Summary of a Recent
Judicial Development in
Federal Crop Insurance

Absent Fraud or Its Likeness, Court is Unwilling to
Reevaluate Arbitration Award in Crop Insurance Case

Eric H. Foy
National AgLaw Center Research Associate

Summary of Decision

In Farmers Crop Insurance Alliance v. Laux, 422 F. Supp. 2d. 898 (S.D. Ohio 2006), the United States District Court for the Southern District of Ohio, Western Division, denied an insurance company's request for a declaration that it was not required to indemnify the defendant for acres of allegedly failed crops and acres that defendant was allegedly prevented from planting. The court granted defendant's motion to confirm the arbitration award.

Background

Defendants were brothers who grew crops in Louisiana which were insured by the Farmers Crop Insurance Alliance (plaintiff) pursuant to the terms of the federally regulated and reinsured Crop Revenue Coverage Insurance Policy (insurance policy). Id. at 899. According to the policy, if the insurer and the insured failed to agree on any factual determination made by the insurer, the disagreement would be resolved by arbitration according to the rules of the American Arbitration Association. Id. On January 14, 2005, plaintiff and defendant were unable to resolve some factual disputes regarding a portion of defendants' insured land and failed soybean crop. Id. Defendants filed a demand for arbitration with the American Arbitration Center, and arbitration ensued. Id. After a successful adjudication, defendants filed a motion to confirm the arbitration award. Id. Plaintiff opposed the motion and sought a declaration that it was not required to indemnify defendants for acres of allegedly failed crops and acres that defendants were allegedly prevented from planting. Id.

Arguments

Plaintiff alleged that the arbitrator committed a material mistake of fact because its findings were directly counter to the evidence that both it and the defendants presented at the arbitration hearing and in their pre- and post-hearing filings. Id. at 899-900. Due to the mistake of fact, plaintiff alleged its interest was prejudiced and the arbitrator's award was affected. Id. at 900.

Analysis and Holdings

The standard for reviewing arbitration awards is narrow. Id. Typically, courts will uphold an arbitration award as long as it "draws its essence" from the collective bargaining agreement. Id. at 900. An arbitration award does not "draw its essence" from the collective bargaining agreement if: "(1) it conflicts with express terms of the agreement; (2) it imposes additional requirements not expressly provided for in the agreement; (3) it is not rationally supported by or derived from the agreement; or (4) it is based on general considerations of fairness and equity instead of the exact terms of the agreement." Id. The court stated that nothing short of fraud or similar irregularity would suffice to modify an arbitrator's finding of fact. Id. at 901. In the instant action, the court upheld the arbitration award because it drew on the essence of the collective bargaining agreement, and there were no improprieties in the arbitration procedure. Id. at 902. Plaintiff's allegations regarding inappropriate legal conclusions were of no moment for the court. Id.

The case was decided on March 31, 2006.