Old Republic Ins. Co. v. Federal Crop Ins. Corp., 90-2933

• Decision Date: 04 November 1991
• Docket Number: No. 90-2933,90-2933
• Parties: OLD REPUBLIC INSURANCE COMPANY and International Business & Mercantile Reassurance Company, Plaintiffs-Appellants, v. FEDERAL CROP INSURANCE CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 269

947 F.2d 269

21 Fed.R.Serv.3d 642

OLD REPUBLIC INSURANCE COMPANY and International Business &amp Mercantile Reassurance Company, Plaintiffs-Appellants, v. FEDERAL CROP INSURANCE CORPORATION, Defendant-Appellee.

No. 90-2933.

United States Court of Appeals Seventh Circuit.

Argued Sept. 12, 1991.

Decided Nov. 4, 1991.

C. Joseph Yast, Keith D. Parr (argued), Clark C. King, Lord, Bissell & Brook, Chicago, Ill., for plaintiffs-appellants.

Gail C. Ginsberg, Asst. U.S. Atty., Fred Foreman, U.S. Atty., Crim. Div., Nancy K. Needles, Asst. U.S. Atty., Civ. Div., Appellate Section, Chicago, Ill., William Kanter, John S. Koppel (argued), Civ.Div., Appellate Section, Peter Bonner, Dept. of Agriculture, Office of the General Counsel, Washington, D.C., for defendant-appellee.

Before BAUER, Chief Judge, CUMMINGS and COFFEY, Circuit Judges.

BAUER, Chief Judge.

In this appeal, we review the district court's order holding that the Federal Crop Insurance Corporation ("FCIC") is entitled to recover overpayments made to insurers under the Federal Crop Insurance Program. Because we believe that the district court properly found that the FCIC possessed statutory and contractual authority to collect the overpayments and that the agency's procedures satisfied the requirements of due process, we affirm.

I.

The Federal Crop Insurance Act, 7 U.S.C. §§ 1501-1520 (1988), directs the FCIC, a corporation owned by the United States under the jurisdiction of the United States Department of Agriculture ("USDA"), to enlist private insurance companies in the Federal Crop Insurance Program. The agency is directed to reinsure crop loss policies issued by private insurers. The reinsurance agreements between the FCIC and the private companies are to be governed by "sound reinsurance principles" ¹ and require that FCIC procedures be used to adjust losses on all reinsured policies. 7 U.S.C. § 1508(e); Standard Reinsurance Agreement 1984-85, at 4-5 in Stipulated Joint Appendix 16-17, 50.

Plaintiffs-Appellants, Old Republic Insurance Company and International Business and Mercantile Reinsurance Company ("Old Republic"), and the FCIC entered into reinsurance agreements for the 1984, 1985, and 1986 crop years. Pursuant to these agreements, Old Republic sold crop insurance to farmers, and the FCIC reinsured these policies. In 1986 and 1987, the General Accounting Office ("GAO") and the USDA's Office of the Inspector General ("OIG") began reviewing claims paid by FCIC to Old Republic. Responding to the GAO's investigation, the FCIC's Compliance Division also began reviewing claims. As a result of these audits, the FCIC made an initial determination that it had overpaid some claims to Old Republic.

In 1987 and 1988, the FCIC notified Old Republic that claims Old Republic had adjusted had been overpaid. The agency asserted a right to recover overpayments directly from Old Republic (without involving the farmer-insureds), and to offset the amounts against monies otherwise due Old Republic from the FCIC. The agency also informed Old Republic that it could appeal the FCIC's findings through an informal appeals process set forth in 7 C.F.R. § 400.80 (1987) (later amended and renumbered as 7 C.F.R. § 400.149 (1988)). ²

Old Republic appealed each of the FCIC's findings. After three days of informal hearings, the FCIC determined that of fifty audited claims, it had overpaid fourteen of them in 1984, eighteen in 1985, and six in 1986. On July 5, 1989, the FCIC sent letters to Old Republic demanding repayment. Each of the demand letters included attachments detailing each overpaid claim, the reason for the overpayment (such as error by Old Republic's adjustor or insured's fraud), and any calculations performed by the FCIC. In cases involving fraud, the attachment noted that these amounts were not due until Old Republic recovered from the insureds. ³

The FCIC offered several alternative repayment options. It expressed a preference for a correction of the applicable Crop Year Accounting Report for each policy (so that the FCIC's actuarial statistics would reflect the corrections). But Old Republic could also pay the agency by check, or, if it was unable to pay the amount due in full, it could make special arrangements with the FCIC. The FCIC informed Old Republic that if it pursued none of these options, the FCIC would offset the overpayments against monies otherwise due Old Republic.

Old Republic made no payments and filed this declaratory action. It challenges the FCIC's authority to readjust claims, the adequacy of the administrative procedure used to review the overpayments, and the FCIC's determination that the overpayments are debts and, therefore, subject to administrative offset. Old Republic moved for a judgment on the pleadings, or in the alternative, summary judgment. The FCIC filed a cross-motion for summary judgment, seeking an affirmation of its authority to collect the overpayments and of its administrative findings. The district court found that the FCIC had both contractual and statutory authority to recover the overpayments, and that the agency's procedures were constitutionally adequate. 746 F.Supp. 767 (N.D.Ill.1990). The district court also reviewed the merits of the FCIC's determinations. It found they were supported by the evidence and reasonable applications of the governing law, and were, therefore, not arbitrary and capricious. Id. at 776. The district court granted the FCIC's cross-motion for summary judgment. Old Republic appealed.

II.

On appeal, Old Republic raises a number of arguments. It renews its challenge to the FCIC's authority to readjust claims under the reinsurance agreements and to offset overpayments against monies otherwise due Old Republic. Old Republic argues that the overpayments are not "debts" due the FCIC, and, therefore, not subject to administrative offset. Old Republic asserts that recovering overpayments from insurers without involving the insureds is not consistent with "sound reinsurance principles" as required by the Federal Crop Insurance Act of 1980, 7 U.S.C. § 1508(e) (1988) ("FCIA"). Therefore, it contends that the FCIA is a statutory bar to the government's common law right to recover wrongfully paid funds under United States v. Wurts, 303 U.S. 414, 58 S.Ct. 637, 82 L.Ed. 932 (1938). Even if the FCIC has authority to recoup the funds, Old Republic argues that the administrative procedures it employed to determine the amount of the overpayments did not comport with the minimum requirements of due process. Finally, Old Republic objects to the district court's affirmation of the FCIC's administrative findings on the merits. We shall discuss each of these challenges in turn.

A. Standard of Review

It is well established that review of a district court's grant of summary judgment is de novo. See, e.g. La Preferida, Inc. v. Cerveceria Modelo, S.A., 914 F.2d 900, 905 (7th Cir.1990). In order to uphold a grant of summary judgment, we must "view the record and all inferences drawn from it in the light most favorable to the party opposing the motion," Lohorn v. Michal, 913 F.2d 327, 331 (7th Cir.1990), and conclude there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). First Wisconsin Trust Co. v. Schroud, 916 F.2d 394, 398 (7th Cir.1990). Summary judgment is only appropriate when the record reveals that no reasonable jury could find for the nonmoving party. Doe v. Allied-Signal, Inc., 925 F.2d 1007, 1008 (7th Cir.1991).

When a contract is the subject of a summary judgment motion, "the appropriateness of summary judgment will turn on the clarity of the contract terms under scrutiny. Only if a term is completely unambiguous will a court be able to conclusively establish its meaning as a matter of law." International Surplus Lines Insur. Co. v. Fireman's Fund Insur. Co., No. 88-C320, 1991 WL 74582, at *3, 1991 U.S.Dist. LEXIS 6139, at * 7 (N.D.Ill. May 4, 1991). But the question of whether a contract is ambiguous is one of law for the court. Id.

B. FCIC's Authority to Collect Overpayments

In this case, the district court determined that the contractual language "adequately shows that the [Agreements] contemplated the reconsideration of claims and the recovery of wrongfully paid monies from the insurers." Old Republic Ins. Co. v. Federal Crop Ins. Corp., 746 F.Supp. 767, 769 (N.D.Ill.1990). The district court relied on a clause in the 1984, 1985, and 1986 agreements that required Old Republic to hold the FCIC "harmless for any loss that the FCIC may incur as a result of [Old Republic's] conduct in the investigation, negotiation, defense or handling of any claim or suit or in any dealing with its policy holder." Id. The district court also looked to a clause in the 1986 agreement that provided that Old Republic must pay the FCIC interest "for any amount paid to the Company as the result of a claim by the Company that is subsequently found not to have been due the Company." ⁴ See id. It found that although the language was "not as explicit as it might be, [it] adequately shows that the [agreements] contemplated the reconsideration of claims and the recovery of wrongfully paid monies from the Insurers." Id. ⁵

After our own review of the contracts at issue, we agree with the district court's interpretation of these terms, and find that other terms in the agreements bolster its conclusion. The 1984 and 1985 Agreement, Section XI, provides as follows:

FCIC ... or their duly authorized representatives shall have access for the purposes of investigation, audit, and examination to any books, documents, papers and records of the Company that are pertinent to the business reinsured, including premiums and claims paid or payable under this Agreement. Records relating to premiums shall be retained and available for three (3) years after final adjustment of premiums, and to reinsurance claims three (3) years after final...