that:

It is recommended that IRC support the offer of settlement made to Mr. McBride in the amount of $34,201.64. This amount takes into account the area loss incurred from drought, and the adjustments made to the claim based on results of investigation, but does not penalize Mr. McBride for his initial failure to properly report his total harvested yield.

Mr. Zavitz said that Mr. McBride did not make every effort to comply with his contract of insurance. He stated that the cause of loss was not singularly an area wide drought. He said that AGRICORP made adjustments to accommodate loss caused by drought but that it could not pay a claim on loss from uninsured perils.

Mr. Zavitz responded to questions that:

• The offer of settlement to Mr. McBride was withdrawn.
• The IRC review and decision upheld the fairness and reasonableness of the offer of settlement.
• Both weed escape and lack of fertilizer caused losses beyond the losses sustained by the drought.
• Herbicide efficacy can be affected by weather conditions.
• Mr. McBride's claim was fairly adjusted; his lack of good management practices and poor record keeping and reporting could have resulted in an offer based on a penalty of as much as 40 bushels per acre, not the 20 bushels per acre by which the total was reduced.
• AGRICORP became suspicious that Mr. McBride's yields were not accurately reported, because deliveries of corn that was sold occurred after harvest. It was suspected that the corn sales were from the new crop and not the old crop. AGRICORP was told that 33.5 tonne was old crop; further investigation revealed that it was new crop corn.
• AGRICORP attributed 27.84 tonne of new crop corn to Mr. McBride despite his claims that it came from his son Mr. Gordon McBride. Mr. Dick obtained weigh slips from Mr. Cull who purchased 31.5 tonne of corn from Mr. McBride.
• The AGRICORP Crop Insurance Policy clearly states that carry over corn should be reported.

Mr. Henry McBride told the Tribunal:

• He has produced crops and operated a Holstein dairy business since 1949.
• He conducted most of his business with AGRICORP over the telephone; he does not own a computer.
• He produced 362 acres of corn in 2002; of that total, 100 acres of corn was grown on soil previously in sod and 262 acres were grown on soil previously in corn for several years.
• His son sprayed the crop with herbicide and he contracted a second spraying to another farmer.
• Corn growing on hilltops was poor; approximately 45 acres of hilltop grown corn, was not harvested.
• His son, Mr. Gordon McBride, harvested all the corn.
• The best corn was harvested from land that was in sod the previous year.
• He did not make any adjustment to the amount of fertilizer that was applied in consideration of the fertility of lands previously in corn, compared to the lands previously in sod.
• He did not apply fertilizer in 2003 but was able to harvest a good crop. At no time did any of the AGRICORP staff tell him to use more fertilizer.
• His corn bin holds 200 tonne. He does not remember how much corn was leftover in the bin from 2001.
• He tries to plant his corn as early in the season as the weather permits.
• He should have sprayed the crop with herbicide after planting to get better weed control.
• His father showed him how to operate a farm business; he does not see a need to take any formal instruction in the form of courses or seminars. He reads the Farmer's Forum and the Ontario Farmer publications regularly.
• He believes that AGRICORP should pay him a claim in the amount of $54,000.
• He owns a corn dryer that he shares with his son Mr. Gordon McBride. He and his son keep track of corn, lent and repaid to each other, by borrowing and repaying a load from the corn dryer.

In his closing statement Mr. Thomson told the Tribunal that Mr. McBride's corn produced on land that was previously in sod was better than the corn produced on land previously in corn. He said that evidence was presented that half the sufficient amount of fertilizer was applied to the crop. Mr. Thomson said that AGRICORP had the difficult task of determining the yield because the declared yield conflicted with the investigative findings.

Mr. Thomson said that AGRICORP had made every effort to settle the claim and that despite being credited for losses due to drought, Mr. McBride refused to take any responsibility for loss beyond that which was caused by the drought. He argued that AGRICORP cannot pay a claim on uninsured perils. He asked the Tribunal to consider ruling in favour of AGRICORP's offer of settlement in the amount of $34,000.

Mr. McBride told the Tribunal that he gave his best effort in producing the crop. He said he spent $600 to spray the crop with herbicide a second time, in July 2002.

The Findings

Based on Mr. Zavitz’s letter dated September 25, 2003, the Tribunal finds that AGRICORP attempted to make a fair adjustment of a difficult claim with a customer who seemed unaware of his responsibilities under the contract of insurance. It was confirmed in evidence that the IRC upheld the offer of settlement of the claim.

Mr. Dick, Claims Adjuster, found that there were unreported bushels of corn, even after the Proof of Loss form had been filed. The Tribunal accepts the testimony and evidence of Mr. Dick and found that he was thorough in his investigation of this claim.

Under the Contract of Insurance, AGRICORP had the discretion to treat the undeclared crop as new crop, it exercised this discretion, attributing some 33 tonne of undeclared corn to Mr. McBride as new crop in 2002. Section H. of the AGRICORP Crop Insurance Policy states that:

H. Intermingling and Pro-Rated Production

1. If, for any reason whatsoever, an Insured fails to store harvested production of an insured crop separate from carryover production and AGRICORP cannot distinguish the current year's production from carry over production, AGICORP may, in its discretion, estimate the carryover production. The carryover production as estimated will be deducted from the adjusted yield by AGRICORP.

Mr. McBride made no convincing submission to indicate that the corn discovered through the investigation was old crop corn. The Tribunal accepts the evidence of AGRICORP that there was unreported corn in 2002.

Mr. McBride led very little evidence in his own appeal and most of the evidence came through AGRICORP.

Mr. McBride's method of record keeping was not up to the standards of AGRICORP nor was the method in his best interests, as evidenced by his reported yield for 2002 and lack of records indicating carryover corn from 2001 into 2002.

The Tribunal recognizes that Mr. McBride grows crops on some of the best farmland in Renfrew County. Evidence presented by AGRICORP and confirmed by the insured was that fertilizer was not used to the extent that was recommended in publication or pursuant to 'good farming practices', as defined in the AGRICORP Crop Insurance Policy manual.

Decision and Reasons

After careful consideration of the evidence filed and submissions made, the Tribunal decided to grant the appeal in part. The Tribunal orders:

1. AGRICORP pay a claim in the amount of $34,200.64 to Mr. Henry McBride. This is the amount calculated by AGRICORP as fairly reflecting the Guaranteed Production, net of a penalty applied to reflect poor farm management practices and the shortfall resulting from unreported corn discovered through investigation and attributed to Mr. Henry McBride.

The reasons for this decision are:

1. Drought is an insured peril for which Mr. Henry McBride was insured. The Tribunal accepts the calculations provided by AGRICORP as a legitimate settlement.
2. Mr. McBride did not provide convincing evidence to indicate that the low yield on his 2002 corn crop was due to an insured peril rather than poor management practices and unreported yield.

DATED AT Guelph Ontario this 21^st day of April, 2004.