Court Opinion

ID: 4256960
Source: CourtListenerOpinion
Date Created: 2018-03-21 21:25:43.789919+00
Date Added: 2024-06-11T14:45:44.422288
License: Public Domain

03/21/2018
               IN THE COURT OF APPEALS OF TENNESSEE
                           AT NASHVILLE
                               March 15, 2018 Session

   DERWOOD STEWART v. ARMTECH INSURANCE SERVICE, INC.

                Appeal from the Chancery Court for Warren County
                   No. 12284 Larry B. Stanley, Jr., Chancellor
                     ___________________________________

                          No. M2017-01299-COA-R3-CV
                      ___________________________________

A farmer who participated in the federal crop insurance program appeals the trial court’s
confirmation of an arbitration award given when he was retroactively determined to be
ineligible to participate in the program for failure to pay the premium and, as a
consequence, was required to repay the payment he had received for a loss sustained
under another policy. The arbitrator held that the contract upon which the claim was paid
was void and that the insurance company was entitled to recover the amount paid on the
claim. The trial court affirmed the arbitrator’s award, and the policyholder appeals.
Finding no basis upon which to conclude that the arbitrator exceeded its authority, we
affirm the judgment.

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

RICHARD H. DINKINS, J., delivered the opinion of the court, in which FRANK G.
CLEMENT, JR., P.J., M.S., and ANDY D. BENNETT, J., joined.

Brian O. Bowhan, Smyrna, Tennessee, for the appellant, Derwood Stewart.

Jeffrey S. Dilley, Clarksdale, Mississippi, for the appellee, Armtech Insurance Service,
Inc.

                                       OPINION

       This case involves crop insurance provided to farmers and ranchers pursuant to the
Federal Crop Insurance Act, 7 U.S.C. §1501 et. seq. Section 1503 of the Act created the
Federal Crop Insurance Corporation (“FCIC”), which administers the crop insurance
program and regulates the private sector insurance companies that sell and service the
multiple peril crop insurance (“MCPI”) policies. The FCIC is supervised by the United
States Department of Agriculture’s Office of Risk Management, 7 U.S.C. § 6933, which
is authorized to administer the program on behalf of FCIC. 7 C.F.R. § 400.701. The
FCIC pays a portion of the yearly policy premium, leaving the remainder for the farmer
to pay. Per the FCIC’s regulations in effect at the time period relevant in this case,
failing to pay the premiums caused all policies in which the farmer is the sole insured to
be void until the delinquency was paid. See 7 C.F.R. §400.681 (2010).

       Derwood Stewart is a farmer who does business as Stewart Nursery and Farms in
Warren County. According to the allegations of the complaint, he had purchased crop
insurance through an insurance agency not a party to this suit in 2009, but did not pay the
full premium for the policy. He subsequently purchased crop insurance from Armtech
Insurance Services, Inc. (“Armtech”) for 2010 and 2011; at issue in this case is the policy
he purchased for crop year 2010. The premium for that policy was $44,251, of which the
federal government’s portion was $26,998, and Mr. Stewart’s was $17,568.80. When he
suffered a loss that year, Armtech paid Mr. Stewart $42,708 for his loss, which
represented the crop loss of $58,159.00, less the balance of his premium due of
$12,699.68.1

        In 2012, Mr. Stewart was denied eligibility to purchase crop insurance for that
year due to his failure to pay the premiums for his 2009 crop insurance; upon learning
that he was not eligible, he paid the balance of the 2009 premium. Mr. Stewart was also
informed that he would be ineligible to participate in the federal crop insurance program
until he repaid the payment he had received for his loss in 2010. Armtech initiated
efforts to recover the entire amount it paid to Mr. Stewart in 2010.

       Mr. Stewart filed a declaratory judgment action in Warren County Chancery Court
on February 28, 2014, seeking a declaration that Armtech was not due a refund because
the insurance contract entered into for the 2010 crop year was valid, that he had been
compensated for his loss in accordance with the contract, and that the parties’ becoming
aware that he was ineligible to participate in the crop insurance program after the
payment was made was irrelevant. In the alternative, he asked that if the court held that
the contract was void, that the premiums paid be used to set off any refund due, which
would result in no money being due to Armtech.

       On May 1, 2014, the court granted the parties’ motion to stay the action while they
participated in arbitration, as required by the crop insurance policies.2 The case was

1
  The arbitrator’s decision references as the source of these figures to be Mr. Stewart’s Statement of the
Case and Exhibit 8, neither of which is in the record before us. We assume that the mathematical
discrepancy is explained in one or both of those documents; in any event, no issue is raised on appeal
regarding the amount paid Mr. Stewart.
2
  The record in this appeal does not include a copy of the crop insurance policy; the language of the
standard MCPI contract is contained in 7 C.F.R. § 457.8.

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submitted to the arbitrator to decide “whether [the 2010] policy is void, and, if so,
whether Armtech is entitled to a return of net benefits paid to Stewart in the amount of
$42,708, plus interest.” The arbitrator issued a decision determining that the 2010
contract was void and that Armtech was entitled to recover the sum of $42,708 plus
interest, for a total of $52,146.78. Of particular importance to Mr. Stewart’s argument on
appeal, the arbitrator held that “[t]he parties have agreed, by the express terms of their
contract, to be bound by the Federal Crop Insurance Act (7 USC 1501 et seq.) and the
regulations promulgated thereunder” and that the contract was “to be interpreted and
enforced in accordance with the Federal Crop Insurance Act [ ] and regulations
promulgated thereunder.”3

        Mr. Stewart filed a Motion to Vacate the Arbitrator’s Decision, arguing that “the
arbitrator exceeded his power by awarding defendant a judgment under federal law where
federal law did not confer defendant the right to a judgment” but only “prohibited Mr.
Stewar[t] from further participation in the crop insurance program until said amount is
paid.” Armtech moved to confirm the arbitration award. A hearing on the motions was
held on May 22, 2017; finding no evidence that the arbitrator exceeded or abused his
power, the trial court affirmed the award. Mr. Stewart appeals.

       Mr. Stewart argues that “the arbitrator exceeded his power by awarding defendant
a judgment under federal law where federal law did not confer defendant the right to a
judgment.” The regulation at issue, however, provides that “any indemnities or payments
made on a voided policy, or on the portion of the policy reduced because of ineligibility,
will be declared overpayments and must be repaid.” 7 C.F.R. 400.681(b)(5) (2010)
(emphasis added). In addition, the language of the standard MCPI contract, as contained
in 7 C.F.R. § 457.8, contemplates the entry of an award in arbitration and that interest
will accrue on such an award.4 Mr. Stewart’s argument is without merit.
3
    Mr. Stewart raises no issue with respect to these rulings.
4
 Section 20 of the standard MCPI contract is titled “Mediation, Arbitration, Appeal, Reconsideration, and
Administrative and Judicial Review.” 7 C.F.R. 457.8. Subsection (a) provides as follows:

          If you and we fail to agree on any determination made by us except those specified in
          section 20(d) or (e), 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.

          ***
          (2) Unless the dispute is resolved through mediation, the arbitrator must provide to you
          and us a written statement describing the issues in dispute, the factual findings, the
                                                        3
        Pursuant to Tennessee Code Annotated section 29-5-313(a)(3)(C), an arbitrator’s
award is to be vacated “where the arbitrators exceeded their powers”; this is the statute
upon which Mr. Stewart relied in the court below and which he asserted at oral argument
established the basis of his claim of error in the arbitrator’s ruling.5 The arbitrator’s
decision was in accordance with the regulations applicable to the crop insurance program
and the insurance contract. Mr. Stewart has failed to establish that the arbitrator
exceeded its authority. Accordingly, we affirm the trial court’s judgment affirming the
arbitration award.

                                                           _________________________________
                                                           RICHARD H. DINKINS, JUDGE

          determinations and the amount and basis for any award and breakdown by claim for any
          award. The statement must also include any amounts awarded for interest. Failure of the
          arbitrator to provide such written statement will result in the nullification of all
          determinations of the arbitrator. All agreements reached through settlement, including
          those resulting from mediation, must be in writing and contain at a minimum a statement
          of the issues in dispute and the amount of the settlement.

Id. (emphasis added).
5
    Tennessee Code Annotated section 29-5-313(a)(1) provides:

          (a)(1) Upon application of a party, the court shall vacate an award where:

                  (A) The award was procured by corruption, fraud or other undue means;
                  (B) There was evident partiality by an arbitrator appointed as a neutral or
                  corruption in any of the arbitrators or misconduct prejudicing the rights of any
                  party;
                  (C) The arbitrators exceeded their powers;
                  (D) The arbitrators refused to postpone the hearing upon sufficient cause being
                  shown therefor or refused to hear evidence material to the controversy or
                  otherwise so conducted the hearing, contrary to § 29-5-306, as to prejudice
                  substantially the rights of a party; or
                  (E) There was no arbitration agreement and the issue was not adversely
                  determined in proceedings under § 29-5-303 and the party did not participate in
                  the arbitration hearing without raising the objection.

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