Filed: Feb. 27, 2019
Latest Update: Mar. 03, 2020
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 18-1463 WILLIAMSON FARM, Plaintiff - Appellant, v. DIVERSIFIED CROP INSURANCE SERVICES, a/k/a CGB Diversified Services, Inc., Defendant - Appellee. Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. James C. Dever III, District Judge. (5:17-cv-00513-D; 5:16-mc-00018-D) Argued: December 13, 2018 Decided: February 27, 2019 Before KEENAN, FLOYD, and THACKER, Circuit Judges. Affirmed
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 18-1463 WILLIAMSON FARM, Plaintiff - Appellant, v. DIVERSIFIED CROP INSURANCE SERVICES, a/k/a CGB Diversified Services, Inc., Defendant - Appellee. Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. James C. Dever III, District Judge. (5:17-cv-00513-D; 5:16-mc-00018-D) Argued: December 13, 2018 Decided: February 27, 2019 Before KEENAN, FLOYD, and THACKER, Circuit Judges. Affirmed ..
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 18-1463
WILLIAMSON FARM,
Plaintiff - Appellant,
v.
DIVERSIFIED CROP INSURANCE SERVICES, a/k/a CGB Diversified
Services, Inc.,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern District of North Carolina, at
Raleigh. James C. Dever III, District Judge. (5:17-cv-00513-D; 5:16-mc-00018-D)
Argued: December 13, 2018 Decided: February 27, 2019
Before KEENAN, FLOYD, and THACKER, Circuit Judges.
Affirmed by published opinion. Judge Thacker wrote the opinion, in which Judge
Keenan and Judge Floyd joined.
ARGUED: Matthew William Buckmiller, STUBBS & PERDUE, P.A., Raleigh, North
Carolina, for Appellant. Roy Jefferson Allen, HUNT ROSS & ALLEN, Clarksdale,
Mississippi, for Appellee. ON BRIEF: Derek M. Crump, BROWN, CRUMP,
VANORE & TIERNEY, L.L.P., Raleigh, North Carolina, for Appellee.
THACKER, Circuit Judge:
In this case, Williamson Farm (“Appellant”) challenges the district court’s
decision to vacate an arbitration award that Appellant won against Diversified Crop
Insurance (“Appellee”), a private insurance company that sold federal crop insurance
policies to Appellant. Appellant asserts that the district court erred in denying its motion
to confirm the arbitration award and granting Appellee’s motion to vacate on the basis
that the arbitrator exceeded her powers.
Despite the strong presumption in favor of confirming arbitration awards pursuant
to the Federal Arbitration Act (“FAA”), we hold that Appellee met its heavy burden to
prove that the arbitrator exceeded her powers by awarding extra-contractual damages,
contrary to both the policy and binding authority from the Federal Crop Insurance
Corporation (“FCIC”). Therefore, we affirm.
I.
A.
Background on the Federal Crop Insurance Program
The policies at issue in this case are federal crop insurance policies, which
Appellee sold pursuant to the Federal Crop Insurance Act (“FCIA”), 7 U.S.C. §§ 1501–
1524, 1531, and accompanying regulations issued by the FCIC. These policies are not
typical private insurance agreements, so a brief discussion of the federal government’s
role in crop insurance agreements is necessary.
The federal crop insurance program provides farmers and agricultural entities in
the United States with crop insurance protection, a venture that was considered too risky
2
for traditional private insurers when the FCIA was enacted in 1938. As the Supreme
Court explained, “the Government engaged in crop insurance as a pioneer. Private
insurance companies apparently deemed all-risk crop insurance too great a commercial
hazard.” Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 383 n.1 (1947).
To provide this protection to farmers, the FCIA established the FCIC, a
government corporation within the United States Department of Agriculture’s Risk
Management Agency that administers the federal crop insurance program. 7 U.S.C.
§ 1503. The FCIC does not directly issue crop insurance policies to farmers. Instead, it
relies on “approved insurance providers” 1 -- private insurers such as Appellee -- to issue
federal crop insurance policies to farmers like Appellant. 7 U.S.C. § 1502(b)(2). Then,
when certain eligibility conditions are met, the FCIC reinsures the approved insurance
providers’ losses and reimburses their administrative and operating costs.
In order to qualify for reinsurance through the FCIC, approved insurance providers
must comply with the FCIA and the accompanying regulations issued by the FCIC
governing the sale, issuance, and servicing of federal crop insurance policies. 7 C.F.R.
§ 400.168; see also Felder v. Fed. Crop Ins. Corp., 146 F.2d 638, 640 (4th Cir. 1944);
Davis v. Producers Agric. Ins. Co.,
762 F.3d 1276, 1284 (11th Cir. 2014). Accordingly,
“even though the crop insurance policy is between the farmer and an approved insurance
1
Pursuant to the FCIA, “[t]he term ‘approved insurance provider’ means a private
insurance provider that has been approved by the [FCIC] to provide insurance coverage
to producers participating in the Federal crop insurance program established under this
subchapter.” 7 U.S.C. § 1502(b)(2).
3
provider,” the FCIA “establishes the terms and conditions of insurance.” Davis, 762 F.3d
at 1284 (citation omitted).
Indeed, all approved insurance providers issue a uniform policy drafted by the
FCIC known as the “Common Crop Insurance Policy,” the text for which is provided at 7
C.F.R. § 457.8. Both policies at issue in this case mirrored the Common Crop Insurance
Policy. Additionally, the FCIC sets premium rates for each county and crop insured,
subsidizes and receives premiums, and pays claims. In short, the FCIC is extensively
involved in and exerts control over all aspects of the federal crop insurance program.
The Farm Service Agency (“FSA”), another agency within the Department of
Agriculture, works with the Risk Management Agency and the FCIC to implement the
federal crop insurance program through FSA’s network of state and county field offices.
As relevant to this case, insureds and approved insurance providers are required to submit
program eligibility, acreage reporting, and other necessary forms to their local FSA office
in order to receive federal crop insurance coverage through the FCIC.
B.
Appellant’s Underlying Policy Claims
This case centers on two policies issued by Appellee to insure Appellant’s 2013
crops: (1) the Richmond County Policy; and (2) the Montgomery County Policy. Under
4
the Richmond County Policy, Appellee listed Farm Number 2172. 2 Under the
Montgomery County Policy, Appellee listed Farm Numbers 1870 and 4168.
For many years, Appellant purchased its crop insurance through insurance agent
Lynn Saintsing, until Saintsing sold his agency to Appellee in 2012. 3 During his time as
Appellant’s insurance agent, Saintsing’s regular practice was to help Appellant complete
the necessary forms and submit them to the proper FSA office to insure Appellant’s
farms.
It was not unusual for a farm located in one county to be administered by an FSA
office in another county, based on the owner’s preferences or if the farm’s county did not
have an FSA office. Such was the case with Appellant’s Farm 2172, which was located
in Montgomery County. In 1996, the Montgomery County FSA office closed, and
administration of Farm 2172 shifted to Richmond County. Accordingly, since 1996,
Farm 2172 had been listed on forms filed with the FSA office in Richmond County even
though it was located in Montgomery County. Saintsing was aware of this, since he
helped Appellant fill out the forms and prepare maps of the farms.
2
Farm numbers, which are assigned by the FSA, identify an insured’s farms and
are used in connection with federal crop insurance policies and FSA forms.
3
It is not clear from the record how many years Appellant purchased its crop
insurance through Saintsing, but Appellant’s brief notes that it has farmed on this
property “for decades” and purchased its crop insurance through Saintsing “[d]uring
much of this time.” Appellant’s Br. 3.
5
Prior to Appellee’s acquisition of Saintsing’s insurance agency, Saintsing issued
Appellant a single policy that covered all of Appellant’s crops regardless of the county in
which the farm was located.
1.
Crop Loss Claim: Farm 2172
The trouble began for Appellant after Saintsing sold his business to Appellee in
2012. Unlike the single policy previously issued by Saintsing, Appellee issued Appellant
separate policies for each county in which a farm was geographically located, regardless
of where the farm was administered. Saintsing -- then an agent for Appellee -- helped
Appellant prepare the necessary forms to be submitted to the FSA. But on those forms,
Saintsing listed Farm 2172 on the Richmond County Policy (where it was administered),
rather than the Montgomery County Policy (where it was geographically located).
In 2013, Appellant experienced crop loss due to deer on Farm 2172 and expected
this loss to be covered under its crop insurance policy. Therefore, Appellant filed a claim
for the loss with Appellee. However, Appellee denied the claim “on the technicality that
Farm 2172, located in Montgomery County, was listed on [forms] filed with the FSA in
Richmond County and was therefore listed on the wrong policy.” J.A. 13. 4 As noted,
Saintsing had assisted Appellant in completing these forms and facilitated their filing
with the FSA.
4
Citations to the “J.A.” refer to the Joint Appendix filed by the parties in this
appeal.
6
2.
Prevented Planting Claim: Farms 1870 and 4168
Appellant also seeks recovery for a prevented planting claim 5 under the
Montgomery County Policy. The summer of 2013 was excessively rainy. As a result,
Appellant was unable to plant on Farms 1870 and 4168.
During the period that Appellant was unable to plant, another of Appellee’s
agents, Jason Nifong, visited Appellant’s farmland to aid Appellant in preparing its FSA
forms. During this visit, Nifong advised Appellant that it could file a prevented planting
claim as a result of the rainy weather. Following Nifong’s visit, Appellant chose to file a
prevented planting claim and did not attempt to plant on these farms.
However, in preparing the FSA forms, Nifong failed to note the prevented planting
acres on the correct form, and he did not explain to Appellant that failure to report the
acres on that specific form would bar the prevented planting claim. Ultimately, Appellee
denied Appellant’s claim based on this failure to report.
C.
Arbitration
Appellant sought arbitration pursuant to Section 20(a) of the policy based on
Appellee’s denials of its crop loss and prevented planting claims. See J.A. 207, § 20(a)
5
When certain requirements are met, a prevented planting claim allows a
policyholder to recover when an insured cause of loss that is general to the surrounding
area, such as excessive rain, prevents the policyholder (as well as other producers in the
area) from planting crops on eligible acres.
7
(“If you and we fail to agree on any determination made by us . . . the disagreement must
be resolved through arbitration . . . .”).
1.
Crop Loss Claim: Farm 2172
As to Appellant’s crop loss claim for Farm 2172, the arbitrator determined, “[t]he
lack of coverage for Farm 2172 indisputably arose from [Appellee’s] decision to issue
county by county policies and its failure, and that of its agents who knew where these
farms were actually located . . . , to correctly list the farms for crop insurance purposes.”
J.A. 14. The arbitrator continued, “I conclude that [Appellee] failed to comply with the
terms of [the policy] and that failure resulted in the loss to [Appellant]. [Appellee] left
[Appellant] effectively uninsured for crop year 2013 as to Farm 2172.” Id. The
arbitrator further concluded that Appellee engaged in negligence, breach of fiduciary
duty, and constructive fraud. As a result, she awarded Appellant $97,692.39 for
Appellee’s “breach of [the policy] and the failure to pay the claim,” damages which she
trebled because she concluded that Appellee violated the North Carolina Unfair and
Deceptive Trade Practices Act.
Id. Lastly, finding that Appellee failed to attempt to
reasonably settle the claim, the arbitrator awarded Appellant $54,368.87 in attorneys’
fees pursuant to North Carolina law.
2.
Prevented Planting Claim: Farms 1870 and 4168
As for Appellant’s prevented planting claim for Farms 1870 and 4168, the
arbitrator similarly determined that Appellee’s agent was at fault for failing to report the
8
acres on the correct FSA form, and that Appellee’s “actions or lack of action left
[Appellant] effectively uninsured for crop year 2013 as to Farms [1870] 6 and 4168.” J.A.
15. Accordingly, the arbitrator concluded, “I award the amount of $77,668.59 to
[Appellant] for the breach of [the policy] and the failure to pay the claim. I also conclude
that [Appellee] engaged in negligence, breach of fiduciary duty and constructive fraud.”
Id. As with the crop loss claim for Farm 2172, the arbitrator trebled damages pursuant to
the North Carolina Unfair and Deceptive Trade Practices Act and awarded Appellant
$44,483.63 in attorneys’ fees pursuant to North Carolina law.
3.
Arbitration Award
After all was said and done, the total arbitration award to Appellant was
$97,692.39 for the crop loss claim for Farm 2172 and $77,668.59 for the prevented
planting claim for Farms 1870 and 4168 (both of which were to be trebled), $98,852.50
in attorneys’ fees, and $14,994 in reimbursement for arbitration costs and fees.
According to Appellant, this amounted to a total arbitration award of $639,929.44.
D.
District Court’s Decision
On May 12, 2016, Appellant filed a motion to confirm the arbitration award in the
United States District Court for the Eastern District of North Carolina. And, on June 29,
6
The arbitrator’s decision occasionally refers to Farm 1870 as Farm 1872 or 1879.
Based on the record, these references appear to be in error.
9
2016, Appellee filed a competing motion to vacate the arbitration award, asserting that
the arbitrator exceeded her authority. Additionally, Appellee argued that Appellant failed
to obtain a determination from the FCIC that Appellee failed to comply with the
insurance policies or FCIC procedures, which it asserted was a prerequisite for the district
court to confirm the award.
On July 12, 2016, the district court requested an amicus brief from the FCIC
addressing whether the arbitrator exceeded her authority and whether Appellant was
required to obtain an FCIC determination before the district court could confirm the
arbitration award. The FCIC filed its amicus brief on August 24, 2016, taking the
position that the arbitrator exceeded her authority by (1) awarding contractual damages
not covered by any policy; (2) awarding extra-contractual damages and attorneys’ fees;
(3) failing to obtain and follow binding FCIC interpretations, issued in the form of Final
Agency Determinations (“FADs”); and (4) failing to obtain an FCIC determination prior
to any extra-contractual damages or attorneys’ fees being awarded during judicial review.
On March 26, 2018, the district court granted Appellee’s motion to vacate and
denied Appellant’s motion to confirm the arbitration award, concluding that the arbitrator
exceeded her powers by (1) impermissibly interpreting the policy rather than obtaining an
interpretation from the FCIC; and (2) awarding extra-contractual damages. Appellant
timely appealed on April 25, 2018.
10
II.
We review the district court’s legal rulings regarding confirmation or vacation of
an arbitration award de novo and the district court’s factual findings, if any, for clear
error. Norfolk S. Ry. Co. v. Sprint Commc’ns Co., 883 F.3d 417, 422 (4th Cir. 2018).
Pursuant to the FAA, “any judicial review of an arbitration award must be an
extremely narrow exercise.” Long John Silver’s Restaurants, Inc. v. Cole, 514 F.3d 345,
351 (4th Cir. 2008). There is a strong presumption in favor of confirming arbitration
awards under the FAA, and any party seeking to overturn an arbitration award faces a
“heavy burden.” Three S Del., Inc. v. DataQuick Info. Sys., Inc.,
492 F.3d 520, 527 (4th
Cir. 2007). As we have stated, “in reviewing such an award, ‘a district or appellate court
is limited to determin[ing] whether the arbitrators did the job they were told to do -- not
whether they did it well, or correctly, or reasonably, but simply whether they did it.’”
Id.
(quoting Remmey v. PaineWebber, Inc.,
32 F.3d 143, 146 (4th Cir. 1994)). Indeed, “an
arbitration award is enforceable even if the award resulted from a misinterpretation of
law, faulty legal reasoning or erroneous legal conclusion.” Richmond, Fredericksburg &
Potomac R.R. Co. v. Transp. Commc’ns Int’l Union,
973 F.2d 276, 281 (4th Cir. 1992)
(internal quotation marks omitted).
The FAA provides that a court may only vacate an arbitration award on one of the
following grounds:
(1) where the award was procured by corruption, fraud, or
undue means;
(2) where there was evident partiality or corruption in the
arbitrators, or either of them;
11
(3) where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient cause
shown, or in refusing to hear evidence pertinent and material
to the controversy; or of any other misbehavior by which the
rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made.
Three S Del., 492 F.3d at 527 (citing 9 U.S.C. § 10(a)). “The permissible common law
grounds for vacating such an award ‘include those circumstances where an award fails to
draw its essence from the contract, or the award evidences a manifest disregard of the
law.’”
Id. (quoting Patten v. Signator Ins. Agency, Inc.,
441 F.3d 230, 234 (4th Cir.
2006)).
III.
Appellant asserts that the district court erred in this case by vacating the arbitration
award. Appellant argues that the arbitrator did not exceed her powers by awarding extra-
contractual damages and attorneys’ fees. In the alternative, Appellant argues that even if
the arbitrator exceeded her powers in part, we should nevertheless confirm the arbitration
award of contract damages, which were within the arbitrator’s authority to award
pursuant to the policy. We address each argument in turn.
A.
Extra-Contractual Damages
The district court vacated the arbitration award after determining that the arbitrator
exceeded her powers by awarding prohibited extra-contractual damages and attorneys’
12
fees. Appellant asserts that the arbitrator acted within her authority in rendering the
award because the arbitrator concluded that Appellee breached the policy, and it was
within her power to award extra-contractual damages.
1.
Policy Interpretation
We turn first to whether the policy unambiguously prohibits the arbitrator from
awarding extra-contractual damages. In arguing that it does, Appellee relies primarily on
Sections 20(h) and 20(i) of the policy. These provisions state as follows:
(h) Except as provided in section 20(i), no award or
settlement in mediation, arbitration, appeal, administrative
review or reconsideration process or judicial review can
exceed the amount of liability established or which should
have been established under the policy, except for interest
awarded in accordance with section 26.
(i) In a judicial review only, you may recover attorneys fees
or other expenses, or any punitive, compensatory or any other
damages from us only if you obtain a determination from
FCIC that we, our agent or loss adjuster failed to comply with
the terms of this policy or procedures issued by FCIC and
such failure resulted in you receiving a payment in an amount
that is less than the amount to which you were entitled.
J.A. 209, § 20(h)–(i) (emphases supplied).
Appellee argues that these provisions unambiguously state that the arbitrator
cannot award extra-contractual damages, and such damages may only be awarded by a
court upon judicial review and after obtaining an FCIC determination that the agent or
loss adjuster failed to comply with the terms of the policy. Making the same argument in
its amicus brief submitted before the district court, the FCIC explained:
13
According to the clear language of the policy, any extra-
contractual damages, including damages arising from state
claims, were only available after this Court was asked to
review the arbitrator’s award. See 7 C.F.R. § 457.8, ¶ 20(i).
As noted by FCIC, any extra-contractual claims (i.e.
negligence, breach of fiduciary duty, constructive fraud,
unfair and deceptive practices) and attorneys’ fees are limited
solely to instances where FCIC has determined the insurance
provider violated its policies and procedures and such
violation had a monetary impact on the payment of the claim.
See FCIC Response to Comments, 69 Fed. Reg. 48652-01,
48717 (Aug. 10, 2004). Thus, the plain and unambiguous
terms of section 20(i) of the policy (7 C.F.R. § 457.8, ¶ 20(i)),
together with the plain and unambiguous language of 7
C.F.R. § 400.176(b) and 7 C.F.R. § 400.352(b)(4),
unequivocally dictate that a party can only be awarded extra-
contractual damages and attorneys’ fees upon petitioning this
Court for review of the arbitrator’s award and then only after
obtaining a determination from FCIC.
J.A. 232–33.
In rendering the award, however, the arbitrator interpreted these provisions
differently. The arbitrator concluded:
Section 20(i) does not in fact state that the arbitrator may
not award attorneys’ fees or punitive, compensatory or other
damages. Instead it appears to impose a type of condition
precedent to the ultimate enforceability of such an award by a
court. Moreover, if the provision has the effect [Appellee]
claimed, the arbitrator would have little jurisdiction to decide
anything. That plainly cannot be the case. Notably, the
Policies are silent on timing, such that the condition precedent
of FCIC determination could be satisfied post-award but prior
to enforcement in court.
In addition, Section 20(h) does not expressly exclude any
theories of liability (such as fraud) or types of damages;
instead it says that no award can exceed the amount of
liability established under the policy. It does not expressly
exculpate insurers from their improper conduct such as fraud
14
or breach of fiduciary duty, conduct that can trigger liability
beyond liability for breach of contract.
J.A. 10.
But it does not matter if these policy provisions are as unambiguous as Appellee
(and the FCIC) claims or if the arbitrator’s alternative interpretation is reasonable. This
is because even under the arbitrator’s explanation, these provisions are ambiguous at best.
As the policy makes clear, the arbitrator was required to obtain and apply the FCIC’s
interpretation of any ambiguous policy provision, and the arbitrator could not substitute
her own interpretation for that of the FCIC.
As the district court correctly pointed out, “[i]n cases involving federally reinsured
crop insurance, the insurance contract forms only one part of the agreement between the
parties. The statutes and regulations associated with the federal crop insurance scheme
also limit the arbitrator’s authority.” J.A. 271 (citing Davis v. Producers Agric. Ins. Co.,
762 F.3d 1276, 1284–85 (11th Cir. 2014)). Significantly, Section 20(a)(1) of the policy -
- the very same section that provides for arbitration -- states that if there is a dispute that
“in any way involves a policy or procedure interpretation,” the parties “must obtain an
interpretation from FCIC.” J.A. 208, § 20(a)(1) (emphasis supplied). The FCIC’s FADs
are “binding on all participants in the Federal crop insurance program,” including
arbitrators. 7 C.F.R. § 400.765(c); see also J.A. 208, § 20(a)(1)(i) (“Any interpretation
by FCIC will be binding in any mediation or arbitration.”). Therefore, the failure to
obtain a required FCIC interpretation “will result in the nullification of any agreement or
15
award.” J.A. 208, § 20(a)(1)(ii). In short, both the policy and FCIC regulations provide
that only the FCIC -- and not the arbitrator -- may interpret the policy.
In rendering the award here, the arbitrator pushed back against this restriction by
noting that if the arbitrator could not interpret the meaning of policy provisions, “the
arbitrator would have little jurisdiction to decide anything.” J.A. 10. Indeed, the unusual
world of federal crop insurance does, in fact, appear to leave very little decision making
authority to the arbitrator. But as counsel for Appellee stated during oral argument in this
case, crop insurance “takes everything you know about insurance and turns it on its
head.” Oral Argument at 19:40–49, Williamson Farm v. Diversified Crop Ins. Servs.,
Inc., No. 18-1463 (4th Cir. Dec. 13, 2018), http://www.ca4.uscourts.gov/oral-
argument/listen-to-oral-arguments (hereinafter “Oral Argument”).
2.
The Distinction Between FCIC Interpretations and FCIC Determinations
In response to Appellee’s argument that the arbitrator was required to obtain an
FCIC interpretation of disputed policy provisions, Appellant asserts, “if an FCIC
determination is required before an arbitrator can award monies then the arbitration
process is a complete waste of time with no meaning.” Appellant’s Br. 24. Appellant
further asserts that, in any event, it did, in fact, seek an FCIC determination and was told
that the FCIC would not render an opinion until after arbitration.
In both arguments, Appellant conflates the obligation to obtain an FCIC
interpretation of disputed provisions of the policy pursuant to Section 20(a)(1) -- a
requirement in any arbitration where the meaning or application of policy provisions are
16
at issue -- with the requirement to obtain an FCIC determination that there was a failure
to comply with the terms of the policy prior to obtaining attorneys’ fees or extra-
contractual damages during judicial review pursuant to Section 20(i). FCIC
interpretations and FCIC determinations, as these terms are described in the policy, are
not the same thing.
a.
When an FCIC Determination is Required
As to Appellant’s first argument, an FCIC determination that there was a failure to
comply with the terms of the policy is not required “before an arbitrator can award
monies.” Appellant’s Br. 24. Pursuant to Section 20(i) of the policy, such
determinations are only required (1) during judicial review (after arbitration is
completed); and (2) only when an insured is seeking extra-contractual damages. As
discussed below, binding FCIC FADs make clear that arbitrators cannot award extra-
contractual damages; accordingly, arbitrators do not require such an FCIC determination
in order to render their award. 7 Arbitrators do, however, require an FCIC interpretation
before rendering an award based on disputed policy language.
7
In its reply brief, Appellant offers a similar argument that Appellee’s
interpretation of 7 C.F.R. § 400.352 -- which preempts state and local laws and
regulations except where the FCIC makes a determination that the agent or loss adjuster
failed to comply with the policy -- “would bar recovery of any damages without an FCIC
determination,” including compensatory damages. Appellant’s Reply Br. 2. Because the
FCIC has established that arbitrators cannot award damages based on state law claims
and FCIC determinations are only required during judicial review involving extra-
contractual damages, this argument is irrelevant as to the arbitration award.
17
b.
Appellant Requested an FCIC Determination, Not an FCIC Interpretation
As to Appellant’s second argument, Appellant did not request an FCIC
interpretation -- it requested an FCIC determination. Again, an FCIC interpretation of
the meaning of disputed policy provisions is a different request -- one which arises at a
different time and in a different proceeding -- than an FCIC determination that an agent
failed to comply with the terms of the policy. To comply with Section 20(a)(1) of the
policy, what Appellant (or the arbitrator) needed to request during the arbitration, but did
not, was an FCIC interpretation of the meaning of the disputed policy provisions.
Appellant’s premature request for an FCIC determination that there was a failure to
comply with the terms of the policy, pursuant to Section 20(i), is of no consequence to
the arbitration award. 8
The arbitrator’s explanation as to what specific policy provisions mean
(particularly to the extent they were disputed issues in the arbitration) can only be viewed
as her interpretation of the policy. See, e.g., J.A. 10 (“Section 20(i) does not in fact state
that the arbitrator may not award attorneys’ fees or punitive, compensatory or other
damages. Instead it appears to impose a type of condition precedent to the ultimate
8
We note that our decision in this case does not address whether a claimant could
recover purely tort damages against a private insurance company without such an FCIC
determination where misrepresentations or negligence on the part of the insurance agent
before the policy was issued left the claimant effectively uninsured under the federal crop
insurance program. Here, Appellant sought contractual damages and participated in
arbitration pursuant to the insurance policy.
18
enforceability of such an award by a court. Moreover, if the provision has the effect
[Appellee] claimed, the arbitrator would have little jurisdiction to decide anything. That
plainly cannot be the case.”). By not obtaining an FCIC interpretation to resolve the
issue but instead interpreting the provisions herself, which was not in her authority to do,
the arbitrator exceeded her powers.
3.
Binding FCIC Authority
The arbitrator was obligated to follow any FADs previously issued by the FCIC.
See J.A. 208, § 20(a)(1)(i), (iii) (“Any interpretation by FCIC will be binding in any
mediation or arbitration . . . . An interpretation by FCIC of a policy provision is
considered a determination that is a matter of general applicability.” (emphasis
supplied)). And the FCIC has addressed whether arbitrators may award extra-contractual
damages more than once already. Each time, the FCIC has made clear that arbitrators do
not have the authority to award such damages. Rather, extra-contractual damages and
attorneys’ fees may only be awarded by the court reviewing an arbitrator’s decision. For
instance, Appellant does not dispute that FAD-193, issued on October 21, 2013, states in
relevant part:
[T]he reference to “judicial review only” [in Section 20(i)] is
to clarify that such [extra-contractual] damages can only be
sought during an appeal to the Courts, after an FCIC
determination has been obtained, and cannot be awarded in
arbitration. To obtain a determination that will enable the
insured to recoup attorney[s’] fees, expenses, or damages
from the [approved insurance provider], the insured must
send a request for determination to the [Risk Management
19
Agency] Deputy Administrator of Compliance after the
insured has filed an appeal for judicial review.
J.A. 240 (emphasis supplied); Appellee’s Br. 12.
Prior to this, the FCIC also addressed the issue of extra-contractual damages in
FAD-99, issued on May 4, 2009, which states, in relevant part, “it is only in a judicial
review that producers can recover attorneys’ fees or other expenses, or any punitive,
compensatory or any other damages from insurance providers.” J.A. 241.
Pursuant to Section 20(a)(1)(i) of the policy, these previously issued FADs -- and
the conclusion that arbitrators cannot award extra-contractual damages pursuant to
Section 20(i) -- were binding upon the arbitrator in this case.
4.
The Arbitrator Exceeded Her Powers
Accordingly, the arbitrator exceeded her powers by both (1) interpreting the policy
herself without obtaining an FCIC interpretation for the disputed policy provisions; and
(2) awarding extra-contractual damages, which the FCIC has conclusively stated in
multiple FADs cannot be awarded in arbitration and can only be sought through judicial
review. Thus, Appellee met “the heavy burden” to vacate an arbitration award pursuant
to the FAA. MCI Constructors, LLC v. City of Greensboro, 610 F.3d 849, 857 (4th Cir.
2010); see also 9 U.S.C. § 10(a)(4).
20
B.
Contractual Damages
In the alternative, Appellant argues that even if the arbitrator exceeded her powers
by awarding extra-contractual damages and attorneys’ fees, we should nevertheless
confirm the arbitration award in part based on contract damages, which were within the
arbitrator’s authority to award pursuant to Section 20 of the policy.
Assuming that the arbitrator also awarded contractual damages, 9 it is impossible to
tell from the arbitration award what amount may have stemmed from contractual
damages and what amount was extra-contractual. For example, in the award as to
Appellant’s crop loss claim for Farm 2172, the arbitrator stated:
The lack of coverage for Farm 2172 indisputably arose
from [Appellee’s conduct] . . . . The failure of [Appellee] to
properly handle this and advise [Appellant] breached
[Appellee’s] fiduciary duty to [Appellant.]
I conclude that [Appellee] failed to comply with the terms
of [the policy] and that failure resulted in the loss to
[Appellant.] [Appellee] left [Appellant] effectively uninsured
for crop year 2013 as to Farm 2172. Accordingly, I award the
amount of $97,692.39 to [Appellant] for the breach of [the
policy] and the failure to pay the claim. I conclude that
[Appellee] engaged in negligence, breach of fiduciary duty
and constructive fraud.
In addition, [Appellant] has established that [Appellee]
owed duties distinct and separate from the duties it owed
under the parties’ contracts; further, [Appellant] has
9
Notably, the arbitrator concluded that Appellee “left [Appellant] effectively
uninsured for crop year 2013,” J.A. 14, 15, which calls into question how Appellee could
breach a contract that did not exist.
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established that [Appellee’s] breach of those duties was
aggravated by several factors. Accordingly, I conclude that
[Appellee] engaged in unfair and deceptive practices in or
affecting commerce . . . . The facts show recklessness and
wanton disregard by [Appellee], i.e., more than a mere breach
of contract, warranting an award of treble damages under
[North Carolina state law.]
J.A. 14.
Although the arbitrator concluded that Appellee breached the contract, the
arbitrator also found Appellee liable for extra-contractual damages, including negligence
and breach of fiduciary duty. Since the arbitrator only provided a single amount of
damages rather than a breakdown of the award by contract and noncontract claims, we
have no way to distinguish what amount the arbitrator may have awarded for contractual
damages (which were within the arbitrator’s authority to award) and what amount the
arbitrator awarded for extra-contractual damages (which, for the reasons explained above,
the arbitrator exceeded her authority in awarding).
Of note, there is no support in the record for Appellant’s assertion at oral argument
that the arbitrator awarded $97,692.39 in contract damages for the crop loss claim while
extra-contractual damages were awarded in the form of trebled damages and attorneys’
fees. See Oral Argument at 14:51–16:04. To the contrary, the structure of the arbitration
award suggests that the arbitrator intended the award of trebled damages based on
Appellee’s “recklessness and wanton disregard” to be in addition to the contractual and
extra-contractual damages awarded for breach of contract, negligence, breach of fiduciary
duty, and constructive fraud. J.A. 14 (“I conclude that [Appellee] engaged in negligence,
breach of fiduciary duty and constructive fraud. In addition, . . . [t]he facts show
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recklessness and wanton disregard by [Appellee.]” (emphasis supplied)). The same is true
regarding the arbitration award for Appellant’s prevented planting claim for Farms 1870
and 4168. See J.A. 15 (“I also conclude that [Appellant] has engaged in negligence,
breach of fiduciary duty and constructive fraud. In addition, as to Farms [1870] and
4168, . . . [t]he facts show recklessness and wanton disregard by [Appellant.]” (emphasis
supplied)).
Accordingly, even to the extent the arbitrator awarded damages for breach of
contract on either policy (as opposed to extra-contractual damages), the entire award
must be vacated.
IV.
For these reasons, the judgment of the district court is
AFFIRMED.
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