Summary of a Recent
Judicial Development in
Federal Crop Insurance

Farmer's State Law Claims Not Preempted
by FCIA or Implementing Regulations

Harrison M. Pittman
Staff Attorney

Summary of Decision

In Dailey v. American Growers Ins., 103 S.W.3d 60 (Ky. 2003), the Supreme Court of Kentucky held that state law claims brought against a reinsured crop insurance company were not preempted by either the Federal Crop Insurance Act ("FCIA"), 7 U.S.C. §§ 1501-1515, or FCIA's implementing regulations.

Background

Plaintiff Peter R. Dailey purchased two Multiple Peril Crop Insurance ("MPCI") policies from American Growers Insurance Co. ("American Growers"): the first policy being issued under Dailey's name and having a fifty-five percent level of coverage; and the second policy being issued under the name "Dayland Farms," and having a seventy-five percent level of coverage. See id. at 62-63. After the tobacco crop growing on the two farms covered by the second policy was damaged by hail, Dailey filed a loss claim. See id. However, after determining that Dayland Farms was not an insurable entity, American Growers voided the second policy and issued payment to Dailey based on the first policy. See id. Dailey brought an action against American Growers, arguing that American Growers violated state laws when it failed to indemnify him pursuant to the second policy. See id. The circuit court granted summary judgment in favor of American Growers, a decision that was subsequently affirmed by the Kentucky Court of Appeals. See id. Dailey then appealed to the Supreme Court of Kentucky.

Analysis and Holding

In reviewing the Court of Appeals' affirmance, the Supreme Court of Kentucky considered whether the FCIA and its implementing regulations "preempt the laws of this state, thereby preventing Dailey from asserting his state law claims." Id. at 63-64. The court noted that 7 C.F.R. § 400.352(a) provides that "'[n]o State or local government body . . . shall have the authority to promulgate rules or regulations, pass laws, or issue policies or decisions that . . . [affect] or govern agreements, contracts, or actions authorized by this part unless such authority is specifically authorized by this part or by the [FCIC].'" Id. (citation omitted). It also noted, however, that 7 C.F.R. § 400.352(b)(4) provides that "'nothing herein is intended to preclude any action on the part of any authorized . . . State court or any other authorized entity concerning . . . the regulations, any contract or agreement authorized by the [FCIA] or by regulations or procedures issued by the [FCIC].'" The court further noted that 7 C.F.R. § 400.351 provides that

[t]he regulations contained in this subpart are issued pursuant to the [FCIA] . . . to prescribe the procedures for federal preemption of State laws and regulations not consistent with the purpose, intent, or authority of the [FCIA]. These regulations are applicable to all policies of insurance, insured or reinsured by the [FCIC], contracts, agreements, or actions authorized by the [FCIA] and entered into or issued by FCIC.

Id. (quoting 7 C.F.R. § 400.351).

Based on the language of these regulations, the court stated that "only those state and local laws or regulations which are inconsistent with the 'purpose, intent, or authority' of the FCIA will be preempted." Id. Without discussing the substantive merits of Dailey's state law claims, the court held that Dailey's state law claims were not inconsistent with the FCIA or FCIC regulations and therefore were not preempted by FCIA or its implementing regulations. Id. The court reversed the decision of the Court of Appeals and remanded the matter to the circuit court for proceedings consistent with its decision. See id. at 66. See also id. at 66-72 (concurring opinion).

The case was decided on Apr. 24, 2003; this summary was posted Dec. 23, 2003.