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Farm v. Diversified Crop Insurance Services

United States Court of Appeals, Fourth Circuit

February 27, 2019

WILLIAMSON FARM, Plaintiff-Appellant,
DIVERSIFIED CROP INSURANCE SERVICES, a/k/a CGB Diversified Services, Inc., Defendant-Appellee.

          Argued: December 13, 2018

          Appeal from the United States District Court No. 5:17-cv-00513-D; 5:16-mc-00018-D for the Eastern District of North Carolina, at Raleigh. James C. Dever III, District Judge.


          Matthew William Buckmiller, STUBBS & PERDUE, P.A., Raleigh, North Carolina, for Appellant.

          Roy Jefferson Allen, HUNT ROSS & ALLEN, Clarksdale, Mississippi, for Appellee.

         ON BRIEF:

          Derek M. Crump, BROWN, CRUMP, VANORE & TIERNEY, L.L.P., Raleigh, North Carolina, for Appellee.

          Before KEENAN, FLOYD, and THACKER, Circuit Judges.


         In this case, Williamson Farm ("Appellant") challenges the district court's decision to vacate an arbitration award that Appellant won against Diversified Crop Insurance ("Appellee"), a private insurance company that sold federal crop insurance policies to Appellant. Appellant asserts that the district court erred in denying its motion to confirm the arbitration award and granting Appellee's motion to vacate on the basis that the arbitrator exceeded her powers.

         Despite the strong presumption in favor of confirming arbitration awards pursuant to the Federal Arbitration Act ("FAA"), we hold that Appellee met its heavy burden to prove that the arbitrator exceeded her powers by awarding extra-contractual damages, contrary to both the policy and binding authority from the Federal Crop Insurance Corporation ("FCIC"). Therefore, we affirm.


         A. Background on the Federal Crop Insurance Program

         The policies at issue in this case are federal crop insurance policies, which Appellee sold pursuant to the Federal Crop Insurance Act ("FCIA"), 7 U.S.C. §§ 1501- 1524, 1531, and accompanying regulations issued by the FCIC. These policies are not typical private insurance agreements, so a brief discussion of the federal government's role in crop insurance agreements is necessary.

         The federal crop insurance program provides farmers and agricultural entities in the United States with crop insurance protection, a venture that was considered too risky for traditional private insurers when the FCIA was enacted in 1938. As the Supreme Court explained, "the Government engaged in crop insurance as a pioneer. Private insurance companies apparently deemed all-risk crop insurance too great a commercial hazard." Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 383 n.1 (1947).

         To provide this protection to farmers, the FCIA established the FCIC, a government corporation within the United States Department of Agriculture's Risk Management Agency that administers the federal crop insurance program. 7 U.S.C. § 1503. The FCIC does not directly issue crop insurance policies to farmers. Instead, it relies on "approved insurance providers"[1] -- private insurers such as Appellee -- to issue federal crop insurance policies to farmers like Appellant. 7 U.S.C. § 1502(b)(2). Then, when certain eligibility conditions are met, the FCIC reinsures the approved insurance providers' losses and reimburses their administrative and operating costs.

         In order to qualify for reinsurance through the FCIC, approved insurance providers must comply with the FCIA and the accompanying regulations issued by the FCIC governing the sale, issuance, and servicing of federal crop insurance policies. 7 C.F.R. § 400.168; see also Felder v. Fed. Crop Ins. Corp., 146 F.2d 638, 640 (4th Cir. 1944); Davis v. Producers Agric. Ins. Co., 762 F.3d 1276, 1284 (11th Cir. 2014). Accordingly, "even though the crop insurance policy is between the farmer and an approved insurance provider," the FCIA "establishes the terms and conditions of insurance." Davis, 762 F.3d at 1284 (citation omitted).

         Indeed, all approved insurance providers issue a uniform policy drafted by the FCIC known as the "Common Crop Insurance Policy," the text for which is provided at 7 C.F.R. § 457.8. Both policies at issue in this case mirrored the Common Crop Insurance Policy. Additionally, the FCIC sets premium rates for each county and crop insured, subsidizes and receives premiums, and pays claims. In short, the FCIC is extensively involved in and exerts control over all aspects of the federal crop insurance program.

         The Farm Service Agency ("FSA"), another agency within the Department of Agriculture, works with the Risk Management Agency and the FCIC to implement the federal crop insurance program through FSA's network of state and county field offices. As relevant to this case, insureds and approved insurance providers are required to submit program eligibility, acreage reporting, and other necessary forms to their local FSA office in order to receive federal crop insurance coverage through the FCIC.

         B. Appellant's Underlying Policy Claims

         This case centers on two policies issued by Appellee to insure Appellant's 2013 crops: (1) the Richmond County Policy; and (2) the Montgomery County Policy. Under the Richmond County Policy, Appellee listed Farm Number 2172.[2] Under the Montgomery County Policy, Appellee listed Farm Numbers 1870 and 4168.

         For many years, Appellant purchased its crop insurance through insurance agent Lynn Saintsing, until Saintsing sold his agency to Appellee in 2012.[3] During his time as Appellant's insurance agent, Saintsing's regular practice was to help Appellant complete the necessary forms and submit them to the proper FSA office to insure Appellant's farms.

         It was not unusual for a farm located in one county to be administered by an FSA office in another county, based on the owner's preferences or if the farm's county did not have an FSA office. Such was the case with Appellant's Farm 2172, which was located in Montgomery County. In 1996, the Montgomery County FSA office closed, and administration of Farm 2172 shifted to Richmond County. Accordingly, since 1996, Farm 2172 had been listed on forms filed with the FSA office in Richmond County even though it was located in Montgomery County. Saintsing was aware of this, since he helped Appellant fill out the forms and prepare maps of the farms.

         Prior to Appellee's acquisition of Saintsing's insurance agency, Saintsing issued Appellant a single policy that covered all of Appellant's crops regardless of the county in which the farm was located.

         1. Crop Loss Claim: Farm 2172

         The trouble began for Appellant after Saintsing sold his business to Appellee in 2012. Unlike the single policy previously issued by Saintsing, Appellee issued Appellant separate policies for each county in which a farm was geographically located, regardless of where the farm was administered. Saintsing -- then an agent for Appellee -- helped Appellant prepare the necessary forms to be submitted to the FSA. But on those forms, Saintsing listed Farm 2172 on the Richmond County Policy (where it was administered), rather than the Montgomery County Policy (where it was geographically located).

         In 2013, Appellant experienced crop loss due to deer on Farm 2172 and expected this loss to be covered under its crop insurance policy. Therefore, Appellant filed a claim for the loss with Appellee. However, Appellee denied the claim "on the technicality that Farm 2172, located in Montgomery County, was listed on [forms] filed with the FSA in Richmond County and was therefore listed on the wrong policy." J.A. 13.[4] As noted, Saintsing had assisted Appellant in completing these forms and facilitated their filing with the FSA.

         2. Prevented Planting Claim: Farms 1870 and 4168

         Appellant also seeks recovery for a prevented planting claim[5] under the Montgomery County Policy. The summer of 2013 was excessively rainy. As a result, Appellant was unable to plant on Farms 1870 and 4168.

         During the period that Appellant was unable to plant, another of Appellee's agents, Jason Nifong, visited Appellant's farmland to aid Appellant in preparing its FSA forms. During this visit, Nifong advised Appellant that it could file a prevented planting claim as a result of the rainy weather. Following Nifong's visit, Appellant chose to file a prevented planting claim and did not attempt to plant on these farms.

         However, in preparing the FSA forms, Nifong failed to note the prevented planting acres on the correct form, and he did not explain to Appellant that failure to report the acres on that specific form would bar the prevented planting claim. Ultimately, Appellee denied Appellant's claim based on this failure to report.

         C. Arbitration

         Appellant sought arbitration pursuant to Section 20(a) of the policy based on Appellee's denials of its crop loss and prevented planting claims. See J.A. 207, ยง 20(a) ("If you and we fail to agree on any determination made by us . . . ...

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