In Nebraska, the federal arbitration rules will apply even in cases that the farmer believes was settled.
On September, 2010, the Nebraska Supreme Court ruled that two farmers would have to arbitrate their claim with Rural Community Insurance Company (RCIC) despite having an agreed upon settlement with RCIC’s insurance agent. Kremer v. Rural Community Insurance Company 280 Neb. 591, __ NW2d ___ (2010). The case started when Robert Kremer and Gary Moody made a claim on their RCIC policies and the agent agreed to pay a specified amount. RCIC refused to pay the specified amount and tried to enforce the arbitration provision of the policy. Kremer and Moody brought an action to enforce the settlement agreement but the District Court sided with RCIC.
Kremer and Moody appealed the decision and argued that the arbitration provision does not apply since they had a valid enforceable settlement agreement. The Nebraska Supreme Court also sided with RCIC and validated its opinion with a lengthy argument regarding preemption of federal statutes over state statutes.
Unbeknownst to many, Nebraska has a state statute which prohibits arbitration provisions in insurance policies, with few exceptions. Neb.Rev.Stat. §25-2602.01. As with all crop insurance, the RCIC policy was a Multiple Peril Crop Insurance (MPCI) policy created by the Federal Crop Insurance Act and reinsured by the Federal Crop Insurance Corporation. The FCIA specifically states that state and local laws shall not apply to policies governed by the FCIA. 7 U.S.C. §1506(1). The Supreme Court determined that the federal statute pre-empts the state prohibition against arbitration provisions in crop insurance policies.
After determining the arbitration provision was valid, the Nebraska Supreme Court decided that Kremer and Moody could not avoid arbitration by trying to enforce the adjuster’s settlement agreement. Rather, an adjuster cannot bind the Federal Crop Insurance Corporation where the agreement is inconsistent with federal law. Interestingly, the Court never explained how the settlement agreement was inconsistent with federal law and, therefore, unenforceable.
The lesson to be learned, any settlement agreement with a crop insurance agent in Nebraska, is not binding until the check is cashed. Maybe even not then.