Summary of a Recent
Judicial Development in
Administrative Law

"Merrill Doctrine" Inapplicable to
Reinsured Private Crop Insurers

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 the "Merrill doctrine" is inapplicable to private crop insurers reinsured by the Federal Crop Insurance Corporation (FCIC).

Background

Plaintiff Peter R. Dailey purchased two Multiple Peril Crop Insurance (MPCI) policies from American Growers Insurance Co. (American Growers) through Henry Stull, an agent of American Growers. See id. at 67. After Dailey's tobacco crop was damaged by hail, Dailey filed a loss claim. See id. at 62-63. Dailey brought an action against American Growers after it voided one of his policies because the voiding of the policy caused him to be compensated less than he believed he should have been compensated. See id. at 63. The trial court granted American Growers' motion for summary judgment and Dailey appealed to the Kentucky Court of Appeals. See id. The appeals court affirmed the trial court's determination, and Dailey appealed to the Supreme Court Kentucky. See id.

Argument

Dailey argued that based on Stull's actions, American Growers should be estopped from claiming that one of his policies was invalid. See id. at 67. American Growers argued that the "Merrill doctrine" precluded application of the estoppel principle in the crop insurance context. See id. at 68.

Analysis and Holding

The court explained that

[i]f an insurance company through those who are authorized to speak for it, either by words or conduct, has induced an insured to refrain from doing that which he is obligated to do under the condition of the policy, it will be deemed to have waived the requirements and may be estopped to deny the authority of its agent on whose conduct or representations the insured relied.

Id. (quoting Hanover Ins. Co. v. McLoney, 205 F.Supp. 49, 53 (E.D. Ky. 1962) (citations and quotations omitted).

Noting that "[e]stoppel is at the heart of this case," the court determined that based on facts presented in the record Dailey has "a colorable argument that American Growers should be estopped from claiming that . . . [the policy] was invalid." Id. at 67, 68.

Turning to the contention that the "Merrill doctrine" precluded application of the estoppel principle, the court explained that in Federal Crop Ins. v. Merrill, 332 U.S. 380 (1947), the United States Supreme Court held that "the FCIC was not bound by 'the rules of law whereby private insurance companies are rendered liable for the acts of their agents'" where estoppel would have required the government to make payments to the insured in violation of federal law. Id. at 69 (citation omitted). In Merrill an insured sought to bind an insurance provider by the words and conduct of its agent. See id.

The court rejected American Growers' argument, holding that the "Merrill doctrine" does not ordinarily apply to private insurers. See id. See also Merrill, 332 U.S. at 383 (stating that "[w]e assume that recovery could be had against a private insurance company."). It added that

An important rationale for the . . . ["Merrill doctrine"] was the principle of separation of powers; the Court found that judge-made principles such as estoppel should not be applied to open the public coffers when Congress has explicitly ordered them closed. However, separation of powers is not an issue when estoppel is applied against a private party. Likewise, claims against private insurers represent no direct theat to the public coffers. Finally, the precept that "[m]en must turn square corners when they deal with the Government," . . . generally does not apply when they deal with private insurers.

Id. (internal citations and quotations omitted). See also id. (contrasting the designation of flood insurers under the National Flood Insurance Act of 1968 as "fiscal agents of the United States" that therefore enjoy "Merrill doctrine" protection with the lack of such designation under the Federal Crop Insurance Act).

The case was decided on April 24, 2003; this summary was posted Apr. 30, 2004.