Crop Insurance Arbitration: What It Is and When It’s Required
by Grant Ballard
The basic provisions of the common crop insurance policy require arbitration of disagreements between producers and approved crop insurance providers in many circumstances. Arbitration is often the only course of action for a producer who feels that his crop insurance claim has been improperly denied. While crop insurance is well known and widely used by agricultural producers in this country, many producers are not familiar with the arbitration requirement or the arbitration process. This article is not intended as legal advice, but it will hopefully bring some clarity to the arbitration requirement and foster a better understanding of arbitration in general.
What is Arbitration?
Arbitration is a form of dispute resolution, where a dispute is submitted to an impartial decision-maker or a panel of decision-makers who make a binding decision on an insured’s claim. Arbitration is commonly referred to as an alternative dispute resolution method because arbitration is an alternative to the use of the court system for the resolution of a dispute. The impartial decision-maker is called an arbitrator, and the arbitrator’s decision is final and binding on the parties who submitted the dispute to arbitration. The binding nature of an arbitration decision, referred to as an arbitration award, distinguishes arbitration from mediation, another form of alternative dispute resolution that is offered in the basic provisions of the standard crop insurance policy. Mediation is a voluntary method of dispute resolution, wherein an impartial mediator does not issue a binding decision. Instead, mediation is an attempt to encourage a settlement or agreement between the parties of a dispute. Arbitration, on the other hand, results in a final decision as to the disagreement.
When is Arbitration Required in the Context of a Crop Insurance Dispute?
As earlier noted, Section 20 of the common crop insurance policy basic provisions requires the arbitration of disputes between an insured and the crop insurance provider as to as to “any determination” made by the insurance provider. This policy provision also prevents insured producers, who feel that their crop insurance claims were improperly denied, from bringing suit against their crop insurance provider in a court of law. The arbitration requirement for crop insurance disputes has been challenged by insured producers across the country, who have sought to use the formal court system to force crop insurance providers to pay their crop insurance claims. So far, Courts have consistently found the arbitration requirement to be mandatory and have refused to hear crop insurance disputes that were not submitted to arbitration, as required in the common crop insurance policy.
The enforceability of arbitration clauses, such as the one found in the basic provisions is governed by the Federal Arbitration Act, and the aforementioned Court rulings stand for the proposition that arbitration is mandatory in all crop insurance disputes between an insured producer and the private insurance provider. Parties to a crop insurance contract are generally bound by the arbitration requirement.
Can you Appeal an Arbitration Award in a Crop Insurance Dispute?
The findings of an arbitrator may be subject to judicial review in certain circumstances. Court rulings also indicate that state law claims may survive an arbitration, and offer the insured an opportunity to litigate a crop insurance claim in state court. If missteps are made at arbitration, an insured producer has a right to judicial review of the arbitration award. The basic provisions make the availability of judicial review of arbitration awards clear. However, a Federal Court is not allowed to vacate an arbitration award merely because it disagrees with the findings of an arbitrator. A Federal Court review of an arbitrator’s decision is limited by the Federal Arbitration Act. This Act states the exclusive grounds upon which a court may vacate an arbitration award as follows:
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.
The above-referenced grounds upon which a court may vacate an arbitration award are applicable to crop insurance disputes. The fourth ground, allowing vacatur where arbitrators have “exceeded their powers” may be especially relevant in a crop insurance case, as an arbitrator’s power to resolve a crop insurance dispute is severely limited by the basic provisions of the common crop insurance policy.
Some instances where an arbitrator or arbitration panel does not have the authority to enter an award in a crop insurance dispute, include disagreements where the insured contests “determinations made by the FCIC,” claims where the “FCIC is directly involved in the claims process”, and where the FCIC “directs” the insurance provider’s “resolution of the claim.” “Good farming practices” disputes are also not arbitrable disputes. The procedure for the resolution of these aforementioned disputes involve administrative proceedings, outside of arbitration, and pursuant to the common crop insurance policy basic provisions and federal regulations.
How Does Arbitration Work?
The Basic Provisions of the common crop insurance policy also dictate the manner in which an arbitration proceeding is conducted. Arbitration proceedings must be initiated by the insured within one year of either the date on which a disputed determination was issued or within one year of the denial of the insured’s crop insurance claim. The policy states that arbitration must be conducted “in accordance with the rules of the American Arbitration Association.” The American Arbitration Association Rules can be found online at http://www.adr.org.
The timing for initiation of arbitration is key if an insured wishes to contest a determination by the insurance provider. The one year time limitation is not tolled by separate negotiations or legal proceedings involving the insurance provider. Arbitration is “initiated” by filing a “Demand for Arbitration” with the insurance provider. The common crop insurance policy’s requirement that arbitration be conducted in accordance with the rules of the American Arbitration Association (AAA) has generated some confusion as to the proper initiation of a crop insurance arbitration, as the AAA rules require that an arbitration demand be filed with the AAA and AAA arbitrators be used to arbitrate the dispute. However, the USDA Risk Management Agency has made effort to clarify that crop insurance disputes, arbitrated pursuant to the common crop insurance policy, do not require a filing with the AAA and do not mandate that a AAA Arbitrator conduct the arbitration.
While a crop insurance claimant may initiate a claim by filing with the AAA, the claimant may also elect not to have the AAA arbitrate the dispute. In the event that the claimant chooses not to engage the AAA, the guidelines provided in the recently issued RMA Bulletin No.:MGR-12-003.1 should be followed. Important points are that arbitration is initiated by filing a copy of a demand with the insurance provider and that demand
shall clearly state a demand for arbitration and shall contain a statement of the nature of the dispute, including a short statement of facts, and identification of the policy provision upon which the policy holder relies, the names and addresses of all parties, any claims and counterclaims, the amount involved, if any, the remedy sought, and the hearing locale requested. Again, the AAA arbitration rules will govern all arbitration proceedings, regardless of whether the arbitration is conducted through the arbitration services provided by the AAA.
Conclusion
As disputes are certain to occasionally arise between insured producers and their crop insurance providers, it is necessary for producers to be aware of the policy provisions that limit the available tools for the resolution of any such disagreement. An understanding of arbitration and the applicability of arbitration in the context of a crop insurance dispute is imperative if a producer who feels a crop insurance claim was improperly denied is to successfully argue against a decision made by the crop insurance company. Hopefully, this article has provided some insight into the arbitration requirement, found within the common crop insurance policy, and the arbitration process in general.