Williams Farms of Homestead, Inc. v. Rain and Hail Ins. Services, Inc.

• Decision Date: 09 September 1997
• Docket Number: No. 96-4796,96-4796
• Citation: Williams Farms of Homestead, Inc. v. Rain and Hail Ins. Services, Inc., 121 F.3d 630 (11th Cir. 1997)
• Parties: 11 Fla. L. Weekly Fed. C 527 WILLIAMS FARMS OF HOMESTEAD, INC., a Florida corporation and Hilson Farms, Inc., a Florida corporation, Plaintiffs-Appellants, v. RAIN AND HAIL INSURANCE SERVICES, INC., a Delaware corporation and Cigna Property and Casualty Insurance Company, a Delaware corporation, Defendants-Appellees. ALGER FARMS, INC., Plaintiff-Appellant, v. CROP GROWERS, INC. and Continental Insurance Company, a subsidiary of Continental Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 630

121 F.3d 630

11 Fla. L. Weekly Fed. C 527

WILLIAMS FARMS OF HOMESTEAD, INC., a Florida corporation and Hilson Farms, Inc., a Florida corporation, Plaintiffs-Appellants, v. RAIN AND HAIL INSURANCE SERVICES, INC., a Delaware

corporation and Cigna Property and Casualty

Insurance Company, a Delaware

corporation, Defendants-Appellees.

ALGER FARMS, INC., Plaintiff-Appellant, v. CROP GROWERS, INC. and Continental Insurance Company, a

subsidiary of Continental Corporation, Defendants-Appellees.

No. 96-4796.

United States Court of Appeals Eleventh Circuit.

Sept. 9, 1997.

William K. Crispin, Homestead, FL, for Plaintiffs-Appellants.

Barbara C. Biddle, Asst. U.S. Atty., Appellate Staff, Civil Division, Dept. of Justice, Washington, DC, for amicus curiae U.S.

Addison J. Meyers, Todd R. Ehrenreich, Coral Gables, FL, for Rain and Hail Ins. Services and Cigna Property and Casualty Ins. Co.

W. Kurt Henke, Michael D. Stevens, Lyon, MS, Dennis J. Murphy, Miami, FL, for Crop Growers and Continental Ins. Co.

Appeal from the United States District Court for the Southern District of Florida.

Before COX and BARKETT, Circuit Judges, and SMITH ^*, Senior Circuit Judge.

COX, Circuit Judge:

Plaintiffs brought this action against private insurance companies after crop loss claims on their multi-peril crop insurance policies were denied. The insurance companies were reinsured by the Federal Crop Insurance Corporation. The district court dismissed the action because it concluded that under the Federal Crop Insurance Act the exclusive remedy for such claims is an action against the Federal Crop Insurance Corporation or the Secretary of Agriculture. We reverse and remand.

BACKGROUND

Plaintiffs are three corporate potato farmers in south Dade County, Florida, who were the insureds under multi-peril crop insurance policies issued by the defendants. More specifically, plaintiffs Williams Farms of Homestead, Inc. ("Williams"), and Hilson Farms, Inc. ("Hilson"), were issued policies by defendant Cigna Property and Casualty Insurance Company ("Cigna"). These policies were sold to Williams and Hilson through defendant Rain and Hail Insurance Services, Inc. ("Rain & Hail"), who served as Cigna's agent. Plaintiff Alger Farms, Inc. ("Alger"), was issued its policy by defendant Continental Insurance Company ("Continental"). That policy was sold to Alger through defendant Crop Growers, Inc. ("Crop Growers") which served as agent for Continental. In this opinion, the three farming operations will be referred to collectively as "plaintiffs," and the two insurance companies and their agents will be referred to collectively as "defendants." ¹

The policies in question were issued "subject to" the Federal Crop Insurance Act (FCIA), 7 U.S.C. § 1501 et seq., and reinsured by the Federal Crop Insurance Corporation, (FCIC), an agency within the Department of Agriculture. The policies contain the following provision:

This insurance policy is reinsured by the Federal Crop Insurance Corporation under the provisions of the Federal Crop Insurance Act, as amended (the Act) (7 U.S.C. 1501 et. seq.), and all terms of the policy and rights and responsibilities of the parties are specifically subject to the Act and the regulations under the Act published in Chapter IV of 7 CFR.

(See R.1-23, exhibit A.)

After plaintiffs' potato crops were damaged in November 1994 as a result of Tropical Storm Gordon, plaintiffs submitted claims to their respective insurance companies for their crop loss. All the claims were denied based on policy language requiring that destroyed potato crops be replanted when it is "practical to replant."

Following denial of their claims, Williams and Hilson filed an action against Cigna and Rain & Hail, and Alger filed an action against Continental and Crop Growers. The district court consolidated the two actions pursuant to Fed.R.Civ.P. 42(a). The complaints assert the existence of both federal question jurisdiction by virtue of the FCIA and diversity jurisdiction. The plaintiffs seek (1) a declaratory judgment, pursuant to 28 U.S.C. § 2201, interpreting the term "practical to replant," and (2) damages for breach of contract. The FCIC is not a party.

On defendants' motion, the district court dismissed plaintiffs' claims "without prejudice" to enable the plaintiffs to file suit against the FCIC or the Secretary of Agriculture ("the Secretary"). The district court reasoned that the FCIA does not create a federal cause of action against private reinsured companies, but only provides that the FCIC or the Secretary may be sued. The court concluded, therefore, that it lacked federal question jurisdiction over claims against private reinsured companies like the defendants. The court then concluded that the plaintiffs' breach of contract claims, which invoke the court's diversity jurisdiction, are preempted by the FCIA. The court reasoned that, because Congress has provided a remedy in the form of an action against the FCIC or the Secretary, contract claims against private insurance companies are preempted.

ISSUES ON APPEAL & CONTENTIONS OF THE PARTIES

Our inquiry is two-fold. We must first decide whether the district court correctly concluded that the FCIA does not authorize a suit by the insured against its private insurance company. If we conclude that the district court is correct in this conclusion, we must then decide whether the FCIA preempts a suit against a private insurance company reinsured by the FCIC. These conclusions by the district court are conclusions of law over which we have plenary review. See Gold Kist v. C.I.R., 110 F.3d 769, 771 (11th Cir.1997).

Plaintiffs contend that the district court misinterpreted the FCIA. They argue that the sections of the FCIA relied on by the district court only establish venue for a suit against the FCIC and in no way restrict the right of an insured farmer to sue his private insurer. In advancing this argument, plaintiffs rely on statutory construction principles and the FCIA's legislative history. Plaintiffs further contend that the FCIA does not preempt a state law action for breach of contract.

Defendants contend that the district court correctly concluded that the FCIA does not authorize a suit against a private insurance company reinsured by the FCIC. Defendants also argue that any state law claims asserted against such a private insurer are preempted by the FCIA.

DISCUSSION

The issues we address regarding the interpretation of the FCIA are questions of first impression in this circuit. While we are plowing new legal ground, we are guided by principles of statutory construction well-rooted in our jurisprudence.

Perhaps our starting point should be to focus on the rule that would apply in the absence of the statute. Under the common law, the liability of the reinsurer is solely to the reinsured and not to the original insured. 1 Eric Mills Holmes & Mark S. Rhodes, Holmes's Appleman on Insurance § 2.15 (Eric Mills Holmes, ed., 2d ed.1996). Consequently, in the absence of a statute creating a cause of action against the FCIC, the plaintiffs here have no remedy against the FCIC. The FCIA was enacted by Congress in 1938 "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 (1994). Under the original scheme of the FCIA, only the FCIC issued crop insurance policies and handled claims on the policies. See H.R.Rep. No. 96-430, at 12-13 (1979), reprinted in 1980 U.S.C.C.A.N. 3068, 3075. When the FCIA was amended in 1980, Congress authorized the FCIC to utilize private insurance companies in providing crop insurance to the nation's farmers. Id. These private insurance companies sell and service crop insurance policies and are reinsured by the FCIC. Id. at 13-15, reprinted in 1980 U.S.C.C.A.N. 3068, 3075-77. So under the current scheme, the FCIC both insures farmers directly and reinsures private companies who insure farmers. See 7 U.S.C. § 1508(a).

Since the original 1938 version of the FCIA, Congress has allowed the FCIC to "sue and be sued in its corporate name." 7 U.S.C. § 1506(d). As part of the 1980 amendment, Congress granted exclusive original jurisdiction over suits brought by or against the FCIC to the federal district courts. Previously, federal district courts and state courts shared concurrent jurisdiction over such actions. Pub.L. No. 96-365, § 103(2), 94 Stat. 1313, 1317 (1980) (codified as amended at 7 U.S.C. § 1506(d)).

After the 1980 amendment deleted a reference to state courts, the FCIA contained the following provision regarding actions against the FCIC: "In the event that any claim for indemnity under the provisions of this chapter is denied by the [FCIC], an action on such claim may be brought against the [FCIC] in the United States district court for the district in which the insured farm is located...." Pub.L. No. 96-365, § 106(2), 94 Stat. 1314, 1315, 1317 (codified at 7 U.S.C. § 1508(c) with current amended version at 7 U.S.C. § 1508(j)(2)(A)). This provision was again amended in 1994. Pub.L. No. 103-354, § 106, 108 Stat. 3183 (1994). The current version reads: "Subject to [a statute of limitations], if a claim for indemnity is denied by the [FCIC] or an approved provider, an action on the claim may be brought against the [FCIC] or the Secretary only in the United States district court for the district in which the insured farm is located." 7 U.S.C. § 1508(j)(2)(A).

We agree with the district court that none of these provisions in the FCIA create a federal cause of action against a private insurance company reinsured by the FCIC. Thus, the district court correctly concluded that it lacked federal question jurisdiction over such a suit.

But recognizing that it also had diversity jurisdiction, the district court went on to conclude that the FCIA preempts a...