IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

May 22, 2012 Session

PLANTS, INC. v. FIREMAN’S FUND INSURANCE COMPANY ET AL.

Appeal from the Circuit Court for Warren County

No. 3353CV Larry B. Stanley, Jr., Judge

No. M2011-02063-COA-R3-CV - Filed August 13, 2012

At issue is the scope of a binding arbitration clause in a federally-reinsured multiple peril

crop insurance policy and the scope of federal preemption of common law claims. The

insured, a nursery in Warren County, Tennessee, suffered a catastrophic loss of stock,

primarily trees and shrubs, due to a tornado on April 7, 2006. The insured submitted a claim

in excess of a million dollars. The adjuster determined, due to “under-reporting of

inventory”, that the insured was only entitled to recover $195,225. The insured demanded

arbitration; the arbitrator ruled that the insured was due no additional payment. Thereafter,

the insured filed this action asserting common law claims against the insurer, its adjustment

firm, and the independent insurance agency that solicited the policy, for breach of contract,

negligence, breach of the duty of care, negligent misrepresentation, and statutory bad faith.

The trial court summarily dismissed the claims against the insurer and its adjustment firm

finding the claims were barred by collateral estoppel and res judicata because the issues were

decided at arbitration and that the insured’s only remedy was judicial review of the

arbitration decision. On appeal, the insured contends that its state law claims were not barred

by the doctrines of collateral estoppel and res judicata. Appellees disagree and additionally

assert that the insured’s common law claims are preempted by federal law. We have

determined the claims for breach of contract, breach of duty of care, and statutory bad faith

are preempted by federal law; however, the claims for negligence and negligent

misrepresentation are not preempted by federal law and are not barred by the doctrines of

collateral estoppel or res judicata. Therefore, we affirm in part, reverse in part, and remand

this action for further proceedings in accordance with this decision.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court

Affirmed in Part; Reversed in Part and Remanded

FRANK G. CLEMENT,JR.,J., delivered the opinion of the Court, in which ANDY D. BENNETT,

J., and BEN H. CANTRELL, SR. J., joined.
Mickey Hall, Winchester, Tennessee, for the appellant, Plants, Inc.

Jeffrey S. Dilley, Clarksdale, Mississippi, for the appellees, Fireman’s Fund Insurance

Company, Rural Community Insurance Company, Rural Community Insurance Services,

Wheeler Insurance Agency, Inc., and Louis M. Wheeler, individually, and as agent for other

defendants.

OPINION

This is one of two separate civil actions and appeals by the plaintiff/appellant Plants,

Inc. The separate cases arise from two substantial losses to Plants’ nursery stock in April of

consecutive years. The first loss, which is at issue in this appeal, was due to a tornado in

April of 2006. The second loss, which is at issue in a separate appeal, was due to a severe

freeze that occurred in April of 2007. The issues in both cases pertain to the same policy of

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insurance and the scope of the arbitration clause therein.

Plants, the owner and operator of a tree and shrub nursery in Warren County,

Tennessee, was insured in 2006 under a federally-reinsured multiple peril crop insurance

(“MPCI”) policy issued by Fireman’s Fund Insurance Company (“Fireman’s Fund”) and

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serviced by Rural Community Insurance Agency, Inc. d/b/a Rural Community Insurance

Services (“RCIS”). The independent agent through which the policy was sold to Plants was

Louis M. Wheeler of Wheeler Insurance Agency, Inc.

Following the tornado in April of 2006, Plants timely reported its claim for inventory

losses to RCIS, which was responsible for adjusting the loss. In the course of its

investigation, RCIS determined that Plants was under-insured, meaning that the value of

Plants’ inventory on the date of loss, April 7, 2006, exceeded the value reported on the

application. This triggered the application of an under-insured report factor (“URF”). Based

upon this, RCIS determined that Plants was entitled to recover only $195,225. As a result

Plants demanded arbitration as is required under the policy.

During arbitration, Plants contended that it should not be held to the terms of the

policy because of misrepresentations made by Louis Wheeler regarding coverage and

because RCIS failed to provide a copy of the insurance policy to Plants. A final award was

See Plants, Inc. v. Fireman’s Fund Insurance Company, et al., No. M2011-02274-COA-R3-CV,

1

2012 WL _____ (Tenn. Ct. App. July __, 2012). 

MCPI policies are governed by and issued under authority of the Federal Crop Insurance Act, 7

2

U.S.C.A. § 1501 et seq. and regulations promulgated under authority of the Act. 

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issued by the arbitrator on May 30, 2008, in which the arbitrator ruled that Plants was not

entitled to any additional indemnity under the policy. The arbitrator also rejected Plants’state

law claims, which the arbitrator held were preempted by federal law unless Plants could

demonstrate that RCIS failed to comply with FCIC procedures. Plants did not seek judicial

review of the arbitration award.

On May 22, 2009, Plants filed this action in the Circuit Court for Warren County

against RCIS, Fireman’s Fund, Rural Community Insurance Company, Wheeler Insurance

Agency, and Louis Wheeler. In this action, Plants asserted claims for breach of contract,

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negligence, breach of the duty of care, negligent misrepresentation, and statutory bad faith

pursuant to Tennessee Code Annotated § 56-7-105. RCIS, Fireman’s Fund, and RCIC filed

motions for summary judgment. By order entered on February 25, 2011, the trial court

granted summary judgment upon the finding that the issue of whether Plants was entitled to

additional indemnity was fully addressed in the arbitration and the trial court was not

permitted to review this decision based upon principles of res judicata and collateral

estoppel. RCIS, Fireman’s Fund, and RCIC thereafter filed a motion for entry of a final

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judgment, which the trial court granted pursuant to Tennessee Rule of Civil Procedure 54.02.

Plants filed a timely appeal.

ANALYSIS

In this appeal, Plants asserts that the trial court erred in dismissing its state law claims

against Fireman’s Fund, RCIC, and RCIS (“collectively Defendants”) based upon the

doctrines of res judicata and collateral estoppel. Plants contends the arbitration was limited

in scope to an interpretation of the terms of the policy. It also contends the sole state law

claim advanced in the arbitration was for reformation of the insurance policy based upon the

alleged misrepresentations. Defendants contend the trial court correctly ruled that the

doctrines of res judicata and collateral estoppel bar Plants’ state law claims because, it

asserts, they were addressed in arbitration. Defendants further assert that such claims are

preempted by federal law governing these types of insurance policies and, therefore, Plants

was precluded from bringing such claims outside of the procedures set forth in the federal

statutes and regulations, which require arbitration and a judicial review of the arbitration as

the exclusive remedy.

An amended complaint was filed on April 22, 2010. 

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Defendants, Wheeler Insurance Company and Louis Wheeler, also filed motions for summary

4

judgment, which the trial court denied because they were not parties to the arbitration and the court found

there were genuine issues of material fact as to Plants’ claims against these defendants. Thus, Plants’ claims

against Wheeler Insurance Company and Louis Wheeler remain viable in the trial court.

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This appeal arises from the grant of summary judgment upon a legal determination

that Plants’ claims were barred by the doctrine of res judicata and collateral estoppel. There

are no genuine issues of material fact and the issues on appeal present questions of law, upon

which we review the trial court’s judgment de novo with no presumption of correctness.

Martin v. Norfolk Southern Ry. Co., 271 S.W.3d 76, 84 (Tenn. 2008).

I. Federal Crop Insurance

Multiple peril crop insurance (“MPCI”) is a federally regulated and subsidized

insurance made available to farmers pursuant to the Federal Crop Insurance Act (“FCIA”),

7 U.S.C.A. § 1501 et seq. Ledford Farms v. Fireman’s Fund Ins. Co., 184 F. Supp. 2d 1242,

1243 (S.D. Fla. 2001). The terms and conditions of MPCI policies are mandated by the

Federal Crop Insurance Corporation (“FCIC”), which is a governmental corporation and an

agency of and within the United States Department of Agriculture and was created pursuant

to the FCIA. Nobles v. Rural Comty. Ins. Servs., 303 F. Supp. 2d 1292, 1295 (M.D. Ala.

2004); Ledford Farms, 184 F. Supp. at 1243. Despite the governance by the FCIC, MPCI

policies can be issued by private insurance companies; however, these policies are subject

to regulations and provisions promulgated by the FCIC concerning the sale, issuance, and

service of MPCI policies. Nobles, 303 F. Supp. 2d at 1295. All MCPI policies are “backed

(reinsured) by the FCIC; all premiums collected for MPCI policies are paid to the United

States government, and all claims paid under MPCI policies are paid with United States

Treasury funds.” Id.

II. Arbitration Provision & Federal Preemption

The Basic Provisions of the MPCI policies contain a section entitled “Mediation,

Arbitration, Appeal, Reconsideration, and Administrative and Judicial Review,” which is set

forth in the federal regulation 7 C.F.R. § 457.8:

(a) If you and we fail to agree on any determination made by us except those

specified in section 20(d), the disagreement may be resolved through

mediation in accordance with section 20(g). If resolution cannot be reached

through mediation, or you and we do not agree to mediation, the disagreement

must be resolved through arbitration in accordance with the rules of the

American Arbitration Association (AAA), except as provided in sections 20(c)

and (f), and unless rules are established by FCIC for this purpose. Any

mediator or arbitrator with a familial, financial or other business relationship

to you or us, or our agent or loss adjuster, is disqualified from hearing the

dispute.

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(b) Regardless of whether mediation is elected:

(1) The initiation of arbitration proceedings must occur within

one year of the date we denied your claim or rendered the

determination with which you disagree, whichever is later;

(2) If you fail to initiate arbitration in accordance with section

20(b)(1) and complete the process, you will not be able to

resolve dispute through judicial review;

(3) If arbitration has been initiated in accordance with section

20(b)(1) and completed, and judicial review is sought, suit must

filed not later than one year after the date the arbitration decision

was rendered;

(4) In any suit, if the dispute in any way involves a policy or

procedure interpretation, regarding whether a specific policy

provision or procedure is applicable to the situation, how it is

applicable, or the meaning of any policy provision or procedure,

an interpretation must be obtained from FCIC in accordance

with 7 CFR part 400, subpart X or such other procedures as

established by FCIC. Such interpretation will be binding.

(c) Any decision rendered in arbitration is binding on you and us unless

judicial review is sought in accordance with section 20(b)(3). Notwithstanding

any provision in the rules of the AAA, you and we have the right to judicial

review of any decision rendered in arbitration.

. . .

(f) In any mediation, arbitration, appeal, administrative review, reconsideration

or judicial process, the terms of this policy, the Act, and the regulations

published at 7 CFR chapter IV, including the provisions of 7 CFR part 400,

subpart P, are binding. Conflicts between this policy and any state or local

laws will be resolved in accordance with section 31. If there conflicts between

any rules of the AAA and the provisions of your policy, the provisions of your

policy will control.

Defendants argue that this arbitration provision, which is a federal regulation, bars as

a matter of law any claims against them. Defendants argue that because the policy terms are

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defined by federal law, any claims against Defendants are preempted. In addition to the

arbitration provision set forth above, Defendants also argue that two other regulations, 7

C.F.R. § 400.176 and 7 C.F.R. § 400.352, provide further support for federal preemption for

all claims arising in connection with MPCI policies.

Plants demanded arbitration as required by the MPCI policy and FCIC regulations.

In the arbitration, Plants asserted that the policy should be reformed due to alleged

misrepresentations of Louis Wheeler, the agent who solicited the policy, and because RCIS

failed to deliver a copy of the policy to Plants. The arbitrator found that the policy, which

was itself a federal regulation, was “binding on insureds regardless of actual knowledge of

what was in the policies or regulations issued by the FCIC.” Thus, the arbitrator found that

it was “unable to reform the policy to take into account the claims made by Plants, which

[were] grounded in state law.”

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Plants cites to Nobles v. Rural Community Insurance Services, 303 F. Supp. 2d 1292

(M.D. Ala. 2004), in support of its position that its state law claims are still viable and not

precluded based upon federal preemption. In Nobles, two insureds filed suit against their

insurer for state law claims for breach of contract, fraud, suppression of material facts,

negligence and wantonness, negligent and wanton failure to supervise and train employees,

and bad faith. Id. at 1295. The claims were based on allegations that the insurer told them

their land was insurable under a MPCI policy, but later denied the crop-loss claim on the

basis that their land was uninsurable. Id. The insurer claimed that the state law claims were

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preempted by the FCIA and FCIC regulations. Id. at 1297. Notably, the insurer in Nobles did

not argue that the FCIA completely preempted state law. Instead, the insurer argued that it

was complying with established FCIC rules, regulations, and directives when it informed the

insureds of the denial, and therefore any state law claims were inconsistent with FCIC

regulations and therefore preempted. Id. at 1296-97. In making its argument, the insurer

relied upon a Tenth Circuit Court of Appeals opinion Meyer v. Conlon, 162 F.3d 1264, 1268

(10th Cir. 1998), in which the court stated that “state law applies to FCIA contracts, with two

exceptions: (1) when FCIC contracts provide that state law does not apply and (2) when state

law is inconsistent with FCIC contracts.” Id. at 1297 (quoting Meyer, 162 F.3d at 1268)

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Plants did not seek judicial review of the arbitrator’s award, the procedure stated in the policy and 5

federal regulations; instead, Plants filed this action.

The actions were originally brought in state court, however, the action was removed to the federal 6

court based upon diversity of citizenship jurisdiction. Nobles, 303 F. Supp. 2d at 1294. 

It should be noted that in the decision in Meyers, the court rejected the complete preemption 7

argument stating: “The FCIA does not wholly preempt state law; rather, it preempts state law inconsistent

(continued...)

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(citing 7 U.S.C.A. § 1506(l). The insurer also pointed to FCIC regulation 7 C.F.R. § 400.352,

which addressed the preemption of state and local laws and regulations, for the argument that

“lawsuits based on actions authorized or required by the FCIC regulations or the FCIA are

preempted by federal law.” Id. The regulation stated:

State or local governmental entities or non-governmental entities are

specifically prohibited from . . . (4) levy[ing] fines, judgments, punitive

damages, compensatory damages, or judgments for attorney fees or other costs

against companies . . . arising out of actions or inactions on the part of such .

. . entities authorized or required under the Federal Crop Insurance Act or by

regulations or proceduresissued by the Corporation (nothing herein isintended

to preclude any action on the part of any authorized. . . entity concerning any

actions or inactions on the part of the . . . company whose actions or inaction

is not authorized or required under the Federal Crop Insurance Act, the

regulations, any contract or agreement authorized by the Federal Crop

Insurance Act or by regulations or procedures issued by the Corporation).

7 C.F.R. § 400.352(b)(4) (2004).

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The court rejected the insurer’s argument finding that it was “flawed” for two main

reasons. Nobles, 303 F. Supp. 2d at 1297. First, the court noted that the underlying assertion

in the insureds’ state law claims was not the ultimate denial of their insurance coverage, but

the act of the insurer in telling them that their land was insurable, when under the FCIC

regulations it was not, which was not an action required under the regulations. Id. Further,

the court noted as to the state law claims for suppression of material fact and negligence and

wantonness claims, the failure of the insurer to inform the insureds of certain provisions

under the insurance contract was also not a requirement of the regulations. Id. Therefore, the

court held that the state law claims fell within the parenthetical language contained in 7

C.F.R. § 400.352(b)(4), which stated ‘“nothing herein is intended to preclude any action on

the part of any authorized . . . entity concerning any actions or inactions on the part of the .

. . company whose action or inaction is not authorized or required’ under the FCIA or the

FCIC rules and regulations.” Id. at 1298 (quoting 7 C.F.R. § 400.352(b)(4)) (emphasis in

original).

(...continued) 7

with the purpose of the Act.” Id. (citing Meyers, 162 F.3d at 1268).

As we shall address later in this opinion, the language of this regulation has changed since the 8

opinion in Nobles. 

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The Nobles court also rejected the insurer’s assertion that “any time an insurance

company denies a claim because it believes FCIC regulations require the claim to be denied,

any state-law claims by the party whose insurance claim was denied would be preempted by

federal law.” Id. The court rejected this argument citing the decision of the Eleventh Circuit

Court of Appeals in Williams Farms of Homestead, Inc. v. Rain and Hail Ins. Servs., Inc.,

121 F.3d 630 (11th Cir. 1997), which held that “Congress intended to leave insureds with

their traditional contract remedies against their insurance companies. Such remedies include

a state law breach of contract claim. . . . The existence of a claim against a private reinsured

company is therefore consistent with the scheme of the FCIA.” Id. (quoting Williams, 121

F.3d at 635). The Nobles court also looked to additional language in Meyers for its decision,

which permitted state law causes of action, including those for breach of contract, negligent

misrepresentation, and bad faith, finding they were not precluded by the FCIA or FCIC

regulations. Id. (citing Meyers, 162 F.3d at 1269-70). Thus, the Nobles court determined that

the state law claims asserted in that action were not explicitly preempted by the FCIC or

FCIA regulations, and, therefore, were not preempted by federal law. Id.

The United States District Court for the Southern District of Florida, addressed the

interplay between state law claims, federal preemption, and the arbitration provisions

applicable to MPCI policies in Ledford Farms, Inc. v. Fireman’s Fund Ins. Co., 184 F. Supp.

2d 1242 (S.D. Fla. 2001). In that case, an insured filed suit in state court seeking a

declaratory judgment to gain coverage under its MPCI policy for loss of its bean crop, and

additionally asserting state law claims for breach of contract and breach of the implied

obligation of good faith. Id. Prior to filing suit, the insured submitted a claim to its insurance

company, but was denied based upon a determination that the farm failed to replant when it

was practicable to do so, which was an exclusion under the policy. Id. at 1244. The insurance

contract contained a previous version of the above-quoted arbitration provisions promulgated

by the FCIC, which stated that: “If [insured] and [insurer] fail to agree on any factual

determination, the disagreement will be resolved in accordance with the rules of the

American Arbitration Association.” Id. (quoting 7 C.F.R. § 451.8 (1998)). The district court

looked to the decision in Nobles for guidance and held that the arbitration clause was not a

complete bar to suit, but rather was a condition precedent that must be satisfied before an

insured could commence legal action against the insurer. Id. at 1245. The court held that the

determination of whether it was practicable to replant was a factual determination that must

be resolved during binding arbitration, so the court stayed the state law causes of action

pending the outcome of the arbitration proceeding. Id.

Several other courts have rejected so-called complete preemption arguments. In

Reimers v. Farm Credit Services AgCountry, No. CIV. A3-00-168, 2001 WL 1820379 (N.D.

S.E. Jun. 22, 2001), the district court addressed the issue of complete preemption, “which

converts an ordinary state law claim into a federal claim where the preemptive force of a

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statute is so extraordinary that it converts an ordinary state common-law complaint into one

stating a federal claim for purposes of the well-pleaded complaint rule” for federal question

jurisdiction. Id. at *2 (quoting Gore v. Trans World, 210 F.3d 944, 949 (8th Cir. 2000)). The

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insureds in the action were five farmers who filed state law causes of action for breach of

contract, professional negligence, misrepresentation, fraud, and violations of the North

Dakota Insurance Code and Fraud Code against their insurer stemming from the partial

denial of their claims for crop loss under their MPCI policies. Id. at *1. The court examined

the issue of federal preemption in determining whether it had jurisdiction to entertain the

state law causes of action. Id. After examining cases from other jurisdictions, the court

determined that “the FCIA does not have the extraordinary preemptive force necessary for

the application of the doctrine of complete preemption” such to give the district court

jurisdiction. The court reached this decision after examining several provisions of the FCIA

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and determining that none of its language expressly preempted state law claims such as the

ones at issue in the action. Id. at *4. The court also addressed the preemptive effect of

regulations promulgated by the FCIC under the authority of the FCIA,specifically discussing

the two regulations cited by the Defendants in this action:

To be sure, the FCIC regulations do preempt and limit certain state and local

government action and interference. See 7 C.F.R. § 400.352 (listing examples

of actions that are specifically prohibited). See also State of Kansas ex rel.

Todd v. United States, 995 F.2d 1505, 1512 (10th Cir.1993) (holding that state

regulations that interfere with the purpose of FCIA and its crop reinsurance

contracts are preempted). Nevertheless, this type of preemption is merely a

defense to a lawsuit; it is not a jurisdictional limitation. See Hurt v. Dow

Chem. Co., 963 F.2d 1142, 1144–45 (8th Cir.1992) (explaining that removal

is not necessarily appropriate even if state-law authority is preempted). In

Regular preemption analysis focuses on whether Congress intended to 9

preempt state law. Thisintention can be found through an express provision

in the statute or it may be implied where the scope of the statute indicates

that Congress intended the federal law to exclusively occupy the field, or

where state law is in actual conflict with federal law, or where state law

stands as an obstacle to the accomplishment and execution of the full

purpose and objective of Congress.

Id. at *2 (citing Harris v. Great Dane Trailers, Inc., 234 F.3d 398 (8th Cir. 2000)). “Congress may delegate

the preemption decision to the agency it authorizes to administer or enforce the federal statute.” Id. (citing

Symers v. SmithKline Beecham Corp., 152 F.3d 1050 (8th Cir. 1998)). 

The district court noted, however, that it was not resolving the validity of the state law claims, 10

which it held could potentially be inconsistent with FCIA or FCIC’sregulations. Reimer, 2001 WL 1820379,

at *3 n.3. 

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short, the Court has extensively reviewed the regulations cited by Great

American and nowhere in its review does the Court ascertain an intent to

completely preempt state court causes of action. “Complete preemption” is a

recognized term of art, see Meyer, 162 F.3d at 1268 n. 2, yet the regulations

do not employ this term. Neither do the regulations refer to “exclusive federal

jurisdiction.” In fact, the Court has not located, nor has Great American

pointed to, any regulation setting out a general jurisdictional provision. Rather,

at least two regulations elude to state court jurisdiction. First, § 400.352(b)(4)

provides that “nothing herein is intended to preclude any action on the part of

any authorized State regulatory body or any State court or any other authorized

entity concerning any actions or inactions on the part of the agent, company,

or employee ... whose action or inaction is not authorized or required under the

[FCIA].” 7 C.F.R. § 400.352(b)(4). Second, § 400 .176(b) provides that a

plaintiff may establish liability, under certain circumstances, in “a court of

competent jurisdiction.” Id. § 400.176(b). North Dakota district courts are

courts of general jurisdiction, and thus competent. N.D. Cent.Code §

27–05–06. See also Alumax Mill Prod., Inc. v. Congress Fin. Corp., 912 F.2d

996, 1002 (8th Cir.1990) (state courts have general jurisdiction). In light of

this language and absent any language clearly expressing an intent to

completely preempt state court causes of action, the Court concludes that

removal was improper. See Magee, 135 F.3d at 602 (noting that Congress’

intent to make a cause of action pleaded under state law removable to federal

court must be clearly manifested).

Id. at *4-5.

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In Agre v. Rain & Hail, LLC, 196 F. Supp. 2d 905, 907 (D. Minn. 2002), several sugar

beet growers filed state court actions against their crop insurers for failure to pay claims

stemming from frost damage and for violations of the Minnesota Prevention of Consumer

Fraud Act. The action was removed to the federal district court by the defendant insurers. Id.

Like the federal district court in Reimers, the district court in Agre also addressed the issue

of complete preemption in determining whether it had jurisdiction to entertain the actions.

Id. at 910. The defendants focused primarily on the regulations promulgated by the FCIC.

Id. The court, however, rejected the defendants’ argument regarding complete federal

preemption stating “[t]he simple fact that Congress has established an ordered regulatory

scheme is insufficient to preempt all contract claims involving crop insurance.” Id. at 911

(citing Marcus v. AT&T Corp., 138 F.3d 46, 54 (2d Cir. 1998)). The court specifically

The court noted that section 1506(1) of Title 7 of the United States Code provides the FCIC with

11

the power to preempt state and local rules through its regulations. Id. at *5 (citing Meyer, 162 F.3d at 1268). 

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addressed 7 C.F.R. § 400.352(a) and 7 C.F.R. § 400.176, which it found “strongly suggest

a willingness to allow state proceedings rather than preempting them.” Id. at 912. Thus, the

court held that “[i]n the face of this language, the Court is unconvinced that the FCIC

regulatory text demonstrates congressional intent to preclude concurrent jurisdiction.” Id.

The above authorities support the conclusion that the FCIA and the regulations

promulgated by the FCIC under the authority of the FCIA leave open the door for certain

state law actions. Significantly, however, the above quoted authorities were decided prior to

changes in the regulations. Additionally, several of the authorities address the issue of

complete preemption, but do not address regular preemption, with the federal courts noting

this would be an issue to be raised defensively in the state court actions. See Reimer, 2001

WL 1820379, at *3 n.3. Defendants assert that changes in the regulation make this action

distinguishable from that in Nobles and supports a finding that all state law claims are now

preempted by the federal regulations. Thus, we turn to the current FCIC regulations.

II. Current Regulations and their Application to this Action

Our research revealed limited authority on the issue of preemption under current

federal regulations. We do however find some guidance in a recent decision, Skymont Farms

v. North, No. 4:09-CV-77, 2012 WL 996619, at *1 (E.D. Tenn. Mar. 22, 2012). In Skymont

Farms, the owner of several nurseries filed suit against its insurance company following the

denial of its claims for coverage following a hail storm. Id. The insured alleged the insurers

were “negligent in failing to obtain an insurance policy for Skymont Farms, were negligent

in obtaining proper information from Plaintiffs to secure appropriate coverage, made

misrepresentations regarding the procurement of such coverage upon which Plaintiffs relied,

and breached their duties and contractual obligations to Plaintiffs.” Id. The action was

originally filed in Tennessee circuit court, but was removed to the federal district court on

the basis of federal question jurisdiction. Id. In determining whether the district court had

jurisdiction to hear the action, it addressed the issue of complete federal preemption. Id. at

*6. The court adopted the holding of several district courts in ruling that the FCIA does not

completely preempt the field of crop insurance. Id. at *6. In making its decision, the court

looked to the decisions in Agre and Reimers discussed at length above. Id. at *6-7.

The court further addressed the effect of the regulations promulgated by the FCIC in

a footnote:

“Inclusion of one thing indicates exclusion of the other.” Agre, 196 F.Supp.2d

at 912 n.8. The Agre court also looked to two regulations, 7 C.F.R. §

400.352(a) and § 400.176, but these sections have changed from what they

stated in 2002 when Agre was decided, rendering them slightly less applicable

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to the current analysis. See also Reimers, 2001 WL 1820379, at *5 (discussing

the same regulations). Section 400.352 prohibits various kinds of state action

to promulgate rules and regulations that would affect crop insurance policies,

and the specific references to cases in state court have been eliminated. Section

400.176 prohibits policyholdersfrom seeking reimbursement from a state fund

or program for their crop insurance losses and restricts allowable damages

against insurance companies. Although these regulations do not provide the

obvious support against complete preemption outlined in Agre, it does not

follow from these specific preemptions that the entire rubric of state law

claims and state court actions against the private insurance companies or

insurance agents would be excluded. Indeed, the inclusion of the restrictions

in § 400.176(b) in a section entitled “state action preemptions” would seem to

imply that such actions against an insurance company would take place in state

court and the available damages would be accordingly limited. As the Reimers

court noted, this type of preemption is not relevant to the complete preemption

inquiry because it is defensive, or simple, preemption. 2001 WL 1820379, at

*5. Furthermore, as noted above, even if these regulations contained language

to suggest complete preemption, a federal regulation does not carry the weight

of a statute in a complete preemption analysis.

Id. at *6 n.6.

Under the previous version of the provision, the court in Ledford Farms held that the

arbitration provision was not a complete bar to state law claims, but a condition precedent

that must be satisfied prior to the filing of a state law action when the language of the

provision stated that if the parties failed to agree on any “factual determination” then the

matter would go to arbitration. Ledford Farms, 184 F. Supp. 2d at 1245. However, the

language in the current arbitration provision, codified at 7 C.F.R. § 457.8, now refers to “any

determination” and § 457.8(a)(1) states that “[a]ll disputes involving determinations made

by us . . . are subject to mediation or arbitration.” Defendants argue that this language

12

requires that all disagreements with the insurer must be resolved through arbitration.

Defendants suggest that further support for their position that the terms of the policy

control over “conflicting state law” is found in the current language of 7 C.F.R. § 400.352,

entitled “State and local laws and regulations preempted”:

(a) No State or local governmental body or non-governmental body shall have

The regulation requires mediation or arbitration except for those specified in section 20(d) or (e), 12

which are not applicable in this action. 7 C.F.R. § 457.8(a)(1). 

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the authority to promulgate rules or regulations, pass laws, or issue policies or

decisions that directly or indirectly affect or govern agreements, contracts, or

actions authorized by this part unless such authority is specifically authorized

by this part or by the Corporation.

(b) The following is a non-inclusive list of examples of actions that State or

local governmental entities or non-governmental entities are specifically

prohibited from against the Corporation or any party that is acting pursuant to

this part. Such entities may not:

(1) Impose or enforce liens, garnishments, or other similar

actions against proceeds obtained, or payments issued in

accordance with the Federal Crop Insurance Act, these

regulations, or contracts or agreements entered into pursuant to

these regulations;

(2) Tax premiums associated with policies issued hereunder;

(3) Exercise approval authority over policies issued;

(4) Levy fines, judgments, punitive damages, compensatory

damages, or judgments for attorney fees or other costs against

companies, employees of companies including agents and loss

adjusters, or Federal employees arising out of actions or

inactions on the part of such individuals or entities authorized or

required under the Federal Crop Insurance Act, the regulations,

any contract or agreement authorized by the Federal Crop

Insurance Act or by regulations, or procedures issued by the

Corporation (Nothing herein precludes such damages being

imposed against the company if a determination is obtained

from the FCIC that the company, its employee, agent or loss

adjuster failed to comply with the terms of the policy or

procedures issued by FCIC and such failure resulted in the

insured receiving a payment in an amount that is less than the

amount to which the insured was entitled); or

(5) Assess any tax, fee, or amount for the funding or

maintenance of any State or local insolvency pool or other

similar fund.

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The preceding list does not limit the scope or meaning of paragraph (a) of this

section.

7 C.F.R. § 400.352 (2005).

Defendants also point to 7 C.F.R. § 400.176 (2005) entitled “State action

preemptions,” which states:

(a) No policyholder shall have recourse to any state guaranty fund or similar

state administered program for crop or premium losses reinsured under such

Standard Reinsurance Agreement. No assessments for such State funds or

programs shall be computed or levied on companies for or on account of any

premiums payable on policies of Multiple Peril Crop Insurance reinsured by

the Corporation.

(b) No policy of insurance reinsured by the Corporation and no claim,

settlement, or adjustment action with respect to any such policy shall provide

a basis for a claim of punitive or compensatory damages or an award of

attorney fees or other costs against the Company issuing such policy, unless a

determination is obtained from the Corporation that the Company, its

employee, agent or loss adjuster failed to comply with the terms of the policy

or procedures issued by the Corporation and such failure resulted in the

insured receiving a payment in an amount that is less than the amount to which

the insured was entitled.

We, however, disagree with Defendants’ assertions that the arbitration provision and

federal regulations completely eclipse the entirety of state law claims. The current form of

the regulations quoted above reveal no conflict with state law claims for negligence,

misrepresentation, or fraud. The language of the arbitration provision refersto disagreements

over “determinations” made by the insurer presumably in accordance with the FCIA and

FCIC regulations; however, misrepresentations regarding the policy or the applicability of

a policy to a crop are distinguishable from a determination regarding the policy language and

coverage under the policy. As Skymont Farms recognized, some state law claims appear to

have been preempted and recoverable damages limited based upon the current language in

7 C.F.R. § § 400.352 and 400.176. Skymont Farms, 2012 WL 996619, at *6 n.6. Specifically,

it appears that the current language of the arbitration provision and these two regulations

would bar a breach of contract action as that would be based upon a “determination” by the

corporation and would fall within the prohibitions contained in the above regulations.

However, claims for negligence or misrepresentation do not conflict with these provisions.

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“Preemption occurs when there is an outright or actual conflict between federal and

state law.” BellSouth Telecommunications, Inc. v. Greer, 972 S.W.2d 663, 670 (Tenn. Ct.

App. 1997) (citing Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995); Louisiana Pub.

Serv. Comm’n v. F.C.C., 476 U.S. at 368 (1986)). Preemption can also occur “by implication

when compliance with both federal and state law is impossible or when state law obstructs

the accomplishment of Congress’s objectives.” Id. (citing Boggs v. Boggs, 520 U.S. 833

(1997); CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 663 (1993); California Fed. Sav. &

Loan Ass’n. Guerra, 479 U.S. 272, 281 (1987)). It can also arise when Congress’s legislation

is “so pervasive that it leaves no room for state legislative action.” Id. (citing Cipollone v.

Liggett Group, Inc., 505 U.S. 504, 516 (1992); Louisiana Pub. Serv. Comm’n v. F.C.C., 476

U.S. at 368). Our courts should begin their inquiry with the presumption that Congress did

not intend to preempt state law. Id. at 671. (citing Building & Constr. Trades Council v.

Associated Builders & Contractors of Massachusetts/Rhode Island, Inc., 507 U.S. at 224

(1993)). The proper approach is to reconcile the federal and state laws, rather than to seek

out conflict where none clearly exists. Id. (citing Merrill Lynch, Pierce, Fenner & Smith,

Inc. v. Ware, 414 U.S. 117 (1973); Exxon Corp. v. Governor of Maryland, 437 U.S. at 130

(1978)). “State law should be displaced by federal law only to the extent there is a conflict.”

Id. (citing Dalton v. Little Rock Family Planning Servs., 516 U.S. 474, 475–77 (1996)).

7 C.F.R. § 400.176 prohibits claims whose basis is the policy of insurance without a

prior determination by the FCIC that there was a failure to comply with the terms of the

policy and such failure resulted in the insured receiving a payment less than the amount the

insured was entitled. However, state tort claims for negligence, misrepresentation, and fraud

do not arise from the policy of insurance itself but from alleged tortious actions taken prior

to the agreement being made or that occur outside the scope of the policy.

7 C.F.R. § 400.352 prohibitsjudgments or damages “arising out of actions or inactions

. . . authorized or required under the [FCIA], the regulations, any contract or agreement

authorized by the [FCIA], or by regulations, or procedures issued by [the FCIC].” As the

court in Nobles recognized, misrepresentations are not actions or inactions “required or

authorized” under the FCIA, federal regulations, or the policy provisions. Nobles, 303 F.

Supp. 2d at 1297 (recognizing that “the key act underlying [plaintiffs’] fraud claim, for

example, is not [defendant’s] denial of their insurance coverage, but is instead [defendant’s]

act of telling them their land was insurable,” which was a misrepresentation).

Thus, as noted in Skymont Farms, “it does not follow from these specific exemptions

that the entire rubric of state law claims and state court actions against the private insurance

companies or insurance agents would be excluded.” Skymont Farms, 2012 WL 996619, at

*6 n.6. Keeping in mind that state law should only be displaced by federal law when there

is a conflict, we find that Plants’ state law claims for negligent misrepresentation and

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negligence are not preempted by federal law. BellSouth Telecommunications, Inc., 972

S.W.2d at 670 (citing Dalton, 516 U.S. at 475–77). Based upon the language in the federal

regulations, however, we hold that the claims for breach of contract, breach of the duty of

care, and statutory bad faith pursuant to Tennessee Code Annotated § 56-7-105 are

preempted for they pertain to actions or inactions “required or authorized” under the FCIA,

federal regulations, or the policy provisions.

13

IV. Collateral Estoppel and Res Judicata

Having found that two of the state law claims asserted by Plants were not covered by

the arbitration provision and that the state law claims were not preempted by the federal

regulations, we must address the last issue: whether any of the surviving state law claims,

negligence and negligent misrepresentation, asserted by Plants were barred by the doctrines

of collateral estoppel and res judicata based upon the arbitration proceedings.

“‘Under Tennessee law . . . the doctrine of ‘collateral estoppel’ operates to bar a

second suit between the same parties and their privies on a different cause of action only as

to issues which were actually litigated and determined in the former suit.”’ Cain Field

Nursery v. Farmers Crop Ins. Alliance, Inc., No. 4:09–cv–78, 2010 WL 3781760, at *7 (D.C.

E.D. Sept. 21, 2010) (quoting Smith v. Dawson-Smith, 111 F. App’x 360, 362 (6th Cir. 2004)

(citing Richardson v. Tenn. Bd. of Dentistry, 913 S.W.2d 446, 459 (Tenn. 1995))). In

Tennessee, “finding[s] made by an arbitrator have the same binding effect as judicial

determinations made by a court.” Id. (citing Turpin v. Love, 1973 WL 16997, at *4 (Tenn.

Ct. App. Aug. 14, 1973); Bright v. Spaghetti Warehouse, Inc., 1998 WL 205757 (Tenn. Ct.

App. Apr. 29, 1998)).

When determining whether collateral estoppel applies to an action, the court should

consider the following factors:

(1) whether the issues in the prior proceeding were the same as those raised in

the present action; (2) whether the prior proceeding resulted in judgment on

the merits; (3) whether the party in the present action was a party or in privity

with a party to the prior action; and (4) whether there was full and fair

opportunity to litigate the issue in the prior proceeding.

Id. (citing Morris v. Esmark Apparel, Inc., 832 S.W.2d 563 (Tenn. Ct. App. 1991)).

Tennessee Code Annotated § 56-7-105 sets forth a cause of action for bad faith refusal to honor 13

a policy and thus is derivative of a determination regarding the policy itself and thus is preempted by the

federal provisions. 

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The doctrine of res judicata is defined as a “[r]ule that a final judgment rendered by

a court of competent jurisdiction on the merits is conclusive as to the rights of the parties and

their privies, and, as to them, constitutes an absolute bar to a subsequent action involving the

same claim, demand or cause of action. . . . [T]o be applicable, it requires identity of cause

of action, or person and parties to action, and of quality in persons for or against whom claim

is made.” Richardson, 913 S.W.2d at 459 (citing Black’s Law Dictionary 1172 (5th ed.

1979)). Res judicata “bars a second suit between the same parties or their privies on the same

cause of action with respect to all issues which were or could have been litigated in the

former suit.” Id. (quoting Goeke v. Woods, 777 S.W.2d 347, 349 (Tenn.1989) (quoting

Massengill v. Scott, 738 S.W.2d 629, 631 (Tenn.1987))).

We do not have the full record from the arbitration, however, it is clear from the

Arbitrator’s Award that the arbitrator only considered the state law claims in the context of

reforming the insurance policy and the arbitrator rejected this claim based on federal

preemption. Because the arbitrator’s position was that federal law preempted any state law

claims, the arbitrator did not consider the merits of Plants’ state law claims regarding

negligence or negligent misrepresentation (except to evaluate them in the context of whether

RCIS failed to comply with FCIC procedures). Further, Plants’ claims of misrepresentations

and negligence on the part of agents of Defendants was not considered by the arbitrator.

Therefore, we find that the trial court erred in dismissing Plants’ claims for negligence and

negligent misrepresentation based upon the doctrines of collateral estoppel and res judicata.

V. RCIC AS A PARTY TO THE ACTION

Lastly, Defendants argue that RCIC was not a party to the insurance contract, RCIC

had no involvement in the events at issue, and the trial court should have dismissed RCIC

from this action. Defendants filed a motion for summary judgment to have RCIC dismissed,

asserting that RCIC is a wholly-owned subsidiary of RCIS and it had no involvement in the

issuance or servicing of the MPCI policy. In response, Plants stated that it was unfamiliar

with the corporate structure of Defendants and could not respond without additional

information. The trial court did not address this issue in its order dismissing Defendants. We

decline to make a ruling on this issue without the trial court doing so first and remand this

issue for the trial court to address.

IN CONCLUSION

We affirm the dismissal of Plants’ claims for breach of contract, breach of the duty

of care, and statutory bad faith pursuant to Tennessee Code Annotated § 56-7-105.

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We reverse the dismissal of Plants’ claims for negligent misrepresentation and

negligence.

This matter is remanded to the trial court for further proceedings consistent with this

opinion and one-half of the costs of appeal are assessed against the appellant and one-half

against the appellees.

______________________________

FRANK G. CLEMENT, JR., JUDGE

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