Summary of a Recent
Judicial Development in
Crop Insurance

Motion to Compel Arbitration
Granted In Crop Insurance Dispute

Harrison M. Pittman
Staff Attorney

The United States District Court for the Southern District of Florida has ruled that the arbitration clause contained in a multiple peril crop insurance policy required the dispute between an insured and the insurer be submitted to arbitration. Ledford Farms, Inc. v. Fireman's Fund Ins. Co., 184 F. Supp.2d 1242 (S.D. Fla. 2001)). The court also ruled that the arbitration clause did not completely bar the insured from bringing a subsequent court action against the insurer. See id. Instead, the court determined that the arbitration clause was a condition precedent that had to be satisfied before the insured could bring such an action against the insurer. See id. at 1245.

Fireman's Fund Insurance Company ("Fireman's Fund") issued a multiple peril crop insurance policy ("MPCI") to Ledford Farms, Inc. ("Ledford"), the insured, which covered losses to Ledford's fresh market bean crop. See id. at 1243. Ledford's policy stated that it did not provide coverage for acreage "[o]n which the insured crop is damaged and it is practical to replant the insured crop, but the insured crop is not replanted.'" Id. at 1243-44. The arbitration clause contained in the MPCI policy stated that "'[i]f [Ledford] and [Fireman's Fund] fail to agree on any factual determination, the disagreement will be resolved in accordance with the rules of the American Arbitration Association.'" Id. at 1244. (quoting Sec. 451.8).

The Federal Crop Insurance Corporation ("FCIC") mandates the terms and conditions of a MPCI policy. See id. These terms and conditions are published in the Code of Federal Regulations. See id. (citing 7 C.F.R. pt. 457 (1998)). 7 C.F.R. Sec. 451.8 defines "practical to replant" as:

Our determination, after loss or damage to the insured crop, based on all factors, including but not limited to moisture availability, marketing window, condition of the field, and time to crop maturity, that replanting the insured crop will allow the crop to attain maturity prior to the calendar date for the end of the insurance period. It will not be considered practical to replant after the end of the late planting period, or the final planting date if no late planting period is applicable, unless replanting is generally occurring in the area. Unavailability of seed or plants will not be considered a valid reason for failure to replant.

Id.

Ledford filed a claim with Fireman's Fund alleging that its fresh market bean crop had been destroyed by rain. See id. Fireman's Fund denied this claim based on its belief that Ledford failed to replant its bean crop even though it was practical to do so. See id. Ledford filed a state court action seeking declaratory relief, and Fireman's Fund removed the case to federal district court. See id. Ledford filed an amended complaint that added state law actions for breach of contract and breach of implied obligation of good faith. See id. Fireman's Fund moved to dismiss the amended complaint "or, in the alternative, to compel the parties to arbitrate and stay all court proceedings until the arbitration process is completed." Id.

Fireman's Fund argued that the question of whether it was practical for Ledford to replant its bean crop was a "factual determination" and was therefore subject to arbitration. See id. at 1245. Ledford argued that the parties' MPCI policy did not define "practical to replant" and therefore, "this 'vague and ambiguous' exclusionary term cannot be construed against coverage." Id.

The district court granted Fireman's Fund's motion to compel arbitration and its motion to stay court proceedings until arbitration was completed. See id. The court relied on Nobles v. Rural Community Ins. Serv., 122 F.Supp.2d 1290 (M.D. Ala. 2000), a factually similar case involving a crop insurance dispute in which the insured asserted several state law claims against its insurer. See id. In Nobles, just as in the present case, the insurer moved to compel arbitration and filed a motion to stay all court proceedings. See id.

In Nobles the court ruled that the insured was required to submit its claim to binding arbitration. See id. The Nobles court stated that "'[t]he arbitrator may award relief as permitted by federal statutes and regulations. After that dispute is resolved, and in keeping with the arbitrator's findings and awards that are entitled to preclusive effect, [the plaintiff] may then elect to pursue their common law claims in this forum.'" Id. The district court in the present case noted that the court in Nobles retained jurisdiction over the insured's state law claims because the FCIC "'never intended to extinguish state law causes of action that may arise from tortious conduct by private companies selling [FCIC]-approved reinsurance contracts.'" Id. (quoting Nobles, 122 F.Supp.2d at 1294) and citing Williams Farms of Homestead, Inc. v. Rain & Hail Ins. Serv., Inc., 121 F.3d 630, 634 (11th Cir. 1997)).

The district court rejected Ledford's argument because the MPCI policy did in fact define "practical to replant" and because "Ledford's argument [was] an apparent attempt to convert Fireman's Fund's factual determination that is was practical for Ledford to replant its bean crop into a legal determination which would fall outside the scope of the arbitration clause." Id. Thus, the court granted Fireman's Fund's motion to compel arbitration. See id.

The district court also ruled that Ledford may bring a legal action against Fireman's Fund after it "complies with all of the policy provisions, including the arbitration of any factual determinations." Id. The court retained jurisdiction over the case pending the outcome of the arbitration proceedings. See id.

This case summary was prepared in August, 2002.