Summary of a Recent
Judicial Development in
Federal Crop Insurance

FCIA Regulations Do Not Wholly
Preempt State Law

Alfred N. Milam
National AgLaw Center Graduate Assistant

Summary of Decision

In Alliance Insurance Company v. Wilson, 384 F.3d 547 (8th Cir. 2004), the United States Court of Appeals for the Eighth Circuit held in a matter of first impression that the Federal Crop Insurance Act (FCIA), 7 U.S.C. § 1501-1515, did not wholly preempt all state-based regulation of private insurance companies that sell federal crop insurance and that an examination conducted by the Minnesota Department of Commerce Commissioner in accordance with state laws was not preempted by the FCIA.

Background

Alliance Insurance Company and Farmers Alliance Mutual Insurance Company (collectively Alliance) issued crop insurance policies to Minnesota beet farmers. See id. at 549. The insurance policies were reinsured by the Federal Crop Insurance Corporation (FCIC) and regulated by the FCIA. See id. After Alliance denied beet farmers' claims for freeze damage to their crops, the Commissioner initiated a market conduct examination pursuant to Minnesota law. See id. Alliance filed a claim in federal district court asserting that the Commissioner lacked legal authority to conduct an examination of a FCIA loan. See id. at 550. The district court granted summary judgment to the Commissioner, finding that under Minnesota law the Commissioner was not "precluded from enforcing state regulatory standards designed to ensure that insurance companies handle their policy holders' claims in a reasonable manner." Id. at 551. Alliance appealed the district court's decision to the Eighth Circuit. See id.

Arguments

Alliance argued that the FCIA exclusively regulates FCIC crop insurance and that an investigation by the Commissioner would be in direct conflict with FCIA regulations. See id. at 552. The Commissioner argued that FCIA does not wholly preempt state law and that state law is preempted by the FCIA only to the extent that it does not come into conflict with FCIA regulations or when a company is acting outside the authority provided by FCIA. See id.

Analysis and Holdings

The court held that the FCIA did not wholly preempt state regulations that apply to private companies that sell federally reinsured crop insurance. See id. It explained that state law applies to FCIA contracts, except when "FCIC contracts provide that state law does not apply or (2) when state law is inconsistent with FCIC contracts." Id. at 557.

The court found that neither of these exceptions applied and affirmed the district court's grant of summary judgment to the Commissioner. See id. at 562.

The case was decided on September 24, 2004; this summary was posted Mar. 21, 2005.