Farmers who file a claim on their Federal Crop Insurance coverage must request arbitration in a timely manner if their claim is denied by their approved insurance provider or AIP, crop insurance legal expert Grant Ballard said.

That’s a change from previous crop insurance rules which said a dispute over a claim had to be taken to mediation and then to arbitration if the insured and the AIP couldn’t resolve the issue but didn’t spell out who had to file for arbitration.

Ballard, an attorney with Arkansas Ag Law in Little Rock, Ark., and a speaker for a recent monthly National Agricultural Law Center Webinar, said the change is contained in the 21.1-BR Common Crop Insurance Policy revisions announced by the USDA Risk Management Agency last November.

The RMA oversees the Federal Crop Insurance Program, which is subsidized by the federal government. The latter was expected to spend about $78 billion on Federal Crop Insurance premium subsidies from 2018 to 2028.

“This appears to be a direct response to the issue that was raised in the case of Occidental Fire & Casualty Co., vs. Franklin Bush,” said Ballard. “As a disclaimer, I represented Franklin Bush, who was alleged to have been overpaid on a crop insurance indemnity.”

In September 2014, Occidental Fire & Casualty notified Bush that it had overpaid him $278,069.51 on Federal Crop Insurance claims he filed in crop years 2011 through 2013. It also said he owed an overdue crop insurance premium of $41,863.31.

“Mr. Bush wrote his insurance provider and said, ‘I don't owe this money,’” said Ballard. “The insurance provider took no action to collect the money from Mr. Bush, and Mr. Bush did not initiate arbitration. Long story short approximately five years passed and Occidental sued Mr. Bush.”

Timely manner

According to court records, the insurance company argued the defendant had effectively waived the right to defend against their lawsuit because he had not initiated arbitration in a timely manner, and they were entitled to a judgment against Mr. Bush.

“In my response, I basically made the point arbitration is a two-way street,” said Ballard. “If we're going to have an arbitration clause in the policy, the burden should be on the party that seeks to obtain a judgment. We prevailed at the district court level, but, in November of 2020, the policy was revised to place the burden on the producer to initiate arbitration proceedings.

“I think this doesn't solve all the questions that were raised in the Occidental v. Franklin Bush case, and it's clearly an attempt by RMA to place the burden on the insured to initiate arbitration even where the insured is not seeking relief.”

Ballard said this is a major policy development because of the costs associated with arbitration. “Effectively, the policy is being reformed to require an insured farmer to disprove claims against them,” he said. “And I think it's unfair. But it's a policy change, and everyone who represents farmers needs to be aware of this new policy.”

Any insured farmer who receives a determination by a crop insurance provider the insured does not agree with must demand arbitration or run the risk of having the crop insurance provider file a lawsuit against the insured in federal court, alleging that the insured has waived the right to contest the determination. “I think everyone who works in the area of federal crop insurance needs to be aware of this policy.”