There are instances where the Federal Crop Insurance Corporation (“FCIC”) revises the basic provisions of the Federal Crop Insurance Program (“FCIP”) policies, which are referred to as the “Common Crop Insurance Policy” (“CCIP”), when the policy lacks clarity on how certain provisions are to operate or when certain provisions do not function as FCIC intended. Sometimes, FCIC is made aware of ambiguous provisions when producers challenge the terms of the CCIP. When producers receive an adverse determination from their insurance provider or FCIC and are denied the ability to collect on their insurance policy, they may contest this decision by challenging certain provisions of the policy in an administrative proceeding, arbitration, or in the court system. As a result, FCIC may revise the provisions challenged by the producer in order to bring clarity to the policy and to prevent further disputes under those provisions.
In recent years, FCIC has made critical revisions to the CCIP. Specifically, FCIC made changes to the definition of “good farming practices” and revised language under the CCIP’s arbitration provision to clarify which party to a crop insurance dispute has the burden of initiating arbitration.
Good Farming Practices
In order for producers to receive an insurance indemnity under their policy, they must follow “good farming practices.” Producers typically exercise good farming practices when they implement methods that are generally recognized for the normal production of their insured crop. Under the current provisions of the CCIP, determinations of good farming practices for conventional and organic crop production are based on the farming methods “generally recognized by agricultural experts or organic agricultural experts….” 7 C.F.R. § 457.8, ¶ 1.
However, this current provision has only been the standard for determining good farming practices for organic crops since the 2018 growing season. In addition to methods generally recognized by experts, previous policy language provided that good farming practices for insured organic crops could also be determined by the methods contained in a producer’s organic plan. An organic plan details all aspects of a farmer’s production of organic crops and is required to obtain organic certification in accordance with the Organic Foods Production Act (7 U.S.C. § 6501 et seq.) and the National Organic Program regulations.
According to FCIC, the agency removed references to organic plans from good farming practice determinations because “an organic plan and good farming practice determinations serve two different purposes” Essentially, FCIC explained that organic plans describe organic farming practices rather than “provide a comprehensive list of good farming practices.” However, this policy change occurred around the time that a Texas organic cotton farmer was denied an insurance claim based on an FCIC determination that he did not follow good farming practices. In Owen v. Fed. Crop Ins. Corp., No. 3:19-CV-00161, 2020 WL 5913668 (S.D. Tex. July 27, 2020), FCIC denied the plaintiff-farmer’s crop insurance claim despite evidence that he followed the farming practices contained in his organic plan. The judge determined that, in accordance to the insurance policy, FCIC must consider producers’ organic plans when making good farming practice determinations.
The cotton farmer in Owen may not have been the only producer to challenge FCIC’s policy regarding organic plans, and similar challenges to FCIC’s decision to disregard organic plans when making good farming practice determinations may have prompted the agency to revise the language of the policy. Although organic plans are no longer considered, this dispute highlights an instance where a producer’s challenge to the CCIP—along with FCIC discovering that organic plans do not represent good farming practices—may influence FCIC’s decision to change certain policy provisions.
Duty to Initiate Arbitration
FCIC recently revised the language of the CCIP’s mandatory arbitration provision to clarify that insured producers are responsible for initiating arbitration proceedings when they disagree with an insurance provider’s determination. Section 20 of the CCIP mandates that crop insurance disputes between producers and their insurers must be resolved through a process known as arbitration. Arbitration is an alternative to the use of the court system to resolve legal disputes between parties. The decision-maker, which is called an “arbitrator”, makes a legally binding decision that is enforceable on the parties to the arbitration. To read a more in-depth discussion on the arbitration requirements and procedures under the FCIP, check out the National Agricultural Law Center’s “Crop Insurance Arbitration: What is Arbitration, When is it Required, and How Does it Work?” publication here.
Before the revision, the arbitration provision lacked clarity as to which party is required to initiate arbitration when an insurance provider makes an adverse determination involving an insurance policy, such as denying a producer’s claim for indemnity. FCIC’s revision to the CCIP arbitration provision is likely in response to a federal court’s decision in Occidental Fire & Cas. Co. of N. Carolina v. Bush, No. 2:19 CV 67 CDP, 2020 WL 2733811 (E.D. Mo. May 26, 2020).
In the Bush case, a crop insurance provider determined it had overpaid indemnities to a farmer, and informed the farmer that he owed the insurer the overpaid amount. The farmer refused to pay and the insurer filed a lawsuit in federal court to recover the overpaid indemnities. At trail, the farmer claimed the insurance provider was prohibited from seeking judicial relief to recover the overpaid indemnities because the CCIP mandates arbitration for this type of dispute. The insurance provider argued they may sue the farmer in court without going through arbitration because the policy requires only the farmer-policyholder to initiate arbitration proceedings, not the insurer.
The judge hearing this case disagreed with the insurer’s argument. According to the judge, the CCIP does not clearly identify which party is responsible for initiating arbitration proceedings under the policy because it states that the “initiation of arbitration proceedings must occur within one year” from the date the insurance provider made its determination. Due to this lack of clarity in the policy, the judge concluded the dispute between the parties was subject to mandatory arbitration and dismissed the case.
After the court’s decision in Bush, FCIC revised the language within the arbitration provision to address the ambiguous language analyzed by the judge. Under the current provision, FCIC requires producers to “timely seek resolution through arbitration” when they do not agree with an insurer’s determination, and that the producer “must initiate arbitration proceedings within 1 year” of the determination. 7 C.F.R. § 457.8, § 20(a), (b)(1). While this revision brings some clarity to the arbitration provision, this policy language attempts to require producers to initiate arbitration even when the insurance provider is the party seeking relief from a determination. Because this policy does not seem to specify whether producers are required to initiate arbitration proceedings in situations similar to the Bush case, FCIC may experience another challenge to the arbitration provision contained under the CCIP.
Each year, FCIC revises some the language contained in the CCIP. While not every revision to the policy is substantive to the overall function of the FCIP, some revisions bring clarity to ambiguous provisions or change the method of determining claims under a policy. In some instances, FCIC makes these revisions after insured producers challenge the language contained within the policy. Accordingly, producers and their attorneys should consider the language of the policy when seeking relief or challenging adverse determinations of an insurance provider, especially when the policy lacks clarity or methods of determining insurance claims are not performed.
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