Summary of a Recent
Judicial Development in
Federal Crop Insurance

State Law Claims Not Preempted by Federal
Crop Insurance Act

Harrison M. Pittman
Research Assistant Professor of Law

Summary of Decision

In Buchholz v. Rural Community Ins. Co., 402 F.Supp.2d 988 (W.D. Wis. 2005), the United States District Court for the Western District of Wisconsin held that plaintiffs’ state law claims against a crop insurance company were not preempted by the Federal Crop Insurance Act, 7 U.S.C. §§ 1501-1524.

Background

Plaintiffs Clifford Buchholz and Audrey Passe were unmarried individuals who jointly operated a farming operation. Buchholz, 402 F.Supp.2d at 992. The plaintiffs maintained a joint checking account for the farming operation and were both obligated on a loan that financed the operation. See id. In addition, the plaintiffs each reported income from the operation on their individual tax returns. See id. In February of 2003, Audrey Passe executed an application for crop insurance with Vine Vest, LLC, a private crop insurance company that provided crop insurance coverage. See id. The crop insurance policy was taken out in Audrey Passe’s name only, though the plaintiffs later asserted that the crop insurance agent led them to believe that the policy would cover all crop shares in which the plaintiffs had an interest. See id. at 992-93.

In the fall of 2003, Clifford Buchholz supervised the granary deliveries of crops produced on the plaintiffs’ farming operation, and, on occasion, delivered the crops to the granary himself. See id. at 993. The granaries to which the crops were delivered listed Clifford Buchholz as the “seller” or “vendor” of the crops. See id. After the 2003 harvest, Audrey Passe submitted a crop loss claim for $184,149.00 to Vine Vest, LLC. See id. Vine Vest, LLC denied the claim on the grounds that “the production records supporting the claim were ‘not in [Passe’s] name.’” Id The plaintiffs met with representatives from Vine Vest, LLC soon thereafter, and asserted that they farmed jointly. See id. A few days later, Vine Vest, LLC reaffirmed its denial of the crop loss claim. See id. The plaintiffs later brought an action in federal district court for breach of contract and bad faith. The plaintiffs also asserted that “defendant should be estopped from denying coverage, or, in the alternative, the policy should be reformed to cover plaintiffs’ entire crop loss.” Id at 994.

Analysis and Holding

The court stated that the defendant “appears to argue” that the plaintiffs’ state law claims are preempted by the FCIA. See id. It explained that while the Seventh Circuit has not considered whether the FCIA preempts state law claims, the circuit courts that have addressed the issue have determined “[a]lmost unanimously” that the FCIA does not preempt state law claims. See id. (citations omitted).

The court explained that the purpose of the FCIA is “‘to promote the national welfare by improving the economic stability of agriculture through a system of crop insurance.’” Id AT (quoting 7 U.S.C. § 1502) (citing Kansas ex rel. Todd v. United States, 995 F.2d 1505, 1507 (10th Cir. 1993)). It further explained that the FCIA “promotes stability by encouraging farmers to purchase . . . insurance that protects them against loss from natural disasters.” Id The court concluded the following:

If plaintiffs were to prove that the information provided by defendant’s agent . . . led them to obtain less crop insurance than they believed they were receiving, reforming the contract or estopping defendant from denying them coverage would not stand as an obstacle to accomplishing the Congress’s objective of improving economic stability of the agricultural system. Furthermore, the Act does not explicitly preempt state causes of action against an insurance company that has willfully or negligently misled an insured to its detriment. Therefore, . . . plaintiffs’ state law causes of action against defendant are not preempted by the Federal Crop Insurance Act.

Id (citation omitted).

The case was decided on November 28, 2005; this summary was posted Mar. 6, 2006.