Court Opinion

ID: 9755383
Source: CourtListenerOpinion
Date Created: 2023-08-28 20:36:19.427053+00
Date Added: 2024-06-11T07:28:06.615397
License: Public Domain

DONALD L. CORBIN, Justice, concurring. I agree that the federal law at issue in this case, the Federal Crop Insurance Act (FCIA), preempts our state law’s prohibition against enforcing arbitration clauses contained in insurance policies, set out in Ark. Code Ann. § 16-108-201(b) (Supp. 2001). I therefore concur in the majority’s conclusion that the trial court erred in denying IGF’s motion to compel arbitration. I write separately to emphasize that neither the contract nor the applicable federal regulations require the parties to arbitrate anything other than disagreements on “any factual determinations.” From my review of the federal case law on this issue, I believe that the parties must first submit to arbitration any factual determinations, but that Hat Creek may thereafter pursue its state-law tort claims in the circuit court. Section 20(a) of the insurance contract in this case provides in pertinent part:. If you and we fail to agree on any factual determination, the disagreement will be resolved in accordance with the rules of the American Arbitration Association. [Emphasis added.] This contract provision is codified as 7 C.F.R. § 457.8 (2002). Clearly, from its face, this clause only requires arbitration of disagreements on factual determinations; it does not require the parties to arbitrate any and all disputes. This conclusion finds support in a related federal regulation, 7 C.F.R. § 400.176 (2002), which provides in pertinent part: (b) No policy of insurance reinsured by the [Federal Crop Insurance] Corporation and no claim, settlement, or adjustment action with respect to any such policy shall provide a basis for a claim of damages against the Company issuing such policy, other than damages to which the Corporation would be liable under federal law if the Corporation had issued the policy of insurance under its direct writing program, unless the claimant establishes in a court of competent jurisdiction, or to the satisfaction of the Corporation in the event of a settlement, that such damages were caused by the culpable failure of the Company to substantially comply with the Corporation’s procedures or instructions in the handling of the claim or in servicing the insured’s policy, or unless the Company or its agents were acting outside the scope of their authority (apparent or implied) in performing or omitting the actions claimed as a basis for the damage action. [Emphasis added.] Indeed, two recent federal decisions have acknowledged that Congress did not intend the foregoing arbitration provision to extinguish state-law causes of action arising from tortious conduct by private companies selling reinsurance contracts approved by the Federal Crop Insurance Corporation (FCIC). In Nobles v. Rural Community Ins. Servs., 122 F. Supp. 2d 1290 (M.D. Ala. 2000) the federal district court determined that under the FCIA and the FCIC’s regulations, the insured farmer, Nobles, was required to arbitrate the factual determination whether its 5,000 acres were covered by the policy. Following arbitration, and assuming that Nobles was not satisfied with the arbitration result, it could pursue its remaining tort claims, including claims for misrepresentation and bad faith, in court. The court explained: Using its rulemaking powers, [FCIC] has dictated the terms of the insurance contracts issued by Defendant and other companies. The terms and conditions preempt any contrary state laws that would apply to other insurance contracts normally issued by private insurance companies. At the same time, however, [FCIC] has never intended to extinguish state law causes of action that may arise from tortious conduct by private companies selling [FCIC]approved reinsurance contracts. Id. at 1294 (citations omitted) (emphasis added). See also Williams Farms of Homestead, Inc., v. Rain and Hail Ins. Servs., Inc., 121 F.3d 630 (11th Cir. 1997). Relying primarily on section 400.176(b), set out above, the district court concluded that “by their very terms, the relevant regulations expressly envision litigation.” Nobles, 122 F. Supp. 2d at 1294. The court held: Thus, there is no doubt that Congress has not preempted lawsuits based on state law claims against private insurance providers. But that does not mean that Congress did not intend for the parties to have some factual determinations and disagreements resolved through arbitration. Id. at 1295. Based on the foregoing provisions, the district court concluded that Nobles was required to arbitrate the factual determination whether its 5,000 acres were covered, and that the arbitration must occur first, due to the strong federal policy favoring arbitration. After that dispute is resolved, the court concluded that Nobles could pursue its state-law tort claims against the insurer. To this end, the district court retained jurisdiction over the suit. The same conclusion was reached by the Florida district court in Ledford Farms, Inc. v. Fireman’s Fund Ins. Co., 184 F. Supp. 2d 1242 (S.D. Fla. 2001). There, Ledford submitted a claim to Fireman’s, alleging that rain had destroyed its crop. Fireman’s denied coverage on the ground that Ledford had failed to replant the crop, although it was practical to do so. Ledford contended that the issue whether it was practical for it to replant was a legal determination, not a factual determination and, thus, was not subject to arbitration. The district court disagreed and granted Fireman’s motion to compel arbitration. The court held, however, that the arbitration clause was not applicable to all disputes between the parties. The court explained: Fireman’s Fund denied coverage on the ground that it was practical for Ledford to replant its fresh market bean crop. Such a conclusion is clearly a factual determination. Accordingly, any dispute concerning the propriety of that conclusion is subject to binding arbitration. The arbitration clause, however, is not an absolute bar to suit. Rather, the arbitration clause is a condition, contained in every [multi-peril crop insurance] policy, that must be satisfied btfore an insured can commence legal action. Id. at 1245 (emphasis added). The contract condition referred to by the Florida district court is the same condition present in the policy at issue here, section 25(a), which provides: “You may not bring legal action against us unless you have complied with all of the policy provisions.” (Emphasis added.) The district court concluded that this provision “contemplates litigation.” Id. at 1244. In the present case, IGF denied Hat Creek’s claim on the ground that 1,100 of the 1,200 acres damaged were not insured under the policy. This is a factual determination that must be submitted to binding arbitration. Given the strong policy favoring arbitration, this determination must be made first. Thereafter, however, Hat Creek may pursue its state claims for negligent misrepresentation and deceit in the circuit court, as those claims are beyond the narrow scope of the arbitration clause. Accordingly, I conclude that although arbitration must take place first, Hat Creek may pursue its tort claims against IGF once arbitration is completed and it has complied with all of the policy provisions. Both the federal case law and the plain language of the contract support this conclusion. Hannah, J., joins in this concurrence.