Farm v. Diversified Crop Ins. Servs.
| Decision Date | 26 March 2018 |
| Docket Number | No. 5:17-CV-513-D,5:17-CV-513-D |
| Court | U.S. District Court — Eastern District of North Carolina |
| Parties | WILLIAMSON FARM, Petitioner, v. DIVERSIFIED CROP INSURANCE SERVICES, a/k/a CGB Diversified Services, Inc., Respondent. |
On May 12, 2016, Williamson Farm ("Williamson") moved to confirm an arbitration award against Diversified Crop Insurance Services ("Diversified"). See [D.E. 1]. The arbitration concerned two crop insurance policies and resulted in an arbitration award of $639,929.44. See id.; see also [D.E. 1-1] (arbitration award). Williamson Farm seeks confirmation of the arbitration award pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-16. See [D.E. 1]; see also [D.E. 2].
On June 13, 2016, Diversified responded in opposition. See [D.E. 9]. Diversified argues that this court cannot confirm the arbitrator's award because the Federal Crop Insurance Corporation ("FCIC") has not determined that Diversified failed to comply with the insurance policies or FCIC procedures and that such failure resulted in Williamson receiving a payment in an amount less than what was due. See id. at 5-6 (). Diversified also argues that the arbitrator exceeded her authority. See id. at 5-7.
On June 16, 2016, Williamson replied. See [D.E. 10]. Williamson argues that it need not obtain a determination from the FCIC before confirmation of the award and that the arbitrator did not exceed her authority. See id.
On June 29, 2016, Diversified moved to vacate the arbitration award and filed a memorandum in support. See [D.E. 11, 12]. On July 19, 2016, Williamson responded in opposition to the motion to vacate [D.E. 14]. On August 3, 2016, Diversified replied [D.E. 15].
On July 12, 2016, this court asked the FCIC to submit an amicus brief addressing whether Williamson had to obtain an FCIC determination before confirmation of the award and whether the arbitrator exceeded her authority [D.E. 13]. On August 24, 2016, the FCIC responded and stated that Williamson had to obtain an FCIC determination before confirmation of the award and that the arbitrator exceeded her authority [D.E. 20]. On September 14, 2016, Williamson responded in opposition to the FCIC's amicus brief [D.E. 22]. On September 26, 2016, the FCIC replied [D.E. 23].
On November 1, 2016, this court heard argument on the motions from the parties and from the FCIC. See [D.E. 26]. Thereafter, parties submitted supplemental briefing. See [D.E. 29-31]. As explained below, the court grants Diversified's motion to vacate the arbitration award and denies Williamson's motion to confirm.
Diversified is a private insurance company and sells insurance policies pursuant to FCIC regulations. Unlike typical private insurance agreements, the federal government backs the policies sold subject to FCIC reinsurance. Thus, these policies must adhere to governing regulations, which have the force of federal law. See Felder v. Fed. Crop Ins. Corp., 146 F.2d 638, 640 (4th Cir. 1944); Byrne v. Fed. Crop Ins. Corp., 289 F. Supp. 873, 874 (D. Minn. 1968); 7 C.F.R. § 400.168.
Congress established the federal crop insurance program to fill a crucial gap in the agriculture industry that private insurers left untouched because they "deemed all-risk crop insurance too great a commercial hazard." Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 383 n.1 (1947). Congress foundthat a viable crop insurance system was necessary to preserve economic stability for crop producers. See 7 U.S.C. § 1502. As a result, Congress enacted the Federal Crop Insurance Act ("FCIA") and created the FCIC. See 7 U.S.C. §§ 1501-24, 31. "The FCIC operates under the supervision of the Risk Management Agency of the United States Department of Agriculture." Davis v. Producers Agric. Ins. Co., 762 F.3d 1276, 1284 (11th Cir. 2014). "The FCIC acts, when certain eligibility conditions are met, as reinsurer on crop insurance policies written by approved private insurers such as [Diversified]." Id.
"In order to qualify for reinsurance through the FCIC, the policies written by approved private insurers must comply with the FCIA and its accompanying regulations." Id. "Consequently, the FCIA generally establishes the terms and conditions of insurance even though the crop insurance policy is between the farmer and an approved insurance provider." Id. (quotations and alterations omitted). In fact, "7 C.F.R. § 457.8 includes text for a 'Common Crop Insurance Policy' used by insurers, standard throughout the industry, when the FCIC provides reinsurance." Id.
The FCIC determines "where crop insurance will be offered and on what crops, the levels of coverage, the expected market prices for crops, premium rates paid to insurers and the lack of insurability of certain risks." Id. at 1284-85. "The FCIC provides, as necessary, interpretations of the statute and regulations to interested parties." Id. at 1285. "The FCIC's interpretations, issued in the form of Final Agency Determinations ("FADs"), are 'binding on all participants in the Federal crop insurance program.'" Id. (quoting 7 C.F.R. § 400.765(c)). Additionally, the FCIC regulatory scheme preempts state law to the extent that the two conflict. See General Administrative Regulations; Crop Insurance; Preemption of State Laws and Regulations, 55 Fed. Reg. 23066-01, 23067, 1990 WL 342216 (June 6, 1990); 7 U.S.C. §§ 1501, 1506(l); 7 C.F.R. §§ 400.351-52. The FCIC regulatory scheme balances the need for crop insurance as a way to promote and stabilize agriculture marketswith the risk inherent in offering these policies by limiting the remedies available to claimants under the program.
7 C.F.R. § 457.8 (Policy § 20(a)(1)). If a party to the arbitration is not satisfied with the results of the arbitration, the party may seek judicial review consistent with the Federal Arbitration Act ("FAA"). See 9 U.S.C. §§ 9-10; Farm Mgmt. Co. v. Rural Cmty. Ins. Agency, Inc., No. 14-CV-5024-EFS, 2015 WL 1809789, at *3-5 (E.D. Wash. Apr. 21, 2015) (unpublished); 7 C.F.R. § 457.8 (Policy § 20(c)).
On March 5, 2015, Williamson demanded an arbitration against Diversified over the non-payment of federally reinsured claims. See [D.E. 1] ¶ 1. The parties agreed on Catharine B. Arrowood as the arbitrator ("arbitrator"). See id. ¶ 4. The arbitrator conducted a two-day arbitration in April 2016, and each party presented evidence, examined or cross-examined witnesses, and presented issues for the arbitrator to review. See id. ¶¶ 5-9.
Williamson "is a North Carolina general partnership engaged in the farm business." Award [D.E. 1-1] ¶ 2. Diversified "employs a team of crop insurance agents who sell crop insurance policies to farmers . . . and administers those policies including claims which may arise from the policies." Id. During the arbitration Williamson alleged two contract claims under the policies it had purchased through Diversified—one for crop loss on farm 2172 ("farm 2172 claim") and one for a "preventedplanting loss" on farms 1870 and 4168 ("prevented planting claim"). Id. ¶ 5. Williamson also alleged several non-contract theories under North Carolina law including unfair and deceptive trade practices, fraud, fraud in the inducement, constructive fraud, breach of fiduciary duty, negligent misrepresentation, quantum meruit, and negligence. See id. ¶ 6.
The arbitrator found that Williamson had engaged in a "regular annual practice regarding crop insurance" whereby its insurance agent "would visit in the latter part of the year, discuss the planned planting and acreages . . . and recommend coverage for the coming year." Id. ¶ 18. According to the arbitrator's findings, "[a]s far as [Williamson] was aware, it had successfully insured all of its farms for 2013, as it had in previous years." Id. ¶ 34. The arbitrator also found that Diversified's agents shared this impression at that time. See id.
During 2013, Williamson "experienced a crop loss due to deer on Farm 2172" and "expected [the loss] to be covered by the crop insurance that they had purchased." Id. ¶ 36. Diversified denied that claim because Farm 2172 was located in a Montgomery County, but was listed on the insurance form as as being in Richmond County. Id. ¶ 37. The arbitrator found that this error was due to Diversified's agent who had prepared the form, and held that "[t]he lack of coverage for Farm 2172 indisputably arose from" the decisions of Diversified and its agents. See id. ¶¶ 38, 41.
Williamson also filed a prevented planting claim for farms 1870 and 4168 on the basis that excessively rainy weather had interfered with its ability to plant acres which it had intended to plant See id. ¶¶ 46-47. Diversified denied this claim based on a clerical omission on reports to the Farm Service Agency ("FSA"). See id. ¶ 49. The arbitrator found that "the failure to report the acres" involved in this claim on the FSA report was "fatal to the[] prevented planting claim" and that Diversified's agent was responsible for this omission. See id. ¶¶ 48-49.
On May 11, 2016, the arbitrator found that the land in farms 2172, 1870, and 4168 was notinsured due to the mistakes or misdeeds of Diversified's agents. See id. ¶¶ 28, 32,...
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