Summary of a Recent
Judicial Development in
Crop Insurance

Crop Insurance Company Seeks Indemnification from FCIC and RMA

Harrison M. Pittman
Staff Attorney

A crop insurance company has brought an action against the Federal Crop Insurance Corporation ("FCIC") and the Risk Management Agency ("RMA") seeking, inter alia, indemnification for costs and losses it incurred pursuant to § 1508(j) of the Federal Crop Insurance Act ("FCIA") after the FCIC modified the conditions applicable to "prevented planting coverage." Am. Growers Ins. Co. v. Fed. Crop Ins. Corp., No. Civ. 1:01-CV-10059, 2003 WL 1233073 (S.D. Iowa Mar. 3, 2003) (unreported decision). In the alternative, the crop insurance company sought administrative review of a decision by the Agriculture Board of Contract Appeals to grant the defendants' motion for summary judgment. See id. at *1. The United States District Court for the Southern District of Iowa dismissed the insurance company's claims against the FCIC for breach of the Standard Reinsurance Agreement and against the FCIC and RMA for violation of contract rights and affecting a deprivation of property without due process of law and affecting a taking of its property without just compensation in violation of the Fifth Amendment of the United States Constitution. See id. at *1. The court ruled, however, that § 1508(j) allowed the company to seek indemnification for costs and losses from the FCIC and RMA and that this claim was not barred by a one-year statute of limitations. See id. at *3.

The underlying facts to this dispute are set forth in Am. Growers Ins. Co. v. Fed. Crop Ins. Corp., 210 F.Supp.2d 1088 (S.D. Iowa 2002). Plaintiff American Growers Insurance Company ("American Growers") issued crop insurance policies to farmers for the 1996 crop based on terms and conditions established by the FCIC. Am. Growers, 210 F.Supp.2d at 1090. In December, 1995, the FCIC altered the conditions applicable to "prevented planting coverage." Id. The FCIC's decision to alter the conditions negatively affected the multiple peril crop insurance policies that American Growers had issued for the 1996 crop year by causing American Growers to experience "increased costs and losses for the 1996 crop year after paying claims made by farmers because of the changes made by the FCIC." Id.

American Growers subsequently demanded that the FCIC reimburse it for the increased costs and losses. See id. After the FCIC denied American Growers' demand, American Growers filed an appeal on September 15, 1998, with the Agricultural Board of Contracts Appeals ("Board"). See id. The Board rejected American Growers' claims and granted a motion for summary judgment in favor of the FCIC. See id.

On November 27, 2001, American Growers filed a three-count complaint in district court against defendants FCIC and the RMA seeking damages rather than a review of the Board's decision. See id. Count I of American Growers' complaint alleged that there was "a breach of the 1996 SRA between American Growers and [the] FCIC." Id. Count II alleged that the FCIC violated § 1508(j)(3) of the Federal Crop Insurance Act, 7 U.S.C. §§ 1501-1524. See id. See also Am. Growers, 2003 WL 1233073, at *1, 2. In Count III, American Growers alleged that the defendants violated its "'contract rights, and effected a deprivation of American Growers' property without due process of law, and/or affected a taking of American Grower's [sic] property without just compensation, in violation of the Fifth Amendment to the United States Constitution.'" Am. Growers, 210 F.Supp.2d at 1090-91 (citation omitted).

On June 26, 2002, the district court dismissed Counts I and III of American Growers' claims "for failure to state a claim upon which relief [could] be granted." Am. Growers, 2003 WL 1233073, at *1 (citing Am. Growers, 210 F.Supp.2d at 1095-96). It also granted American Growers leave to amend its complaint so that it could seek judicial review of the Board's decision. See id. (citing Am. Growers, 210 F.Supp.2d at 1095).

On July 26, 2002, American Growers amended its complaint by adding "a fourth count seeking administrative review of the . . . [Board's] ruling if it is not entitled to bring an original action" under its other three counts. Id. The defendants filed a motion to dismiss Counts I and III of American Growers' amended complaint pursuant to the district court's June 26, 2002, ruling and order. See id. The defendants also sought summary judgment on Count II of American Growers' complaint in which it sought indemnification under § 1508(j)(3) of the FCIA. See id. American Growers objected to both motions. See id.

The court first examined the defendants' motion to dismiss Counts I and III of American Growers' complaint. See id. It noted that in Counts I and III of its amended complaint American Growers had asserted the same breach of contract and constitutional takings claims that were dismissed in its June 26, 2001, order. See id. Without an elaborate discussion, the court concluded that "[f]or the reasons set forth in the court's previous order, Counts I and III of plaintiff's amended complaint will be dismissed." Id. (citing Am. Growers, 210 F.Supp.2d at 1088-96).

The court next examined the defendants' motion for summary judgment with respect to Count II of American Growers' amended complaint, in which American Growers sought indemnification from the defendants pursuant to § 1508(j)(3) of the FCIA. See id. Section 1508(j)(3) requires "the FCIC to 'provide approved insurance providers with indemnification, including costs and reasonable attorney fees incurred by the approved insurance provider, due to errors or omissions on the part of the [FCIC].'" Id. (quoting 7 U.S.C. § 1508(j)(3)). The defendants argued that "when read in the context of the entire section, this provision does not apply to American Growers' claim." Id. More specifically, the defendants asserted that in accordance with § 1508(j)(1) and § 1508(j)(2) "the indemnification requirement only applies to situations in which an insured successfully sues American Growers due to the FCIC's errors of [sic] omissions." Id.

Section 1508(j)(1) authorizes the FCIC "to 'provide for adjustment and payment of claims for losses . . . to the extent practicable, in a uniform and timely manner.'" Id. (citation omitted). Section 1508(j)(2)(A) provides that a party may challenge "the FCIC's denial of a claim for indemnity 'in the United States district court for the district in which the insured farm is located.'" Id. (citation omitted). Section 1508(j)(2)(B) states that an action on the claim for indemnity must be "'brought no later than 1 year after the date on which final notice of denial of the claim is provided to the claimant.'" Id. (citation omitted). The defendants claimed that because § 1508(j)(1) and § 1508(j)(2) "refer to insureds' claims for losses under crop insurance policies," § 1508(j)(3) must be similarly limited. Id.

The court rejected the defendants' argument, stating that

The plain language of § 1508(j)(3) requires that the FCIC "shall provide approved insurance providers with indemnification . . . due to errors or omissions on the part of the [FCIC]." The statute does, as the defendants suggest, contemplate indemnification for private actions brought by insureds against approved insurance providers. The text of § 1508(j)(3), however, contains no language limiting its application only to indemnification for claims brought by insureds. Had Congress intended for the statute [to] take on the meaning suggested by the defendants, it would have written the statute to require the FCIC to "provide approved insurance providers with indemnification . . . due to errors or omissions on the part of the [FCIC] in the adjustment and payment of claims for losses." Congress, however, chose not to do so and . . . [this court] decline[s] to imply such language.

Id. at *3.

The defendants also argued that Count II of the American Growers' complaint was barred because "American Growers failed to filed [sic] its complaint within the one-year limitations period found in 7 U.S.C. § 1508(j)(2)(B)." Id. American Growers contended that § 1508(j)(2)(B) did not apply to the type of indemnification that it sought under § 1508(j)(3). See id.

The court rejected the defendants' argument, stating that

[a]s articulated above, claims under § 1508(j)(2) are different from those under § 1508(j)(3). Section 1508(j)(2) applies to a "claim for indemnity." Under FCIC regulations, "claim for indemnity" is a term of art used in crop insurance policies that refers to claims made "for damage or loss to an insured crop." American Growers is not making a claim for indemnity pursuant to any crop insurance policy. Rather, it is seeking indemnification pursuant to § 1508(j)(3) for the FCIC's alleged errors and omissions. Accordingly, the one year statute of limitations found in § 1508(j)(2)(B) does not apply to its claim under Count II.

Id. (citations omitted). The court therefore denied the defendants' motion for summary judgment with respect to American Growers' § 1508(j) claim. See id.

The court also rejected the defendants' argument that Count II of American Growers' amended complaint was barred by res judicata and collateral estoppel. See id. The analysis of the court's decision with respect to these two issues is not included in this summary.

Author's Note: This is an unreported decision.

The case was decided on Mar. 3, 2003; this summary was posted Dec. 10, 2003.