6 minute read
Let’s Keep Georgia’s Financial Industry Going Strong
Ron Quinn
President & CEO Peach State Bank & Trust, Gainesville 2019-2020 CBA Chairman
As we get full swing into the Summer following a very ever-changing Spring, with a pandemic that we have all been preparing for over the last twenty years, but never expecting that it would really occur, things are slowly getting back to more of a normal. Bankers around Georgia have worked together through tough unknowns to go above and beyond to serve our communities and help maintain jobs in numerous types of businesses and industries. Although our unemployment statewide is still over three times what it was pre-Covid-19, people are getting back to work, and companies are again beginning to hire new workers.
The setback experienced in our State has caused our State government to take a hard stand to reduce our State budget across the board for all State agencies. These budget cuts are necessary to keep Georgia’s financial condition strong going into the future. We all have enjoyed the benefits of having a strong efficient ally in the Georgia Department of Banking and Finance over the past decade. I would urge all Bankers around our State to ask your legislators to continue to support our Department of Banking as they are being hit by an unforeseen pandemic and the loss of SunTrust Bank as our state’s largest financial institution. We have all been made better bankers and stronger banks since the
Great Recession from 2008-2010. The guidance we have all received over the last ten years from the Department of Banking and Finance will help to ensure that we are all better prepared as unknowns’ surface in the banking industry. We will begin to see a new norm in the examination process with virtual examinations. Let’s not forget the value of having a strong state regulatory body to keep the financial industry in Georgia strong. A strong banking system statewide will continue to bring new businesses to Georgia and keep Georgia as the best state in the USA to do business.
On a different note, I hope everyone is making plans now to attend our Annual Convention this year at the Hilton Sandestin, September 24th - September 27th. The program line up will be one of the best in years with great speakers, and great educational sessions geared for your Directors and your entire management team. Also, some great social events throughout the convention and a strong finale on the beach after the Chairman’s Dinner on Saturday night. A special announcement will be coming soon, so be on the lookout. The convention will be a great opportunity to gather for some good fellowship, education, socialization and relaxation. Hope to see you there!
Corner GENERAL COUNSEL
legal news and updates for cba members
Have a topic you would like to see covered in “General Counsel Corner?” Email us at generalcounselcorner @ jamesbatesllp.com
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William P. Horkan
Attorney (478) 749-9960
whorkan@jamesbatesllp.com
Michael N. White
Attorney (478) 749-9921
mwhite@jamesbatesllp.com Are You Properly Perfecting Security Interests in Undisbursed Crop Insurance Proceeds? By William P. Horkan and Michael N. White Agriculture is big business in Georgia. The industry contributed $73.7 billion in output and 392,400 jobs to Georgia’s economy in 2017. But, everything from natural disasters to economic unrest also make it an industry fraught with risk.
Farmers mitigate these risks in many ways. They manage micronutrients in their soil. They lease or purchase the most technologically advanced equipment that enables accurate and efficient land and crop management. And, many of them purchase crop insurance.
Crop insurance in the United States was born out of the Great Depression. Congress enacted the Federal Crop Insurance Act in 1938. The purpose of the Federal Crop Insurance Act was “to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance and providing the means for the research and experience helpful in devising and establishing such insurance.” Initially, the Federal Crop Insurance Act allowed only the Federal Crop Insurance Corporation to issue crop insurance policies and handle claims on those policies. In 1980, Congress amended the Federal Crop Insurance Act and authorized the Federal Crop Insurance Corporation to allow approved insurance providers to sell and service crop insurance policies to farmers. These policies are then fully reinsured by the Federal Crop Insurance Corporation so long as the approved insurance providers use the standard policy guidelines, including terms and conditions, established by the Federal Crop Insurance Corporation. Succinctly, crop insurance is highly regulated by the Federal government.
Crop insurance covered 2.7 million acres and provided $1.6 billion in liability protection in Georgia in 2019. Georgia farmers paid $62.8 million for this insurance coverage and crop insurers paid out $158.9 million to cover crop losses in 2019. An additional $156.9 million in crop protection was provided to Georgia farmers through private crop-hail policies.
Crop insurance is a valuable tool for Georgia agricultural lenders. However, there are pitfalls in the law which require caution. Georgia’s version of the uniform commercial code normally provides a properly secured lender with a claim to insurance proceeds before they are paid to the insured borrower. This claim creates a duty in say, a property insurer, to exercise due diligence before making an indemnity payment directly to the insured. Thus, a lender can prevent a borrower from paying other debts or secreting the insurance funds before the lender is paid.
But, the federal government’s regulation of the crop insurance program means that a lender cannot only rely on its usual loan documents to secure its interests in a borrower’s crop insurance proceeds. Specifically, language in the Federal Crop Insurance Act modifies the application of a security interest created via Georgia’s version of the uniform commercial code to crop insurance proceeds.
A lender desiring to obtain a lien or interest in undisbursed crop insurance proceeds must procure an assignment form from the crop insurer. The lender should ensure that the assignment form is properly completed. It is important to note that the assignment is not effective until approved by the crop insurer. Finally, the lender must obtain a new assignment each year because each year constitutes a new crop insurance policy.
This process is key to ensuring that a lender’s interest in crop insurance proceeds will not be defeated by another creditor. Accordingly, financial institutions should routinely evaluate their agricultural lending underwriting and due diligence policies and processes to ensure that proper perfection of the financial institution’s interest in crop insurance proceeds is perfected at the initiation of any loan, as well as on a yearly basis. Exceptions to policy for crop insurance financing statements and assignment forms should be noted and cleared as quickly as possible to ensure proper protection. As loss factors, such as hurricanes or economic downturns, are often unanticipated, this should be a priority to ensure sound loss mitigation. Crop insurance is a great risk mitigation tool for farmers and lenders alike, but care is required to ensure its efficacy when needed. For, as Justice Oliver Wendell Homes, Jr. said, “men must turn square corners when they deal with the Government.”
