Farm Management Company LLC v. Rural Community Insurance Agency Inc, No. 4:2014cv05024 - Document 43 (E.D. Wash. 2015)
Court Description: ORDER DENYING IN PART AND DENYING AS MOOT IN PART 33 PLAINTIFF'S MOTION TO STRIKE, DENYING 23 PLAINTIFF'S SUMMARY-JUDGMENT MOTION, GRANTING 20 DEFENDANT'S SUMMARY-JUDGMENT MOTION, AND ENTERING JUDGMENT IN DEFENDANT'S FAVOR. Case closed. Signed by Senior Judge Edward F. Shea. (CV, Case Administrator)
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Farm Management Company LLC v. Rural Community Insurance Agency Inc Doc. 43 1 2 3 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON 4 5 6 7 Plaintiff, 8 v. 9 10 11 CASE NO. 14-CV-5024-EFS FARM MANAGEMENT COMPANY, LLC, a Washington limited liability company, RURAL COMMUNITY INSURANCE AGENCY, INC., a Minnesota corporation, d/b/a RURAL COMMUNITY INSURANCE SERVICES, ORDER DENYING IN PART AND DENYING AS MOOT IN PART PLAINTIFF’S MOTION TO STRIKE, DENYING PLAINTIFF’S SUMMARY-JUDGMENT MOTION, GRANTING DEFENDANT’S SUMMARY-JUDGMENT MOTION, AND ENTERING JUDGMENT IN DEFENDANT’S FAVOR 12 Defendant. 13 14 Following Plaintiff Farm Management Company, LLC’s (FMC) claims 15 for 16 Community Insurance Services’ (RCIS) denial of FMC’s crop-insurance 17 claims. 18 FMC may pursue state-law claims pertaining to RCIS’s handling of the 19 claims is now before the Court through the parties’ cross motions for 20 summary judgment. 21 and hearing from counsel,1 the Court enters summary judgment in RCIS’s 22 favor. wheat-production losses, an arbitrator upheld Defendant Rural Whether the arbitration award should be vacated and whether After reviewing the record and relevant authority 23 24 25 1 On April 15, 2015, the Court heard oral argument on the pending motions. FMC’s Manager Ted Reid was present, along with FMC’s counsel, Elizabeth Tellessen. Jay Carroll and Jeff Dilley appeared on RCIS’s behalf. 26 ORDER - 1 Dockets.Justia.com 1 A. Background 2 1. Plaintiff’s Motion to Strike 3 FMC asks the Court to strike portions of RCIS Operational Risk 4 Manager Tonya Rowe’s affidavit because the contested paragraphs and 5 exhibits fail to present admissible evidence or facts as required by 6 Federal Rule of Civil Procedure 56 and Local Rule 56.1(e). 7 responds that the 8 conceded many of 9 Uncontroverted Facts, ECF No. 41; in addition, RCIS maintains that Ms. 10 Rowe, as RCIS’s operational risk manager, is competent to identify 11 policies issued by RCIS.2 request these to facts strike in the is largely parties’ moot Joint RCIS because Statement FMC of 12 In her capacity as RCIS’s operational risk manager, Ms. Rowe is 13 competent to review RCIS’s business records kept in the regular course 14 of business and to testify as to the dates on which the underlying 15 losses were reported and the causes of loss indicated by FMC in its 16 notices of loss (paragraph 10) and the role of adjusters in working 17 the underlying crop insurance claims (paragraph 12 and exhibit 8). 18 Therefore, the Court denies FMC’s motion to strike paragraphs 10 and 19 12 and exhibit 8. 20 strike 21 February 21, 2013 arbitration hearing as “final” is not an improper 22 legal conclusion but rather her description of this hearing as the paragraph In addition, the Court denies FMC’s motion to 16 because Ms. Rowe’s characterization of the 23 24 25 2 RCIS recognizes it provided an older version of the crop insurance policy and filed version. 26 ORDER - 2 an errata, ECF No. 40-1, providing the applicable In this regard, FMC’s motion to strike is denied as moot. 2011 1 last hearing held by the arbitrator. 2 the subject policies were issued by RCIS and that certain arbitration 3 events occurred on specific dates, the Court denies as moot FMC’s 4 motion 5 provided exhibit 7 as background for the underlying claim and not to 6 prove the truth of the matters asserted, the Court denies FMC’s motion 7 to 8 affidavit. strike strike this paragraphs exhibit 3 and and 14-18. relating Finally, paragraph 11 because in Ms. RCIS Rowe’s In summary, the Court denies in part and denies as moot in part 9 10 to Because it is undisputed that FMC’s motion to strike. Factual Background3 11 2. 12 FMC leases farmland, which has been left fallow, and returns it 13 to agricultural production. For the 2011 crop year, FMC leased a 14 number of small farms in Walla Walla County, Washington and Umatilla 15 County, Oregon, on which it planted and grew varieties of winter and 16 spring wheat. 17 In 2011, FMC managed risk associated with its farming operation 18 by purchasing Multiple Peril Crop Insurance (MPCI) from RCIS under 19 policy numbers WA-951-824944 and OR-951-864865. 20 authorized 21 Agriculture, Federal Crop Insurance Corporation (FCIC), and sold under and reinsured by the United MPCI policies are States Department of 22 3 In connection with their motions, the parties submitted a Joint 23 Statements of Uncontroverted Facts. 24 25 ECF No. 41. The Court treats these facts as established and sets them forth in this AFactual Background@ section without citation to the record. 26 ORDER - 3 See Fed. R. Civ. Proc. 56(d). 1 a Standard Reinsurance Agreement, as authorized by the Federal Crop 2 Insurance Act (FCIA), 7 U.S.C. § 1501 et seq., and the regulations 3 attendant thereto, 7 C.F.R Part 400.4 4 standardized forms that are written by the FCIC and utilized by all 5 approved 6 insurance program. 7 FCIA or private insurance companies, such as RCIS, which are reinsured 8 by 9 guidelines as to the policy.5 the insurance FCIC if MPCI providers MPCI policies are issued on participating in the federal crop Crop insurance can be obtained through either the the insurance comprised 12 Policy 13 Provisions of Insurance. 14 general insuring terms and conditions common to all crops. 15 § 457.8. 16 insuring 17 for standardized forms: Small Crop Grains the policy § 457.101. the FMC standard 11 (CCIP); to by Each three issued abides 10 of policy company the 2011 crop year Common Crop Insurance provisions; and the was Special The CCIP, or Basic Provisions, prescribes 7 C.F.R. The Small Grains Crop Provisions set forth more detailed terms specific to wheat and other small grains. Id. 18 FMC had twenty-eight farm units insured by RCIS in 2011. One 19 unit was in Umatilla County, Oregon, under 2011: MPCI policy number 20 21 22 23 4 Congress enacted the FCIA to help promote economic stability agriculture through a system of crop insurance and research. 7 U.S.C. § 1502. 5 The Risk Management Agency (RMA) supervises the FCIC and has authority 24 over the delivery of crop insurance programs. 25 26 ORDER - 4 7 U.S.C. § 6933(b). in 1 OR-951-864865. 2 County, Washington, under 2011 MPCI policy number WA-951-824944. 3 through 4 fertilization, 5 that complied with industry standards and the needs of each individual 6 farm unit. 7 the units did not meet the production guarantees established under the 8 2011 policies; yet, none of the units suffered total destruction in 9 2011. FMC determined the losses were attributable to rye infestation, 10 ground squirrels, rust (a plant fungus), and wireworms, which Mr. Reid 11 believes are insured causes of loss. its The other manager, Ted pesticide, twenty-seven Reid, and, units undertook where were in Walla comprehensive possible, Walla FMC, seeding, irrigation programs Despite FMC’s best efforts, the production from most of Due to the losses, FMC made a claim for indemnity for the Oregon 12 13 Property. FMC also made twenty-two claims for indemnity under its 14 policy for the Washington farm units: 0001-0003; 0001-0005; 0001-0034; 15 0001-0039; 0001-0041; 0001-0044; 0001-0048; 0001-0052; 0001-0058; 16 0001-0059; 0001-0060; 0001-0061; 0001-0064; 0001-0065; 0001-0066; 17 0001-0067; 0001-0068; 0001-0069; 0001-0071; 0001-0072; 0001-0073; and 18 0001-0074. 19 had relating to each of the farm units. 20 Jack Wagner, past many of the farm units in 2011. 21 his 22 impacting 23 /// 24 /// 25 // 26 / FMC submitted to RCIS all of the documents and records it conclusions ORDER - 5 the regarding production. the RCIS various Mr. Reid drove RCIS adjuster, causes Adjusters Mr. Reid explained of Patricia loss that were Petty and Jack 1 Wagner visited and inspected Units 0001-0039, 0001-0041, and 0001- 2 0052.6 3 On September 8, 2011, RCIS adjuster Dylan Pettyjohn inspected 4 the Oregon fields and noted heavy weeds and cheat grass still visible 5 in the harvested fields. 6 and “stringy” in places. 7 similar to the fields in the area, which had healthy stubble stand 8 with above average production. He further noticed that the stubble was thin He concluded that the FMC fields were not 9 Ultimately, RCIS denied all of FMC’s claims on the Washington 10 units and Oregon Property, determining the loss of production was 11 caused 12 appealed RCIS’s denial and the matter was submitted to an arbitrator. 13 After taking testimony and considering the evidence submitted by FMC 14 and RCIS, the arbitrator denied FMC’s claims, albeit on grounds other 15 than poor farming practices. 16 claims of loss into three units: 1) the McAdams Units (in Washington), 17 2) the other Washington Units (“Walla Walla Units”), and 3) the Oregon 18 Property. 19 failed to give timely notice of loss. 20 the evidence to 21 support its claim of rust damage or another insured cause of loss. As 22 to the Oregon Property, the arbitrator determined that FMC’s notice of by poor farming practices—an uninsured cause. FMC timely The arbitrator divided the twenty-three As to the McAdams Units, the arbitrator determined that FMC arbitrator determined that FMC As to the Walla Walla Units, failed to provide 23 24 25 6 The narratives prepared by RCIS’s agents set out its efforts taken with respect to FMC’s claims for indemnity on its Washington units. 26 ORDER - 6 1 rye damage was untimely and that FMC failed to establish rust damage 2 or another insured cause of loss. Thereafter, 3 FMC filed this lawsuit, seeking to vacate the 4 arbitrator’s decision and asserting claims for negligence, bad faith, 5 and violation of the Washington Consumer Protection Act. 6 These cross motions for summary judgment were then filed, as well as 7 the motion to strike by FMC. 8 B. ECF No. 1. Standard 9 Summary judgment is appropriate if the record establishes “no 10 genuine dispute as to any material fact and the movant is entitled to 11 judgment as a matter of law.” 12 opposing summary judgment must point to specific facts establishing a 13 genuine dispute of material fact for trial. 14 477 U.S. 317, 324 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio 15 Corp., 475 U.S. 574, 586-87 (1986). 16 make such a showing for any of the elements essential to its case for 17 which it bears the burden of proof, the trial court should grant the 18 summary-judgment motion. 19 C. Fed. R. Civ. P. 56(a). The party Celotex Corp. v. Catrett, If the non-moving party fails to Celotex Corp., 477 U.S. at 322. Analysis 20 FMC asks the Court to find that 1) the Court may conduct a de 21 novo review of the indemnity claims because the arbitrator’s decision 22 is not binding, 2) the arbitrator’s decision should be vacated because 23 he exceeded his authority, and 3) FMC’s state-law claims of bad faith, 24 negligence, and violation of the Washington Consumer Protection Act 25 are not preempted by the FCIA. 26 opposite relief, i.e., asking the Court to decide that the Federal ORDER - 7 RCIS asks the Court for largely the 1 Arbitration Act (FAA), 9 U.S.C. § 1 et seq., applies to the Court’s 2 review of the arbitrator’s decision, affirm the arbitrator’s decision, 3 and conclude that the FMC’s state-law claims are preempted by the FCIA 4 and/or involve issues that were presented to the arbitrator and thus 5 collateral estoppel applies. 6 1. Level of Review 7 The Ninth Circuit has not answered the question of whether a 8 court’s review of an arbitration decision concerning a CCIP is subject 9 to the FAA; although a number of courts have concluded, albeit many 10 with little analysis, that the FAA applies to CCIP arbitration. 11 e.g., Campbell’s Foliage, Inc. v. Fed. Crop Ins. Corp., No. 13-11896, 12 562 13 opinion); Great Am. Ins. Co. v. Moye, 733 F. Supp. 2d 1298, 1303 (M.D. 14 Fla. 2010); Bonnie Brae Fruit Farms, Inc. v. Rain & Hail, LLC, No. 15 1:13-cv-687, 16 opinion) 17 Alliance, Inc., No. 4:09-cv-78, 2012 WL 1286657 (E.D. Tenn. April 13, 18 2012) 19 language 20 legislative 21 arbitration is subject to the FAA. 22 23 24 25 26 Fed. App’x (no 828, 2013 the (11th 1833633 analysis); (unpublished of WL 831 Cain opinion) CCIP, history, (M.D. (no Court Apr. Pa. Field statutory the Cir. 3, 2014) (unpublished May 1, 2013) Nursery v. Farmers analysis). and After regulatory concludes that (unpublished Crop Ins. reviewing the provisions, and review The Court begins with the language of the CCIP. of CCIP In pertinent part, CCIP section 20 states: (b)(3) If arbitration has been initiated in accordance with section 20(b)(1) and completed, and judicial review is sought, suit must be filed no later than one year after the date the arbitration decision was rendered; . . . . ORDER - 8 See, 1 2 3 (c) Any decision rendered in arbitration is binding on you and us unless judicial review is sought in accordance with section 20(b)(3). Notwithstanding any provision in the rules of the [American Arbitration Association], you and we have the right to judicial review of any decision rendered in arbitration. 4 ECF No. 40-1 § 20(b). FMC proposes that this language permits de 5 novo judicial review. The Court disagrees. 6 The “unless judicial review” language does not permit broader 7 review of the arbitrator’s decision than is permitted by the FAA. 8 This policy language does not modify the statutory principle that 9 review of an arbitration award concerning a matter of interstate 10 commerce, such as crop insurance, is governed by the FAA. See 9 11 U.S.C. § 2; Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1126 (9th 12 Cir. 2013). The FAA permits only limited review—not de novo review—of 13 an arbitration decision. See Campbell’s Foliage, Inc., 562 Fed. App’x 14 at 831 (determining that similar crop insurance policy language calls 15 for FAA-limited judicial review of an arbitration decision); Great Am. 16 Ins. Co., 733 F. Supp. 2d at 1301 (same and listing other cases); see 17 also Cain Field Nursery, No. 4:09-cv-78, 2012 WL 1286657 at *5 (E.D. 18 Tenn. Apr. 13, 2012) (same and listing other cases). Therefore, the 19 purpose of the “unless judicial review” language is for the parties to 20 understand that they are bound by the arbitrator’s decision absent a 21 party requesting judicial review of the arbitrator’s decision, which 22 will be pursuant to FAA standards. 23 FMC highlights a comment in CCIP’s regulatory history which 24 states, “arbitration is not binding.” General Administrative 25 Regulations, Catastrophic Risk Protection Endorsement; Group Risk Plan 26 ORDER - 9 1 of Insurance Regulations for the 2004 and Succeeding Crop Years; and 2 the Common Crop Insurance Regulations, Basic Provision, 69 FR 48652-01 3 (2004). 4 position that a court may conduct a de novo review of matters involved 5 in the arbitration. 6 the regulation’s intended purpose was otherwise. 7 to require the parties to arbitrate or mediate “[a]ll disputes[, with 8 limited 9 § 20(a)(1). 10 At first glance, this language appears to support FMC’s However, on closer examination, the Court finds exceptions,] involving determinations The CCIP continues made by us.” CCIP And section 20(c) still mandates that the arbitration decision is binding unless judicial review is sought. The term “review” means to “view, look at, or look over again” 11 12 or “to look back upon; view retrospectively.” 13 8, 2015), http://dictionary.reference.com/browse/review?s=t. 14 Accordingly, the Court is to “review” the arbitrator’s decision—not 15 begin 16 arbitrator. 17 purpose, which is to “replace judicial indisposition to arbitration 18 with 19 agreements on equal footing with all other contracts.” 20 Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581 (2008) (internal 21 quotation omitted) (alterations in original). anew a with the analysis of the Dictionary.com (April issues presented to the Limited judicial review is consistent with the FAA’s national policy favoring [it] and plac[ing] arbitration Hall St. 22 Accordingly, based on the CCIP’s language and history, the Court 23 determines its review of the arbitrator’s decision is limited to those 24 grounds 25 judgment 26 granted. established motion ORDER - 10 is by the denied, FAA. In and RCIS’s this regard, FMC’s summary-judgment summary- motion is 1 2. Grounds for Vacatur 2 FMC maintains that grounds for vacating the arbitrator’s 3 decision exist under the FAA. 4 FMC must satisfy one of FAA § 10(a)’s subsections. 5 Co. v. Superior Nat. Ins. Co., 591 F.3d 1167, 1173 (9th Cir. 2010); 6 AIG Baker Sterling Heights, LLC v. Am. Multi-Cinema, Inc., 579 F.3d 7 1268, 8 arbitration award as “narrowly limited” under the FAA). 9 provides: 10 11 1276 (11th Cir. 2009) To vacate the arbitrator’s decision, (describing See U.S. Life Ins. judicial review of an Section 10(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration— 12 (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. 13 14 15 16 17 18 19 20 21 9 U.S.C. § 10(a). 22 The last subsection—subsection 4—is at issue here. See Comedy 23 Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1288 (9th Cir. 2009) 24 (recognizing that section 10(a)(4)’s exceeding-of-powers standard is 25 satisfied if the arbitrator’s decision is “completely irrational, or 26 ORDER - 11 1 exhibits a manifest disregard of law.”). 2 required under § 10(a)(4) because the arbitrator exceeded his power by 3 1) 4 claims for losses; 2) failing to fully and individually analyze each 5 of 6 erroneously interpreting policy provisions pertaining to notice and 7 proof-of-loss requirements. manifestly FMC’s disregarding loss claims as RCIS’s FCIA required by FMC contends vacatur is requirement CCIP section to adjust 20(a)(2); all 3) 8 As to FMC’s first argument, § 1508 of the FCIA specifies that 9 the FCIC’s rules “shall establish standards to ensure that all claims 10 for losses are adjusted, to the extent practicable, in a uniform and 11 timely manner.” 12 (The insurance company “shall utilize only loss adjustment procedures 13 and methods that are approved by” the FCIC.); CCIP § 14(i) (RCIS 14 “recognize[s] and appl[ies] the loss adjustment procedures established 15 or approved by the [FCIC].”). Here, 16 the 7 U.S.C. § 1508(j)(1); see also 7 C.F.R. § 400.168(d) arbitrator heard argument and received evidence. 17 Although FMC had made claims for indemnity for twenty-three farming 18 units, it is undisputed that RCIS did not view all of the units for 19 which a claim of loss was made but only viewed the Oregon Property and 20 three of the Washington units: 21 0052. 22 requirement that all claims be adjusted. 23 claims be adjusted “to the extent practicable” in a uniform and timely 24 manner. 25 each of the units for which a claim of loss was made, the Court cannot FMC contends this was Units 0001-0039, 0001-0041, and 0001a clear violation of the FCIC’s Yet, the FCIA only requires Therefore, even though RCIS reasonably should have inspected 26 ORDER - 12 1 find, 2 arbitrator exceeded his authority in this regard. 3 under the FAA’s limited standards for review, that the Second, the arbitrator rationally grouped the claims into three 4 units to analyze the claims. 5 deemed to be similar units complied with CCIP section 20(a)(2), which 6 states: “the arbitrator must provide to you and us a written statement 7 describing 8 determinations and the amount and basis for any award and breakdown by 9 claim for any award.” the issues in The arbitrator’s grouping of what he dispute, the factual findings, the This language does not prohibit the arbitrator 10 from grouping like claims so long as the arbitrator identifies which 11 claims are part of each group. 12 identified what claims were part of each group. 13 Court does not find that the arbitrator exceeded his authority, and 14 FMC’s summary-judgment motion is denied in this regard. 15 Here, the arbitrator sufficiently Accordingly, the FMC’s final argument, i.e., that the arbitrator exceeded his 16 authority 17 provisions by requiring notice prior to harvest and placing the burden 18 of proof of an insured loss on FMC, is also unpersuasive. 19 to notice, CCIP section 14 governs the insured’s duties in the event 20 of crop damage or loss: 21 ECF No. 40-1 § 14(a) (“In case of damage or loss of production or 22 revenue to any insured crop, [the insured] must protect the crop from 23 further damage by providing sufficient care.”); and 2) a duty to give 24 timely notice, id. § 14(b)(1) (“For a planted crop, when there is 25 damage or loss of production, you must give us notice, by unit, within 26 72 hours of your initial discovery of damage or loss of production ORDER - 13 by interpreting the CCIP’s notice and proof-of-loss First, as 1) a duty to continue to care for the crop, 1 (but not later than 15 days after the end of the insurance period, 2 even if you have not harvested the crop.”). 3 the notice requirement results in the loss being “considered solely 4 due to an uninsured cause of loss for the acreage for which such 5 failure occurred, unless we determine that we have the ability to 6 accurately 7 determines that it does not have the ability to accurately adjust the 8 loss, the insurer need not pay the indemnity but the insured must pay 9 all owed premiums. 10 The adjust CCIP the loss.” Id. § A failure to comply with 14(b)(5). If the insurer Id. § 14(a)(5)(ii). also specifies that if a crop-insurance dispute 11 involves “in any way . . . a policy or procedure interpretation, 12 regarding 13 applicable, 14 provision or procedure, either you or we must obtain an interpretation 15 from the FCIC.” 16 is binding in an arbitration, and a “[f]ailure to obtain any required 17 interpretation 18 agreement or award.” 19 whether Here, how it a specific is policy applicable, or provision the ECF No. 40-1 § 20(a)(1). from the FCIC will result in or meaning procedure of any is policy The FCIC’s interpretation the nullification of any Id. § 20(a)(1)(i) & (ii). arbitrator acknowledged in his decision: “This 20 coverage is governed by federal law with no ‘wiggle’ room left open 21 for interpretation of the policy, the coverages and its application. 22 In fact, by its very language, such analysis on my part is strictly 23 prohibited.” 24 arbitrator then stated, “the burden of proof to establish a covered 25 cause lies strictly with the insured, not RCIS. 26 the burden of proving compliance with the policy claim requirements ORDER - 14 ECF No. 26-4 at 2. With this recognition, the It is [FMC] who bears 1 and proving that a loss was caused by an insured cause as per the 2 policy.” 3 relied on section 14(b)(1) and (b)(2) as requiring FMC to provide 4 notice of crop damage to RCIS within “72 hours of the insured first 5 observing ‘damage’ or loss of production,” ECF No. 26-4 at 3 (emphasis 6 in original), while RCIS had the duty to “verify” the insured cause of 7 loss. Id. As to the “notice” policy provisions, the arbitrator 8 The arbitrator’s determination that the CCIP required FMC to 9 give notice within 72 hours of the earliest of either crop damage or 10 loss of production concerns the Court. 11 insured to give notice within 72 hours of either “initial discovery of 12 damage” or “loss of production.” 13 give notice at the earlier of these two occurrences. 14 intends to place a timing restriction on two occurrences it did so, 15 e.g., “[t]he initiation of arbitration proceedings must occur within 16 one 17 determination with which you disagree, whichever is later.” 18 40-1 § 10(b)(1). No “first-in-sequence” language was used in CCIP 19 section 14(b)(1). The arbitrator’s interpretation of section 14(b)(1) 20 may well be rational; however, CCIP section 20(a)(1) prohibits an 21 arbitrator 22 responsibility is solely exercised by the FCIC, and any failure to 23 obtain a “required interpretation from FCIC” results in nullification 24 of the arbitration award.” 25 Crop Ins. Corp. v. Merrill, 332 U.S. 380, 385 (1947). 26 /// year ORDER - 15 of the from date we interpreting Section 14(b)(1) permits an It does not require the insured to denied the your language claim of or the Where the CCIP rendered CCIP. the ECF No. This ECF No. 40-1 § 20(a)(1)(ii); see also Fed. Yet, 1 because the arbitrator determined that FMC failed to 2 provide notice within either of these time frames—within 72 hours of 3 the 4 determines the arbitrator did not erroneously exceed his authority. 5 The 6 experienced loss of production when it discovered the wireworm damage, 7 which occurred more than 72 hours before FMC provided notice of loss 8 to RCIS. 9 caused by a problem with production). initial discovery arbitrator of explained damage that or FMC loss of should production—the have known Court that it ECF No. 26-4 at 3 (discussing that loss of revenue can be may have erroneously Therefore, even though the 10 arbitrator interpreted the CCIP language by 11 inserting a “first-in-sequence” requirement, the Court cannot find the 12 arbitrator’s decision that FMC failed to provide RCIS notice of damage 13 or loss within 72 hours of discovery of either damage or loss of 14 production was clearly irrational. 15 FMC’s final argument is that the arbitrator’s decision that FMC 16 failed to satisfy its burden to establish that loss was caused by an 17 insured 18 irrational. 19 provide notice of an insured cause of loss and the requested business 20 records but that it was not required, as the arbitrator required, to 21 provide photographs or other evidence to establish an insured cause of 22 loss. 23 damage or loss of production and any records required by CCIP section 24 14(e)(4), the CCIP also requires the insured to “[e]stablish” “[t]hat 25 the loss was caused by one or more of the insured causes specified in 26 the Crop Provisions.” loss for the Walla FMC maintains Walla that Units its and Oregon responsibility Property was simply was to Yet, in addition to requiring the insured to provide notice of ORDER - 16 ECF No. 40-1 § 14(e)(4)(iii); see also U.S. 1 Dep’t of Ag., Loss Adjustment Manual Standards Handbook (“LAM”) (Feb. 2 2011), ECF No. 26-4 (imposing same “establish” burden on insured), 3 available 4 25010.pdf; LAM, ECF § 121.I (same); LAM § 76(D) (“The insured must 5 establish the cause of loss; the adjuster will: (1) [V]erify the cause 6 of loss during the on-the-farm inspection. (2) . . . If the cause of 7 loss 8 document the facts on a Special Report.”). at appears Neither 9 http://www.rma.usda.gov/handbooks/25000/2011/11_ to be party different submitted from to what the the FCIC insured the has question stated, of what 10 “establish” an insured cause of loss means, i.e., does it require the 11 insured to simply identify the insured cause of loss he believes 12 applies and then permit the insurer to verify this insured cause of 13 loss 14 records, or does it require the insured to provide evidence to support 15 his identified insured cause(s) of loss. 16 the arbitrator placed too much responsibility on it in regard to proof 17 of 18 arbitrator’s 19 information to establish an insured cause of loss was irrational. 20 FMC’s difficulty in establishing an insured cause of loss may well be 21 due to its choice to delay providing notice of loss until months after 22 initial observation of crop damage. by an inspecting insured the loss. crop and/or However, determination of the field and provided business FMC may well be correct that Court requiring cannot FMC to find that provide the more And 23 In summary, under the FAA’s limited review, the Court concludes 24 the FMC failed to establish a basis for vacating the arbitrator’s 25 denial of crop-insurance indemnity. 26 ORDER - 17 FMC’s summary-judgment motion is 1 denied in this regard, and RCIS’s summary-judgment motion is granted 2 in this regard. 3 3. Preemption 4 Both parties agree the FCIA does not preempt all state-law 5 claims, but the parties disagree as to whether FMC’s state-law claims 6 for bad faith, negligence, and violation of WCPA conflict with federal 7 law and are therefore preempted. The 8 9 U.S. Constitution’s Article VI Congress the power to preempt state law. laws Armstrong v. Exceptional Child Ctr., Inc., No. 14-15, 575 U.S. ___, 12 2015 WL 1419423 *3 (March 31, 2015). 13 interferes with or is contrary to federal law, must yield.” 14 Pharm. 15 quotation marks omitted). Bartlett, 133 that Therefore, courts may not 11 v. state affords “give Co. to Clause 10 16 effect Supremacy S. conflict with federal laws.” Therefore, any state law, “which Ct. 2466, 2473 (2013) Mutual (internal As recognized by the parties, the FCIA does not preempt all 17 state law causes of action. 18 666, 669 (9th Cir. 1993) (mentioning, in the context of complete 19 preemption and the well-pleaded complaint doctrine, that the FCIA does 20 not preempt all state causes of action pertaining to FCIA-issued crop 21 insurance); Meyer v. Conlon, 162 F.3d 1264, 1269 (10th Cir. 1998) 22 (“Congress has not expressed a clear intent to preempt all state law 23 causes of action against private reinsurers.”); Agre v. Rain & Hail 24 LLC, 196 F. Supp. 2d 905, 911 (D. Minn. 2002) (“The simple fact that 25 Congress has established an ordered regulatory scheme is insufficient 26 to preempt all contract claims involving crop insurance.”). ORDER - 18 See Holman v. Laulo-Rowe Agency, 994 F.2d Instead 1 the Court must determine if FMC’s asserted claims interfere with or 2 are contrary to the FCIA, its regulations, or CCIP. 3 FCIA provision, § 1506(l), states: The pertinent The [FCIC] may enter into and carry out contracts or agreements, and issue regulations, necessary in the conduct of its business, as determined by the Board. State and local laws or rules shall not apply to contracts, agreements, or regulations of the [FCIC] or the parties thereto to the extent that such contracts, agreements, or regulations provide that such laws or rules shall not apply, or to the extent that such laws or rules are inconsistent with such contracts, agreements, or regulations. 4 5 6 7 8 9 7 U.S.C. § 1506(1) (emphasis added). Consistent with this statutory 10 language, CCIP section 31 states, “If the provisions of this policy 11 conflict with statutes of the State or locality in which this policy 12 is issued the policy provision will prevail. State and local laws and 13 regulations in conflict with federal statutes, this policy, and the 14 applicable regulations do not apply to this policy.” ECF No. 40-1 15 § 31. 16 Accordingly, the Court focuses on the nature and relief 17 requested by FMC through its state-law claims to determine if they 18 interfere with or conflict with the FCIA, related regulations, or 19 CCIP. In support of its state-law claims, FMC alleges RCIS “did not 20 conduct an indemnity inspection of or make a farm visit to any of the 21 other units in order to verify the causes of loss claimed by FMC,” and 22 “denied all of FMC’s claims on the Washington Units and Oregon Unit 23 without following the loss adjustment procedures established by the” 24 FCIC. ECF No. 1 ¶¶ 2.7-2.9. 25 26 ORDER - 19 1 Assuming that RCIS committed such failures, the Court determines 2 FMC’s state-law claims based on such alleged failures are preempted by 3 the FCIA, its related crop-insurance regulations, and the CCIP. 4 CCIP section requires “[a]ll disputes involving determinations made 5 by” RCIS be “subject[ed] to mediation or arbitration.” 6 § 20(a)(1). Any 7 handling denial 8 arbitrator. 9 handling by RCIS because he concluded that FMC failed to provide 10 sufficient notice and failed to establish an insured cause of loss. 11 Notwithstanding the arbitrator’s lack of analysis regarding RCIS’s 12 claims-handling, 13 negligence, and WPCA claims pertaining to RCIS’s claims-handling and 14 denial of indemnity would interfere with the FCIA and its CCIP. and dispute of that FMC insurance had was concerning to be The ECF No. 40-1 RCIS’s brought claims- before the The arbitrator did not identify insufficient claims- permitting FMC to pursue state-law bad faith, This may not be true for all state-law claims associated with a 15 16 crop-insurance policy. 17 Cir. 1998) (permitting a state-law claim seeking to enforce an FCIC 18 contract against a reinsurer). 19 state-law 20 indemnity by RCIS. 21 this 22 Accordingly, FMC is not owed an indemnity payment. 23 § 400.176 (permitting a claim of punitive damages or compensatory 24 damages against an insurance company if the company’s failure resulted 25 in the insured receiving a payment in an amount that was less than the 26 amount to which the insured was entitled); CCIP, ECF No. 40-1 ¶ 20(i) claims Court’s ORDER - 20 is Cf. Meyer v. Conlon, 162 F.3d 1264, 1269 (10th the However, here the focus of FMC’s claims-handling process and denial of And FMC did not prevail during arbitration, nor in review under the FAA of the arbitrator’s decision. Cf. 7 C.F.R. 1 (same). Permitting FMC to recover punitive or compensatory damages 2 pursuant to its state-law claims would conflict with the FCIA, its 3 regulations, and the CCIP. 4 D. FMC’s state-law claims are preempted.7 Conclusion 5 Accordingly, IT IS HEREBY ORDERED: 6 1. Defendant RCIS’s Motion for Summary Judgment, ECF No. 20, is GRANTED. 7 2. 8 Plaintiff FMC’s Motion for Partial Summary Judgment, ECF No. 23, is DENIED. 9 3. 10 Plaintiff FMC’s Motion to Strike Portions of Affidavit of 11 Tanya L. Rowe, ECF No. 33, is DENIED IN PART AND DENIED AS 12 MOOT IN PART. 13 4. Judgment is to be entered in Defendant RCIS’s favor. 14 5. All hearings and deadlines are STRICKEN. 15 6. This file shall be CLOSED. 16 IT IS SO ORDERED. 17 The Clerk’s Office is directed to enter this Order and provide copies to all counsel. DATED this 18 21st day of April 2015. 19 s/Edward F. Shea EDWARD F. SHEA Senior United States District Judge 20 21 22 23 24 7 25 Because the Court determined that FMC’s state-law claims are preempted, the Court need not engage in a collateral-estoppel analysis. 26 Q:\EFS\Civil\2014\5024.msjs.lc1.docx ORDER - 21
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