In re 2000 Sugar Beet Crop Ins. Litigation

• Citation: 228 F.Supp.2d 992
• Decision Date: 26 September 2002
• Docket Number: No. 01-CV-1636 (DWF/SRN).,No. 01-CV-1632 (DSD/SRN).,No. 01-CV-2242 (MJD/JGL).,No. 01-CV-1630 (PAM/SRN).,No. 01-CV-1629 (JMR/FLN).,No. 01-CV-1636 (PAM/JGL).,No. 01-CV-1634 (DWF/AJB).,No. 01-CV-1633 (ADM/AJB).,No. 01-CV-1635 (DSD/JGL).,01-CV-1629 (JMR/FLN).,01-CV-1630 (PAM/SRN).,01-CV-1632 (DSD/SRN).,01-CV-1633 (ADM/AJB).,01-CV-1634 (DWF/AJB).,01-CV-1635 (DSD/JGL).,01-CV-1636 (DWF/SRN).,01-CV-1636 (PAM/JGL).,01-CV-2242 (MJD/JGL).
• Parties: In re 2000 SUGAR BEET CROP INSURANCE LITIGATION.
• Court: U.S. District Court — District of Minnesota

228 F.Supp.2d 992

In re 2000 SUGAR BEET CROP INSURANCE LITIGATION.

No. 01-CV-1629 (JMR/FLN).

No. 01-CV-1630 (PAM/SRN).

No. 01-CV-1632 (DSD/SRN).

No. 01-CV-1633 (ADM/AJB).

No. 01-CV-1634 (DWF/AJB).

No. 01-CV-1635 (DSD/JGL).

No. 01-CV-1636 (DWF/SRN).

No. 01-CV-1636 (PAM/JGL).

No. 01-CV-2242 (MJD/JGL).

United States District Court, D. Minnesota.

September 26, 2002.

COPYRIGHT MATERIAL OMITTED

George Gregory Eck, Daniel James Brown, Dorsey & Whitney, Minneapolis, MN, for Plaintiffs.

Thomas H. Boyd, Winthrop & Weinstine, St. Paul, MN, Steven J. Boyd, Jennifer J. Coleman, Matthew J. Salzman, Stinson Morrison Hecker, Kansas City, MO, Robert J. Vancrum, Kristin L. Farnen, Frank W. Pechacek, Jr., Wilson & Pechacek, Council Bluffs, IA, P. John Owen, Nat. Crop Ins. Services, Inc., General counsel, Overland Park, KS, Michael J. Davenport, Rain & Hail LLC, Johnston, IA, for Defendants.

ORDER

ROSENBAUM, Chief Judge.

This matter is before the Court on defendants' motion to dismiss, or alternatively, to compel arbitration. The parties previously appeared on a motion to remand on December 14, 2001.¹ For purposes of this motions only, the Court considers the facts as follows.

I. Background

These cases involve multi-peril crop insurance contracts covering sugar beets. Plaintiffs are sugar beet growers. In October, 2000, a hard frost damaged or destroyed their crops, causing significant financial loss. Plaintiffs had purchased multi-peril crop insurance that — according to their complaint — covered this loss. The crop insurance was in the form of a policy issued by the Federal Crop Insurance Corporation ("FCIC"), a government agency created under the Federal Crop Insurance Act ("FCIA"). This policy is codified at 7 C.F.R. §§ 457.8 and 457.109.

Plaintiffs took steps to mitigate the frost damage, but by mid-December, a loss had clearly occurred. After harvesting the crop and discovering the extent of the damage, plaintiffs submitted their crop insurance claims. Defendants denied the claims, apparently expecting the FCIC's Risk Management Agency ("RMA") to provide full coverage.

The question before the Court is whether it may now consider the merits of this dispute, or whether it must stay its hand, pending arbitration.

II. Discussion

The Court must first determine if an agreement to arbitrate exists and, if so, to ascertain the scope of that agreement. See Keymer v. Mgmt. Recruiters Int'l, Inc. 169 F.3d 501, 504 (8th Cir.1999). This is because, "[a]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed to so submit." See AT & T Technologies v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986).

Congress enacted the Federal Arbitration Act ("FAA"), 9 U.S.C. § 2, to "reverse the longstanding judicial hostility to arbitration agreements." Gammaro v. Thorp Consumer Discount Co., 15 F.3d 93, 95 (8th Cir.1994). Courts must consider arbitration disputes in favor of arbitration. See Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); Webb v. Rowland & Co., 800 F.2d 803, 807 (8th Cir.1986). The Supreme Court has held that insurance policies are contracts "involving commerce," and therefore, subject to the FAA. See United States Dep't of Treasury v. Fabe, 508 U.S. 491, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993); see also Allied-Bruce Terminix Co., Inc. v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (construing the FAA as coextensive with congressional commerce clause authority). With these principles in mind, the Court examines whether arbitration is required here.

The Court's analysis begins with Paragraph 20 of the standard insurance policy.² According to defendants, this clause requires arbitration, and compels a court to enforce its terms. The paragraph requires the parties to a crop insurance contract to arbitrate if they "fail to agree on any factual determination." See 7 C.F.R. 457.8 at ¶ 20. The policy further provides that the insured "may not bring legal action against [the insurer] unless [the insured] has complied with all the policy provisions." See id. at ¶ 25. Plaintiffs acknowledge that in some situations arbitration might be appropriate, but argue this is not such a case.

Plaintiffs first claim the insurance companies, having failed to adjust the claimed losses, made no factual determinations, thereby precluding arbitration because there is no determination to arbitrate. Plaintiffs' argument proves too much. It appears to the Court that defendants did, indeed, make an insurance coverage decision: they denied plaintiffs' claims; their offer, perforce, is zero. In correspondence to plaintiffs' attorney, defendants set forth a number of reasons for denying coverage. While plaintiffs may term these "perfunctory denials," even perfunctory denials are based on factual determinations. For purposes of this case, a determination has plainly been made.³

Nor will the Court do as plaintiffs suggest, and construe the reasons offered by defendants as involving only the legal effect of certain facts, and not actual factual determinations. This suggestion directly contravenes federal decisions addressing the breadth of the arbitration provision. See Ledford Farms, Inc. v. Fireman's Fund Ins. Co., 184 F.Supp.2d 1242 (S.D.Fla.2001) (requiring the parties to resolve their dispute through arbitration); Nobles v. Rural Cmty. Ins. Servs., 122 F.Supp.2d 1290 (M.D.Ala.2000) (compelling arbitration); see also IGF Ins. Co. v. Hat Creek P'ship, 349 Ark. 133, 76 S.W.3d 859 (2002) (compelling arbitration in crop insurance case); Crook v. Fireman's Fund Agribusiness, Inc., 2000 WL 33650721, 2000 U.S. Dist. LEXIS 19878 (W.D.La. September 5, 2000) (compelling arbitration in crop insurance dispute).

In both of these cases, the courts interpreted the proffered reasons for denial of payment as presenting factual determinations — not legal questions. See Ledford Farms, 184 F.Supp.2d at 1245 (interpreting "practical to replant" to be a factual determination); Nobles, 122 F.Supp.2d at 1296 (finding whether lands have been harvested within required period constitutes a factual determination). Such determinations of coverage questions are precisely those left to arbitration under the insurance contract. The parties have agreed to arbitrate their factual disputes; absent waiver, that agreement is binding.

Having found arbitration appropriate, the Court must decide whether defendants' action and inaction in this case constitute waiver. Before the Court can address the question of waiver, however, it must select between Minnesota's insurance and arbitration law, as arguably required by the McCarran-Ferguson Act, 15 U.S.C. § 1012, and the FAA.

McCarran-Ferguson, a so-called reverse preemption statute, provides in relevant part, "No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance." See 15 U.S.C. § 1012(b). Congress enacted McCarran-Ferguson in 1946 to protect the states' ability to regulate insurance. The Act prevents otherwise neutral laws from preempting state insurance statutes. United States Dep't of Treasury v. Fabe, 508 U.S. 491, 499, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993).

The applicability of McCarran-Ferguson's reverse preemption to a federal crop insurance scheme raises a question of first impression in this Circuit. The question, however, was recently considered by the Supreme Court of Arkansas. See IGF Ins. Co. v. Hat Creek P'ship, 349 Ark. 133, 76 S.W.3d 859 (2002) (finding FAA preempts state arbitration statute in a crop insurance contract case). The Arkansas decision is in accord with a decision rendered by the United States Court of Appeals for the Tenth Circuit, State of Kansas ex rel. Todd v. United States, 995 F.2d 1505, 1511 (10th Cir.1993). Each court found federal crop insurance regulations fell beyond the scope of McCarran-Ferguson. See also Heaberlin Farms, Inc. v. Igf Ins. Co., 641 N.W.2d 816 (Iowa 2002); Continental Cas. Co. v. McCall, No. 97-797 (Ok. July 1, 2002) (issuing writ of mandamus directing judge to order arbitration).

Congress, in 1938, adopted the original FCIC crop insurance plan for the express purpose of regulating the business of insurance, specifically crop insurance. See 7 U.S.C. § 1501 et seq. (creating the Federal Crop Insurance Corporation). In doing so, Congress stated: "It is the purpose of this chapter to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance and providing the means for the research and experience helpful in devising and establishing such insurance." 7 U.S.C. § 1502. This federal program was created to establish a nationwide system of crop insurance for farmers. As such, the Court finds it falls within the exemption to McCarran-Ferguson preemption, because this statute "specifically relates to the business of insurance." See cf. Humana Inc. v. Forsyth, 525 U.S. 299, 306, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999) ("when Congress enacts a law specifically relating to the business of insurance, that law controls").⁴ The Court finds it most unlikely that when Congress created federal crop insurance, specifically intending to provide a uniform and accessible system of farmer protection, it also intended to allow fifty states to administer that program according to fifty different state insurance regulatory schemes. Because Congressional statutes specifically relating to the business of insurance supersede state law, the FAA and other federal laws are applicable. The FCIC is to be construed according to the FAA and federal law, not Minnesota law or any other state law.

Having determined federal law is controlling, the Court turns to plaintiffs' assertion of waiver....