Crop Insurer Can Recover Over-payments from Farmer
Barry Zalma
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One of the maxims of farming is the imperative each year to risk the “up-front costs” of sowing in return for the never-guaranteed prospect of “back-end revenue” from reaping. The Federal Crop Insurance Act helps farmers to manage these uncertainties through a crop insurance system, which the Federal Crop Insurance Corporation oversees. Under this federal program, farmers can purchase insurance from the Insurance Corporation or from an approved insurance provider that the Insurance Corporation reinsures.
In Edgar Miller v. United States Department Of Agriculture; Risk Management Agency; Federal Crop Insurance Corporation, No. 22-1209, United States Court of Appeals, Sixth Circuit (January 3, 2023) the Sixth Circuit was asked to be the last word on a series of disputes over payments and over-payments of crop insurance claims.
For years Edgar Miller purchased crop insurance, hoping to protect his farm from poor harvests. While the insurance for the most part served that purpose, it also brought him three federal lawsuits, an arbitration, and an adverse agency determination from the Federal Crop Insurance Corporation. Miller challenged this last decision-the agency’s decision-under the Administrative Procedure Act. The district court rejected the challenge.
The Common Crop Insurance Policy, promulgated under the Act, governs all disputes. The Crop Insurance Policy requires compliance with the Act, attendant regulations, and the Insurance Corporation’s procedures. It sets out the particulars of the insurance coverage and the claims process. Certain provisions address the readjustment and repayment of settled claims. Section 21(b)(3), for instance, allows for repayment of overpaid claims if a farmer “knowingly misreported” yield information. And § 21(f) contemplates repayment if a farmer fails “to maintain or provide” certain records.
The Policy also requires the arbitration of disputed claims. The Insurance Corporation issues a generally applicable interpretation that binds all program participants. Because these decisions must be generally applicable, any requests for interpretation must not turn on or even invoke “specific facts” or “alleged conduct.”
MILLER’S CLAIMS
Edgar Miller, a corn and soybean farmer, has experienced this “large regulatory regime” firsthand. Helena Agri-Enters., 988 F.3d at 267. He purchased crop insurance from an approved insurance provider, Farmers Mutual Hail Insurance Company of Iowa. After poor harvests in 2012, 2013, and 2014, Miller filed claims. He received payouts for 2012 and 2013. But Farmers Mutual declined his claim for 2014. Making matters worse for Miller, Farmers Mutual realized it had overpaid Miller for 2012 and 2013 due to his poor recordkeeping. It demanded repayment. When Miller refused, the parties went to arbitration.
Farmers Mutual secured a favorable arbitral award and filed a petition to confirm it. But making the situation more difficult, the district court nullified the award after finding that the arbitrator had stepped out of line and interpreted the Policy in deciding that Farmers Mutual could readjust past claims and require repayment from Miller.
The parties returned to the Insurance Corporation. It issued, in response, “Final Agency Determination 287.” The ruling explained that multiple policy provisions require farmers to repay overpaid claims, and that insurers have a duty to correct errors in claims. With Final Agency Determination 287 in its hand, if not its ear, Farmers Mutual filed another petition to confirm the arbitral award. This time, the district court granted it, and the Sixth Circuit affirmed.
THE APPEAL
Having reached the end of the road on the arbitral award proceedings, Miller challenged one premise of that ruling-Final Agency Determination 287-under the Administrative Procedure Act. The district court rejected the challenge.
The Sixth Circuit was asked to determine if the Final Agency Determination 287 complied with the Administrative Procedure Act. Only if the ruling is arbitrary and capricious may the Sixth Circuit set it aside under the Act
Farmers Mutual asked whether § 21(b)(3) of the Crop Insurance Policy- which requires repayment if a farmer “knowingly misreported any information related to any yield”-sets out “the only circumstances” for recovering overpaid claims. Insurers must “audit and correct any claim that was not adjusted according to [the Insurance Corporation’s] loss adjustment procedures.” The Insurance Corporation found that (1) multiple policy provisions require farmers to repay overpaid claims and (2) insurers have a duty to correct such errors.
The Sixth Circuit concluded that the text of the Crop Insurance Policy and the regulatory framework supported both conclusions.
The Policy’s text obligates a farmer to “repay any overpaid amounts,” in a variety of circumstances. The Policy’s text also requires the correction of errors. The Crop Insurance Policy tells insurers to comply with the Insurance Corporation’s loss adjustment procedures, and obligates farmers to retain and provide records upon the insurer’s “request”. These obligations bolster Determination 287’s finding of a duty to audit and correct claims.
The crop insurance system’s broader regulatory framework supports these conclusions as well. The Crop Insurance Policy requires insurers to comply with the Insurance Corporation’s procedures. And the regulatory scheme binds all program participants.
The Insurance Corporation’s procedures convey a similar set of obligations to the Policy. The Loss Adjustment Manual outlines extensive processes that insurers must follow in adjusting claims, including corrected claim. The bulletins and informational memoranda subject insurers to periodic compliance reviews and direct insurers to “reevaluate[]” claims after changes in guidance occur.
All perspectives considered, the Crop Insurance Policy and the regulatory framework support the two core holdings in Determination 287, making it anything but arbitrary and capricious.
The Sixth Circuit found that Miller’s objections to the earlier Determinations were unconvincing. Policy provisions requiring repayment, was inconsistent with § 21(b) and its carve-out of the right of the insurer to request and inspect records and does not fit with the process for correcting claims in the Loss Adjustment Manual.
ZALMA OPINION
Mr. Miller, a farmer, had his claims disputed mainly because of a lack of effective record keeping that resulted in over payment of his crop insurance claims. The statutes, and the policy that records in insurance form the statutes, require return of over payments. Miller delayed the process by argument, arbitration, litigation and interesting arguments none of which convinced the Sixth Circuit who confirmed the District Court’s ruling.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]
Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library
Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.
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