Summary of a Recent
Judicial
Development in
Administrative Law and
Federal Crop Insurance
Eighth Circuit Orders Partial Reimbursement
of State Judgment
Kurt B. OlsonNational AgLaw Center Graduate Assistant
In Rain & Hail Insurance Service, Inc., v. Federal Crop Insurance Corporation, 426 F.3d 976 (8th Cir. 2005), the Eighth Circuit Court of Appeals ordered reimbursement of compensatory damages issued against a crop insurer by a state court and remanded for further proceedings to determine if pre-judgment interest and court costs were also reimbursable.
A state court issued a judgment against Rain & Hail Insurance Service, Inc. ("Rain & Hail") for breach of contract and misrepresentation claims regarding one of its Multi-Peril Crop Insurance (MPCI) policies, a policy reinsured by the Federal Crop Insurance Corporation (FCIC) through the terms of a Standard Reinsurance Agreement (SRA). Id at 978. After the FCIC denied Rain & Hail’s request for reimbursement of compensatory damages, punitive damages, court costs, and interest, the company unsuccessfully appealed to the USDA’s Agricultural Board of Contract Appeals (AGBCA) before seeking judicial review. Id at 978. The AGBCA based its denial of reimbursement on its interpretation of a FCIC-issued Manager’s Bulletin, which is not a formal regulation and not Congressionally authorized to carry the force of law. See id. at 979. Nevertheless, the court deferred to the AGBCA because it had unique expertise in crop insurance and its interpretation of "such FCIC pronouncements…’is a component of the [AGBCA’s] delegated lawmaking powers.’" Id (citations omitted).
Rain & Hail alternatively argued that the contractual damages, interest, and court costs not covered by the AGBCA’s interpretation of the Manager’s Bulletin were nonetheless covered under the terms of the SRA, which excludes only punitive and consequential damages from reimbursement. See id. at 980. The court again looked to the AGBCA, but in this instance found its interpretation that the SRA excluded compensatory damages was arbitrary and capricious. See id. . The court pointed out that the SRA merely excluded consequential damages, which are simply one type of compensatory damages. See id. at 980-981. The court went on to find that Rain & Hail’s breach of contract damages could not be categorized as consequential damages. See id. Thus, the court affirmed the AGBCA’s interpretation of the Manager’s Bulletin but held Rain & Hail was entitled to reimbursement for its compensatory damages while remanding to determine if Rain & Hail was also entitled to pre-judgment interest and court costs. See id. at 982.
The case was decided on October 19, 2005; this summary was posted Feb. 23, 2006.