Conrad v. Ace Property & Casualty Insurance Company
Filed July 14, 2008
Cite as 06-35539

Court Properly Interpreted AGR under FCIC’s Handbook

Richard Conrad procured an adjusted gross revenue (AGR) policy from Ace Property & Casualty Insurance Company (Ace) covering his fruit orchard. Said policy was obtained through Ace’s agent, Rain and Hail, LLC (Rain & Hail).

The policy revealed that it was issued pursuant to the Federal Crop Insurance Corporation’s (FCIC) reinsurance program. It also stated that the coverage and premiums in any given year were keyed to the “Approved AGR.”

In seeking a higher AGR coverage, Conrad maintained that under the policy’s terms, the Approved AGR should be adjusted to match exactly his expected revenue. In response, Rain & Hail claimed that Conrad could obtain coverage based only on an approved, lower AGR, which was based on indexing provisions of the 2004 Adjusted Gross Revenue Standards Handbook (Handbook) published by the FCIC.

Due to harsh weather conditions, Conrad suffered crop losses the following year. Expectedly, he submitted a claim based on his entire expected revenue. However, Rain & Hail offered only a lower payment based on the Approved AGR determined according to the procedures in the Handbook.

Consequently, Conrad filed an action in a Washington court for contract damages. Rain & Hail successfully removed the same to federal district court.

The district court considered the policy unambiguous as to the proper method for determining the Approved AGR when calculating a claim for loss or damage.

On appeal, Conrad claimed that the term of the policy stating that Approved AGR would be “adjusted to reflect any expected increase or reduction in allowable income.” Hence, he demanded that the Approved AGR reflect the entire expected increase in production.

The Ninth U.S. Circuit Court of Appeals held that the district court properly interpreted the Standard Adjusted Gross Revenue Insurance Policy, which provides crop revenue insurance pursuant to Federal Crop Insurance Act, incorporates and mandates claim adjustment procedures set forth in FCIC's Adjusted Gross Revenue Standards Handbook.

The appeal court also made the following observations:

• the definition of Approved AGR and the provisions of the policy did not support Conrad’s allegation
  

  Under the policy, Approved AGR meant the simple average of the AGR income history Conrad included on his farm report, adjusted to reflect any expected increase or reduction in allowable income for the insurance year.

  Also, another policy provision provided that if Conrad could prove that his allowable income for the insurance year would be higher than the average of his AGR income history, the insurer “may” established his approved AGR at a greater amount than the average.

  The said provisions, when read together, indicated that the insurer “may” establish an AGR above the income history average, but they did not indicate how, exactly, the average was to be established or adjusted. The policy did not indicate that the Approved AGR would constitute the entire expected increase, let alone that the change was mandatory.

• the court opined that the only reasonable interpretation of the policy was that Conrad was entitled to an adjustment in keeping with the adjustment and other procedures approved by the FCIC.