Ledgecroft Farms Inc. v Agricorp, 2006 ONAFRAAT 12

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:appeals.tribunal@omaf.gov.on.ca

Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: appeals.tribunal@omaf.gov.on.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL: Ledgecroft Farms Inc. v Agricorp

Ledgecroft Farms Inc. v Agricorp 2006 ONAFRAAT 12

STATUTE: Crop Insurance Act

HEARING: April 6, 2006

DATE OF DECISION: April 28, 2006

2006-12

NEUTRAL CITATION: 2006 ONAFRAAT 12

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 Ledgecroft Farms Inc. (William B. Green), Seeley’s Bay, Ontario from a decision of Agricorp concerning the adjustment of its claim for its 2005 forage crop under Regulation 380/97 and the Crop Insurance Plan for Hay and Forage.

Before: Rod Stork, Chair; Gene Trotman, Vice Chair; Denis Perrault, Member

Appearances: Jennifer Green, representing the appellant, Ledgecroft Farms Inc. William (Ben) Green, representing the appellant, Ledgecroft Farms Inc. Fred Thomson, representing the respondent, Agricorp Tim Borho, witness for the respondent, Agricorp

DECISION OF THE TRIBUNAL

This appeal was heard in Kingston, Ontario on Thursday, April 6, 2006. Ledgecroft Farms Inc. initiated the appeal and sought a higher payment of a claim related to its 2005 forage crops.

Preliminary Matters

Ms. Jennifer Green asked to submit into evidence three documents which she obtained after the date by which the Tribunal ordered documentary evidence to be filed. She said Agricorp had been served with the documents the day before the hearing.

Mr. Fred Thomson said he was inclined not to object as Agricorp was late in delivering its document brief to the appellant due to an unforeseen circumstance. He said Agricorp did have a concern with one of the three documents – a letter signed by Mr. Foreman – as Agricorp could not verify that it was signed by him.

The Tribunal agreed to accept two of the documents – an agreement regarding a rain gauge site dated March 19, 2004 and a cover letter regarding that agreement. The Tribunal did not accept the letter by Mr. Foreman. The Tribunal noted that the evidence in the letter would be hearsay as there would be no opportunity to cross-examine Mr. Foreman. The Tribunal also noted that the Foreman evidence related to 2005 being a dry year, which was not an issue in dispute between the parties.

Statutory Context

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

Referral of disputes

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.

Notice of appeal

(2) To appeal a matter in dispute, the appellant shall file a written notice of appeal with the Tribunal and send a copy of the notice to the other party within the time specified by the regulations made under this Act.

Exclusive jurisdiction

(3) The Tribunal has exclusive jurisdiction to hear and determine all appeals arising under subsection (1).

Decision binding

(4) The decision of the Tribunal in an appeal is binding on the parties. 1999, c. 12, Sched. A, s. 7 (2).

The Evidence

Appellant’s Case

Ms. Jennifer Green told the Tribunal that Ledgecroft Farms Inc. had been in business since the 1970s and had incorporated in 1995. She explained it was mainly a dairy farm which also had some crop production and had purchased crop insurance since the early 1980s. Ms. Green said the company expanded its herd and doubled its land base in 2003.

She explained that Ledgecroft Farms Inc. required quality feed and used the crop insurance program to minimize its risk. She provided a brief overview of the company’s feeding practices.

Ms. Green told the Tribunal that Ledgecroft Farms Inc. had a total of 350 acres of forage in 2005 - 250 established acres and 100 newly planted acres – all grown on tiled land. She said the first cuts of grass hay and legumes were harvested in late May and early June, respectively, and the company had no pastureland. She said the company had originally insured forage under the old SIMFOY program, which considered several factors, and had switched to the new system, based on rainfall, in 2004. She said the South Crosby rain station was assigned to Ledgecroft Farms Inc. as there was no rain station in Leeds Township. The company held a $75,000 policy in 2005.

Ms. Green told the Tribunal that she had learned that Agricorp intended to put a rain station in Leeds Township in 2004 but never followed through. Other than the South Crosby station which was 13 km from the bulk of their fields, she said the next closest rain stations were Lansdowne which was 15 km away and Pittsburgh which was 16 km away. She indicated the rainfall recorded at those sites was as follows:

Station	May	June	July	August
Lansdowne	15.2	45	101.75	101.5
South Crosby	35	84.4	56.6	70
Pittsburgh	21.4	52.6	79.6	97.75

Ms. Green stated that the 2005 growing season was drier in her area than at the South Crosby rain station as evidenced by:

• Environment Canada data for Lyndhurst-Shawmere where rainfall was recorded as 32.2 mm in May and 40 mm in June
• Cataraqui Region Conservation Authority data which indicated only 54% of historical rainfall was received in March-May 2005 and June 2005
• Rainfall data collected by area farmer Stirling Chapman who recorded 15 mm in May, 50 mm in June, 87 mm in July and 77 mm in August (of which 55 mm fell on August 31, 2005)

Ms. Green said early season rainfall was critical to Ledgecroft Farms Inc.’s forage crops. She also testified that there were more periods of continuous hot weather in 2005 than is usual for the area.

Ms. Green testified that Ledgecroft Farms Inc. received a payout on its corn insurance policy due to drought and said it was inconsistent of Agricorp to pay only 7% on the forage policy for the same customer. She also submitted that it was unfair that customers tied to the Pittsburgh and Lansdowne rain stations, which received more rainfall than the South Crosby station, were able to switch to other rain stations and receive 30% and 54% payouts respectively. She said it would not be natural for these customers to pick a rain station farther from their farms and said Agricorp was unreasonable in using assigned rain stations to adjust the claims the first time, and farm location to adjust the claims for its second payout.

Ms. Green calculated Ledgecroft Farms Inc.’s expenses due to low forage yield at $46,000 as of the day of the hearing and stated that the company had to buy feed and modify rations. She submitted Agricorp had failed in its mission and Ledgecroft Farms Inc.’s losses should have been covered by the forage insurance program and customers should not be penalized by design flaws in the program.

Ms. Green and Mr. Ben Green responded to questions from Mr. Thomson as follows:

• They did not know what type of rain gauges were used by Environment Canada and Mr. Chapman but expected they were similar to the gauges used by the Ontario Weather Network, Agricorp’s supplier of weather data.
• Mr. Chapman is located approximately 1 km from Ledgecroft Farms Inc.’s established hay fields, and approximately another 4-5 km from the home farm.
• Mr. James Earl lived approximately one mile from the South Crosby station and he provided a letter attesting to sporadic rainfall in the area in 2005.
• It was fair to say the rainfall on Ledgecroft Farms Inc. was different than the rainfall on the South Crosby station.
• Drought caused their forage losses in 2005. There was no winterkill that required re-seeding. Forage was shorter than normal in the spring of 2005.
• Spring 2005 was drier and colder than usual; the summer of 2005 was drier and hotter than usual.
• Usually there is a mix of good and poor cuttings of hay but all cuttings were poor in 2005.
• The rainfall recorded on August 31, 2005 jaded the picture of the season, which was very dry; that rainfall did not help the forage crop as there was not enough to harvest in September and October.
• Forage goes into dormancy in September and the crop was well past maturity by mid-October.
• Agricorp fulfilled the legal contract they signed but that contract did not reflect the growing season.
• They did not object to the design of the forage program but felt they could not be accurately reflected in the program because there was no rain station close to their farms.
• They harvested about half the usual amount of forage in 2005.
• They were aware there was a 20% deductible on the forage insurance plan.
• They did not dispute that Agricorp fulfilled its mandate but there was great dissatisfaction in the region with the 2005 forage program.

Ms. Green and Mr. Ben Green responded to questions from the Tribunal as follows:

• They had outsourced some of their cropping requirements for about 3 years
• They rotated two years of corn, spring grain underseeded with legume and three years of hay before returning to corn.
• Ledgecroft Farms Inc. was nearing the size where it required a nutrient management plan and they had been getting better tools to manage the operation and minimize costs ad risks as a result of that exercise.
• Their various farms had different soil types; the home farm was near gravel pits and required regular moisture.
• 2005 was the worst year since a dry year in the early 1980s. Rainfall was more sporadic in 2005.
• After Agricorp responded to grower dissent and recalculated claims, they thought their payout would increase but it did not.
• Agricorp should ‘make it right’ given that its program did not work.
• The Ledgecroft Farms Inc. corn yield is a better reflection of what happened in 2005 than the rainfall data collected at the South Crosby station. In the re-adjustment of their claim, Agricorp did not look at their specific farm site.

Mr. Green said he understood the forage program and how it applies but expected better protection. He said that under SIMFOY, Ledgecroft Farms Inc. had a payout in either 2000 or 2001 when the drought was not nearly as severe as in 2005. He said it was unfortunate that the new forage program does not reflect sporadic rain.

Respondent’s Case

Mr. Tim Borho told the Tribunal he was an Account Lead with Agricorp and he was responsible for administering the forage rainfall plan. He said he ensured that forms and fact sheets are accurate, communicated with growers and interested farm organizations about the plan and potential changes to the plan, liaised with the weather data provider and made sure yield reports and claim cheques were sent out to customers. He said he was ultimately responsible for the selection of rain stations.

Mr. Borho said he studied crop science at university, grew forages for six years and spent one year selling forage seed.

Mr. Borho explained the forage plan offered in 2005 was started as a pilot project in 2000 and was offered province-wide in 2003. He said it was based solely on rainfall, which was used as an indicator of what forage yield should be, and said the only insured peril was drought. Mr. Borho explained that it was an area based plan and customers selected a rain station and their claims were paid on the basis of the rainfall recorded at that station. He said the total rainfall measured between May 1 and August 31, inclusive, determined the claim payment.

Mr. Borho said that in addition to drought, forage yield was impacted by temperature, species of forage, the amount of sunlight, soil temperature in spring, the number and timing of cuts and winterkill. He said he had read articles which indicated there was winterkill in various areas of Ontario in the 2004/05 season.

Mr. Borho told the Tribunal Agricorp did not offer a split risk option in 2005 so customers could not insure some fields and not others, could not insure for part of the season and could not use multiple rain stations.

Mr. Borho stated that a customer could select a rain station in their own geographic township or a bordering geographic township, or, if there were no rain stations in their own or adjacent townships, they were assigned to the closest station. He said Agricorp had 350 rain stations and there was not one located in every geographic township.

Mr. Borho said Agricorp was required to include all rainfall measured between May 1 and August 31 with the exceptions that it did not count more than 70 mm on any particular calendar day and it did not count monthly rainfall that exceeded 125% of the historical average for the area. He said this recognized that there was a point beyond which additional rain was not necessarily beneficial and prevented one rainfall event from skewing the result.

Mr. Borho said Agricorp did not collect weather data itself. It contracted with the University of Guelph’s Ontario Weather Network (OWN) which set up secure sites, hired and trained data collectors and evaluated data before forwarding it to Agricorp. He said data is collected and stations are inspected every two weeks during the insurance period. Mr. Borho acknowledged that Agricorp had used Environment Canada data in the past but had complaints that it was not provided quickly enough. He said the SIMFOY program also used rainfall data collected by growers.

Mr. Borho said Agricorp’s legal authority came from the Crop Insurance Act and the Agricorp Act. He referred the Tribunal to the forage insuring agreement which was an addendum to the basic contract of insurance. He said a summary of changes to the program was also sent to all policy holders.

Mr. Borho said provincial and federal governments subsidized the forage program by paying 60% of the premiums. He said there was no surcharge discount on the forage insurance program. He explained that governments had little to do with the insurance program on a day to day basis but they both have a seat on Agricorp’s board of directors. He said the federal government was consulted any time changes to plans or new plans were envisioned and there was regular communication with the provincial government on the administration of crop insurance programs. Mr. Borho stated that Agricorp could not retroactively change the design of contracts of insurance. He said if it did the federal government might withhold its share of the premiums.

Mr. Borho told the Tribunal that when Agricorp staff meets with potential customers regarding the forage insurance program they talk about forage practices, acreage and species and assign a value for forage and then the customer selects the coverage level and rain station that best fits his situation. He said the customer has the option of sites in his home township or an adjacent township. Mr. Borho said the application was then filled out and the premium paid.

For existing customers, Mr. Borho said Agricorp sent out renewal notices in early March and the customer had until April 1st to cancel the coverage. Invoices were sent out in early April and payment was due May 1st. He said any changes to rain stations or coverage were to be made by May 1st.

Mr. Borho said that Agricorp consults with its own field staff and local authorities where customers are farming when it picks the sites for rain stations. He confirmed there was no site in Leeds Township in 2005. He said there were 100 new stations established in 2004 but the Leeds location was not selected. He indicated Agricorp had more potential sites than it had rain gauges.

Mr. Borho explained that the Agricorp forage plan paid claims where a rain station received less than 80% of its historical rainfall. He said the actual percentage of historical rainfall was subtracted from 80% and the difference (claim percentage) was multiplied by the policy value, then this result was doubled to get the claim payment. He said the historical data was obtained from Environment Canada as it was the best source for long term weather data. He said Ledgecroft Farms Inc. was paid at a 7.25% claim rate and was issued a cheque for $5,439.30.

Mr. Borho agreed that the Spring of 2005 was cool and dry and that this was followed by a hot and dry summer with more rain in July and August. He also agreed there was an effect from Hurricane Katrina on August 31, 2005. Mr. Borho said the general pattern in 2005 was that there was more rainfall near Lake Ontario and the St. Lawrence River than inland. He said the South Crosby rain station data fit the general pattern and he had no reason to doubt the data.

Mr. Borho told the Tribunal there was a communications problem in 2005 because when Agricorp placed new rain stations in geographic townships it notified customers in those townships of their option to switch rain stations, but did not notify customers in adjoining geographic townships. He said Ledgecroft Farms Inc. should have been notified of the Pittsburgh station, as it was new in 2005 and Ledgecroft Farms Inc. had the option of selecting it. He said the renewal letter sent to Ledgecroft Farms Inc. in 2005 mentioned the option of changing coverage but was not clear that rain stations could also be changed.

Mr. Borho told the Tribunal that because of the communication breakdown, Agricorp decided to recalculate claims so that its forage customers, with some exceptions, would be assigned to the highest paying rain station that they would normally be able to choose. He said Ledgecroft Farms Inc. had three rain stations that they would have been able to choose and were already assigned to the one with the highest payout – South Crosby – so it did not receive an additional payment when the claims were readjusted.

Mr. Borho said that in total Agricorp paid $8.5 million in forage claims which was the highest annual payout ever on forage insurance policies. He said that Agricorp had 1650 forage customers in 2005 and 1410 customers were paid a claim. He said Agricorp had an internal dispute resolution process.

In response to questions by the appellant, Mr. Borho indicated:

• He was appointed Account Lead for the forage program on August 22, 2005; there were at least three people in the position in 2005.
• There were high claims in 2001 and 2002 under the forage program.
• He had been a customer of Agricorp from 1998 to 2004 when he stopped farming.
• He had firsthand experience with drought.
• In the first round of payments approximately 1,100 customers had a claim paid; and an additional 15-20 had claims that were denied but subsequently paid, prior to the second round of claims adjustments. There were a few administrative errors and a problem with communications about a station in Drummond that led to those adjustments.
• The 2006 forage program had been modified in response to customer concerns that the 2005 plan did not meet their needs. There was considerable dissent about the 2005 program due to claims not being paid and distance to the nearest rain station.
• Agricorp has a contingency plan such that farmers on whose properties rain stations were placed could be asked to collect data; he was not aware of this being done in 2005.
• The OWN weather stations have a triple redundancy which includes an electronic tipping meter, a tip counter and a bucket that collects rainfall. There had never been a case where no data was collected.
• OWN staff attend at the stations every two weeks to see if they are functioning properly.
• The rain data from all three collection methods is plotted onto a map and anomalies are investigated.
• OWN staff assemble the rain gauges at Ridgetown College.
• The OWN has contracts with the government of Saskatchewan and Michigan Sugarbeet Growers and runs a program called TOMCAST for tomato disease forecasting.
• Each rain gauge cost $600; he did not know the proportion of Agricorp’s budget that went to equipment.
• Governments were consulted before Agricorp undertook its second round of claim adjustments; because there was an administrative shortfall the federal government took the view it was up to Agricorp to resolve it.
• Monies paid in claims come from a fund that was created with premiums.
• Agricorp does not cover winterkill except with a new seedings plan.

In response to questions by the appellant, Mr. Thomson indicated:

• There were a limited number of rain gauges to be allocated in 2004 and 2005.
• Gauge arrangements are made in March and April so they can be functioning and tested by May 1st.
• There is no undertaking to provide a rain station in every geographic township; Agricorp tries to place them where they will best serve their customers, but has to balance the needs of each customer against the needs of others.
• Some rain stations were being relocated for 2006.
• A representative of the Ontario Ministry of Agriculture, Food and Rural Affairs said the amount of winterkill was higher than normal in 2004/05.
• Ideally, customers should be no more than 15 km from a rain station but Agricorp will issue insurance to producers who are farther away then the 15 km range. Ledgecroft Farms Inc. was 13 km from the South Crosby station and that was considered acceptable.

In response to questions from the Tribunal, Mr. Borho explained:

• A customer who lives in Lansdowne has different adjacent townships than one who lives in Leeds. As a result, Lansdowne customers were reassigned to the Bastard station which had a 54% payout even though there was no payout from the Lansdowne station. Those living in Pittsburgh were reassigned to the Kingston station and received a 30% payout.
• Agricorp had to stay within the parameters of the program when it readjusted the claims.
• While other factors can cause reduced yield, only drought was covered by the forage plan.
• Agricorp tried to locate stations where there is a reasonable concentration of farmers. Ledgecroft Farms Inc.’s area was fairly well covered but there can always be fine tuning.
• He agreed that if a customer is not located near a rain station, their only option is not to buy insurance.
• There is a broad clause covering quality control in Agricorp’s contract with the OWN; either side can cancel the contract. Agricorp had rejected data at times but in general was very happy with the quality of data provided by OWN.
• Most customers use Agricorp’s Internal Review Committee before they appeal to the Tribunal.

Summations

Ms. Green told the Tribunal that Ledgecroft Farms Inc. participated in the 2005 forage plan administered by Agricorp and that the plan did not recognize drought even though Ledgecroft Farms Inc. was clearly affected by drought. She argued that the South Crosby station did not accurately reflect the lack of rainfall on their farms and there was no other rainfall station nearby that reflected their situation. She submitted that Agricorp’s adjustment of their claim was not reasonable given the drought condition. She said Ledgecroft Farms Inc. had both less rain and the lowest payout in the region. Ms. Green argued that if drought is the peril that is covered, and Agricorp recognized drought affected the corn crop, then Ledgecroft Farms Inc. should also be compensated for drought on the forage crop. She asked the Tribunal to order Agricorp to pay a claim in the amount of $46,000. Ms. Green submitted the Tribunal would have to decide between legality and reasonableness.

Mr. Thomson said there was no doubt that 2005 was a difficult year in Ledgecroft Farms Inc.’s region and agreed that the forage program did not address all the issues. He argued that Agricorp had done what it could in the context of administrative errors, but that it could not retroactively change the parameters of the program. He reminded the Tribunal that Agricorp had put $8.5 million in the hands of forage growers and that this was the highest ever annual payout. Mr. Thomson said much of the discussion at the hearing had been about the design of the program and Agricorp’s position was that it cannot change the design after the fact. He submitted that the evidence from Ledgecroft Farms Inc. is that Agricorp delivered on its legal obligations but that it had hoped Agricorp would do more. He said Agricorp did live up to its obligations under the forage plan and asked the Tribunal to rule in its favour.

The Findings

The Tribunal found all witnesses to this proceeding to be very credible and honest. Information was provided by all witnesses indicating that the 2005 crop year for forages was a difficult one in Eastern Ontario. Witnesses also indicated that all the legal aspects of the program were met by Agricorp in 2005. There was also no indication from any of the witnesses that data collected by the OWN was incorrect or inaccurate.

There was no dispute between the parties as to there being drought in 2005 which negatively affected the forage yield of Ledgecroft Farms Inc. The rainfall data collected by Mr. Chapman, the adjustment of the corn claim by Agricorp and the other weather data presented by both parties all indicate this farming operation experienced drought. In adjusting the forage claim, Agricorp acknowledged there was drought at the South Crosby rain station. The issue is whether the appellant is entitled to additional funds through the forage plan administered by Agricorp.

The Tribunal finds that Agricorp adjusted the Ledgecroft Farms Inc. forage claim correctly, under the parameters of the crop insurance contract and forage plan. There was considerable testimony as to the failings of the design of the forage plan in 2005. The Tribunal agrees that the large rainfall measured on the last day of the measurement period would not have had any significant effect on the appellant’s forage yield. But, the Tribunal finds that Agricorp was obligated to include this rainfall data in the adjustment of claims of growers tied to the South Crosby rain station. It may not unilaterally change the design of a program that has been agreed to by the federal and provincial governments.

Ms. Green pointed out that there was no rain station in Leeds Township and the closest rain station was 13 km from their forage fields. Agricorp took the position that 13 km was an acceptable distance and it had adjusted the claim according to the contract of insurance. The appellant agreed that Agricorp was legally correct but argued that a larger claim should be paid because the rainfall station does not reflect what happened on the farm. The Tribunal finds there was no evidence that Ledgecroft Farms Inc. was treated any differently than other growers in similar circumstances in this regard.

The appellant provided letters of support from a Member of Parliament and Member of Provincial Parliament. The Tribunal gave no weight to these political views. While the Tribunal respects the right of any customer of the crop insurance program to seek the help of their political representatives, the Tribunal also recognizes that it is critical that Agricorp administer the program in an appropriate manner once all details of the plan have been agreed to by all parties to the Crop Insurance Program.

Considerable evidence was presented on Ledgecroft Farms Inc.’s farming practices. It is clear to the Tribunal that Ledgecroft Farms Inc. is a well managed operation. In dismissing this appeal, the Tribunal recognizes that this will cause economic hardship to Mr. Green and Ledgecroft Farms Inc. but the Tribunal does not have the authority to override the insurance policy to give him redress. Based on the original method of calculating claims and the revamped method which allowed for the most advantageous eligible rain station to be used, Ledgecroft Farms Inc. was not eligible for additional payment. Ledgecroft Farms Inc. was treated no differently then any other customer under the forage program.

Decision and Reasons

After careful consideration of the evidence and submissions made, the Tribunal decided to dismiss the appeal of Ledgecroft Farms Inc.

The reasons for this decision are:

1. Agricorp made no errors in the adjustment of this claim.
2. Ledgecroft Farms Inc. was treated no differently then any other customer enrolled in the forage program both in the original method of calculating claims and the revamped method of calculating claims

DATED AT Guelph, Ontario this 28th day of April, 2006.