Summary of a Recent
Judicial Development in
Federal Crop Insurance

Lack of Legally Cognizable Property Interest Precludes
Fifth Amendment Takings Claim

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Acceptance Insurances Companies, Inc. v. United States, 84 Fed. Cl. 111 (Fed. Cl. 2008), the United States Court of Federal Claims held that no regulatory taking occurred when the Risk Management Agency of the Department of Agriculture blocked an insurance holding company's proposed sale of certain crop insurance policies and other insurance assets to a private third party purchaser, because the company did not have a cognizable property interest in selling its property to the third party purchaser under the terms of a proposed, non-binding agreement.

Background

Acceptance Insurance Companies, Inc. filed suit against the Risk Management Agency (RMA) of the Department of Agriculture, alleging that the RMA violated the Fifth Amendment takings clause by blocking the proposed sale of certain of its crop insurance assets to a private third party purchaser. Id. at 112. Acceptance's subsidiary American Growers was in the business of underwriting insurance policies within the federal crop insurance program, and was required to use the coverage levels, prices, premium rates and transitional yields determined by the Federal Crop Insurance Corporation (FCIC). Id. After American Growers announced that it was in financial trouble, Acceptance entered into a non-binding letter of intent with a third part detailing the terms of a proposed sale of its "crop insurance assets" (i.e., a sale of American Growers). Id. at 113. The prospective buyer met with RMA officials to discuss the transaction. Id. The RMA rejected the sale based on the terms proposed, so the third party declined to go through with the purchase. Id. In addition, the Nebraska Department of Insurance placed American Growers under supervision due to its precarious financial position, freezing its business and transferring its policies to other crop insurance providers without compensating Acceptance. Id. Acceptance brought this action against the RMA alleging a Fifth Amendment violation, and the defendants filed a motion to dismiss for failure to state a claim upon which relief could be granted. Id.

Arguments

Acceptance argued that the RMA violated the Fifth Amendment takings clause by preventing the sale of its insurance policies to a private third party, which constituted a regulatory taking of a cognizable property interest. Id. at 116.

Analysis and Holdings

The Federal Circuit applies a two-part test to determine whether fairness and justice require compensation for burdens imposed by a particular governmental action: first, the court must determine whether the claimant has established a legally cognizable property interest for purposes of the Fifth Amendment, then it must determine whether the government action amounted to a compensable taking of that interest. Id. at 114-15. The court reasoned that "the actions of the RMA, at best, interfered with plaintiff's interest in selling its property . . . under the terms of the proposed, non-binding agreement," and had not interfered with the property itself, which was still retained by Acceptance. Id. at 116. The court determined that the non-binding letter of intent did not equate an actual contract between the parties, and held that Acceptance's interest in completing its transaction without government involvement was a collateral interest not protected by the Fifth Amendment. Id. The court further stated that "when a plaintiff voluntarily enters into an area which, from the start, is subject to pervasive government control, its enforceable rights sufficient to support a takings claim against the United States are extinguished." Id. Therefore, because Acceptance failed to establish a legally cognizable property interest, the court dismissed its complaint. Id. at 117.

The case was decided on September 25, 2008.