CaseWatch for Arbitrators:
Farmer's Crop Insurance Claim Incomplete, Untimely     
By John Allgood    


A farmer in Pulaski County, Georgia, filed a crop insurance claim under the terms of a policy he obtained in accordance with the Standard Reinsurance Agreement with the Federal Crop Insurance Corporation [“FCIC”]. His 2008 crop had a low yield due to poor weather conditions. The farmer notified the insurance agent of a possible claim under the policy. The claimant and insurer disagreed on whether proper notice of the claim had been timely filed, but after a factual review the insurer denied the claim.

At the time it denied the claim, the insurer requested from the farmer more information in order to assess the claim, while still asserting that he filed the claim late. The insurer’s letter requested the information from the farmer within 30 days. The facts were unclear when the farmer submitted the requested information, but the insurer denied the claim, for a second time, 40 days after the request. The insurer advised the farmer that he could contest the denial in mediation or arbitration. The farmer filed a demand for arbitration. The rules of the American Arbitration Association were adopted.

After a hearing, the arbitrator denied the farmer’s claim, finding that any additional information the farmer filed was untimely. And by denying the claim based on timeliness, the arbitrator concluded, there was no need for him to assess the facts of the claim.

The farmer petitioned the district court to vacate the arbitrator’s award, claiming under the FAA (9 U.S.C. §10(a)(4)) that the arbitrator had exceeded his powers. He also argued that the arbitrator, by entering the award in 33 days, failed to abide by AAA Rule 41, which required the award to be entered within 30 days of the hearing. In addition, the farmer asserted that the arbitrator should not have interpreted the terms of the policy, an act that under regulation is reserved to the FCIC.

The district court granted the farmer summary judgment and vacated the arbitration award under 9 U.S.C. §10 for the reasons proferred by the farmer. There was no specific deadline under the policy, the district court concluded, for requests for additional information:

This finding raises the question of whether the arbitrator concluded that [the insurer] could set deadlines not found in the policy and then use those deadlines as a basis for denial of a claim for procedural noncompliance. While it is unclear precisely how the arbitrator interpreted the letter, it is clear that he interpreted the letter as a procedural requirement regarding [the farmer’s] proof of claim.

The district court also found that the award was nullified when the arbitrator exceeded his authority by interpreting the policy terms rather than obtaining a required interpretation from the FCIC.

On appeal, Davis v. Producers Agricultural Insurance Company, No. 13-10648 (11th Circuit August 6, 2014), the 11th Circuit reexamined the standards for vacatur under the FAA statute at issue, 9 U.S.C. §10(a)(4). It also invited and received a brief from the FCIC on the issue of the arbitrator’s interpreting the policy terms. The court also noted that Section 400.768 provides that the FCIC “will not interpret any specific factual situation or case,” while acknowledging also that Section 457.8 (Policy § 20(a)(1) requires parties disputing policy provisions or procedure to obtain an interpretation from FCIC.

In its amicus brief, the FCIC stated that it had issued directives giving insurers discretion to require insureds to provide requested documents within reasonable deadlines. It stated:

Since the FADs [final agency determinations] are binding in all crop arbitrations … the arbitrator could have reasonably concluded that [the insurer] was authorized to issue a 30-day deadline for [the farmer] to respond with the requested information and to deny [the farmer’s] indemnity claim for failure to comply with that deadline. The FCIC had already resolved that particular policy issue, and the arbitrator was not required to seek another FCIC interpretation on the same issue. Id. at 20.

Final agency determinations should be accorded substantial weight, the court wrote:

Because the FCIC has determined, as an interpretive matter, that insurer imposed deadlines are compatible with the purposes of the statutory and regulatory scheme, the individual factual determinations that such a deadline was imposed and that, in specific circumstances of the transaction, its imposition was reasonable, were matters for the arbitrator. [emphasis supplied] Id. at 22.

The appeals court reversed the district court’s vacatur after concluding that the arbitrator did not exceed his authority and did not render his award late. Citing a 5th Circuit opinion, the court said it would not penalize the award’s beneficiary because the beneficiary had no control over the arbitrator’s actions. “This is especially true because of the extreme shortness of the period,” the court said. However, the court also found that the farmer, through his inaction, waived the arbitrator’s violation of the filing deadline:

[The farmer] did not object at the expiration of the thirty-day period. Nor did he object when the untimely decision was issued three days later. Instead, he waited until he filed this action in the district court. Moreover, he has made no effort to show that he was in any way prejudiced by the delay. Accordingly, we see no basis for overturning the arbitrator’s decision based on the failure to abide by the AAA rules governing the time period for issuance of a decision. Id. at 25