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). If an arbitrator proceeds without a FCIC interpretation, a court may vacate or nullify the arbitration decision.
The basic provisions of the FCIP policy, known as the Common Crop Insurance Policy (“CCIP”), contains an arbitration clause that requires disputes between producers and their insurance providers generally be resolved through arbitration. 7 C.F.R. § 457.8, Section 20(a). In other words, the basic provisions prevent producers from filing a lawsuit against their AIP in the court system. The Federal Arbitration Act (“FAA”) governs the arbitration clause contained in the CCIP. The arbitration clause allows parties to resolve their crop insurance dispute through mediation, which involves an impartial and neutral mediator who facilitates negotiation between the parties. But if the parties do not reach an agreement through mediation, they must resort to arbitration.
Arbitration is an alternative to the use of the formal court system to resolve legal disputes between parties. The decision-maker, which is called an “arbitrator”, makes a legally binding decision or award that is enforceable on the parties to the arbitration. Arbitration decisions are confirmed by a court and considered a judgment. The CCIP permits parties to appeal an arbitration decision for judicial review in certain circumstances. 7 C.F.R. § 457.8, Section 20(c). However, because Congress has established a national policy favoring arbitration under the FAA, federal courts may only vacate or nullify an arbitrator’s decision in very limited circumstances, such as fraud, corruption, misconduct, or exceeding arbitral powers. 9 U.S.C. § 10(a).
FCIC Policy and Procedure Interpretations
The most common basis for vacating an arbitration decision involving a crop insurance dispute occurs when an arbitrator exceeds their powers under the FCIA and associated regulations. Essentially, arbitrators do not have the power to make decisions when a dispute involves “a policy or procedure interpretation, regarding whether a specific policy provision or procedures is applicable to the situation, how it is applicable, or the meaning of any policy provision or procedure”. 7 C.F.R. § 457.8, Section 20(a)(1). In other words, the CCIP prohibits arbitrators from resolving or interpreting the meaning of an insurance provision or procedure. A “procedure” includes “FCIC issued handbooks, manuals, memoranda, and bulletins” for any federally reinsured crop insurance policies. 7 C.F.R. § 400.765.
Under the CCIP, the parties to the arbitration must obtain from FCIC an interpretation of the disputed policy provision or procedure before the arbitration can proceed. This is also true for parties in mediation or litigation. 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). Hence, if an arbitrator issues an independent decision as to the meaning or application of a disputed provision or procedure, a court may vacate that arbitration decision.
In some instances, parties to an arbitration must obtain a FCIC interpretation when they are unsure how a provision applies to their dispute or where the language of a provision or procedure lacks clarity on how FCIC intended the provision to operate under the FCIP. For example, a provision under the policy states that a producer’s AIP makes “decisions regarding what constitutes a good farming practice and determinations of assigned production for uninsured causes for your failure to use good farming practices.” 7 C.F.R. § 457.8, Section 20(d)(1). In other words, an AIP assigns production—which is used to calculate insurance coverage and indemnities—that reflects a producer’s production loss resulting from their failure to implement good farming practices. However, this policy provision is ambiguous on whether an AIP must recalculate a producer’s production total if the producer successfully challenges their AIP’s good farming determination. Therefore, parties to an arbitration would likely need to obtain an FCIC interpretation of the above provision because it lacks clarity, and an arbitrator does not possess the power to apply their own interpretation of the ambiguous provision to the parties’ dispute.
In general, there are two types of interpretations FCIC may provide: an interpretation of a policy (“IOP”), or a final agency determination (“FAD”). An IOP is a FCIC interpretation of a policy provision that is not codified in Code of Federal Regulations (“CFR”) or FCIC issued procedures. 7 C.F.R. § 400.765. Some crop insurance policies are developed by AIPs and approved by FCIC to replace or supplement specific policies established by FCIC. These AIP-developed policies are not published as regulations (i.e., not codified), so parties arbitrating these types of policies will receive an IOP from FCIC. Importantly, IOPs are only binding on the parties involved in a dispute, including the arbitrator. 7 C.F.R. § 400.766(b)(2). This means IOPs do not impact the policies of other FCIP participants.
On the other hand, a FAD is binding on all parties participating in the FCIP—which includes producers, agents, AIPs, adjusters, and contractors—because these interpretations involve “matters of general applicable of the [FCIA] or any regulation codified in the [CFR], including certain policy provision, which are applicable to all participants.” 7 C.F.R. § 400.765. Thus, if a dispute involves a procedure or a policy provision codified by FCIC, the parties to the dispute should likely request a FAD. Further, FADs are binding on arbitrators and they must adhere to FADs when rendering a decision.
Either party may request FCIC to review an arbitrator’s decision if they believe an arbitration decision is rendered on a disputed policy provision in which there was a failure to request an IOP or FAD, or an arbitrator’s decision was not in accordance with a FCIC interpretation. 7 C.F.R. § 400.766(b)(4). If FCIC determines an interpretation should have been sought or an arbitrator did not correctly apply an interpretation in rendering a decision, that decision is automatically nullified and either party may appeal the agency’s determination to the U.S. Department of Agriculture’s (“USDA”) National Appeals Division for review. 7 C.F.R. § 400.766(b)(4)(ii).
Obtaining FCIC Interpretations
All IOP and FAD requests are submitted to USDA’s Risk Management Agency (“RMA”) to be processed on behalf of FCIC. To make a proper request, parties must provide certain information, such as:
- Whether the requester is seeking an IOP or FAD;
- Specify the provision in the FCIA, regulations, policy provision, or procedure for which the request is being made;
- The requester’s interpretation of the provision or procedure for which the request is being made;
- Specify the crop, crop year(s), and insurance plan related to the request;
- Name and contact information of the requester; and
- Indicate whether the request for an IOP or FAD will be used in arbitration, mediation, or litigation. 7 C.F.R. § 400.767(a)-(b).
Parties must also satisfy certain requirements contained in the federal regulations when summitting a request. For example, if parties are requesting an IOP or FAD for arbitration, mediation, or litigation, they must usually submit their request 90 days before the proceeding is scheduled to begin. 7 C.F.R. § 400.767(b)(3). In some instances, however, issues arise after arbitration proceedings are initiated. In these situations, the parties may be able to stay the arbitration, which prevents the arbitrator from proceeding further until FCIC has responded to a request for an IOP or FAD. Additionally, parties may only request one interpretation for a single provision or procedure at issue. 7 C.F.R. § 400.767(a). This means parties must submit separate requests if multiple provisions or procedures are at issue. Further, if the parties to a dispute have conflicting interpretations of a provision or procedure, FCIC encourages the parties to submit a joint request for an IOP or FAD that includes both parties’ interpretations. 7 C.F.R. § 400.767(c). If a dispute involves multiple insured persons, they may submit one request for an IOP or FAD for all insured parties rather than separate requests.
Importantly, parties must refrain from including specific factual information to their situation or dispute when making an IOP or FAD request. 7 C.F.R. § 400.768(a). FCIC will not consider any fact-specific information, examples, or hypothetical situations when issuing an IOP or FAD. For example, FCIC will not provide an interpretation for a request that requires the agency to examine whether an AIP wrongfully denied a producer’s claim for an indemnity under their crop insurance policy.
Although most crop insurance disputes between a producer and their AIP must be arbitrated, FCIC has the exclusive power to interpret the meaning and application of a disputed policy provision and procedures. Depending on the type of policy at issue, parties to a dispute must submit a request for an IOP or FAD. According to the regulations, a failure by the parties to obtain an FCIC interpretation “will result in the nullification of any” arbitration decision. 7 C.F.R. § 457.8, Section 20(a)(1)(ii). Thus, under the FCIA and associated regulations, courts have the ability to vacate an arbitration decision when the arbitrator exceeds their arbitral powers by independently interpreting an ambiguous provision or procedure. However, some courts have declined to vacate an arbitration decision in these situations. The next article of this series will discuss how the courts have analyzed the IOP/FAD requirement and the contradictory rulings of these courts.
To view FCIC’s Final Agency Determinations, click here.
To read the other articles in this series, click here.
To read NALC resources on crop insurance, click here.