B-175223, MAR 29, 1972, 51 COMP GEN 617

B-175223, MAR 29, 1972, 51 COMP GEN 617

INSURANCE - DAMAGE AND LOSS CLAIMS - EFFECTIVE DATE OF INSURANCE CROP INSURANCE CONTRACTS TO COVER FREEZING LOSSES WHICH WERE MADE EFFECTIVE BY THE FEDERAL CROP INSURANCE CORPORATION PURSUANT TO 7 CFR 409.25 AS OF NOVEMBER 1, UNDER THE MISTAKEN BELIEF FREEZING WEATHER WOULD NOT OCCUR EARLIER, MAY BE MODIFIED TO PERMIT PAYMENT FOR CROP DAMAGE RESULTING FROM A FREEZE ON OCTOBER 30 AND 31, ON THE BASIS OF MUTUAL MISTAKE - A RULE APPLICABLE TO FUTURE AS WELL AS PAST EVENTS - SINCE THE CONTRACTS DID NOT REFLECT THE INTENTION OF THE PARTIES TO ACCOMPLISH THE OBJECTIVE OF PROVIDING CROP INSURANCE COVERAGE FOR A PERIOD OF POSSIBLE FREEZE. FURTHERMORE, THE ADMINISTRATIVE DELAY IN ACCEPTING TIMELY FILED APPLICATIONS FOR INSURANCE UNTIL AFTER SEVERAL FREEZES HAD INJURED CROPS SHOULD NOT DEPRIVE THE APPLICANTS OF INSURANCE COVERAGE, AND THE CORPORATION FAILING TO ACT WITHIN A REASONABLE TIME HAS THE AUTHORITY UNDER 7 U.S.C. 1506(I) TO TAKE CORRECTIVE ACTION.

TO THE SECRETARY OF AGRICULTURE, MARCH 29, 1972:

BY LETTER DATED FEBRUARY 15, 1972, THE ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS AND COMMODITY PROGRAMS REQUESTED OUR OPINION WHETHER CERTAIN CONTRACTS OF CROP INSURANCE ENTERED INTO BY THE FEDERAL CROP INSURANCE CORPORATION (FCIC) MAY BE REFORMED. THE CORPORATION IS OF THE VIEW, BECAUSE OF THE CIRCUMSTANCES LATER DISCUSSED, THAT THE CONTRACTS IN QUESTION MAY BE REFORMED BECAUSE THE CONTRACTS AS EXECUTED DID NOT EXPRESS THE ACTUAL INTENTION OF THE PARTIES BY REASON OF A MUTUAL MISTAKE OF FACT, I.E., THE FIXING OF NOVEMBER 1 AS A DATE WHICH WOULD PRECEDE ANY FREEZING WEATHER.

THE PARTICULAR PROGRAM IN QUESTION IS KNOWN AS THE ARIZONA-DESERT VALLEY CITRUS CROP INSURANCE (7 CFR 409.20 ET SEQ.) WHICH DESIGNATES TWO COUNTIES EACH IN THE STATES OF ARIZONA AND CALIFORNIA AS BEING ELIGIBLE FOR INSURANCE COVERAGE UNDER THIS PARTICULAR PROGRAM.

IT IS REPORTED THAT THE CURRENT CROPS OF SOME 18 INSURED FARMERS WERE DAMAGED BY A FREEZE THAT OCCURRED ON OCTOBER 30 AND 31, 1971. THE FORM OF THE APPLICATION AND THE POLICY, AS SET FORTH IN 7 CFR 405.25, PROVIDES IN PERTINENT PART:

2. CAUSE OF LOSS INSURED AGAINST. THE INSURANCE PROVIDED IS AGAINST UNAVOIDABLE LOSS RESULTING FROM FREEZE OCCURRING WITHIN THE INSURANCE PERIOD.

6. INSURANCE PERIOD. FOR EACH CROP YEAR INSURANCE SHALL ATTACH ON NOVEMBER 1, UNLESS THE APPLICATION IS ACCEPTED AFTER OCTOBER 31 IN WHICH EVENT INSURANCE SHALL ATTACH ON THE 10TH DAY AFTER THE DATE OF ACCEPTANCE OF THE APPLICATION BY THE CORPORATION, AND AS TO ANY PORTION OF THE CITRUS CROP SHALL CEASE UPON HARVEST, OR ON JANUARY 31 FOR TYPES I, II, AND V AND ON MARCH 31 FOR TYPES III, IV, AND VI OF THE FOLLOWING CALENDAR YEAR, WHICHEVER OCCURS FIRST.

THE REASONS GIVEN BY FCIC FOR USING NOVEMBER 1 AS THE COMMENCEMENT DATE OF THE INSURANCE PERIOD, AS WELL AS THE FACTS IT USES IN SUPPORT OF ITS ARGUMENT FOR REFORMATION ARE:

UNDER ALL CROP INSURANCE PROGRAMS COVERING OTHER THAN FRUIT OR TREE CROPS, THE INSURANCE IS AGAINST VIRTUALLY ALL NATURAL HAZARDS AND INSURANCE COMMENCES WHEN THE CROP IS PLANTED AND EXTENDS THROUGH THE NORMAL HARVESTING PERIOD. THUS IT IS INTENDED THAT INSURANCE BE PROVIDED FOR THE CROP THROUGHOUT THE GROWING SEASON AGAINST THE RISKS INSURED AGAINST. THIS SAME COVERAGE WAS INTENDED BY THE CONTRACTS IN QUESTION UNDER THE ARIZONA-DESERT VALLEY CITRUS PROGRAM, EXCEPT THAT FREEZE IS THE ONLY RISK INSURED AGAINST. HOWEVER, SINCE A CROP OF THIS KIND IS NOT SUBJECT TO PLANTING EACH YEAR, IT WAS DESIRABLE FROM THE STANDPOINT OF ADMINISTRATION OF THE PROGRAM TO FIX SOME DEFINITE TIME FOR THE BEGINNING OF THE INSURANCE PERIOD. IN DOING SO, THE PURPOSE WAS TO SELECT A DATE FOR THE COMMENCEMENT OF THE INSURANCE THAT WOULD BE EARLY ENOUGH TO GIVE PROTECTION DURING THE ENTIRE PERIOD OF POSSIBLE FREEZE DAMAGE TO A GIVEN CROP. PREMIUM RATES ARE ESTABLISHED ON THAT ASSUMPTION. NOVEMBER 1 WAS SELECTED BECAUSE IT WAS THOUGHT THAT IT CLEARLY ANTEDATED THE PERIOD OF POSSIBLE FREEZE IN THE AREA AFFECTED. OUR INFORMATION WAS THAT THE PRINCIPAL DANGER FROM DAMAGING FREEZE CAME AFTER DECEMBER 1, THOUGH IT MIGHT OCCUR IN NOVEMBER. FURTHER, THE RECORDS OF THE WEATHER BUREAU INDICATE THAT TEMPERATURES BELOW FREEZING IN THE AREA AFFECTED PRIOR TO NOVEMBER 1 HAVE NOT BEEN KNOWN IN APPROXIMATELY 75 YEARS. ACCORDINGLY, IT IS OUR BELIEF THAT IT WOULD BE APPROPRIATE TO REFORM THE CONTRACTS SO AS TO COVER THE DAMAGE DUE TO THE FREEZE WHICH OCCURRED ON OCTOBER 30 AND 31, 1971, SINCE IT WAS INTENDED TO COVER FREEZE DAMAGE TO A GIVEN ANNUAL CROP OF CITRUS REGARDLESS OF WHEN THE FREEZE OCCURS, AND SINCE THE PREMIUMS HAVE BEEN ESTABLISHED ON THAT BASIS.

WHILE THE REGULATIONS MUST BE STRICTLY COMPLIED WITH WHEN THE GOVERNMENT IS A PARTY TO A POLICY OF INSURANCE, UNITED STATES V. BLACKBURN, 109 F. SUPP. 319 (D. CT. MO. 1952), IN THE CIRCUMSTANCES PRESENT HERE WE BELIEVE THERE IS FOR APPLICATION THE ESTABLISHED RULE OF CONTRACT LAW THAT WHERE, BY REASON OF MUTUAL MISTAKE, A CONTRACT AS REDUCED TO WRITING DOES NOT REFLECT THE ACTUAL INTENTION OF THE PARTIES, THE WRITTEN INSTRUMENT MAY BE REFORMED IF IT CAN BE ESTABLISHED WHAT THE INTENDED AGREEMENT ACTUALLY WAS. 36 COMP. GEN. 507 (1957); 39 COMP. GEN. 363 (1959).

IT IS NOT NECESSARY, IN ORDER TO ESTABLISH A MISTAKE IN AN INSTRUMENT, THAT IT BE SHOWN THAT PARTICULAR WORDS WERE AGREED UPON BY THE PARTIES AS WORDS TO BE INSERTED IN THE INSTRUMENT. "IT IS SUFFICIENT THAT THE PARTIES HAD AGREED TO ACCOMPLISH A PARTICULAR OBJECT BY THE INSTRUMENT TO BE EXECUTED, AND THAT THE INSTRUMENT AS EXECUTED IS INSUFFICIENT TO EFFECTUATE THEIR INTENTION." WILLIAMSON V. BROWN, 93 S.W. 791, 796 (S. CT. MO. 1906).

IT IS APPARENT FROM THE RECORD BEFORE US THAT THE INTENT OF THE PARTIES WAS THAT INSURANCE WOULD BE PROVIDED FOR THE CITRUS CROPS THROUGHOUT THE GROWING SEASON AGAINST LOSS RESULTING FROM FREEZE. BOTH PARTIES, ASSUMING FROM THE RECORDS OF THE WEATHER BUREAU THAT A FREEZE WOULD NOT LIKELY OCCUR BEFORE NOVEMBER 1, AND DESIRING TO USE LANGUAGE (IN THIS INSTANCE A DATE) THAT WOULD REFLECT SUCH ASSUMPTION, ACCEPTED NOVEMBER 1 AS A SAFE DATE FOR THE COMMENCEMENT OF THE DESIRED INSURANCE COVERAGE. THAT DATE WOULD CLEARLY HAVE ACCOMPLISHED THAT PURPOSE IF THE FIRST FREEZE HAD OCCURRED ON A SUBSEQUENT DATE, AS EACH EXPECTED IT WOULD. THE FACT THAT THE FIRST FREEZE OCCURRED ON OCTOBER 30 AND 31, HOWEVER, PROVED THAT THE PARTIES WERE MUTUALLY MISTAKEN IN THEIR BELIEF THAT A COMMENCEMENT DATE OF NOVEMBER 1 WOULD PROVIDE THE TOTAL COVERAGE DESIRED. THERE CAN BE NO DOUBT FROM THE EVIDENCE THAT THIS EXPECTATION WAS ENTERTAINED BY BOTH PARTIES; THAT THE MISTAKE IN THAT RESPECT WAS MUTUAL; AND THAT BY REASON THEREOF THE CONTRACTS) FAILED TO EXPRESS THE TRUE INTENTION OF THE PARTIES. AS STATED IN F.P. CUTTING CO. V. PETERSON, 127 P. 163, 165 (S. CT. CALIF. 1912):

WE DO NOT UNDERSTAND THAT RELIEF FROM THE CONSEQUENCES OF A MUTUAL MISTAKE IS CONFINED TO CASES WHERE THE MISTAKE WAS WITH REFERENCE TO A PAST EVENT, OR TO THE PRESENT EXISTENCE OF SOME FACT OR THING. NO SOUND REASON APPEARS WHY THE DOCTRINE SHOULD NOT EQUALLY APPLY WHERE BOTH PARTIES BY MISTAKE EXPECT A FUTURE EVENT TO OCCUR AND DESCRIBE THE SUBJECT -MATTER BY WORDS WHICH MAKE THE INTENT CLEAR IF THE EVENT DOES HAPPEN AS EXPECTED, BUT WHICH DEFEAT THE REAL INTENT IF THE EVENT DOES NOT HAPPEN PRECISELY IN THE MANNER EXPECTED. ***

CONSEQUENTLY, WE ARE OF THE OPINION THAT THE CONTRACTS IN QUESTION MAY BE REFORMED SO AS TO REFLECT THE ACTUAL INTENT OF THE PARTIES AT THE DATE OF THEIR EXECUTION, AND SUCH DAMAGE AS MAY HAVE BEEN SUFFERED BY THE INSUREDS BY REASON OF THE OCTOBER 30 AND 31 FREEZE MAY PROPERLY BE PAID. IT IS SUGGESTED, HOWEVER, THAT THE APPLICATION AND POLICY FORMS BE AMENDED IN A MANNER WHICH WILL AVOID A REOCCURRENCE OF THIS SITUATION.

THE ASSISTANT SECRETARY ALSO REQUESTS OUR OPINION WHETHER SIX APPLICATIONS, WHICH HAD NOT BEEN ACCEPTED PRIOR TO NOVEMBER 1, 1971, AND WHICH SUFFERED DAMAGE DUE TO THE OCTOBER FREEZE, AND EIGHT APPLICATIONS NOT ACCEPTED PRIOR TO NOVEMBER 1, 1971, AND WHICH SUFFERED DAMAGE DUE TO A DECEMBER FREEZE MAY ALSO BE APPROVED SO AS TO COVER THE REFERENCED DAMAGE ALTHOUGH SUCH APPLICATIONS WERE NOT ACTUALLY ACCEPTED AT THE TIME OF ONE OR BOTH FREEZES.

THE ARGUMENTS MADE BY FCIC IN SUPPORT OF RECOGNIZING LIABILITY IN THESE CASES ARE:

ALTHOUGH UNDER THE REGULATIONS (SECTION 409.22), NEW APPLICATIONS MIGHT HAVE BEEN RECEIVED UP TO AND INCLUDING OCTOBER 31, THE CORPORATION IN FACT TOOK NO NEW APPLICATIONS AFTER SEPTEMBER 30, 1971. A NUMBER OF THESE APPLICATIONS WERE NOT ACCEPTED UNTIL AFTER NOVEMBER 1, AND SOME WERE NOT ACCEPTED UNTIL AFTER A SECOND FREEZE, WHICH OCCURRED ON DECEMBER 4, 1971. AS STATED ABOVE, PARAGRAPH 6 OF THE POLICY PROVIDES THAT, IF AN APPLICATION IS ACCEPTED AFTER OCTOBER 31, INSURANCE ATTACHES ON THE TENTH DAY AFTER ACCEPTANCE. TO APPLY THIS PROVISION LITERALLY, OF COURSE, WOULD DEPRIVE THESE INSUREDS NOT ONLY OF ANY INDEMNITY FOR DAMAGE DUE TO THE FREEZE IN OCTOBER, BUT POSSIBLY ALSO OF ANY INDEMNITY FOR DAMAGE DUE TO THE DECEMBER FREEZE DEPENDING UPON THE DATE THE APPLICATIONS WERE ACCEPTED.

THE PURPOSE OF THE PROVISION FOR A TEN-DAY LAG IN THE EFFECTIVENESS OF THE INSURANCE, WHERE THE APPLICATION IS ACCEPTED AFTER OCTOBER 31, WAS MERELY TO ENCOURAGE CITRUS GROWERS TO FILE THEIR APPLICATIONS IN TIME TO BE ACTED UPON PRIOR TO NOVEMBER 1. AS STATED ABOVE, HOWEVER, NO APPLICATION WAS TAKEN AFTER SEPTEMBER 30, 1971. THERE WAS AMPLE TIME TO ACCEPT OR REJECT ALL OF THEM PRIOR TO THE FREEZE ON OCTOBER 30 AND 31. HOWEVER, BECAUSE OF ADVERSE LOSS EXPERIENCE IN THE AREA IN RECENT YEARS, THE CORPORATION UNDERTOOK TO MAKE A CAREFUL EXAMINATION OF THE GROVES AND TO EVALUATE THE RISK FOR EACH INDIVIDUAL GROVE BEFORE DETERMINING WHETHER TO ACCEPT OR REJECT THE APPLICATION. IN VIEW OF MANPOWER LIMITATIONS, THIS TOOK CONSIDERABLE TIME. AS A RESULT, THERE WAS AN ABNORMALLY LONG DELAY IN ACTING ON THE APPLICATIONS. IN SOME CASES NO ACTION WAS TAKEN UNTIL SOME TIME IN DECEMBER AFTER THE SECOND FREEZE MENTIONED ABOVE. SAY THAT THESE APPLICANTS SHOULD NOT HAVE COVERAGE FOR THE OCTOBER OR THE DECEMBER FREEZE BECAUSE OF THE PROVISIONS OF PARAGRAPH 6 OF THE POLICY WOULD OBVIOUSLY BE UNJUST AND PROBABLY UNTENABLE LEGALLY. THE PURPOSE OF THAT PROVISION WAS SATISFIED IN EVERY RESPECT, SINCE THE APPLICATIONS WERE ALL SUBMITTED BY SEPTEMBER 30, 1971. THE DELAY IN ACCEPTING THEM WAS IN NO WAY THE FAULT OF THE APPLICANTS. IN THE NORMAL COURSE OF EVENTS THEY WOULD HAVE BEEN ACCEPTED PRIOR TO THE OCTOBER FREEZE. THE DELAY WAS CAUSED SOLELY BY THE DESIRE OF THE CORPORATION TO MAKE SURE THAT THE GROVES WERE IN ACCEPTABLE CONDITION AND THAT THE RISK HAD BEEN PROPERLY EVALUATED. THERE WAS, OF COURSE, NO INTENT TO DEPRIVE THE APPLICANTS OF ANY SUBSTANTIAL PART OF THE INSURANCE FOR WHICH THEY WERE APPLYING SHOULD THE APPLICATIONS BE DEEMED OTHERWISE ACCEPTABLE. FURTHER, IT SHOULD BE NOTED THAT NO ALLOWANCE IS MADE IN THE PREMIUM CHARGED ON ACCOUNT OF THE LATE ACCEPTANCES. ACCORDINGLY, WE FEEL THAT THE CORPORATION SHOULD UNDER THE CIRCUMSTANCES RECOGNIZE LIABILITY IN THESE CASES FOR THE DAMAGE DUE TO THE OCTOBER FREEZE AND THE DECEMBER FREEZE EVEN THOUGH THE APPLICATIONS MAY NOT HAVE BEEN ACCEPTED MORE THAN TEN DAYS PRIOR TO THE FREEZE.

BOTH THE REGULATIONS AND THE APPLICATION FORM ARE SILENT AS TO THE PERIOD OF TIME IN WHICH THE CORPORATION WAS TO ACCEPT A TIMELY FILED APPLICATION. THIS BEING THE CASE, THE APPLICATION, IF IT IS FINALLY ACCEPTED, MUST BE ACCEPTED WITHIN A REASONABLE TIME, AND MAY NOT BE UNREASONABLY DELAYED SO AS TO DEFEAT THE PURPOSE OF THE INSURANCE COVERAGE. IN FACT, THIS IS IN KEEPING, WE THINK, WITH THE REQUIREMENT OF 7 CFR 409.22 WHICH PROVIDES IN PERTINENT PART:

SEC 409.22 APPLICATION FOR INSURANCE.

*** THE CORPORATION FURTHER RESERVES THE RIGHT TO REJECT ANY APPLICATION OR TO EXCLUDE ANY DEFINITELY IDENTIFIED ACREAGE FOR ANY CROP YEAR OF THE CONTRACT IF UPON INSPECTION IT DEEMS THE RISK ON SUCH ACREAGE IS EXCESSIVE. IF ANY SUCH ACREAGE IS TO BE EXCLUDED, THE INSURED SHALL BE NOTIFIED OF SUCH EXCLUSION BEFORE INSURANCE ATTACHES FOR THE CROP YEAR FOR WHICH THE ACREAGE IS TO BE EXCLUDED. ***

WE THINK THAT ALL APPLICANTS HAVING SUBMITTED THEIR APPLICATIONS NO LATER THAN SEPTEMBER 30, AND NOT BEING ADVISED TO THE CONTRARY BY THE CORPORATION, HAD EVERY RIGHT TO BELIEVE THAT THEIR APPLICATIONS WOULD BE ACCEPTED BY NOVEMBER 1, OR AT LEAST IN TIME TO COVER THE DECEMBER FREEZE.

WHILE WE RECOGNIZE THE RIGHT OF THE CORPORATION TO INVESTIGATE THE APPLICATIONS MORE THOROUGHLY THAN HAD BEEN THE PRACTICE IN THE PAST, WE BELIEVE IT WAS INCUMBENT UPON THE CORPORATION TO EITHER APPROVE OR DISAPPROVE SUCH APPLICATIONS BY NOVEMBER 1. IN VIEW THEREOF, AND THE BROAD AUTHORITY VESTED IN THE CORPORATION BY 7 U.S.C. 1506(I), WE DO NOT BELIEVE IT WOULD BE LEGALLY IMPROPER FOR THE CORPORATION TO PROVIDE INSURANCE COVERAGE FOR BOTH OF THE FREEZES IN QUESTION ON THOSE APPLICATIONS THAT WERE FILED ON OR BEFORE SEPTEMBER 30 AND NOT ACCEPTED UNTIL AFTER NOVEMBER 1.