Around this time last year, the 8th Circuit Court of Appeals found that an arbitrator did not exceed his authority when a dispute over the interpretation of a crop insurance policy provision arose after the arbitration proceedings.  Balvin v. Rain and Haill, LLC.

Why is this important?

It is important because in 2015, the Federal Crop Insurance Corporation (“FCIC”) issued Final Agency Determination (“FAD”) 230* which stated the following:

A material dispute regarding an interpretation of the policy or procedure may arise after the arbitration award has been rendered. In such case, either of the parties may seek a FAD for the provision at issue.  Once the FAD is issued, the arbitration award must be reviewed to determine if it is consistent with the FAD.  If it is not consistent, the arbitration award must be nullified if it is determined the inconsistency materially affected the award.

FAD 230 was subsequently codified in 7 C.F.R. Sec. 400.766(b)(4)

Again, why is this important?  Let’s start with a little context.

First, all Multi-Peril Crop Insurance Policies (“MPCI”) include an arbitration agreement, which means that any factual dispute between an insured and the insurance company must be arbitrated.

Second, the courts have determined that crop insurance involves interstate commerce and, therefore, the arbitration provision is governed by the Federal Arbitration Act (“FAA”).

Third, outside of fraud and corruption, an arbitrator’s award can only be overturned under the FAA if the “arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award on the subject matter submitted was not made.  9 U.S.C. Sec. 10(a)(4).  Proving an arbitrator exceeded her powers is a high hurdle with courts finding “[a]n arbitrator does not ‘exceed his powers’ by making a error of law or fact, even a serious one.”  Beumer Corp. v. ProEnergy Servs., LLC899 F.3d 564, 565 (8th Cir 2018).

However, courts recognize that an arbitrator cannot interpret the policy or FCIC procedures.  Rather the parties must seek a FCIC interpretation if the dispute includes a policy interpretation or how a policy provision may apply.  Failure to obtain a FCIC interpretation will result in the nullification of the arbitration award.

In Balvin v. Rain and Haill, LLC. the plaintiff, Balvin, argued that the arbitrator exceeded his authority when interpreting the policy term “appraised value” in the arbitrator’s award.  The district court agreed because the arbitrator’s application of “appraised value” in the award was the type of dispute that was to be submitted to the FCIC.  The 8th Circuit Court disagreed and found the issue of whether the arbitrator improperly interpreted the policy came after the arbitrator’s ruling.  Therefore, the arbitrator “did not exceed his authority by denying Balvin’s claim…” Balvin v. Rain and Haill, LLC. No. 18-3018 (8th Cir. Dec. 2, 2019)

While the 8th Circuit provided additional reasons for affirming the arbitrator’s ruling, it is interesting that the Court determined the arbitrator did not exceed his authority because the interpretation issue arose after the ruling.  The 8th Circuit recognized FAD 230 and the subsequent codification allowing a FCIC interpretation after the arbitration award.  Furthermore, the 8th Circuit cited the rule that the award must be nullified if neither party requested an interpretation.

The conflict is obvious.  The FCIC and MPCI allow for post-arbitration award reviews of whether the policy was properly interpreted and applied.  However, it appears the Courts cannot overturn the award pursuant to the FAA if the interpretation issue arose after the award.

One wonders whether Balvin may have obtained a different outcome if he had requested a FCIC interpretation of the “appraised value” upon obtaining the arbitrator’s ruling.

In a long explanation to answer the previous question; the case is important because a court’s interpretation of the interplay between the FAA and the MPCI may eventually affect the outcome of your insurance claim.  The Balvin case is another example of how that interplay is an enigma wrapped in riddle.

*FAD 230 was the result of a request for FCIC interpretation upon a judicial review of an arbitrator’s ruling.  Our firm represented the second requester.