Insurance Annotations (Agricultural Law and Tax)

This page contains summaries of significant recent court opinions involving insurance litigation of relevance to farmer and ranchers.

Posted November 23, 2017

Federal Crop Insurance Policy Does Not Preempt Kansas Statue Of Limitations. In 2009, the defendant, as a new wheat producer, purchased crop insurance from the plaintiff. In 2011, the defendant, as a new soybean producer, again purchased crop insurance from the plaintiff. The defendant suffered a crop loss in both years and the plaintiff paid the claims. In 2012, the plaintiff notified the defendant that it overpaid his claims because he did not qualify as a new producer in either 2009 or 2011. The plaintiff applied the $10,818 owed on the 2012 crop loss policy claim to the overpaid balanced and indicated that the defendant still owed a total of $9,238. In October 2015, the plaintiff filed a limited action claim for $9,238 for the outstanding overpayment. The defendant answered and counterclaimed for $10,818 for breach of contract and conversion. The defendant moved for partial summary judgment arguing that the applicable state (Kansas) statute of limitations barred the recovery for the overpayment of the 2009 claim. The plaintiff responded by arguing that federal law preempted the state statute of limitations. The trial court found that Kansas’ five-year statute of limitations barred the plaintiff’s claim for overpayment for the crop year 2009. After a trial, the court found that the plaintiff waived the arbitration requirement in the policy when it filed the lawsuit. In addition, the trial court found that the defendant was a new producer of soybeans in 2011 and the plaintiff did not overpay on the defendant’s 2011 claim. Consequently, the trial court denied the plaintiff’s claim against the defendant and granted the defendant’s counterclaim for $10,818. The plaintiff appealed. On appeal the plaintiff claimed that the Federal Crop Insurance Act (FCIA) and the crop insurance policy preempted conflicting state law. The appellate court noted that the FCIA states “if the provisions of this policy conflict with statue of the State or locality in which this policy is issued, the policy provisions will prevail. State and local laws and regulation in conflict with federal statues, this policy and the applicable regulations do not apply to this policy.” The appellate court held that this language made it clear that Congress only intended to preempt conflicting state laws. However, because the plaintiff did not show and the court could not find an applicable federal statute of limitations the appellate court held that the trial court did not err when it applied the Kansas five-year statute of limitations as to the crop policy issued for 2009. In addition, the appellate court found that the plaintiff’s issue raised in his motion in limine to prevent the defendant from admitting evidence at trial was not preserved for appeal because the plaintiff failed to contemporaneously object to any of the defendant’s evidence presented at trial. Finally, the court held that the plaintiff again did not preserve for appeal the argument that the trial court lacked authority to interpret the policy because the only mention occurred during a witness testimony and did not include a citation to authority and was not expanded upon by the plaintiff. As a result, the appellate court affirmed the trial court’s decision. Great Am. Ins. Co. v. Wahl, No. 117,176 2017, Kan. App. Unpub. LEXIS 922 (Kan. Ct. App. Nov. 3, 2017).

Posted November 18, 2017

Insurance Policy Didn’t Cover Damage to Customer Lawns. The plaintiff operated a flower shop and lawn care business. In 2013, one of the plaintiff’s employees negligently mixed glyphosate, a herbicide commonly known as Roundup, instead of Eliminate in a lawn sprayer. As a result, the plaintiff’s employee severely damaged 26 of the plaintiff’s customers’ lawns. The plaintiff incurred substantial expenses for the restoration of the lawns. At the time of the incident, the plaintiff was insured pursuant to a policy with the defendant. The policy included a limited pesticide-or herbicide-applicator coverage endorsement. After the defendant denied coverage, the plaintiff filed a complaint. In its complaint, the plaintiff relied on the Illinois Pesticide Act. The defendant filed a motion to dismiss the plaintiff’s complaint arguing that the claim was barred under the property-damage exclusions contained in the policy which provided: “This insurance company does not apply to: Property damage to That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations; or that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The trial court dismissed the plaintiff’s entire complaint with prejudice. The plaintiff appealed. On appeal the plaintiff argued that the trial court erred in determining that the property-damage exclusions in the policy applied, because they conflicted with the Pesticide Act. The plaintiff claimed that the Pesticide Act reflected Illinois public policy mandating coverage for parties that are required to purchase coverage. The appellate court rejected the plaintiff’s argument as contrary to the plain language of the Pesticide Act. The appellate court determined that the plain language of the Pesticide Act illustrated an intent to protect persons who suffered personal injury or property damage as the result of pesticide application. However, the plaintiff did not suffer any personal injury or property damage. Rather, it caused property damage to its customers’ lawns. The court held that to accept the plaintiff’s argument would require them to interpret the terms “cause” and “suffer” as synonymous, which they declined to do. Therefore, because the plaintiff was not an intended beneficiary of the Pesticide Act’s protections, the plaintiff’s rights were governed by the terms of its contract with the defendant. The appellate court affirmed. Deemeester’s Flower Shop & Greenhouse, Inc. v. Florists’ Mut. Ins. Co., No. 2-16-1001, 2017 Ill. App. LEXIS 666 (Ill. Ct. App. Oct. 26, 2017).

Posted November 13, 2017

No Need To Inform Farm About Criminal Investigation Concerning Crop Insurance Fraud. The defendant is a federal crop insurer and the plaintiff is a farming operation that raised potatoes and onions. The plaintiff claimed that it purchased a federal crop insurance policy from the defendant and tendered an insurance claim to the defendant in 2004. The defendant denied the claim and the plaintiff demanded arbitration. The arbitrator found for the plaintiff, requiring the defendant to pay $1,454,450 plus interest on the claim. The defendant appealed the arbitrator’s award, but the trial court affirmed the award for the plaintiff. While the claim was in dispute the USDA was, unbeknownst to the plaintiff, conducting a criminal investigation of the plaintiff for an alleged scheme to profit from the filing of false federal crop insurance claims. Ultimately, the plaintiff and its principal were indicted based on their acceptance of the arbitration award which the government claimed constituted a criminal act. At the subsequent trial, the court dismissed all of the counts with prejudice. The plaintiff had also sued the defendant for breach of contract, negligent misrepresentation, and violation of the Washington Consumer Protection Act (WCPA). The plaintiff claimed that the defendant had acted as the USDA’s agent and, as a result, the arbitration award was simply a ruse to entrap the plaintiff. The plaintiff claimed that if it had known about the criminal investigation that it could have required the USDA’s direct involvement in the arbitration process and be assured that no criminal charges were pending.  The plaintiff also claimed that USDA's direct involvement would have allowed it to get a court order that the plaintiff had a right to recover on its claims. The trial court granted summary judgment for the defendant holding that a private insurance company has no authority to bind the federal government from pursuing a criminal prosecution, absent involvement from a party with the requisite authority. The trial court ruled that it was unreasonable as a matter of law for a settlement agreement between private parties which clearly defines the subject matter of the agreement, to preclude criminal prosecution by the government. The plaintiff appealed. The Mutual Release in the parties’ contract provided that the defendant, “for itself and for its insurance companies, and related companies” releases the plaintiff from liability for claims arising out of the plaintiff’s claim for indemnity under the 2003 crop insurance policies issued by the defendant. The plaintiff argued that “its insurance companies” included the Federal Crop Insurance Company and, therefore, the federal government. However, the appellate court held that the phrase could not reasonably be interpreted to bind the federal government and prevent the Department of Justice from pursing a criminal prosecution against the plaintiff for events related to the 2003 policies. Furthermore, the limited scope of the release could not be reasonably read to encompass the criminal charges filed against the plaintiff, which dealt with inflating crop baseline prices to increase eventual payouts on numerous insurance policies. Thus, the appellate court affirmed the trial court’s grant of summary judgment on the breach of contract claim. The plaintiff also alleged misrepresentation of a material fact. The appellate court determined, however, that the plaintiff failed to demonstrate a genuine factual dispute as to whether the defendant knew that the plaintiff was under a criminal investigation. The plaintiff’s evidence in support of that proposition stemmed from a 2004 insurance policy, rather than the 2003 insurance policy at issue in this case. Consequently, the appellate court agreed with the trial court that, as a matter of law, the plaintiff could not have reasonably relied on the purported misrepresentation. Therefore, the trial court’s grant of summary judgment on the plaintiff’s misrepresentation claim was granted. Finally, the plaintiff’s WCPA claim failed because there was no misrepresentation, deception or unfairness. The terms of the contract were not deceptive and the plaintiff did not make a showing that there was a genuine dispute over whether the defendant knew about the criminal investigation. POCO, L.L.C. v. Farmers Crop Ins. All., Inc., No. 16-35310, 2017 U.S. App. LEXIS 20853 (9th Cir. Oct. 23, 2017).

Posted November 4, 2017

Fact Issues Remain In Case Involving Insurance Claim for Home Ravaged by Gunfire and Tear Gas. The plaintiffs owned a rural rental home. While the plaintiffs were away from their home, a two-state police chase involving gunfire and a downed officer ended near their home. Near the plaintiff’s home, the suspect began another gunfight with police and a civilian he had taken hostage in a carjacking during the case was shot. The suspect fled the gunfight on foot, ending up at the plaintiff’s rental home. According to the plaintiffs he then broke a window to gain entry to the garage and ultimately to the residence. Law-enforcement officers quickly surrounded the house, but their calls for the suspect to come out and surrender got no response. Eventually the officers decided the safest approach would be to fill the home with tear gas and pepper spray in an effort to limit the areas of the home that the suspect could be in and degrade his ability to respond aggressively when officers eventually came in. The officers shot what may have been 15 canisters at the house, most breaking through windows and then delivering their intended payload upon hitting some object, often a sheetrock wall, in the house. The officers ultimately broke through a door and found the suspect hiding under a mattress in the closet doing his best to avoid the chemicals. He was taken into custody without further gunshots or injury. The damage to the plaintiff’s rental house from all of this was extensive. Repair estimates ranged from $34,000 to $36,000. The house was insured for $32,000 and in the plaintiff’s view it was a total loss. The plaintiffs filed a claim with their property-insurance carrier, the defendant in this case. The defendant said that the loss was totally excluded from coverage by a policy provision that excluded coverage for “a loss which results from order of civil authority,” even if there were other causes for the loss that would have been covered under the policy. The defendant argued that the search warrant officers got from a local judge while they were waiting to enter the home constituted an order of civil authority and that the officers entered under that authority. The district court granted summary judgment in favor of the defendant based on the policy exclusion. The plaintiff appealed. The court of appeals determined that the officers didn’t need a search warrant to go into the residence. A warrant wouldn’t have been required to apprehend this man who posed a clear threat to the local community and who officers had good reason to believe had committed attempted murder and other crimes on his way. Nor would a warrant have been required to enter the house to gather evidence since both property owners, the plaintiffs and the renters, had given officers permission to go in. Therefore, the damage to the house was caused not by the issuance of a search warrant but by the appropriate and foreseeable actions taken by law-enforcement officers after a dangerous fugitive took refuge in a private home and refused to surrender. If the suspect entered the home by breaking a window, as the plaintiffs claimed, then the damages would be covered under an act of vandalism which is covered in the policy. However, the evidence conflicted as to whether the suspect entered the home by breaking a window or through an unlocked door. Consequently, neither party was entitled to summary judgment. Thus, the appellate court reversed the trial court’s grant of summary judgment to the defendant and returned the case to the trial court for further proceedings. Allen v. Marysville Mutual Ins. Co., No. 116,888, 2017 Kan. App. LEXIS 76 (Kan. Ct. App. Oct. 20, 2017).

Posted October 24, 2017

APH Yield Exclusion Available Producers The Day The Farm Bill Was Signed. The plaintiffs, farmers who produce winter what in Baca County, Colorado, sought judicial review of an adverse decision of the Risk Management Agency (RMA) which was subsequently affirmed by the National Appeals Division (NAD). Section 11009 of the 2014 Farm Bill amended subparagraph 1508(g)(4)(C) of the Federal Crop Insurance Act (FCIA) to add an APH Yield Exclusion to give crop producers the opportunity to exclude uncharacteristically bad crop years from the RMA’s calculation of how much crop insurance coverage they are entitled to. The plaintiffs wished to insure their 2015 winter wheat crop. Believing that they were eligible to invoke the APH Yield Exclusion, they gave their crop insurance agents letters electing to exclude all eligible crop years for purposes of calculating their coverage. After receiving the letters from the plaintiff and other crop producers, crop insurance providers contacted the RMA requesting guidance on how to handle the APH Yield Exclusion elections concerning the 2015 winter wheat crop. The RMA informed insurance providers that it had authorized the APH Yield exclusion for most crops for 2015, but it did not authorize the APH Yield Exclusion for winter wheat. As a result, the Agency directed insurance providers to deny winter wheat producers’ requests for the APH Yield Exclusion. The plaintiffs challenged the directive as an adverse decision appealable to NAD. A NAD Hearing Officer conducted a hearing and issued a determination that NAD did not have jurisdiction over the matter and did not reach the merits. The plaintiffs then requested NAD Director Review of the Hearing Officer’s Determination pursuant to 7 C.F.R. § 11.9. The NAD Director reversed the Hearing Officer’s determination as to jurisdiction, but also held that the RMA has discretion to determine the appropriate time to implement the APH Yield Exclusion with regard to 2015 winter wheat. This decision effectively affirmed the Agency’s decision not to authorize the Exclusion. The plaintiffs appealed, and the trial court determined that, absent clear direction by Congress to the contrary, a law takes effect on the date of its enactment. The court noted that there was no statutory indication that it would take effect other than on the date of its enactment. The court viewed Congress’ silence as an expression that it meant the APH Yield Exclusion to be immediately available to producers on the date the Farm Bill was signed into law. Consequently, the court reversed the NAD Director’s decision and remanded this case for the proper application of the APH Yield Exclusion. Ausmus v. Perdue, No. 16-cv-01984-RBJ, 2017 U.S. Dist. LEXIS 169305 (D. Colo. Oct. 13, 2017).

Posted October 18, 2017

Feed Company Might Be Covered By Insurance Policy Because Of “Separation Of Insureds” Clause. The defendant manufactures and sells feed for different kinds of livestock. The defendant is also the sole member of another limited liability company--C&K LLC. C&K manages a feedlot in California that the defendant owns. All profits and losses of C&K are allocated to the defendant, and C&K does not itself own any property, cattle, or equipment. There are no written contracts between the defendant and C&K but there is an oral agreement that C&K’s employees will manage and care for the cattle housed at the feedlot. Some of the cattle belong to the defendant while other cattle belong to third parties who contract with the defendant for the caretaking of their cattle. The defendant provides cattle feed and directs the proportions of different products to be included in the feed. On August 5, 2014, the cattle at the feedlot were given feed that was contaminated with high levels of Monensis/Rumensin, causing 861 cattle deaths, as well as numerous injuries to the reproductive capacities of other cattle which did not die. This feed was sent directly from the defendant’s mill to the feedlot. The defendant submitted a notice of the loss to Praetorian Insurance Company, the plaintiff in this action, on August 14, 2014. On December 2, 2014, the plaintiff sent a reservation of rights letter to the defendant which indicated that the plaintiff believed the claims were excluded under the “care, custody, or control” exclusion of the policy. On April 10, 2015, the plaintiff sued seeking declaratory judgment as to whether coverage existed for the defendant’s losses and subsequently moved for summary judgment on its claim. The plaintiff asserted that the losses were not covered under the policy because they fell within an exception that exempts “property damage” to “personal property in the care, custody or control of an insured.” The defendant, however, claimed that the exclusion did not bar recovery because the cattle were actually in the care, custody, or control of C&K, not the defendant, and the contract contained a “separation of insureds” provision. That provision provides that the policy applies “as if each Named Insured were the only Named Insured” and “separately to each insured against whom claim is made or ‘suit’ is brought. The court held that the introduction of a severability or separation of insureds provision created an ambiguity which must be construed in favor of the insured. The court also determined that a reasonable insured would understand a policy with a separation of insureds provision to mean that “each insured’s coverage would be analyzed separately, even where the exclusion would normally treat the insureds collectively. Therefore, the court analyzed the insured actions for caring for the cattle, or exercising custody or control of them separately. As a result, the court determined that the evidence supported a finding that the defendant had some level of care, custody, or control of the feedlot and the cattle housed there. At the same time, however, there was also evidence before the court suggesting that the defendant at least shared care, custody and control of the cattle with C&K and did not have exclusive control of the feedlot. Thus, the court held that C&K shared in the care, custody, or control of the cattle and the defendant’s custody of them was not complete and exclusive. As a result, the court concluded that a reasonable factfinder could conclude the defendant did not exercise complete and exclusive care, custody, or control of the cattle at issue because much of the caretaking was done by C&K, a separate legal entity with its own employees. According the plaintiff’s motion for summary judgment with respect to the issue of insurance coverage was denied. Praetorian Ins. Co. v. Western Milling, LLC, No. 1:15-cv-00557-DAD-EPG, 2017 U.S. Dist. LEXIS 159181 (E.D. Cal. Sept. 27, 2017).

Posted October 14, 2017

Statutory Time Limit For Notice Of Application To Vacate Crop Insurance Arbitration Award Cannot Be Waived. The plaintiffs farm together in Holt County, Nebraska. They each obtained federally reinsured crop insurance policies, serviced by the defendant. In 2012, the plaintiffs submitted “prevented planting” claims under their crop insurance policies, claiming they were unable to plant corn on certain acres due to wet conditions. The defendant denied the plaintiffs’ prevented planting claims, finding that excessive moisture was not general to the surrounding area and did not prevent other producers from planting acres with similar characteristics. Pursuant to the mandatory arbitration clause in the policies, the parties submitted their disputes to binding arbitration. The arbitrator issued a final arbitration award in favor of the defendant on January 21, 2014. On May 15, 2014, the plaintiffs filed a petition for judicial review in the Holt County District Court seeking to vacate the arbitration award under §10 of the Federal Arbitration Act (FAA) which provides “the district court wherein the award was made may make an order vacating the award upon the application of any party to the arbitration. . . 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.” The district court granted the plaintiffs’ summary judgment motion and vacated the arbitration award finding that the arbitrator exceeded his powers and manifestly disregarded the law. The defendant appealed, but failed to note in the appeal that the plaintiffs did not meet the three-month time limit for appealing. Consequently, because the defendant did not raise the issue of the violation of the three-month limit, the court had to determine whether the time limit was jurisdictional in nature and, thus, cannot be waived even if the parties do not raise the issue. According to the U.S. Supreme Court, absent such a clear statement, the restriction should be treated as non-jurisdictional in character. Section 9 of the FAA which enumerates the notice requirements for judicial confirmation expressly states that after service of proper notice “the court shall have jurisdiction over the adverse parties to the arbitration.” Consequently, the court determined that this was a clear indication that Congress intended the statutory requirements for service notice of an application for expedited judicial review under the FAA to be jurisdictional in nature. The court held that although different timeframes apply for serving notice under section 9 and section 12 of the FAA, there is no difference in the mandatory process by which the adverse party must be served with notice and no difference in the practical purpose for requiring such notice. Thus, it would make little sense for Congress to give clear jurisdictional weight to service notice in one context but not the other. In addition, the court saw no indication in the statute that Congress intended the notice requirements for expedited judicial review to be jurisdictional when a party seeks judicial confirmation, but not jurisdictional when a party seeks judicial vacatur or modification. Consequently, the court determined that whether an arbitrating party is applying for judicial review to confirm and award under section 9 or to vacate or modify an award under section 10 and 11, Congress intended that party’s failure to serve notice of the application within the mandatory time limits, would have jurisdictional consequences. Because the court concluded that the three-month requirement is jurisdictional in nature and the plaintiffs failed to comply with the three-month requirement the district court did not have authority under the FAA to vacate the arbitration award. As a result, the court vacated the district court’s judgment and dismissed the appeal for lack of jurisdiction. Karo v. NAU Country. Ins. Co., 297 Neb. 798 (2017).

Posted October 5, 2017

No Insurance Coverage For Manure-Related Damages From Dairy CAFO. The plaintiff operates a dairy which was classified as a concentrated animal farm operation (CAFO). Manure from the CAFO was stored in holding ponds and then spread on crops as fertilizer. The holding ponds leaked, allowing seepage of over 1.6 million gallons of untreated manure into the groundwater annually. In addition, the manure soaked the soil and entered the ground water table, contaminating the local water supply. An environmental activist group sued for damages on behalf of its members, and the plaintiff submitted a tender for defense and indemnity to its insurers, but the insurers (the defendants in this case), denied coverage and did not provide a defense. The parties to the damage case causing the plaintiff to incur extensive expenses. The plaintiff then sought a declaratory judgment that the defendant had a duty to defend the plaintiff in the litigation and indemnify them for the losses arising from the litigation. Under applicable state law, insurance policies are construed as contracts, and courts consider the policy as a whole and give it a fair, reasonable and sensible construction as would be given to the contract by the average person purchasing insurance. A duty to indemnify the insured arises when the insurance policy actually provides coverage for the loss. The parties did not dispute that the losses would be covered under the relevant insurance policies. However, the defendants argued that this case fell under the absolute pollution exclusion. The absolute pollution exclusion purports to exclude from coverage all losses related to pollution. Among other things, the policies exclude from coverage “any liability arising out of (a) the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants: (i) at or from the premises; and (ii) at or from any site or location used for the handling, storage, disposal, processing or treatment of waste.” In addition, the policies define pollutants as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.” The court concluded that manure clearly fell under the definition of a pollutant as waste. In addition, the court held that no reasonable person could seriously deny manure is a pollutant in the context of entering water. The court also held that the manure was clearly acting as a pollutant in contaminating the water. As a result, the court determined that the absolute pollution exclusion applied. However, the court also determined that the policy may still cover the claim if an otherwise covered occurrence was the efficient cause of the excluded harm. In other words, if the initial event, is a covered peril then there is coverage under the policy regardless of whether subsequent events within the chain, which may be causes-in-fact of the loss, are excluded by the policy. The court viewed the two sources of contamination separately. The court determined that the over application of manure directly to the land was a single event that fell squarely under the specific cause of pollution (release or dispersal), and was excluded from coverage. With regards to the seepage via the holding ponds the court determined that it was inadequate storage of the manure that caused the seepage. The court held that this also was explicitly excluded by the terms of the policy, which excluded from coverage the seepage of pollutants stored or processed as waste. Consequently, both events of pollution were not covered under the policy. The court also concluded that because the non-coverage was clear, the defendants also did not have a duty to defend the plaintiffs in the underlying litigation and granted the defendants’ motion for summary judgment. Dolsen Companies. v. Bedivere Ins. Co., No. 1:16-CV-3141-TOR, 2017 U.S. Dist. LEXIS 151057 (E.D. Wash. Sept. 11, 2017).

Posted September 26, 2017

Claimed Losses Associated With Euthanized Birds Infected by “Bird Flu” Survives Dismissal. Avian influenza (“bird flu”) spread across parts of the United States in 2015, infecting flocks of turkeys and egg-laying hens in 15 states and resulting in more than 48 million birds being euthanized. The plaintiff owned and operated commercial poultry farms in several states including Minnesota and Iowa. In 2011, the plaintiff purchased a Premises Pollution Liability Insurance Policy from the defendant, and renewed the policy in 2014. The policy insured the plaintiff’s farms against losses caused by a “pollution condition.” Specifically, under the terms of the policy, losses caused by the discharge, dispersal, migration or seepage of any contaminant or pollutant onto the land is covered, except for those arising out of “naturally occurring materials,” with the exception being if those materials resulted from human activity. It also provided remediation coverage for costs incurred responding to a pollution condition. In May 2015, the plaintiff’s farms were hit with the outbreak of bird flu. Federal and state regulators ordered the plaintiff to quarantine its facilities and euthanize all of its eight million birds at the locations affected by the virus in order to help contain the spread. Once that process was complete, the plaintiff purchased new chicks to repopulate its facilities, at a cost exceeding $21 million. The plaintiff submitted a claim to the defendant for the policy’s entire $7 million limit: $5 million for business interruption losses and $2 million for remediation expenses. The defendant denied coverage and the plaintiff sued. The parties argued over how the virus arrived on the plaintiff’s property, and whether or not humans were partially involved in the transfer. The plaintiff claimed that nearby infected farms that depopulated their flocks via gas chamber created a “virus cloud” that spread through the air. However, the defendant claimed that the plaintiff could not prove that theory with certainty and that it was just as likely that the virus spread naturally and, therefore, the bird losses were not covered losses under the policy. In essence, the defendant claimed that avian flu wasn’t a “contaminant” within the meaning of the policy or, alternatively, that the virus was a “naturally occurring material” that fell into a policy exclusion. The plaintiff sought to recover for two types of expenses under the policy’s remediation costs provision: money spent acquiring chicks to replace euthanized birds and money spent to heat the barns once the flocks were depopulated. Remediation costs, as defined by the policy, are reasonable expenses required to restore, repair or replace real or personal property to substantially the same condition it was in before being damaged during the course of responding to a pollution condition. Thus, the key issue was whether the plaintiff’s property was “damaged during the course of responding to a pollution condition.” The defendant argued that the plaintiff’s birds were damaged by the bird flu itself which was the “pollution condition” and that none of the birds were damaged by the response to that infection. Thus, according to the defendant, because all the birds were going to die from bird flu the damage was complete the moment the flock became infected. The defendant eventually dropped its contamination defense argument, but continued to claim that the plaintiff could not prove with certainty exactly how the virus had arrived at its farms. The court determined, however, that some of the plaintiff’s birds were not infected when the government officials ordered the entire flock to be euthanized. In addition, the court determined that the policy did not require property to be in pristine condition before being damaged during the course of responding to a pollution condition. As a result, the destruction of the healthy birds squarely fell within the policy’s provisions for property damage during the course of responding to a pollution condition. The plaintiff argued that because the birds typically emanate enough heat to keep the barns' temperature above 50 degrees he was forced to heat its barns (at a cost of $800,000) after the flocks were euthanized in order to prevent damage until new birds could be purchased. However, the court determined that the barns themselves did not sustain any damages during the bird-flu crisis only the birds contained in the barns. In addition, the court pointed out that the plaintiff heated the barns in order to prevent damage rather than to repair any damage that occurred during the flu outbreak. For these reasons, the court granted the defendant’s motion for summary judgment in regards to the heating expenses and any claims to recover those expenses as remediation costs (the $2 million portion of the claim that the plaintiff was seeking) were dismissed without prejudice. In all other respects the defendant’s motion for summary judgment was denied. Thus, the plaintiff’s claim for the euthanized birds goes forward. Rembrandt Enterprises. v. Illinois Union Insurance Company, No. 15-2913, 2017 U.S. Dist. LEXIS 147030 (D. Minn. Sept. 12, 2017).

Posted September 5, 2017

RMA Not Required To Provide Information Via FOIA Request. The plaintiff filed an action against the United States Department of Agriculture’s (USDA) Risk Management Agency (RMA) pursuant to the Freedom of Information Act (FOIA). The plaintiff was seeking the disclosure of soybean and corn yield within four townships in Cherokee County, Iowa. The RMA provided a no records in response to the plaintiff’s request explaining that it did not have the information available by section for townships within a county. The court determined that the purpose of the FOIA is to give the public greater access to governmental records. However, there are exceptions to this rule. The court determined that summary judgment for an agency is appropriate when the agency shows that it made a good faith effort to conduct a search for the requested records, using methods which can reasonably be expected to produce the information requested. However, the agency does not have to search every record system. In addition, the court pointed out that the FOIA neither requires an agency to answer questions disguised as FOIA requests or to create documents or opinions in response to an individual’s request for information. The court concluded that the evidence illustrated that RMA did not maintain records matching the description of the plaintiff’s requests. Although it did collect some information from the records of insurance companies which would contain some of the information the plaintiff sought, it did not maintain records containing the precise information requested. As a result, the RMA was not required to provide information that it did not have to the plaintiff. Consequently, the court granted RMA’s motion for summary judgment. Bush v. United States Department of Agriculture, No. 16-CV-4128-CJW, 2017 U.S. Dist. LEXIS 131381 (N.D. Iowa Aug. 17, 2017).

Posted August 25, 2017

Federal Crop Insurance Act Preempts State Negligence Claim. The plaintiff sued the defendant insurance agency asserting negligence, slander and defamation claims. The plaintiff informed the defendants of frost and hail events that occurred during the applicable crop year. The defendant told the plaintiff that a notice of loss cannot be filed if the farmer intends to harvest the field and that there must be evidence of damage, with harvest being the ultimate determining factor of damage. The plaintiff asserted that the defendants negligently handled his claims by failing to file a notice of loss and providing misleading and inaccurate information to the plaintiff which was the direct and proximate cause of his loss in excess of $50,000. The trial court found that the insurance contract was governed by 7 C.F.R. § 400.352 (2017), which generally prevents state and local governmental entities from levying judgments for damages and costs against companies arising out of action or inaction on the part of individuals and entitles authorized under the Federal Crop Insurance Act (FCIA) The trial court determined that the plaintiff’s claim involved the alleged negligence of an agency that was proceeding under the FCIA and that it was federally preempted. The plaintiff appealed. The appellate court determined that the plaintiff’s negligence claim was a request for the trial court to levy a judgment for damages against agents of an insurance company for their actions and inactions regarding a crop insurance policy governed by the FCIA. As a result, the claim was preempted under the plain language of the 7 C.F.R.§ 400.352(a). In addition, the court determined that under the FCIA a party must obtain a determination of wrongdoing from the Federal Crop Insurance Corporation before that party may seek damages regarding a policy covered by the FCIA. The defendant did not attempt to obtain a determination from the FCIC. As a result, the appellate court affirmed the decision of the trial court and dismissed the plaintiff’s claim. Zych v. Haugen, No. A16-2082, 2017 Minn. App. Unpub. LEXIS 645 (Minn. Ct. App. Jul. 31, 2017).

Posted July 24, 2017

Pollution Exclusion Applies With Respect to Contaminated Feed. The Plaintiff, New Fashion Pork (NFP) is a pork producer that owns and operates feed mills where it blends grain. Defendant, Restaurant Recycling (RR), is a manufacturer and supplier of fat products for animal feed. NFP claims that it used RR’s fat products to produce feed for its swine and the contaminated feed caused serious health problems in its swine. NFP sued for breach of contract. RR had a general commercial liability insurance policy with Employer Mutual Casualty Company (EMC). However, the policy contained an absolute pollution exclusion. The exclusion provided that the policy did not cover “body injury” or “property damages” which would not have occurred but for the actual alleged or threatened discharge of pollutants at any time. RR filed an action seeking a declaration that EMC was obligated under the policy to provide defense and coverage for all claims asserted by NFP and for any damages awarded. The court determined that the lasalocid which was found in RR’s fat products was a contaminate and that the mere fact that it is safe at certain levels did not exclude it from being a contaminate. In addition, the court determined that although the complaint did not specifically allege that lasalocid was administered at unsafe or illegal levels, a logical conclusion was that RR’s fat products were contaminated with unsafe levels of lasalocid. The court also concluded that RR’s intentions were irrelevant because the insurance policy only required that but for RR’s actions, the contaminants would not have been dispersed into the fat product and swine feed. As a result, EMC had no duty to defend or indemnify RR under the insurance policy. Restaurant Recycling, LLC v. New Fashion Pork, LLP, No. 17-7 (DSD/SER), 2017 U.S. Dist. LEXIS 109755 (D. Minn. Jul. 14, 2017).

Posted July 22, 2017

USDA Improperly Delayed Implementation of Crop Insurance Provision. A provision in the 2014 Farm Bill, Actual Production History (APH) Yield Exclusion, allows eligible producers impacted by severe weather to receive a higher approved yield on their insurance policies through the federal crop insurance program. APH works by allowing a farmer to exclude yields in particularly bad years (e.g., those having a natural disaster or other extreme weather event) from their production history when calculating yields that are used to establish their crop insurance coverage. The level of crop insurance available to a farmer is based on the farmer’s average recent yields. Particularly low yields in a prior year would reduce the level of insurance coverage in future years but for the APH provision. Farmers are eligible for the APH exclusion when the county yield is at least 50 percent below the average of the immediately previous 10 consecutive crop years. The provision was to become effective in the spring of 2015 for spring crops with a November 30, 2014 change date. Eligible crops include corn, soybeans, wheat, cotton, grain sorghum, rice, barley, canola, sunflowers, peanuts and popcorn. However, the USDA later decided to delay the APH Yield Exclusion for wheat for the 2015 crop year for winter wheat. The plaintiff challenged that decision as arbitrary, but the USDA’s National Appeals Division (NAD) upheld the decision. However, in late 2016 a U.S. Magistrate Judge recommended that the court reverse the USDA’s decision to delay implementation of the APH Yield Exclusion (i.e., “yield plug”) for winter wheat. The USDA appealed, but the trial court found that the NAD’s decision was erroneous because it failed to recognize the Farm Bill’s (7 U.S.C. §1508 (g)(4)(A)) effect on implementation for the 2015 winter wheat crop year. The court determined that Congress chose to leave the applicability provision in place thereby making it self-executing and immediate for the APH Yield Exclusion. In addition, the fact that Congress chose to include specific application/implementation language for other crops and yet stay silent as to winter wheat indicates a direct intention to allow the governing and existing statutory law to be applicable as to the implementation of the APH Yield Exclusion for the 2015 winter wheat crop. As a result, the court adopts the findings and conclusions of the Magistrate Judge. On July 18, 2017, the USDA filed a notice of appeal with the Fifth Circuit. Adkins v. Vilsack, No. 1:15-CV-169-C 2017 U.S. Dist. LEXIS 72790 (N. D. Tex. May 12, 2017).

Posted April 2, 2017

Insurance Company Has No Duty To Defend Under "Pollution Exclusion" Clause For Potential CWA Violation. The plaintiff construction company entered into a contract with a city for two road projects in late 2002. The plaintiff obtained insurance coverage for the two projects from the defendant. Construction work began in 2003, and in late 2004 the United States Army Corps of Engineers (Corps) issued a cease and desist order that stopped construction on the projects. The Corps alleged violations of the Clean Water Act against the plaintiff for operating in protected wetlands and discharging “pollutants” into those wetlands without a permit. In 2011, the federal and state Environmental Protection Agencies sued for the alleged violations. The plaintiff gave notice to the defendant and sought indemnity coverage under the policies. The defendant denied coverage and the plaintiff sued for breach of contract and sought a declaratory judgment that it was entitled to a defense and indemnity coverage. The defendant moved for summary judgment, claiming that there was no “accident” or “occurrence” to trigger coverage, but that the suit against the plaintiff stemmed from the plaintiff’s own conduct. The plaintiff claimed that environmental damage constituted “property damage and whether there was an “occurrence” was a fact question not suitable for a summary judgement motion. The plaintiff also asserted that the “pollution exclusion” clause in the policies did not apply because dredged and fill material do not meet the policy description of “pollutant.” The court determined that whether the plaintiff’s discharge of dredged or fill material was an “occurrence” was a factual issue that could not be disposed of on a summary judgment motion. The court also held that the plaintiff had arguably presented a claim for property damage under the policies that would trigger coverage. However, on the pollution exclusion clause in the policies, the court determined that both federal and state (OH) law clearly define dredge and fill material as a “contaminant” and the exclusionary clause in the policies applied. The court also determined that the plain language of the policies clearly excluded coverage for the types of governmental regulatory enforcement actions against the plaintiff as alleged in the complaint. Accordingly, the court held that the defendant was not obligated to either defend or indemnify the plaintiff and granted the defendant its motion for judgment on the pleadings on all of the plaintiff’s claims. JTO, Inc. v. Travelers Indemnity Company of America, No. 1:16CV648, 2017 U.S. Dist. LEXIS 38033 (N.D. Ohio Mar. 16, 2017).

Posted March 27, 2017

Exclusionary Clause Ambiguous in Contract Hog Feeding Case. The plaintiff entered into a contract with the defendant to have the defendant use the defendant’s facilities to provide for the feeding and daily care and management of the plaintiff’s pigs in accordance with “good husbandry practices.” The contract required the defendant to check the hogs at least twice daily, to monitor their health, and notify the plaintiff of any sickness or other unusual conditions. The plaintiff retained ownership of the pigs. The defendant hired others to care for the hogs on its behalf. All 1,073 pigs suffocated and died when the ventilation was cut-off when the facility was pumped to remove manure. The plaintiff sued for breach of contract and negligence for the loss of the pigs. The trial court ruled for the plaintiff on the basis that the defendant was negligent in selecting the third parties who provided the actual care for the pigs and awarded $127,526.05 in damages to the plaintiff plus interest. The plaintiff then brought an equitable recoupment action against the defendant’s insurer claiming that the insurer issued a general liability insurance policy to the defendant that provided coverage for the defendant’s negligence. The plaintiff sought judgment against the insurer in the amount of the judgment received against the defendant. The insurer claimed that the plaintiff’s claim was barred by an exclusion in the policy stating that the policy did not apply to “…property damage to property related to, occupied or used by or in the care of the insured…”. The trial court held that the policy excluded coverage because the pigs (property) were in the care of the defendant (insured) at the time they suffocated. The plaintiff appealed, claiming that the policy language at issue was ambiguous and, as a result, should be construed in favor of providing coverage to the insured (from which the plaintiff could recoup). The appellate court agreed, noting that “care, custody or control” exclusions have been enforced as unambiguous by state (MO) courts, but that there was less clarity in the policy language at issue which excluded coverage for damage to property “in the care of the insured.” The court noted that the policy did not define “care” and that the term was ambiguous because it didn’t identify the level of care required to trigger the exclusion. That was particularly the case, the court reasoned, because of the multiple parties having at least some involvement in the care of the pigs. The appellate court reversed the trial court’s judgment and remanded the case. Maher Bros., Inc. v. Quinn Pork, LLC, No. ED104184, 2017 Mo. App. LEXIS 140 (Mo. Ct. App. Mar. 7, 2017).

Posted February 26, 2017

No Misconduct by Arbitrator on Crop Insurance Claim. The plaintiff made two claims involving his wheat crop on the defendant’s insurance policy. He claimed that heavy rains barred him from planting a portion of the crop and that a wild oat infestation damaged the resulting crop. The defendant denied the claims in August of 2012 and the parties could not agree on mediation. In November of 2012, the plaintiff sued for breach of contract, bad faith and mental anguish based on the denial of his claims. The trial court ordered arbitration and the plaintiff appealed, but the court denied the appeal based on lack of jurisdiction. The plaintiff refused to participate in arbitration, which proceeded without him and resulted in a finding against him and assessed fees and costs against him. The court confirmed the decision, but did not award fees and costs to the defendant. On further review, the court affirmed. The arbitrator did not exceed his powers or act with misconduct in any way. Gilbert v. Rain & Hail, Insurance., No. 02-16-00277-CV, 2017 Tex. App. LEXIS 1542 (Tex. Ct. App. Feb. 23, 2017).

Posted February 25, 2017

Arbitrator’s Decision Holds in Crop Insurance Dispute. The plaintiff bought an insurance policy from the defendant that insured against the inability to plant crops due to weather. The policy was issued in accordance with the Federal Crop Insurance Act (FCIA). The plaintiff submitted a claim under the policy based on the inability due to weather to plant a wheat crop. The claim was filed in December of 2012 and the claim was denied on May 14, 2013. The plaintiff received the denial, but the plaintiff’s farm was referenced as being in an incorrect county. The defendant realized the error and sent a corrected letter which the plaintiff did not receive. On March 31, 2014, the plaintiff sought to reinstate the claim. That request was denied on April, 28, 2014. Mediation was not agreed to and, as such, arbitration had to commence within one year from the denial of the claim or the determination in dispute, whichever is later. The arbitrator ruled for the defendant on April 28, 2015 on the basis that the denial of the claim for benefits occurred on May 14, 2013 and the one-year window closed on May 14, 2014, but the plaintiff didn’t file its request until May 21, 2014. The court upheld the arbitrator’s decision because none of the Federal Arbitration Act (FAA) requirements for vacating an arbitration award were met. The arbitrator was not corrupt, partial or conducted the proceedings in a manner that prejudiced the plaintiff. C & N Farms v. Producers Agriculture Insurance Co., No. 2:15-CV-00136 BSM, 2017 U.S. Dist. LEXIS 21254 (E.D. Ark. Feb. 15, 2017).

Posted January 16, 2017

Farm Tractor Is Covered “Vehicle” Under Policy. The plaintiff was seriously injured when the truck he was driving collided with a tractor with a hay spear attachment. The hay spears pierced the truck impaling the plaintiff. The plaintiff settled his claim with the tractor driver’s insurance company for the policy limits. However, the plaintiff claimed that his damages exceeded the tractor driver’s policy limits. The plaintiff had uninsured motorist (UIM) insurance with the defendant and filed a claim for benefits under the UIM policy. The defendant denied the claim and the plaintiff sued for breach of contract, bad faith, breach of insurance contract and improper denial of an insurance claim. The defendant motioned for a determination as a matter of law that a tractor is not a covered motor vehicle for purposes of coverage under the UIM policy. The trial court granted the motion and dismissed the complaint. The plaintiff appealed and the appellate court reversed. The court noted that the defendant’s policy failed to define the term “motor vehicle” and thus, on its face, neither included or excluded the tractor from coverage. The court noted that the term “motor vehicle” is a term of “ordinary and common” usage and looked to the dictionary for its plain meaning. Accordingly, the court found the dictionary definition of “motor vehicle” to mean an automotive vehicle not operated on rails with rubber tires for use on streets or highways. Under this definition, the tractor was a “motor vehicle” under the UIM coverage provision. Indeed, the court pointed out that the tractor’s operator’s manual confirmed that the tractor was fit for use on streets and highways and includes an entire section devoted to highway use. The court rejected the insurance company’s claim that that a motor vehicle be used “primarily” for driving on streets and highways and, as such, the tractor was not a covered “motor vehicle.” The court noted that the dictionary did not limit the definition of “motor vehicle” to a vehicle’s primary use. The court also rejected the defendant’s attempt to inject into the UIM the state’s (CO) motor vehicle definition into the policy provision. The state statute had the “primarily” language that the defendant desired. The policy did not incorporate the statutory definition of “motor vehicle.” Bishop v. State Farm Mutual Auto Insurance Company, No. 15CA203, 2017 Colo. App. LEXIS 11 (Colo. Ct. App. Jan. 12, 2017).

Posted January 14, 2017

Custom Feeding Endorsement Provided No Coverage for Death Loss. The plaintiff farming operation contracted with a company to custom feed hogs that the plaintiff owned at a third party’s site. The company was to take delivery of 50-pound hogs and raise and care for them until they reached 275 pounds. The plaintiff owned the hogs, but were under the care of the company. The company contacted its insurance agent to get coverage for the custom feeding of the hogs, telling the agent that the company neither owned the hogs nor the facility in which they were raised, but that the company was responsible for the care and feeding of the hogs and building maintenance. The agent recommended a liability policy, and a custom feeding endorsement for an additional $118 annually. The custom feeding endorsement extended coverage for custom feeding and deleted exclusions in the liability policy that pertained to custom feeding. The ventilation system in the building failed when an electrical breaker tripped and 837 hogs died. The company filed a claim with the defendant for coverage, and the defendant denied coverage. The company then assigned its claim to the plaintiff who sued the defendant, the insurer. The trial court granted the defendant’s motion for summary judgment. On appeal, the plaintiff claimed that because the endorsement deleted the exclusions pertaining to custom feeding, the death of the hogs produced in the custom feeding operation was a covered loss. The court determined that the custom feeding endorsement functioned only to remove the exclusion for bodily injury or property damage arising out of the insured’s performance of, or failure to perform, relating to the custom feeding of the hogs. In other words, by removing that exclusion, the company had coverage for bodily injury or property damage to others or the insured as a result of the custom feeding operation (i.e., damage caused by the hogs). The court determined that the endorsement did not eliminate the exclusion of coverage for damage to property, including the hogs. Damage to the building caused by fire, smoke or explosion was a covered loss. The court reached this conclusion because the company paid only $118 annually for the endorsement which the court believed did not correspond to the additional risk of insuring the hogs. The court believed that the $118 annual charge did reflect the additional risk of damage caused by the hogs. The court provided no data for its conclusion (there was apparently no data in the record) and no analysis of the endorsement language, instead merely citing a 2013 opinion of the state (IA) Supreme Court where the Court held that a custom feeding endorsement did not cover the loss of 535 feeder pigs that died due to suffocation. Schulz Farm Enterprises, Inc. v. IMT Insurance, No. 15-1960, 2017 Iowa App. LEXIS 11 (Iowa Ct. App. Jan. 11, 2017).

Posted January 5, 2017

Failure to Change Beneficiary Designation Cost Surviving Wife Insurance Proceeds. The decedent was a postal service employee and purchased a life insurance policy via the Federal Employees’ Group Life Insurance (FEGLI) program. Under the rules governing a FEGLI policy, the benefits are paid upon the insured’s death to the designated beneficiary. If there is no designated beneficiary, the death benefits are paid to the insured’s surviving spouse and then children or next of kin. A beneficiary designation, under the FEGLI rules, must be in writing, signed by the insured, and witnessed by two people. In addition, the completed beneficiary form must be submitted to the employing office under office-approved methods and the office must receive the form before the insured’s death. An insured can change the beneficiary at any time without the knowledge or consent of a prior or then current beneficiary. The insured, in this case, changed the beneficiary designation on his FEGLI policy in order to prevent his ex-wife from receiving the benefits. He later broke up with the girlfriend and married another woman, but did not change the beneficiary designation to the second wife before his death. The second wife, upon his death, filed a claim to receive the death benefits, but the insurance company refused because she was not the named beneficiary under the policy. The second wife claimed she witnessed the insured sign the FEGLI form to change the beneficiary designation to her and that he had talked with his employer and added benefits so that she would have sufficient funds to pay-off the couple’s mortgage. However, the trial court determined that the form had not been completed properly and that strict compliance with the federal rules governing the change of a beneficiary was required. On appeal, the appellate court affirmed, also finding that the there was a lack of evidence that the girlfriend was a higher paid employee that would have barred her from receiving a gift from the insured. Switzer v. Vaughan, No. 05-15-00811-CV, 2016 Tex. App. LEXIS 8026 (Tex. Ct. App. Jul. 27, 2016), pet. for rev. den., No. 16-0824, No. 16-0824, 2016 Tex. LEXIS 1073 (Tex. Sup. Ct. Dec. 2, 2016).

Posted November 6, 2016

Commercial General Liability (CGL) Policy Covers Bad Work by Subcontractor. The plaintiff (a property owner) sued the defendant (a general contractor) for damages arising from water from rain that flowed to the interior common areas of the plaintiff’s complex. The damage was the result of faulty work performed by one of the defendant’s subcontractors. The plaintiff also brought a declaratory judgment claim against the defendant’s insurers seeking coverage. The trial court determined that the water damage did not constitute “property damage” as defined in the policy and that there had not been an “occurrence” that would trigger coverage. On appeal, the court of appeals reversed, determining that “unintended and unexpected consequential damages to the common areas and residential units caused by the subcontractors’ defective work constitute ‘property damage’ and an ‘occurrence’ under the CGL policies.” On further review, the state Supreme Court affirmed. According to the court, post-construction consequential damages, and the resulting loss of use, were covered “property damage” that the policy defined. In addition, the court determined that the subcontractor’s faulty workmanship was an “occurrence” because it was an “accident.” While the policy didn’t define “accident,” the court determined that its plain meaning included unintended and unexpected harm that the negligent conduct caused. The court also determined that the “your work” exclusion in the policy (eliminating coverage for property damage to “your work”) contained the subcontractor exception which meant that coverage applied for work performed by a subcontractor. The court rejected the defendant’s argument that the CGL policy only provided coverage for damages to other property and not the property involved in the construction project at issue. Courts in other states (Iowa, Florida, and Texas) have decided similarly in recent years, as has the U.S. Court of Appeals for the Fourth Circuit (applying Maryland law). Cypress Point Condominium Association, Inc. v. Adria Towers, L.L.C., 226 N.J. 403 (2016).

Posted July 31, 2016

Statement of Underwriting Supervisor Made Through Insurance Agents Resulted in Farmers Having Coverage for Crop Loss. The plaintiffs were tobacco farmers that became concerned that their tobacco crops would not be eligible for crop insurance coverage due to a requirement in multi-peril crop insurance policies that their crops had to be grown on land that qualified for coverage in at least one of the immediate past three years. They sought advice from their insurance company through its agents. Before the planting of the tobacco crops, the agents invited a representative of the insurance company to attend a dinner the agents were putting on for the benefit of local tobacco farmers, including the plaintiffs, to discuss the policy requirements. An insurance company underwriting supervisor attended and spoke at the dinner, and stated that an insurable crop had to have been grown on the property in question at least one year within the immediate past three years. If that requirement was not satisfied, then a written agreement between the farmer and the Risk Management Agency (RMA) had to be executed allowing the crop to be eligible for insurance coverage. The plaintiffs attended the meeting and after the meeting the agents told the supervisor that several farmers, including the plaintiffs, would need to execute agreements with the RMA and that they wanted the supervisor’s help in getting the agreements executed. The supervisor told the agents that the farmers’ tobacco crops would be insured without an agreement if hay had been raised on the land in at least one year of the past three. The agents conveyed that information to the farmers, who then planted a tobacco crop that they believed was covered by MPCI policies they purchased from the insurance company. The crop failed and the insurance company, the farmers filed a claim, and the insurance company denied it. The plaintiffs sued, not based on the policy, but based on the statement of the insurance company representative conveyed to them through the agents for negligent misrepresentation and intentional misrepresentation. The insurance company moved for summary judgment on the basis that the policy first required arbitration before judicial remedy could be sought and because the policy barred extra-contractual damages. The court denied the motion for summary judgment on the basis that the farmers had provided sufficient evidence to establish the elements for fraudulent misrepresentation – the defendant made a representation; the representation was false; the representation was in regard to a material fact; the representation was made either knowingly or without belief in its truth or was made recklessly; the plaintiff reasonably relied on the representation; and the plaintiff suffered damage as a result. As for the insurance contract barring the plaintiffs’ claims, the court disagreed. The court held that the MPCI terms and policies did not apply because the plaintiffs’ claims were not based on the policy. Thus, the court refused to dismiss the case based on preemption or because extra-contractual damages were barred by the policy. Dixon v. Producers Agricultural Insurance Co., No. 2:14-cv-00034, 2016 U.S. Dist. LEXIS 99587 (M.D. Tenn. Jul. 28, 2016).

Death of Livestock In Blizzard Was a Covered Loss by “Drowning.” The plaintiffs (a married couple) operate a cattle and row-crop operation in South Dakota. A storm in the fall of 2013 began as rain and turned into a blizzard in which 93 of their cattle (yearling heifers) died. Their veterinarian necropsied some of the cattle and determined that their death was by drowning because the lungs of the cattle were saturated with water and their airways were obstructed with foam (air trapped in water), and there was clear liquid in all airways and running from the noses of the cattle. This was all the result of the cattle inhaling large amounts of rain and snow during the storm which triggered cardiac arrest and death. The plaintiffs insured the cattle that, among other things, insured the cattle against loss by “drowning.” The plaintiffs filed a claim for the death of the cattle by drowning, but the insurance company denied the claim due to none of the cattle being found submerged in water. The trial court agreed with the insurance company and granted them summary judgment. On appeal, the appeal the state Supreme Court reversed. The Court noted that “drowning” was not defined in the policy and that because both parties offered reasonable interpretations of the term, the term was ambiguous and the ambiguity was to be construed in the insured’s favor. The Court also held that exclusionary language contained in the policy excluding coverage for loss to livestock due to “smothering, suffocation or asphyxiation” or “freezing in blizzards or snowstorms,” didn’t apply because the plaintiffs only claimed coverage under drowning provision which didn’t contain similar exclusionary language. Papousek v. De Smet Farm Mutual Insurance Company of South Dakota, No. 27658-r-JMK, 2016 S.D. LEXIS 93 (Jul. 20, 2016).

Posted July 10, 2016

Denial of Crop Insurance Coverage Not Arbitrary and Capricious. The plaintiff planted 1,354 acres of peanuts on its farms and insured the peanuts against crop loss with a yield guarantee policy. The resulting peanut harvest was less than the guarantee, and the plaintiff claimed that the low yield was a result of drought, a covered event. The regional office of the Risk Management Agency (RMA) (the entity that administers the federal crop insurance program on behalf of the Federal Crop Insurance Corporation) investigated the claim and denied it on the basis that the peanuts received sufficient rainfall to produce a normal yield. The plaintiff did not record rainfall on its farms to the RMA compiled various weather data for the area, analyzed the data, and concluded that drought was not the cause of the low crop yield. The plaintiff sought review of the decision and the regional officer’s decision was upheld. The plaintiff then appealed to the USDA National Appeals Division (NAD) and the NAD hearing officer affirmed the RMA’s decision. On further review, the NAD director affirmed the hearing officer. The plaintiff then sought judicial review and the court affirmed. The court found it key that the plaintiff had not recorded any rainfall data. As such, the court determined that the methods of rainfall data collection by the RMA and the analysis of that data which led to a conclusion that drought had not caused the low crop yield was not arbitrary and capricious. The court believed that the RMA’s expert used reliable data and did not misinterpret the data, and that a clerical error as to planting dates of various farms was a mere oversight that did not render RMA’s decision arbitrary and capricious. Spring Creek Farming Co. v. Federal Crop Insurance Corporation, No. 15-14818, 2016 U.S. App. LEXIS 11844 (11th Cir. Jun. 29, 2016).

Posted May 14, 2016

Failure to Establish that Four-Wheeler Used in Farming Operations at Time of Accident Precludes Insurance Coverage. The plaintiff insurance company brought a declaratory judgment action to determine whether the defendants had coverage for the death of their son under a policy purchased from the plaintiff. The policy provided coverage for injury or death for any person operating (among other things) “farm machinery” in the defendants’ farming operation. The defendants’ son was killed while riding a four-wheeler on the defendants’ property. However, based on the facts surrounding the accident that resulted in the death of the defendants’ son, the court could only speculate on how the four-wheeler was being used at the time. The court noted that the defendants bore the burden to establish additional coverage for their son under the policy, and that speculation as to the four-wheeler’s use was insufficient to carry the burden on proof. While purely recreational activity was not a covered use under the policy, it was not established by the evidence that the four-wheeler was being operated in a covered use. Thus, the plaintiff was entitled to a declaratory judgment. Southern Farm Bureau Casualty Insurance Co. v. Hammond, No. 2:15-CV-02107, 2016 U.S. Dist. LEXIS 53617 (W.D. Ark. Apr. 21, 2016).

Posted April 26, 2016

Crop Insurance Losses Not Associated with Agent’s Lack of License. The plaintiffs are Texas farmers that bought a crop insurance policy from the defendant, a person they believed to be licensed to sell crop insurance policies based on the defendant’s representations as such. The initial crop insurance policy was purchased in 2004, and the plaintiffs experienced no crop insurance issues for seven years. However, they asserted that the defendant made 10 errors in 2011 and 2012 in handling the crop insurance policies that caused their financial losses. The plaintiffs sued the defendant for a multi-year mail and wire fraud conspiracy under the Rackateer, Influenced and Corrupt Organizations Act (RICO), claiming that the defendant used the mail and other means of communication to perpetrate and reinforce his deception that he was licensed to sell crop insurance. The trial court dismissed the complaint because the plaintiffs failed to plausibly plead a “pattern of racketeering activity” under 18 U.S.C. §1962(c) because all of the defendant’s acts were part of a single, lawful insurance transaction. On appeal, the court affirmed, but for a different reason. The appellate court determined that the plaintiffs had failed to show that their losses were causally related to the defendant’s lack of a license to sell crop insurance. The appellate court noted that the defendant had handled the crop insurance for the plaintiffs for seven years before the alleged problems without incident. Thus, the court concluded that the lack of a license was not directly attributable to the plaintiffs’ loss and also indicated that the purpose of the defendant’s deception was not to harm the plaintiffs. The appellate court concluded, therefore, that the plaintiffs’ claim should have been grounded in the common law or state (TX) statutory law. Shannon v. Ham, No. 15-10483, 2016 U.S. App. LEXIS 2404 (5th Cir. Feb. 11, 2016).

Posted April 1, 2016

Insured That Left Farming Due To Agent Misrepresentations of GRIP Policy Has No Case. The plaintiff applied for a Group Risk Income Protection (GRIP) insurance policy under the Federal Crop Insurance Act (FCIA) for his 2011 corn crop. When he applied, the insurance agent told him that he would get an indemnity payment if the county actual corn crop yield exceeded 10 percent less than the expected yield. The expected yield was 136.7 bushels/acre, and the actual yield would be based on planted acres. The plaintiff bought the policy with the defendant. In March of 2012, the agent told the plaintiff that the county’s actual yield for 2011 was 102.1 bushels/acre and that the defendant would issue him a check in the amount of $104,961. The agent also showed the plaintiff a computation sheet showing how the payment was calculated. The plaintiff then leased his farm, disposed of his farm equipment and left farming. A month later, the agent told the plaintiff that the defendant originally calculated the corn crop yield using the planted acres standard instead of the (correct) harvested acres standard. Under the harvested acres standard, the actual crop yield was 125 bushels/acre which meant that the plaintiff would not receive any indemnity payment. The plaintiff sued for negligent and intentional misrepresentation, and the defendant moved to dismiss. The court granted the defendant’s motion to dismiss. The court determined that, as a matter of law, the plaintiff was deemed to know the terms and conditions of the GRIP policy. This was the case, the court reasoned, because federal crop insurance is a government remedial program with the federal treasury covering its costs. Thus, the plaintiff was charged with notice of the federal statutes and regulations and policy provisions. Deemed to have constructive knowledge of the policy terms, the court determined that the plaintiff’s reliance on the agent’s representations were not reasonable. The court noted that the policy correctly stated payment terms and conditions and how county yields and revenues would be calculated. The court stated that, “A reasonable person with knowledge of the actual totals, even when an insurance agent confronts him with differing totals, does not reasonable rely on the agent’s representations without minimal due diligence.” The plaintiff relied to his detriment in leaving farming. Buckman v. Nau Country Insurance Co., No. 3:14-CV-000921-CRS, 2016 U.S. Dist. LEXIS 35203 (W.D. Ky. Mar. 18, 2016).

No Coverage Under Liability Policy For Tractor Accident. One of the insured’s grandsons got his pickup stuck in a snowdrift and another grandson, the plaintiff, tried to use the insured’s tractor to pull the truck out of the drift in the early morning hours. However, on the way to where the truck was stuck the tractor broke down without being able to get off the road. Consequently, a motorist struck the tractor and sued the grandson and the insured for her injuries. The insured’s farm liability policy with the defendant required the defendant to defend the insured, but the defendant refused to defend the plaintiff on the basis that the plaintiff was not an insured under the policy. The trial court granted summary judgment for the defendant finding that the defendant had no duty to defend the plaintiff. On appeal, the court affirmed. The plaintiff claimed he was covered because the accident occurred on an “insured location” and because he was an “employee” of the insured. The policy covered the insured’s employees, but the court determined that he did chores on the insured’s farm along with his brother. The court agreed with the trial court finding that the plaintiff was not an employee, and even if he were an employee the court determined that he was not acting within the scope of his employment at the time of the accident. As for the location of the accident, the court determined that the accident was not on an “insured location” such as the farm premises or premises used in conjunction with the farm premises as the policy required. Here, the accident occurred about one-half mile down the road from the insured farming premises and the plaintiff was using the public roadway to get to the brother’s stuck truck. He was not using the roadway to go from one part of the insured premises to another part of the insured premises. Clark v. Farmers Union Mutual Insurance, 872 N.W.2d 620 (N.D. 2015).

No Insurance Coverage For Nuisance Claims Arising From Swine and Poultry Operation. The plaintiff reinsured insurance policies that the defendants owned. The plaintiff sought a declaratory judgment that the policies did not provide coverage for claims brought against the defendant based in nuisance arising from the operation of the defendants’ swine and poultry farms. The court affirmed a magistrate judge’s finding that the pollution liability exclusion in one policy and the business activities and custom feeding exclusion in another policy unambiguously precluded coverage for the claims against the defendants. Grinnell Mutual Reinsurance Company v. Rambo, et al., No. 14-3530 (8th Cir. Dec. 29, 2015).

No Income Tax Basis in Stock Received Upon Demutualization. The plaintiff obtained shares of stock upon demutualization of an insurance company. The plaintiff later sold some of the shares of stock and the defendant asserted that the plaintiff's income tax basis in the stock was zero triggering 100 percent gain on the sale of the shares. The trial court rejected the defendant's position, and set forth the computation for calculating basis in stock shares received upon demutualization. The court grounded the computation of stock basis in the same manner in which the insurance company determined the value of demutualized shares for initial public offering (IPO) for purposes of determining how many shares to issue to a policyholder. Based on that analysis, the court noted that the company calculated a fixed component for lost voting rights based on one vote per policy holder and a variable component for other rights lost based on a shareholder's past and anticipated future contributions to the company's surplus. The court estimated that 60 percent of the plaintiff's past contributions were to surplus and 40 percent was for future contributions to surplus which the plaintiff had not actually yet paid before receiving shares and are not part of stock basis; thus, plaintiff's basis in stock comprised of fixed component for giving up voting rights and 60 percent of the variable component representing past contributions to surplus the end result was that the plaintiff's stock basis was slightly over 60 percent of IPO value of stock. On further review, the U.S. Court of Appeals for the Ninth Circuit reversed in a split opinion. The court determined that the plaintiffs didn't pay any additional amount for the mutual rights and that treating the premiums as payment for membership rights was inconsistent with how tax law treats insurance premiums. The court noted that under the tax code gross premiums paid to buy a policy are allocated as income to the insurance company and no portion is carved out as a capital contribution.

Conversely, the policyholder can deduct the "aggregate amount of premiums" paid upon receipt of a dividend or cash-surrender value. No amount is carved out as an investment in membership rights. Because of that, the court held that the plaintiffs couldn't have a tax-free exchange with zero basis and then an increased basis upon later sale of the stock. Accordingly, the court held that the trial court erred by not determining whether the plaintiffs paid anything to acquire the mutual rights, and by estimating basis by using the stock price at the time of demutualization instead of calculating basis at the time of policy acquisition. Thus, because the taxpayers did not prove that they paid for their membership rights as opposed to premiums payments for the underlying insurance coverage, they could not claim any basis in the demutualized stock. Dorrance v. United States, No. 13-16548, 2015 U.S. App. LEXIS 21287 (Dec. 9, 2015), aff'g., No. CV-09-1284-PHX-GMS, 2013 U.S. Dist. LEXIS 37745 (D. Ariz. Mar. 19, 2013).