Farms v. Risk Mgmt. Agency, Case No. 3:09-cv-67
| Decision Date | 31 August 2011 |
| Docket Number | Case No. 3:09-cv-67 |
| Parties | Dawson Farms, Plaintiff, v. Risk Management Agency, Defendant. |
| Court | U.S. District Court — District of North Dakota |
ORDER DENYING PLAINTIFF'S
MOTION FOR SUMMARY
JUDGMENT AND GRANTING
DEFENDANT'S MOTION FOR
SUMMARY JUDGMENT
Dawson Farms brings this action pursuant to 7 U.S.C. § 6999 and 5 U.S.C. § 701, et seq for judicial review of a final decision of the National Appeals Division. At issue is a dispute over crop insurance benefits that Dawson Farms claims are owed for losses sustained to its 2006 potato harvest. Having carefully considered the entire administrative record as well as the briefs and arguments of the parties, the Court now issues this memorandum opinion and order.
The Deputy Director applied the correct standard of review to the hearing officer's decision and did not improperly substitute his findings for those of the hearing officer. There is substantial evidence in the record to sustain the Deputy Director's decision, and under the deferential review required of a reviewing court, the Director's decision must be upheld. Lastly, Dawson Farms did not abandon or waive its claim regarding its request to re-sample; however, there is no duty to re-sample and thus the error by the Deputy Director has no legal effect on the decision.
Dawson Farms is a North Dakota partnership between Michael Sitzmann and Ronald D. Offut, which operates a commercial farm located in south central North Dakota. Certified Administrative Record 304 (hereafter "CR"). During the time relevant to this litigation, Sitzmann was the managing partner, overseeing the day to day operations of the farm, while Offut provided expertise in the areas of seed, agronomy services and many of the administrative duties related to the farm. CR 480. Dawson Farms primarily grows irrigated potatoes. Id.
Dawson Farms purchased a multi-peril crop insurance policy from Rain and Hail, LLC to cover the 2006 potato production. Rain and Hail, LLC is licensed and authorized to sell federally insured crop insurance policies in North Dakota. CR 304. The multi-peril crop insurance policy is reinsured by the Federal Crop Insurance Corporation ("FCIC") under the provisions of the Federal Crop Insurance Act, 7 U.S.C. § 1501 et seq. CR 478. The Risk Management Agency operates and manages the FCIC under the provisions of the Act. Id.
Currently, federally insured crop insurance is sold by approximately 16 private sector companies that both sell and service the policies they sell. Risk Management acts as a reinsurer of the policies. Id. As a condition of providing the reinsurance, the selling and servicing companies are required to notify the Risk Management Agency whenever a claim in excess of $500,000 is presented. Id. After Risk Management receives notice, it may participate in all aspects of the loss determination and adjustment. Id.
The Dawson Farms policy at issue in this case consists of:
The issues before the Court revolve around the Northern Potato Crop Provisions and the Northern Potato Crop Storage Endorsement. The policies cover the potatoes against unavoidable losses caused by identified causes, including a loss arising out of "adverse weather conditions." CR 348 (Northern Potato Crop Provision ¶ 9). The insurance period for the policy in question generally ended on October 15, 2006 . Id. at ¶ 8. However, the Storage Endorsement acts to extend the period for 60 days beyond the end of the insurance period for any "potatoes . . . damaged within the insurance period other than freeze that later results in [a loss covered by the policy]." CR 354 (Northern Potato Crop Storage Coverage Endorsement ¶ 5).
Put in its simplest terms, the policy as it applies in this case provides coverage for a quality adjustment when the subject potatoes have suffered from damage incurred before the policy period expires or the potatoes suffer from "tuber rot that is evident at, or prior to the end of the insurance period; and a grade inspection is performed." CR 349 (Northern Potato Crop Provisions ¶ 11(2)(1-2)). "Tuber rot" is defined as "any soft, mushy, or leaky condition of potato tissue (soft rot or wet breakdown as defined in the United States Standards for Grades of Potatoes) including, but not limited to, breakdown caused by Southern Bacterial Wilt, Ring Rot, or Late Blight." CR 347 (Northern Potato Crop Provisions ¶ 1).
This case involves alleged tuber rot in potatoes harvested off an identified unit covered by the insurance policy, Unit 102. Unit 102 is also referred to as the "Moss Unit" or the "Moss field." CR 39. The Moss Unit is a single field consisting of 134.3 acres of irrigated potatoes in Kidder County, North Dakota. Id. Under the policy, the yield guarantee for the Moss Unit was43,419 cwt which was calculated using a per acre guarantee of 32,330 pounds per acre. Id.
By all accounts, the potato harvest in 2006 in Kidder County started under somewhat favorable conditions, but by mid-September had taken a decided turn for the worse. CR 306. Cool, wet and rainy conditions predominated from September 17 through the time the Moss Unit was finally harvested - October 7 through 10, 2006 - at which time the potatoes were placed in storage. CR 307. While a killing frost occurred during the overnight between October 10-11, there is no question that the Moss Unit potatoes were undamaged by frost. Id.
The harvest itself was performed under brutal conditions. First, it was too hot. When the temperatures moderated, then the rains began to fall. Id. Whenever it was nearly dry enough to harvest the potatoes, more rain would fall. As conditions deteriorated, Sitzmann hired more laborers and equipment, ending up with a harvesting crew consisting of 30 field trucks and operators, 65-70 independent semi-trucks, and another 75 general farm laborers. Id. Harvesting equipment was frequently stuck and required other machinery to drag it through the fields. Id.
Despite the adversity, Dawson Farms was able to fully harvest the Moss Unit. Id. The field produced a total of 65,201.7 cwt, which substantially exceeded the insurance guaranty of 43,419 cwt. The potatoes were stored in the south bin of a Hansen-Rice storage facility owned and operated by Dawson Farms in Tappen, North Dakota. CR 307. This type of storage facility is recognized as one of the best storage systems available for controlling ventilation and moisture management in order "to reduce excess field health and moisture in potatoes." CR 308. The Northern Potato Crop Storage Coverage Endorsement covered the Moss Unit potatoes while in the Tappen warehouse.
On October 10, 2006, Dawson Farms filed a Notice of Loss with Rain and Hail, LLC fordamages arising out of excessive moisture, which is an "adverse weather condition" that is a covered loss under the policies. CR 348 (Northern Potato Crop Provisions ¶ 9). Rain and Hail, LLC notified the Risk Management Agency of a potential large loss claim (one involving more than $500,000 of exposure). CR 308. Rain and Hail, LLC made immediate arrangements for John Bata and Paul Hodny to adjust the claim and the adjusters made their fist visit to Dawson Farms the next day. Id.
Hodny and Bata made visits to inspect Dawson Farms' fields on the 11th and 16th of October - being joined in the October 16 meeting by Steve Axtman, a supervisor at Rain and Hail, LLC, and Gabriele Kelly, a representative of the Risk Management Agency. CR 308. At no time during these visits was any inspection made of potatoes harvested off the Moss Unit and stored in the Tappen warehouse. Id.
On December 5, 2006, John Bata returned to the Tappen warehouse to inspect and sample the stored potatoes. CR 309. The storage endorsement period expired on December 9, 2006, so time for inspection and sampling was short. CR 354. Bata visually examined the potatoes in the bin, and then collected a 56.31 pound sample of potatoes. CR 769. He explained his method of sampling as consisting of walking in a zig-zag pattern across the surface of the pile drawing potatoes from a depth of about six or eight inches below the surface. CR 493 (citing, Hearing 2, Track 2, 2:36:42 through 2:51:57).
While Bata made contact with Sitzmann prior to arriving at the Tappen warehouse for the sampling, the actual sampling was taken outside of Sitzmann's presence. CR 309. When Sitzmann arrived at the warehouse, a conversation took place in which Bata indicated that he believed the potatoes from the Moss Unit were in pretty good shape. Sitzmann disagreed, andshowed Bata potato juice streaming from the culverts under the pile. CR 309. A dispute exists between Sitzmann and Bata about the number of culverts with potato juice present. Bata testified that only one such culvert was shown to him (Hearing 2, Track 2, Bata Testimony 2:37:02 to 2:37:10); Sitzmann denies this observation and contends he asked for an additional sample. It is undisputed that Bata declined to re-sample. CR 309.
Bata delivered the sample to the potato inspection laboratory in East Grand Forks, Minnesota for disease diagnosis. The inspection resulted in a finding that tuber rot was present in the Moss Unit sample in a total amount of 3.52%. CR 769. The inspection also confirmed the sample was free from freeze damage. Id. No one disputes that if this testing is accurate, Dawson Farms has not sustained a compensable loss.
Sitzmann received the grading report and immediately contacted his insurance agent, James Percy. Sitzmann made both a telephone and a fax request that the potatoes be re-sampled. CR 310, 1236. On December 11, 2006, Percy faxed a memo to Rain and Hail, LLC telling them that Sitzmann "had just...
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