Knizat Farm Inc. v. Agricorp, 2011 ONAFRAAT 20

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, chemin Stone Ouest

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

Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Courriel: appeals.tribunal.omafra@ontario.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Knizat Farm Inc., v. Agricorp

Knizat Farm Inc., v. Agricorp 2011 ONAFRAAT 20

STATUTE:

Crop Insurance Act

HEARING:

May 12, 2011

DATE OF DECISION:

July 8, 2011

2011-20

NEUTRAL CITATION:

2011 ONAFRAAT 20

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

AND IN THE MATTER OF: An appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Knizat Farm Inc. (Thomas Knizat), of Niagara-on-the-Lake, Ontario from a decision of Agricorp to deny its additional claim for its 2010 crop of grapes.

Before:

Susan Whelan, Vice Chair; Doug Flook, Member; Robert Scouller, Member

Appearances:

Thomas Knizat, representative for the appellant

John Bujan, representative for respondent

Mark Neufeld, witness for respondent

John Barkovic, witness of respondent

Teresa MacNeil, witness for respondent

Sandra Wiley, witness for respondent

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on May 12, 2011. Mr. Knizat appealed on behalf of Knizat Farm Inc. to the Agriculture, Food and Rural Affairs Appeal Tribunal from the decision of Agricorp concerning the additional claim for its 2010 crop of grapes.

Background

The appellant, Knizat Farm Inc., operated by Joseph Knizat and his son, Thomas Knizat, owns two vineyards in Niagara-on-the-Lake referred to as Line 2 and Line 3, and has been growing grapes for at least a decade. In early 2010, Knizat Farm Inc. also rented three additional vineyards from Mr. Burkhardt. The rented vineyards are referred to and known as the East-West Line, Niven Road and Concession 7 vineyards. The addition of the rental vineyards increased the Knizat Farm Inc. grape crop acreage from 50 acres to approximately 188 acres. The five vineyards were insured up to a maximum recovery of 85% of the Farm Average Yield (FAY). After harvest, the insurance paid 58% to the appellant on the three rented vineyards, rather than the 85% to which the appellant feels he is entitled. Agricorp did not pay the entire claim up to the insured value of 85% because a portion of the loss was “Loss due to Uninsured Peril” (LDUP) under the contract of insurance. The appellant first filed a complaint with the Issues Review Committee at Agricorp. The complaint was denied and the appellant then filed an appeal with this Tribunal.

Issues

a) Was the appellant compensated in accordance with the terms of the crop insurance policy?

b) If not, what is the amount of the additional compensation, if any, due to the appellant?

Evidence

The Appellant

Mr. Thomas Knizat testified that for each of the past 10 years Knizat Farm Inc. purchased crop insurance and had collected on only one previous occasion, in 2005, due to frost. He stated that he had no prior knowledge of the rental properties, but was advised that there were previous issues with Black Rot and Powdery Mildew at Concession 7.

Thomas Knizat further testified that in his opinion the damage to the production level of the rented properties due to uninsured perils should be assessed closer to 5% than the current 27%. He stated that it is his belief that the damage to the remainder of the rented vineyards was mainly due to frost damage early in the crop year. In support of this claim, he presented photographs that he took of the rented vineyards evidencing dead arms (black in colour with no new shoots) and dead plants.

In his evidence, Thomas Knizat provided a map of the Niagara area from Weather Innovation Incorporated that outlined the recorded overnight temperatures for the evening of May 9 and 10, 2010. It indicated that the overnight low for Knizat Farm Inc.’s vineyards were as follows:

Line 2 Vineyard (owned property) - 0 degrees C

Line 3 Vineyard (owned property) - minus 0.8 degrees C

Concession 7 Vineyard (rented property) - minus 0.8 degrees C

Niven Road Vineyard (rented property) - minus 0.8 degrees C

East-West Line Vineyard (rented property) - plus 0.8 degrees C

Thomas Knizat also referred to the “Winter Injury Studies 2009/10, Grape Bud Survival, March 1, 2010 West and March 8, 2010 East” document. It outlined the percentage of live bud survival for the various varieties of grapes in the Niagara area after the 2010 frost. He referred the Tribunal panel to the East Lakeshore and East Central areas which encapsulate his vineyards. In the East Central area the live bud percentage ranged from 59 to 93%. In the East Lakeshore area the range of bud survival was 55 to 82%.

Thomas Knizat then entered into evidence the June 2010 edition of the Grape Growers of Ontario Newsletter, Volume 5. The first article entitled “2010 Crop Assessment” confirmed that frost temperatures were recorded across the Niagara Region on Monday, May 10, 2010. It also referenced inconsistent and irregular bud break of the grape product and some mortality of the older Riesling and Cabernet Sauvignon grapevines. Thomas Knizat testified that there was a large percentage of dead buds in his vineyards due to frost.

He also presented a fact sheet from the Ontario Ministry of Agriculture, Food and Rural Affairs, titled “The Tender Fruit Grape Vine” which discussed Sour Rot as a possible cause of injury. Thomas Knizat testified that he did have some crop damage which was mainly due to Sour Rot, a non insured peril disease. He stated that some of his crop was rejected due to the impact of this disease which produces a vinegary smell also referred to as VA (Volatile Acid). The fact sheet stated controlling Sour Rot with fungicides is very difficult and a research project is currently exploring several avenues for reducing Sour Rot. Thomas Knizat stated that Sour Rot was an issue in the Concession 7 vineyard. He also testified that in traversing his fields he did not see much Black Rot or Powdery Mildew.

Thomas Knizat explained that, based upon the warnings provided to him by Mr. Neufeld of Agricorp and Mr. Burkhardt, he believed that his care and management of the vineyards to prevent disease followed, and in some cases exceeded, the established protocol and recommendations. Mr. Neufeld had informed him of the history of the rented vineyards and the potential impact that Powdery Mildew and Black Rot could have on the grape crops. Mr. Burkhardt had also advised him that he (Burkhardt) was unable to collect on crop insurance because of the impact of these two uninsured perils in the previous year. Thomas Knizat decided to undertake a fungicide spraying program which included both Nova and Polyram on May 23 and June 25 respectively for each of his vineyards, including the two vineyards that he owned which had no history of any disease.

Thomas Knizat stated, in his opinion, the photographs provided by Agricorp were not indicative of the total vineyard acreage and were location specific. He testified that the vineyards for which Agricorp had taken photographs depicting only diseased fruit had also produced quality grapes that were accepted by the wineries.

Thomas Knizat did not recall being asked to accompany Mr. Barkovic on his walk around the vineyard at their meeting on July 22, 2010 in the Concession 7 vineyard.

The Respondent

Mark Neufeld

The first and primary witness for Agricorp was Mr. Mark Neufeld. He has an extensive background in viticulture as a vineyard owner in addition to other previous work within the industry.

Mr. Neufeld became the adjuster for the Knizat portfolio of vineyards in February of 2010 when Knizat Farm Inc. rented the three additional vineyards. He was assigned the Knizat file due to his familiarity with two of the three rented vineyards. Mr. Neufeld dealt with the appellant for the majority of the 2010 crop year and therefore was the principal adjuster for the Knizat claim.

He testified that it was his belief that Mr. Burkhardt, the legal owner of the three rental properties, had a unique management style and tolerated a certain level of disease when he operated his own vineyards.

Mr. Neufeld then outlined his background knowledge of each of the rented vineyards:

a) East-West Line saw significant Black Rot and Powdery Mildew infection in 2009 which resulted in zero yields.

b) Concession 7 was covered by crop insurance for the past three years and in the previous year, 2009, there were zero yields due to Black Rot and Powdery Mildew infection.

c) Niven Road had not previously been covered by crop insurance. He did not have prior professional familiarity with the property. Upon reviewing the property, he found that the vineyard had Powdery Mildew and Black Rot. However, it was not as pronounced as in the other two rented vineyards.

He explained that Black Rot is usually present in all vineyards to some extent and that its impact on the current year’s grape crop depends on the balance of it in the vineyard including how much Black Rot is physically present, how much of the inoculums (bacteria) are left in the vineyard from year to year, and how it is spread by rain and wind.

He stated that while drafting the insurance contract for the Concession 7 vineyard on March 19, 2010, there was a disagreement between him and Thomas Knizat on the determination of the Final Average Yield (FAY) for that property. He decided it should be low due to the past history of the property while Thomas Knizat thought it should be higher because it was now under the care and control of Knizat Farm Inc. Mr. Neufeld reviewed his position on the Concession 7 vineyard but did not adjust it.

On April 13, 2010, he again reviewed his position on the Concession 7 vineyard’s historical yields and the geography. He stated he also discussed with Thomas Knizat that there was evidence of Black Rot and Powdery Mildew remaining in the vineyard.

Mr. Neufeld testified that there was some spring frost damage on all farms that year. In the East-West Line vineyard the younger Riesling vines had dead arms and there was also general dead arm damage throughout the vineyard from winter freeze. Knizat Farm Inc. reported frost damage in each of its vineyards. Mr. Neufeld acknowledged in his evidence that spring frost can also affect the vitality of the plants and their development later on in the season. He made 16 actual inspections of the Knizat Farm Inc. vineyards that he reported and made several others when he was passing by that he did not report. He also asked other adjusters to visit the rented vineyards and give their observations.

He referred to his adjuster’s report of September 23, 2010 and explained that after the bloom period on the plants was completed he noticed other problems beyond winter freeze and spring frost. He stated that he wrote in his December 9, 2010 report (which Knizat Farm Inc. signed) that there was no loss due to uninsured perils at the Line 2 and Line 3 vineyards, though the rented vineyards were in trouble. He also indicated that Knizat Farm Inc. suggested that the rejection of its product by some wineries was a result of several factors, including delays by the wineries to take the product, the effects of bacteria (i.e. Sour Rot) and frost damage. Mr. Neufeld stated that he believed that the rejection was due to the impact of Black Rot and Powdery Mildew and their combined effect on both the production levels and the quality of the product.

Mr. Neufeld identified and spoke about a number of the photographs taken of the grape product at the various Knizat Farm Inc. vineyards. However he was unable to identify the location or rental vineyard for several of the photographs. He did testify that all of the photographs were taken at the vineyards rented by Knizat Farm Inc. but the camera used to take photographs was not able to record the actual geographic location. He also stated he believed that the photographs were representative of the general conditions of the different vineyards.

John Barkovic

The next witness was Mr. John Barkovic, a Regional Manager at Agricorp and Mr. Neufeld’s manager. He also had extensive viticulture experience prior to joining Agricorp and is familiar with the three rented vineyards, but less so with Niven Road.

Mr. Barkovic specifically referred to a visit he made to the Concession 7 vineyard with Mr. Neufeld and others on July 22, 2010. He stated that he offered to walk the rows with Thomas Knizat and found it frustrating that Thomas Knizat did not fully participate on the walk through the vineyard. Mr. Barkovic stated during his walk of the four lengthy rows of the vineyard he saw Powdery Mildew and Black Rot throughout the vineyard. He referred to photograph #1 in the Respondent’s exhibit as an example of the Black Rot debris. It was his opinion that in April, Knizat Farm Inc. should have removed, burned, and buried any remaining Black Rot from the previous year. In addition he stated the fruiting zones were too large because the grape crop was spread over the vine, and therefore the sun and air could not get through the canopy to the fruiting zones. He testified he was very concerned about the condition of the vineyard after his visit.

Sandra Wiley

Ms. Sandra Wiley testified next. She also has a background in the wine industry and has been an Adjuster/Underwriter with Agricorp since 2006. As requested by Mr. Neufeld she visited the East-West Line vineyard on September 18, 2010 to observe and examine the property and to write a report of her observations. Her visit to the property lasted for approximately three hours. She stated that in two blocks of grapes (known as 140 and 150) of the Riesling variety she observed a great deal of Black Rot. Although not in her written report, she also testified Powdery Mildew was also evident. She testified that in the one block of grapes that she examined, approximately 30 to 40% of the grapes were suffering from Black Rot, and in the second block she found 90% were infected with disease.

In response to questions from Mr. Knizat, Ms. Wiley testified that during her tour of the vineyard on September 18, 2010, in the remainder of the blocks that she visited, she observed Black Rot and Powdery Mildew and estimated the loss on a per vine basis to be 10 to 20%. She stated some of the grapes in the vineyard had already been harvested. She also stated the area of the vineyard she visited was well mowed, hedged, and the weeds were under control.

Ms. Wiley testified that she also visited the Niven Road vineyard on September 22, 2010 at Mr. Neufeld’s request. In her report notes she indicated the grapes had been harvested. She testified she did not see or make note of any Black Rot or Powdery Mildew. She did however testify that there was the smell of vinegar which is indicative of Volatile Acid and that Botrytis bunch rot was present on some of the fruit remaining in the areas that had already been harvested.

Teresa MacNeil

The last witness for Agricorp was Ms. Teresa MacNeil, a Regional Specialist and Adjuster for Agricorp. She was asked by Mr. Neufeld to visit the Concession 7 vineyard on September 19, 2010, and to provide her observations of the vineyard. She testified that she observed Powdery Mildew and Black Rot in the Concession 7 vineyard. She also testified that she saw breakdown in one area of the Sauvignon Blanc blocks that she thought might be due to disease but acknowledged that it was difficult to identify based upon the few remaining grapes found. In cross examination, it was pointed out by Thomas Knizat that some of the Sauvignon Blanc grapes from the same vineyard were picked and shipped to a well respected winery on September 24,2010. In response, Ms. MacNeil stated that her visit to the field was only for 40 minutes and that she did not realize that part of the Sauvignon Blanc vineyard had yet to be harvested.

Findings and Analysis

Based upon the history of the rented vineyards and the observations of the Agricorp staff, there is little doubt that Black Rot and Powdery Mildew were most likely present to some degree in all three of the rented vineyards.

The Tribunal panel recognizes that the process for arriving at the percentage of the grape crop eligible for LDUP and frost loss is carefully undertaken, but it is not an exact science. The Tribunal panel heard inconsistent testimony from the different adjusters from Agricorp about the type and amount of disease present in the various vineyards which depended on the area of the vineyard viewed and the date of viewing. The Tribunal panel does not have any evidence before it to indicate that the adjusters were looking at the identical locations within the vineyards. As a result, there may be different assessments of disease damage within the same vineyard.

Niven Road vineyard

For example, the Tribunal panel examined the evidence for the Niven Road vineyard. This property was not previously covered by Crop Insurance and yet it was identified with the other two properties as being infested with Black Rot and Powdery Mildew. However, when Ms. Wiley visited the Niven Road vineyard her notes did not indicate that she saw any Black Rot or Powdery Mildew.

Mr. Barkovic testified that although he had knowledge of the three rental vineyards he was less familiar with the Niven Road vineyard. During his testimony he never mentioned that he had visited the Niven Road vineyard.

Mr. Neufeld testified that he was basically unfamiliar with the Niven Road vineyard as well but did find evidence of Black Rot and Powdery Mildew, though not to the extent found on the other properties. He produced photographs to demonstrate the impact of the disease. However, during his testimony Mr. Neufeld was unable to identify the specific rental vineyard or blocks of a vineyard where several of the photographs were taken. However, in the Adjuster Special Report dated December 9, 2010, Mr. Neufeld indicated that “no two vineyards, or even blocks within a vineyard, are exactly the same.”

The Tribunal panel is now left to determine if the photographs placed into evidence represent one or more block of grapes or are representative of the total Niven Road vineyard. The Tribunal panel takes issue with the suggestion that microclimates differ from one block to another when describing the impact of frost, yet is then asked to accept photographs taken in one or two blocks as being representative of an entire vineyard. The Tribunal panel did not hear any evidence of how a representative approach to an assessment for loss takes into consideration the whole vineyard.

As for spring frost and winter freeze damage, the Niven Road vineyard suffered the same temperature level as the Line 2 vineyard owned by the Knizat Farm Inc. The Niven Road vineyard is usually a very good grape producer and it is located in a relatively temperate climate area for the region. However, it suffered a significant frost/temperature impact. Agricorp gave a significant frost impact consideration to the location which was not given in other rental areas with geographies that were more susceptible to frost.

Ms. Wiley had not recorded any evidence of Black Rot although she did say that most of the crop had been harvested. Yet, during the presentation of the evidence, the Tribunal panel also learned that if the disease was present that the ground would have had Black Rot or Powdery Mildew debris from the previous year and this was also not mentioned by Ms. Wiley in her notes. The Tribunal panel does acknowledge that Ms. Wiley noted the smell of Volatile Acid which could possibly have been derived from an uninsured peril.

The Tribunal panel was not presented with any specific numerical determination of why 25% of the Reisling were considered LDUP.

The East–West Line vineyard

The various assessment numbers provided for the East-West Line vineyard left the Tribunal panel questioning what should be the most appropriate allocation of LDUP. Mr. Neufeld’s LDUP assessment varied from Ms. Wiley’s observations on several varieties of grapes.

In her testimony, Ms. Wiley agreed that there was some damage from disease, but had calculated different numbers based on leftover grapes for several varieties. Although the Tribunal panel can not be certain that these were the same blocks used by Mr. Neufeld, the fact is that the percentages attributed to disease by Mr. Neufeld and Ms. Wiley are not the same.

Based upon the temperature statistics presented as evidence, the Tribunal panel has difficulty reconciling why this property was recognized for such limited frost damage. Although this vineyard had the highest temperature reading of the five vineyards, it was only marginally higher. While Agricorp recognized frost damage for the Riesling, Vidal, Gewurztraminer, Pinot Gris, Pinot Noir and Muscat Ottonel varieties (all at a 20% of FAY loss due to frost), the loss for the Merlot, Cabernet Franc, Chardonnay, and Cabernet Sauvignon varieties was solely attributed to uninsured perils. The Tribunal panel accepts that there are microclimates and possible temperature variations from one block of grapes to another, and that certain varieties of grapes may have different resistance levels, but this discrepancy of zero FAY lost due to frost seems doubtful.

The Concession 7 vineyard

The Tribunal panel recognizes the pre-disposition of this vineyard along with the East-West Line vineyard and notes that both have suffered from Black Rot and Powdery Mildew in the past. Although Mr. Knizat had objected to Mr. Neufeld’s FAY assessment, Mr. Neufeld did not adjust it after a further review. Ms. MacNeil, Mr. Barkovic and Mr. Neufeld all seem to agree that this vineyard was affected the most relative to Black Rot and Powdery Mildew. Even Thomas Knizat in his testimony recognized Black Rot was present and that there was history of such in that vineyard.

When Ms. MacNeil visited this vineyard on September 19, 2010, she did not realize that some of the Sauvignon Blanc crop had not been harvested and only became aware of this fact at the Tribunal hearing. As well, a winery had accepted the Sauvignon Blanc crop from another area of that same vineyard on September 24, 2010. She had examined the same type of grapes in another area of the same vineyard and identified the grapes as having suffered breakdown. She acknowledged that in the block she examined there were only a few grapes and she had difficulty in assessing the impact of possible disease on the entire crop in that area.

The Tribunal panel is not making a judgement on the process for the assessment of the loss, but has difficulty in accepting the ability to judge a complete vineyard to any degree without a more overall approach. It may indeed not be possible or practical to take a more thorough approach, but further evidence, such as GPS indicators and photographs that are identified by vineyard and the approximate geographic location within the vineyard, would create more certitude.

The Tribunal panel also has great difficulty accepting the approach taken to assess the frost damage in this vineyard. There was absolutely no loss attributed to frost based on Mr. Neufeld’s assessment, yet loss due to frost was attributed to other vineyards which suffered the same temperature minimums and Mr. Neufeld’s own testimony acknowledged that frost damage occurred in all vineyards in 2010. Acknowledging the microclimates, the location of the vineyard, its susceptibility to weather and its distance from those climates closer to the water, the Tribunal panel finds there should be greater consideration for the appellant’s position and loss due to frost damage. The Tribunal panel finds it difficult that there was no consideration for frost based upon temperature readings, the literature mentioned and the comparison to vineyards affected with the same temperature readings in the evidence provided.

The Tribunal panel has before it as evidence that Knizat Farm Inc. received 58% of the maximum 85% insured value of its grape crop for 2010. This was the percentage approach for the assessed loss put forward by Thomas Knizat. Agricorp provided some explanation for some of the grape varieties loss, but did not specifically address the overall average approach the appellant presented.

The presence of frost as presented in evidence can also weaken plants both in their ability to deal with disease and their ability to grow to their full potential. The Tribunal panel finds that additional consideration should have been given for the impact of frost damage that occurred on the rented vineyard properties.

It is also evident that Thomas Knizat used his best efforts to protect his grapes from uninsured perils with the proper spraying of all of his grape crops in each of the vineyards. Although this might not have been all that was necessary in the rented vineyards, the production relative to Mr. Burkhardt’s in the same vineyards from the previous year was certainly a marked improvement.

The Tribunal panel also heard some differences amongst the witnesses about the history of previous damage in the vineyards. However, Agricorp did insure the rented vineyards despite their concern for the history of the rented vineyards and required the insurance contract be established at the 85% level of coverage in place for the vineyards that were owned by Knizat Farm Inc. Thomas Knizat requested a reduction to an 80% level of coverage for all of the vineyards, however Agricorp’s current policy would not allow a reduction in coverage and the premium was paid based on the 85% coverage.

The Tribunal panel finds the current assessment resulting in a payment overall of 58% to be too low and that a more accurate number relative to the payout on the Insurance Policy in accordance with the premium purchased would be closer to 70%.

ORDER OF THE TRIBUNAL

The Tribunal finds that the current evaluation for payment under the contract for Crop Insurance is inadequate, and that a more accurate payout figure relative to the maximum insured value should be applied. Therefore the Tribunal orders that the 58% figure be adjusted to reflect a payout equivalent to 70% effective immediately.

Dated at Amherstburg, Ontario this 8^th^ day of July, 2011