Balvin v. Rain & Hail, LLC

Citation: 336 F. Supp. 3d 1008Docket: 4:18-cv-4049-LLP

Court: United States District Court; August 21, 2018; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Lawrence L. Piersol, United States District Judge, addresses the denial of crop insurance benefits by Defendant Rain and Hail, LLC to Plaintiff Terry Balvin, stemming from a federally reinsured multiple peril crop insurance policy. The claim was arbitrated on December 15, 2017, with the arbitrator upholding the denial. Currently, the Court is considering Plaintiff's Amended Motion to Vacate the Arbitration Award and Defendant's Motion to Confirm it. After reviewing the case, the Court grants the Motion to Vacate and denies the Motion to Confirm.

In 2015, Plaintiff obtained a multi-peril crop insurance policy, Policy No. MP-0753754, covering approximately 2,077 acres of corn and soybeans in Bon Homme County, South Dakota, specifically insuring 1,130.3 acres of corn at a .75 coverage level. This policy, reinsured under the Federal Crop Insurance Act and federal regulations, has legal precedence established in Federal Crop Ins. Corp. v. Merrill.

In October 2015, Plaintiff harvested 23 acres of corn, but from October 13 to November 20, experienced a dry spell with minimal precipitation. Following a brief rain on October 23, Plaintiff harvested 947 acres of beans but did not harvest any corn, despite the fields being adjacent. A blizzard on November 20, 2015, and excess moisture led Plaintiff to submit a claim on December 4, 2015, asserting that adverse weather conditions prevented corn harvesting before the insurance period ended on December 10, 2015.

On December 18, independent adjuster Allen Skotvold reviewed the claim, observing that while some neighboring fields had limited corn left standing, Plaintiff’s fields were full. Skotvold noted that the fields were accessible and suitable for harvesting. In a follow-up phone conversation on January 11, 2016, he recorded that Plaintiff had not attempted further harvesting, and an appraisal was needed. On January 29, Skotvold appraised the moisture content of the corn at 14.8% and estimated a yield of 193.1 bushels per acre but chose not to sign the appraisal due to concerns about the yield's representativeness.

Skotvold testified that on January 29, snow was minimal and did not impede the Plaintiff's ability to harvest. Neighbor Jerome Nedved, who farmed similarly to the Plaintiff, harvested 400 acres of corn in 2015, completing half before the end of February and the rest in early March, during which the ground firmed up briefly. Snowfall records indicate minimal snowfall during this period. The Plaintiff managed to harvest 78 acres from February 25-27, achieving a yield of 61.79 bushels per acre. His diary entries noted significant snow and flat corn stalks, and he reported a severe storm on June 17 that laid the corn flat. On June 20, a former employee of the Defendant advised the Plaintiff to pursue a claim for unharvested corn, although he requested anonymity. This employee, now working with Diversified Crop Insurance Services (DCIS), supported the Plaintiff's claim by stating that the conditions did not allow for timely harvesting or planting. However, this employee's photos from June 21, which could have corroborated the Plaintiff's claims, have since disappeared. The Defendant later classified the claim as a 'non-loss.' Plaintiff sought arbitration for $451,042 in crop insurance indemnity, but on February 7, 2018, the arbitrator denied the claim, citing that the Plaintiff had opportunities to harvest both during and after the EOIP but failed to do so in a timely manner, leading to additional deterioration of the crop.

The Court's review of arbitration awards is highly deferential, with a very limited scope for overturning such decisions. An arbitrator's ruling can only be vacated under specific circumstances outlined in the Federal Arbitration Act (FAA), which include corruption, evident partiality, misconduct, or exceeding their powers. In this case, the Plaintiff contends that the arbitrator engaged in misconduct by refusing to hear pertinent evidence and exceeded his authority in interpreting relevant policies and practices. The standard for vacating an award due to evidentiary misconduct is that the arbitrator's error must significantly affect a party's rights, resulting in a denial of a fair hearing. The Plaintiff claims he was denied the chance to effectively cross-examine two key witnesses, which he argues undermined his ability to contest their testimony regarding field assessments on a specific date.

Defense counsel objected to the introduction of scale tickets not previously produced, leading the arbitrator to rule them inadmissible. Chris Kluge provided testimony about his qualifications and the claims process. The plaintiff sought to use Kluge’s earlier, inconsistent testimony from a similar case to impeach him and investigate the motives behind his prior statements. However, the defendant objected, preventing further cross-examination of Kluge on this point. There was no transcript of the arbitration hearing, leaving the court to rely on the arbitration award and supporting affidavits. The plaintiff carries the burden to vacate the arbitration award but failed to demonstrate that the arbitrator's exclusion of evidence constituted misconduct warranting vacatur. The court emphasized that arbitrators have discretion in determining the necessity of evidence, and both parties had sufficient opportunity to present their cases, ensuring a fair hearing. Consequently, the arbitration award could not be vacated under 9 U.S.C. 10(a)(3).

Regarding the claim of exceeding authority, the plaintiff argued the arbitrator improperly interpreted "good farming practices" and failed to refer interpretive disputes to the Federal Crop Insurance Corporation (FCIC). The defendant contended that the award was based on factual determinations rather than policy interpretations. The plaintiff maintained that resolving whether an insured cause of loss existed required an assessment of revenue from his corn enterprise relative to the insurance policy's revenue guarantee, which involved policy interpretation. The plaintiff asserted that because such interpretations were not submitted to the FCIC, the arbitration award should be vacated. The policy mandates arbitration for disputes but stipulates that any policy interpretation must be referred to the FCIC, particularly regarding definitions of good farming practices.

Failure to obtain a required FCIC interpretation nullifies any agreement or award. Insurance under the Policy covers only unavoidable, naturally occurring events, such as 'excess moisture.' Losses resulting from not following recognized good farming practices are excluded, which includes failure to properly plant, care for, or harvest the insured crop. The Policy defines 'abandoned' as insufficient care for the crop or a failure to harvest unless an insured cause of loss has prevented proper care or harvesting. For 'failure to timely harvest' to be considered abandonment, the crop must be in a harvestable condition. 

To vacate an award under 9 U.S.C. 10(a)(4) for the arbitrator exceeding powers, the arbitrator must stray from the agreement's interpretation. The Plaintiff contends the arbitrator exceeded authority by determining abandonment without interpreting 'good farming practices.' The Defendant asserts the arbitrator made necessary factual determinations regarding the conditions for insurability. The Court supports the arbitrator's factual conclusions, noting that testimony indicated the Plaintiff's corn was the only unharvested crop in the area and that neighboring fields were successfully harvested. 

The Court maintains that the arbitrator did not need to interpret 'good farming practices,' as the findings were based on factual evidence presented at the hearing, aligning with the Policy and Manual's language. The absence of further crop deterioration after harvest completion reinforces this conclusion.

When the insured harvests crops post-insurance period, if the yield is below appraised production, the appraised amount is used for loss adjustment unless the insured can demonstrate that no further loss or deterioration occurred after the insurance period. Coverage for subsequent crop damage is contingent upon the insured making every reasonable effort to harvest timely and properly. Testimony revealed that neighboring farmers successfully harvested after the end of the insurance period (EOIP), indicating the insured also had a harvest window. The insured’s claim that a June windstorm prevented harvesting was insufficient to prove additional loss causes, leading the arbitrator to properly conclude that the insured failed to harvest during available opportunities.

If the appraised production surpasses the policy guarantee, no insurance benefits are owed. The insured contended that the arbitrator incorrectly utilized unsigned appraisal worksheets to determine appraised value. However, the arbitrator noted that the insured's corn crop was appraised twice, with those appraisals exceeding the guaranteed production. Under the policy provisions, these appraisals must be used if the insured opts not to harvest. The corn appraisal process outlined in the Corn Loss Adjustment Standards Handbook requires both an Appraisal Worksheet and a Production Worksheet to comprehensively document loss and determine indemnity. A final inspection is necessary unless a notice has been cleared. For denied claims, the Production Worksheet must include specific details, such as claim and policy numbers, crop information, and the adjuster's information.

A denied claim refers to instances where the insured believes they are entitled to indemnity, replant, or prevented planting payments, but the insurer denies the claim. Under the relevant policy, any disputes regarding policy interpretation or applicability must be referred to the Federal Crop Insurance Corporation (FCIC) for clarification. The plaintiff claims that a Production Worksheet was never completed, a fact not disputed by the defendant. The loss adjustment procedures mandate the completion of a Production Worksheet when a claim is filed and subsequently denied, yet there is no established procedure for appraising value in the absence of a completed Production Worksheet and unsigned Appraisal Worksheets. This situation necessitates FCIC interpretation. The court ordered that the plaintiff's motion to vacate the arbitration award is partially denied and granted only to resolve procedural aspects related to incomplete worksheets. The defendant's motion to confirm the arbitration award is also partially granted and denied for the same reasons. The Risk Management Agency (RMA) serves as the federal administering agent for the FCIC, and its handbooks serve as official guidance for the Federal Crop Insurance program. Appraised production refers to the insurer's assessment of potential crop production from unharvested acreage at the time of appraisal.