Monday, June 27, 2016

Crop Insurance Update: Disputes and Settlements

Written by M. Sean High—Staff Attorney

Federal crop insurance is a valuable risk management tool that may provide farmers with an extra layer of protection against many of the uncertainties of agricultural production.  Nevertheless, participation in the crop insurance program comes with a contractual agreement to abide by the rules set forth in the basic provisions of the common crop insurance policy.  Specifically, crop insurance contracts provide that when producers disagree with determinations regarding crop insurance claims, those disagreements are generally required to be settled, not through the court system, but through arbitration.[1]    

All federal crop insurance policies are issued under the terms of the Federal Crop Insurance Act (FCIA), underwritten by the Federal Crop Insurance Corporation (FCIC), and administered by the United States Department of Agriculture’s (USDA) Risk Management Agency (RMA).  Each crop insurance policy contains a clause written in accordance with the common crop insurance basic provisions.[2]

According to the common crop insurance policy basic provisions, if a disagreement arises regarding a crop insurance claim, the disagreement is generally permitted to be settled through the process of mediation.[3]

Representing an alternative form of dispute resolution, mediation involves a procedure where a neutral third party is employed “to help the disputing parties reach a mutually agreed upon solution.”[4] Importantly, during the mediation process the neutral third party only serves as a facilitator and does not have the power to decide the dispute.  

If an agreement regarding a crop insurance claim dispute cannot be settled through mediation, the common crop insurance policy basic provisions dictate that “the disagreement must be resolved through arbitration.”[5]

Unlike mediation, however, arbitration is an alternative dispute resolution process “involving one or more neutral third parties [called arbitrators] who are usually agreed to by the disputing parties and whose decision is binding.” Arbitration takes the place of conventional litigation and provides the disputing parties with a trial procedure.  Significantly, the disputing parties must abide by the final decision rendered by the arbitration and may not appeal to the courts simply because they disagree with the decision.

Arbitration is governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16; more commonly known as the Federal Arbitration Act (FAA).  Under FAA, any judicial review of an arbitral decision is extremely restricted.  Accordingly, FAA stipulates that the only grounds permitting a court to vacate an arbitral award are limited to:
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.[6]

While FAA offers the possibility of having an arbirtral award vacated, in practice, most federal courts adhere to “the dictates of the emphatic federal policy favoring arbitration.”[7] As a result, decisions by arbitrators regarding crop insurance claims are almost always final and binding.

[1] 7 CFR § 457.8
[2] Id
[3] Id
[4] Black’s Law Dictionary, Ninth Edition pp. 1070-1071
[5] 7 CFR § 457.8
[6] 9 U.S.C. § 10(a)
[7] Arbitration in a Nutshell, Second Edition, Thomas E. Carbonneau (2007) p. 229

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