Many agricultural producers across the nation obtain crop insurance coverage for their planted acreage under the federal crop insurance program (“FCIP”). When a producer suffers a loss, they generally make a loss claim to their insurance provider. Insurance providers—which are called Approved Insurance Providers (“AIP”)—may either approve or deny a producer’s claim for indemnity under the insurance policy. If denied, a producer may seek legal action if they feel that their claim is improperly denied. However, the course of action for a producer is usually limited to arbitration.
Although arbitration is generally required for disputes between producers and AIPs, the Federal Crop Insurance Act (“FCIA”) and accompanying regulations that govern the FCIP restrict an arbitrator’s power to interpret crop insurance policies. Rather, Congress has provided the Federal Crop Insurance Corporation (“FCIC”) exclusive power to interpret the meaning and application of disputed insurance policy provisions. 7 U.S.C. § 1506(r)(1).
As previously discussed in the sixth article of this series, parties to an arbitration must obtain from FCIC an interpretation of any policy provision in dispute—known as an interpretation of a policy (“IOP”) or final agency determination (“FAD”)—before an arbitration can proceed. Sometimes, arbitrators proceed without obtaining an IOP or FAD and independently interpret the meaning or application of a crop insurance policy provision in dispute. In these instances, the FCIP regulations direct courts to vacate or nullify the arbitration award because the arbitrator exceeds their authority by proceeding without an interpretation from FCIC. 7 C.F.R. § 457.8, Section 20(a)(1)(ii). However, some courts have declined to vacate an arbitration decision in these instances.
As a result, there is a split in the courts that have examined the IOP or FAD requirement. A few courts have demonstrated a willingness to enforce the IOP or FAD requirement and vacate an arbitration decision. Other courts have upheld arbitration decisions rendered without a FAD. Because there are contradictory decisions, this is an example of how necessary it is to seek legal advice from an attorney licensed to practice law in the relevant jurisdiction before decision are made.
Enforcing IOP/FAD Requirement
In Williamson Farm v. Diversified Crop Ins. Servs., 917 F.3d 247 (4th Cir. 2019), the United States Court of Appeals for the Fourth Circuit upheld a vacatur of an arbitration award because the arbitrator exceeder her authority by rendering her own interpretation of a policy rather than obtaining a required interpretation from FCIC. In this case, an AIP denied a farming operation’s claim for indemnity under its crop insurance policies. According to the AIP, it denied the farming operation’s claims because it failed to correctly list their farms and acreage on the necessary insurance forms, even though the AIP helped the operation complete the forms in order for it to the insurance policies. As a result, the farming operation sought arbitration to challenge the insurance provider’s denials of its insurance claims.
The arbitrator ruled in favor of the farming operation because she determined that the AIP was at fault for the incorrect information on the insurance forms. As a result, the arbitrator concluded that the AIP breached the insurance policy because it failed to pay the operation’s loss claim. Also, the arbitrator awarded the farming operation additional or “extra-contractual” damages because she determined that the AIP was negligent and breached a fiduciary duty by denying operation’s insurance claims. Further, the arbitrator decided that the AIP did not reasonably attempt to settle this claim and awarded attorneys’ fees and arbitration costs to the farming operation.
Afterwards, the AIP sought to vacate the arbitration award in federal court. At trail, the AIP argued that an FCIC interpretation was necessary to clarify whether the insurance policy permits an arbitrator to award extra-contractual damages and attorneys’ fees. The federal district court agreed with the AIP and vacated the award. The farming operation appealed the ruling to the United States Court of Appeals for the Fourth Circuit.
The Fourth Circuit affirmed the district court’s decision to vacate the arbitration award. In general, the court concluded that the arbitrator exceeder her authority by awarding extra-contractual damages and attorneys’ fees. In the arbitrator’s ruling, she explained that her award is acceptable because the policy provision that explains the type of damages an arbitrator may award does not expressly exclude an arbitrator from awarding extra-contractual damages and attorneys’ fees. However, according to the Fourth Circuit, because the policy provision is silent on the issue of awarding additional damages and fees, a FCIC interpretation was required. Because the arbitrator exceeded her authority under the insurance policy by rendered an independent interpretation of a policy provision, the Fourth Circuit upheld the vacatur.
Although a few courts have enforced the requirement that an arbitration requires an FCIC interpretation of ambiguous policy provisions, other courts have upheld arbitration awards rendered without an IOP or FAD. Recently, the United States Court of Appeals for the Eight Circuit in Balvin v. Rain & Hail, LLC, 943 F.3d 1134 (8th Cir. 2019) reviewed the FCIC interpretation requirement under the FCIP policy.
Confirming Arbitration Award
In Balvin, an insured producer filed a claim for crop loss due to adverse weather conditions. The producer’s AIP denied the producer’s loss claim because it determined that the appraised value of the producer’s crop exceeded his guaranteed minimum crop production. In other words, the producer’s loss was not great enough to receive an indemnity under his policy. The producer initiated arbitration, but the arbitrator ruled in favor of the AIP’s decision to deny the insurance claim.
The producer filed a motion to vacate the arbitration award in a federal district court, claiming the arbitrator exceeded his authority when he interpreted the “appraised value” provision of the insurance policy. According to the producer, the insurance policy and a FCIP handbook, complete production and appraisal worksheets to measure a producer’s appraised value. In this case, the AIP failed to complete and sign these required worksheets. Further, the policy is silent on what procedures must be used to measure the appraisal value when these worksheets are not completed. Therefore, the district court ruled that the arbitrator exceeded his authority when he concluded that the producer’s crop could be measured by the incomplete and unsigned worksheets.
The AIP challenged the district court’s vacatur to the United States Court of Appeals for the Eighth Circuit. The Eighth Circuit overruled the district court’s vacatur and confirmed arbitration award. According to the court, the arbitrator did not exceed his authority because the dispute about the interpretation of “appraised value” was not an issue raised during the arbitration. Therefore, according to the Eighth Circuit, an FCIC interpretation was not required and the arbitrator’s award must be confirmed.
In general, the FCIA has provided FCIC exclusive power to interpret the meaning and application of disputed insurance policy provisions. Additionally, the FCIP insurance policy provides that an arbitrator that proceeds without obtaining an interpretation from FCIC “will result in the nullification of any arbitration decision.” 7 C.F.R. § 457.8, Section 20(a)(1)(ii). However, courts are split on whether an arbitration decision must be vacated in situations where the arbitrator proceeds with a case without a FCIC interpretation. Accordingly, parties involved in the FCIP should be aware that judicial action may not change or overturn an arbitrator’s decision based on their interpretation of a crop insurance policy provision. Therefore, because there are contradictory decisions, FCIP participants should consult with an attorney licensed to practice law in the relevant jurisdiction to learn more about the specifics of their situation and reduce legal risk.
To read the other articles in this series, click here.
To read NALC resources on crop insurance, click here.