Business Impact Analysis

Business Impact Analysis

Regulation/Package Title: Pesticide Insurance – Five Year Rule Review Rule Number(s): 901:5-11-07 Date: September 25, 2015 Rule Type: New X Amended X 5-Year Review Rescinded

The Common Sense Initiative was established by Executive Order 2011-01K and placed within the Office of the Lieutenant Governor. Under the CSI Initiative, agencies should balance the critical objectives of all regulations with the costs of compliance by the regulated parties. Agencies should promote transparency, consistency, predictability, and flexibility in regulatory activities. Agencies should prioritize compliance over punishment, and to that end, should utilize plain language in the development of regulations.

Regulatory Intent

1. Please briefly describe the draft regulation in plain language.

Please include the key provisions of the regulation as well as any proposed amendments.

The rules in Chapter 901:5-11 of the Administrative Code (hereinafter “OAC”) regulate pesticide application in the State of Ohio. These rules protect the citizens of Ohio by training and regulating pesticide applicators on proper pesticide use and application. Many of the rules housed in OAC Chapter 901:5-11 of the Administrative Code were brought in front of CSI and JCARR in a previous rule package. OAC § 901:5-11-07 was placed on a separate track in order to work more closely with industry while not delaying the other rules.

OAC § 901:5-11-07 has been review by the Department of Agriculture (“Department”) and industry stakeholders pursuant to Revised Code 119.03, and has been found to need the changes as outlined below.

OAC § 901:5-11-07 sets forth the financial responsibility requirements of pesticide businesses and applicators. As it currently exists, the rule requires “a comprehensive general liability insurance policy and, either a separate professional liability insurance policy or an endorsement covering liability arising from the application of pesticides.”

Leading up to the five-year rule review of this rule, the Department received calls from pesticide applicator businesses stating that their insurance companies were not covering claims that the businesses were making against their insurance policies. During initial stakeholder outreach conversations between the Department and the insurance industry, it was discovered that the language present in the rule was being interpreted by the insurance industry as requiring less coverage than the Department wished to require.

In order to protect consumers and applicators, the Department and insurance industry stakeholders worked to amend the rule to ensure that the proper coverage was being provided to the pesticide applicator industry. The amendments to this rule represent the best possible resolution to ensure that the pesticide businesses, insurance companies, and consumers are protected should damages occur.

Specifically, the amended rule includes clarifying phrases to ensure that insurance companies covers “properties under the care, custody, and control of the pesticide application business” and “the damage to the actual properties the pesticide business is treating or working on.” These changes were made to ensure that not only third party damages were covered but also damages to the actual property which the pesticide business is applying pesticides to is also covered. Further, the amendments do not require coverage damages as a result of the intentional acts of the applicator. Additionally, small stylistic changes were made to make the rule easier to read and comprehend.

2. Please list the Ohio statute authorizing the Agency to adopt this regulation.

3. Does the regulation implement a federal requirement? Is the proposed regulation being adopted or amended to enable the state to obtain or maintain approval to administer and enforce a federal law or to participate in a federal program?

No.

4. If the regulation includes provisions not specifically required by the federal government, please explain the rationale for exceeding the federal requirement.

Not applicable.

5. What is the public purpose for this regulation (i.e., why does the Agency feel that there needs to be any regulation in this area at all)?

The Department is statutorily tasked under Chapter 921 of the Revised Code with regulating pesticide use in the state of Ohio. This rule promotes consumer confidence and ensures protection for all individuals who utilize a pesticide applicator business in the state. In some instances, pesticide applicators misapply pesticides causing damage to the property to which they applied (as well as neighboring properties). By ensuring that all pesticide applicators and businesses maintain insurance policies, endorsements, and minimum coverage limits helps to ensure that this damage will be covered. Additionally, financial responsibility requirements promote consumer confidence in utilizing the pesticide industry which will, in turn, cause the pesticide industry to grow. A series of uncovered events will result in a loss of consumer confidence therefore likely causing less people to utilize this industry potentially resulting in the loss of profits and jobs. Further, this rule does not require coverage for any intentional damage caused by the applicators. In the end, this rule protects consumers, applicators, and insurance companies.

6. How will the Agency measure the success of this regulation in terms of outputs and/or outcomes?

The Department inspects and investigates complaints regarding pesticide application and misuse. The rules will be judged as being successful when there is no increase in the number of complaints regarding non-insured applicators or inadequate insurance coverage filed with the Department.

Development of the Regulation

7. Please list the stakeholders included by the Agency in the development or initial review of the draft regulation.

The following stakeholders comprise a list of the leaders of several agricultural organizations found within the State of Ohio. Each stakeholder was given a copy of the rules contained in this package and asked to submit comments to the Department.

Steve Carver – American Hort

Chris Henney – Ohio Agribusiness Association Jack Irvin – Ohio Corn and Wheat

Tadd Nicholson – Ohio Corn and Wheat

Terri Barnhart – Ohio Department of Transportation Scott Lucas – Ohio Department of Transportation

Adam Risien – Ohio Environmental Council Jack Shaner – Ohio Environmental Council Jack Fisher- Ohio Farm Bureau

Steve Hirsch – Ohio Farm Bureau Linda Borton – Ohio Farmers Union Joe Logan – Ohio Farmers Union John Dorka – Ohio Forestry Association Mark Bennett – Ohio Lawn Care

Dick Posey – Ohio Nursery and Landscaping Association Belinda Jones – Capitol Consulting

Melinda Howells – Ohio Pest Management Association J. Gerald More – Ohio Pest Management Association

Steve Carver – Ohio Produce Growers Marketing Association Lisa Schatt – Ohio Produce Growers Marketing Association Hank Althaus – Ohio Produce Growers Marketing Association Dallas Williamson – Ohio Produce Growers Marketing Association Jennifer Kennedy – Ohio Produce Growers Marketing Association Mike Hirsch – Ohio Produce Growers Marketing Association

Lonnie Alonso – Ohio Professional Applicators for Responsible Regulation

John Armstrong – Ohio Seed Improvement Association Kirk Merritt – Ohio Soybean Council

Adam Ward – Ohio Soybean Council

Tim Arheit – Ohio State Beekeepers Association Brian Laurent - Ohio Turfgrass Foundation Adam Risien – Ohio Environmental Council Dean Fadel – Ohio Insurance Institute

Jeff Smith – Professional Independent Agents Association of Ohio Carolyn Mangas – Professional Independent Agents Association of Ohio Anthony Jebbia – Insurance Partners Group, LTD

Rick Bersnak – The Keenan Agency Greg Botson – Botson Insurance Group Richard Packer – Aircraft Insurance J. Elliot Doyle - CHS Insurance

Gordon Wallace – Trupointe Cooperative, Inc. State Auto Insurance

Nationwide Agribusiness Insurance Company Berkley Agribusiness Risk Specialists

8. What input was provided by the stakeholders, and how did that input affect the draft regulation being proposed by the Agency?

The Department and the stakeholders from both the agribusiness and insurance industries have been working together to amend this rule since the spring of 2014. After numerous calls, emails, and meetings, the Department believes that the rule as proposed represents the best mediated solution to meet the needs of the Department and those industries.

Originally, the Department had proposed an amendment requiring that insurance agents be required to submit a notarized proof of financial responsibility form attesting that they had the required insurance policies, endorsements, and coverage limits. Stakeholders from both industries requested that the Department remove this requirement. Insurance companies indicated that these notarized forms could come into conflict with what was actually covered under the insurance policy.

The Department elected to remove this requirement and focus on refining the rule to ensure that the terminology used matched standard insurance terminology. Utilizing these common terms allows pesticide applicators the ability to clearly communicate to their insurance agents and carries the type of insurance that is required under this rule. The Department considered language such as “your work” but was told that was not specific enough for the goals of the Department. In the end, the insurance industry indicated to the Department that “care, custody, and control” endorsement would be articulate enough to meet the intentions of the rule.

As the rule was up for five-year rule review, the Department opened the entire rule up for comment. The Department received many comments that the minimum coverage limits were too high. Additionally, the Department received many comments that the minimum coverage limits were too low and should be raised. Due to comments received on both sides of the issue, the Department elected to retain the current coverage limits.

Lonnie Alonso, of the Ohio Pesticide Applicators for Responsible Regulation, requested that the Department remove the requirement that pesticide applicators maintain insurance for all categories that they are licensed in. Ohio Revised Code 921.10 states that the Department shall not issue a license until the applicant has submitted to the Director an insurance policy which meets the requirements of this rule. By allowing companies to be issued a license in an area for which they do not have insurance would be in violation of the law. Additionally, the Department would have no ability to monitor which licenses were in use and which licenses were not. For those reasons, the Department elected to maintain this requirement.

The Department also received comments from a few insurance industry stakeholders that many carriers do not want to carry the type of coverage proposed by the Department. The rule in no way requires insurance companies to enter into this industry or enter into these agreements. Further, the Department has received comments from many insurance companies that the coverage the Department is seeking to require has been offered by their company for several years. Additionally, many new companies have indicated that they will begin to enter into this area of the insurance industry. Therefore, the Department believes that there is an adequate amount of insurance carrier options in the industry to support this rule. Ultimately the Department and its stakeholders worked closely to amend the rule in such a way that protects all three entities. The Department believes that the rule as proposed is the best solution to ensure adequate coverage for pesticide applicators and to protect the consumers who utilize their services.

9. What scientific data was used to develop the rule or the measurable outcomes of the rule? How does this data support the regulation being proposed?

The rules in this package are administrative in nature. Therefore, limited scientific data was used in the development of these rules.

10. What alternative regulations (or specific provisions within the regulation) did the Agency consider, and why did it determine that these alternatives were not appropriate? If none, why didn’t the Agency consider regulatory alternatives?

Please see question # 8 for the alternative regulations that the Department considered and why, if applicable, those alternatives were not appropriate.

11.Did the Agency specifically consider a performance-based regulation? Please explain. Performance-based regulations define the required outcome, but don’t dictate the process the regulated stakeholders must use to achieve compliance.

The rules contained in this chapter are performance-based regulations as they set out the defined outcome (insurance coverage) but do not dictate how regulated industry achieves it.

12.What measures did the Agency take to ensure that this regulation does not duplicate an existing Ohio regulation?

Under Chapter 921. of the Revised Code, the Department has the sole regulatory authority to regulate the application and use of pesticides within the state.

13.Please describe the Agency’s plan for implementation of the regulation, including any measures to ensure that the regulation is applied consistently and predictably for the regulated community.

The Department worked with stakeholders from both the pesticide application industry and the insurance industry to amend this rule and completed a very wide outreach program. Further, the Department works with all pesticide businesses and applicators to educate and inform them on the amended requirements of these rules. Additional education and outreach will be performed with the affected communities of the changes by the Department.

Adverse Impact to Business

14.Provide a summary of the estimated cost of compliance with the rule. Specifically, please do the following:

a. Identify the scope of the impacted business community;

All individuals and businesses that apply pesticides in a commercial setting or apply restricted use pesticides in the State of Ohio.

b. Identify the nature of the adverse impact (e.g., license fees, fines, employer time for compliance); and

Every pesticide business shall have in force a comprehensive commercial general liability insurance policy and, either a separate professional liability insurance policy or an endorsement covering the properties under the care, custody, and control of the pesticide application business as it relates to the application of pesticides, including but not limited to the damage to the actual properties the pesticide business is treating

or working on, in each of the pesticide use categories in which the commercial applicators employed by the business are licensed.

The policies and endorsements shall provide coverage for each registered location associated with the pesticide business; provide coverage for bodily injury, property damage, products, and completed operations due to the application of pesticides at the location applied and for third party claims; and contain the following minimum limits of insurance:

1. Three hundred thousand dollars policy general aggregate; 2. Three hundred thousand dollars per occurrence limit; and

3. Three hundred thousand dollars products and completed operations aggregate.

c. Quantify the expected adverse impact from the regulation.

The adverse impact can be quantified in terms of dollars, hours to comply, or other factors; and may be estimated for the entire regulated population or for a “representative business.” Please include the source for your information/estimated impact.

Insurance rates depend on the individual, their application history, the number of homes/acres to which they apply, and the insurance company. Due to all of these factors rates vary widely between companies. However, in order to give specific figures, the Department reached out to several stakeholders and asked that they provide quotes for their minimum premiums.

Mr. Jeff S. Smith of the Professional Independent Agents Association of Ohio stated that when he spoke to a couple of agents regarding the cost to comply with the rule he stated, “minimum premiums vary but most companies start at $250 [annually].” Mr. Smith indicated that the premium is usually a percentage of the general liability premium so the premium is higher for larger operations.

Anthony Jebbia of the Insurance Partners Group, LTD., indicated that the majority of their insurance carriers have minimum premiums between $400 and $700 annually. He further indicated that all of his insurance carriers are including the “Care, Custody, and Control” endorsement.

15.Why did the Agency determine that the regulatory intent justifies the adverse impact to the regulated business community?

This rule promotes consumer confidence and ensures protection for all individuals who utilize a pesticide applicator business in the state. In some instances, pesticide applicators misapply pesticides causing damage to the property to which they applied (as well as neighboring properties). By ensuring that all pesticide applicators and businesses maintain insurance policies, endorsements, and minimum coverage limits helps to ensure that this damage will be covered. Additionally, financial responsibility requirements promote consumer confidence in utilizing the pesticide industry which will, in turn, cause the pesticide industry to grow. A series of uncovered events will result in a loss of consumer

confidence therefore likely causing less people to utilize this industry potentially resulting in the loss of profits and jobs. Further, this rule does not require coverage for any intentional damage caused by the applicators.

The cost of the annual premiums as described in question 14(C) is minimal when compared to the impact on the insurance industry and consumers should applicators not carry this type of coverage. Additionally, the rules consumer protection elements outweigh the cost of this rule.

Regulatory Flexibility

16.Does the regulation provide any exemptions or alternative means of compliance for small businesses? Please explain.

Exemptions for small businesses would not be appropriate because the cost of misapplication damages does not depend on the size of the business rather they depend on the property on which the pesticides were applied.

17.How will the agency apply Ohio Revised Code section 119.14 (waiver of fines and penalties for paperwork violations and first-time offenders) into implementation of the regulation?

Ohio Revised Code § 921.10(B) requires the Department to immediately suspend a pesticide business upon receiving evidence that the business does not possess the required financial responsibility. However, in these situations, the Department will work with the business to assist them in meeting their requirements.

18.What resources are available to assist small businesses with compliance of the regulation?

The Department has online resources and has field staff available to provide assistance. Training and seminars are also available.