If you have received a Notice of Overpayment and Removal of New Producer Status from your crop insurance company, you are not alone. In 2012 the Risk Management Agency started auditing crop insurance applications wherein the insured had requested “New Producer” status. The effects of the audit have come to fruition in the last few years.
The notices generally demand immediate payment of any indemnity paid pursuant to the benefits provided under New Producer status. The producer runs the risk of being placed on the Ineligible Tracking System list; essentially barring the producer from crop insurance until removed from the list. While an attorney can assist the producer to fight these notices, the best play is to avoid receiving one and paying attorney fees by knowing the eligibility requirements for New Producer status.
The RMA audit came about when RMA started receiving complaints that producers were dumping bad yield history by creating new farming entities to farm the land. The new entity would then obtain insurance using 100% of the county yield average as a “New Producer” rather than the producer’s prior low yield history.
However, “to be a new producer, the insured must not have produced the crop in the county for more than two APH crop years.” Crop Insurance Handbook Sec. 15(E)(1). Furthermore, “formation of a new person (business entity such as a corporation, partnership, trust, etc.) comprised of one or more persons does not automatically qualify the person as a new producer.” Crop Insurance Handbook Sec. 15(E)(1)(b).
When applying for crop insurance an agent will routinely ask whether the producer has previously farmed in the county. In the event of a farming entity involving one or more producers, the individual applying for the insurance on behalf of the entity must know whether any member has ever farmed in the county. If so, the entity is not eligible for New Producer status.
So slow down and take the time to investigate the crop insurance rules that may affect you when buying and farming land in a new county. Although 100% of the county average may sound good, repaying an unearned indemnity 2 years later sounds worse. There are ways to transfer yields from an individual to a new entity or vice versa. However, you need to let your agent know so the agent can get the proper paperwork submitted before the applicable deadlines. As always an agent’s help is only as good as the information the producer provides.