Buckman v. NAU Country Insurance Company
Filing
29
MEMORANDUM OPINION signed by Senior Judge Charles R. Simpson, III on 3/18/2016, re AGPerspective's 25 MOTION TO DISMISS. For the reasons set forth, the Court will grant AGPerspective's motion. cc: Counsel (RLK)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
PLAINTIFF
JOSEPH BUCKMAN
v.
CIVIL ACTION NO. 3:14-CV-00921-CRS
NAU COUNTRY
INSURANCE COMPANY, et al.
DEFENDANTS
MEMORANDUM OPINION
This case is before the Court on Defendant AgPerspective, Inc.’s (“AgPerspective”)
motion to dismiss Plaintiff Joseph Buckman’s claims. Buckman has alleged negligent and
intentional misrepresentation claims against AgPerspective stemming from an insurance agent’s
statements concerning a corn crop policy. For the reasons below, the Court will grant
AgPerspective’s motion.
BACKGROUND
This case is about representations made in connection to a crop insurance policy. In
March 2011, Buckman applied through AgPerspective for a Group Risk Income Protection
(“GRIP”) insurance policy under the Federal Crop Insurance Act (“FCIA”) for his 2011 corn
crop. At the time of the application, an AgPerspective insurance agent told Buckman that he
would be entitled to an indemnity payment if Marion County’s 2011 actual corn crop yield was
more than ten percent less than the expected yield; Marion County’s 2011 expected yield was
136.7 bushels per acre; and Marion County’s 2011 actual corn crop yield would be based on
planted acres.
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Buckman subsequently purchased and entered into the GRIP policy with the NAU Country
Insurance Company (“NAU”). The parties do not dispute that the agent misrepresented the
policy terms. Marion County’s 2011 actual corn crop yield would be based on harvested acres –
not planted acres. This shift in calculation alters the number of bushels per acre in the final actual
yield, which could decrease the likelihood of triggering an indemnity payment.
On March 8, 2012, the same AgPerspective agent visited Buckman to discuss 2012 corn
crop coverage. At this time, the agent informed Buckman:
Marion County’s 2011 actual corn crop yield was 102.1 bushels per acre; and
Under the GRIP policy, NAU would issue Buckman an indemnity payment in the
amount of $104,961.
The agent also provided Buckman with a document showing a calculation purporting to be
Marion County’s actual corn crop yield. Buckman then leased his farm, disposed of his farm
equipment, and exited farming.
On April 11, 2012, the same AgPerspective agent visited Buckman. The agent told
Buckman that AgPerspective originally calculated the corn crop yield using the planted acres
standard, not the correct harvested acres standard. Marion County’s 2011 actual corn crop yield,
under the harvested acres standard, was 125 bushels per acre. Using the harvested acres standard,
the agent told Buckman, NAU would not issue an indemnity payment.
STANDARD
When evaluating a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the Court must
determine whether the complaint alleges “sufficient factual matter, accepted as true, to state a
claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal
quotations and citations omitted). A claim is plausible if “the plaintiff pleads factual content that
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allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). Although the
complaint need not contain “detailed factual allegations,” “a plaintiff’s obligation to provide the
grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (internal
quotation marks and alteration omitted). The complaint must “give the defendant fair notice of
what the ... claim is and the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 127
(2007) (quoting Twombly, 550 U.S. at 555).
DISCUSSION
AgPerspective moves to dismiss Buckman’s misrepresentation claims against it. To
establish a claim of negligent or intentional misrepresentation under Kentucky law, the plaintiff
must establish that his reliance on a misrepresentation was reasonable. See Presnell Constr.
Managers, Inc. v. EH Constr., LLC, 134 S.W.3d 575, 580 (Ky. 2004); United Parcel Serv. Co. v.
Rickert, 996 S.W.2d 464, 468 (Ky. 1999). AgPerspective’s only argument supporting dismissal
of these claims is that Buckman’s reliance on the agent’s misrepresentation could not have been
reasonable. Two questions will decide whether Buckman’s reliance was reasonable: First,
whether, as a matter of law, Buckman is deemed to know the terms and conditions of his corn
crop insurance policy. Second, if the Court finds Buckman has constructive knowledge of the
policy’s content, whether he nonetheless reasonably relied on the insurance agent’s
misrepresentations.
Under the FCIA, private and approved insurance providers may offer crop insurance to
individuals. See 7 U.S.C. § 1502(b)(2). The Federal Crop Insurance Corporation (“FCIC”) then
reinsures the providers and indemnifies covered losses. See 7 C.F.R. § 407.9. The FCIC issues –
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and the United States Department of Agriculture publishes – the basic GRIP policy’s terms and
provisions, including specific corn crop terms and provisions. See id. The contents of Buckman’s
GRIP policy included, among other provisions, the method for calculating indemnity payments
and corn crop actuarial documents. See Group Risk Income Protection Coverage Insurance
Policy, http://www.rma.usda.gov/policies/2005/grip/pdf/05-gripbasi.pdf. The actuarial
documents – after the corn crop has been harvested – include the relevant county’s expected and
final bushels per acre. The documents do not include the calculation of an indemnity payment or
whether the totals trigger the indemnity payment issuance.
AgPerspective argues that Buckman is deemed to have constructive knowledge –
regardless whether Buckman had actual knowledge – of the terms of the GRIP policy. In Federal
Crop Insurance Corp. v. Merrill, an insured farmed could not recover for crop losses under his
federal insurance policy because his claims were not compliant with the regulations’ terms and
conditions, regardless of the federal insurance agent’s misrepresentations. 332 U.S. 380, 386
(1947). Merrill, however, involved a direct claim against the FCIC. This distinction has caused
some courts to find Merrill’s imputation of constructive knowledge does not apply to actions
against private insurers. See Farmers Crop Ins. Alliance v. Laux, 442 F.Supp.2d 488, 491 n.4
(S.D. Ohio 2006); Dailey v. Am. Growers Ins., 103 S.W.3d 60, 69 (Ky. 2003) (Cooper, J.,
concurring). Other courts, however, have found that insureds have constructive knowledge of the
statutory policy terms regardless of whether their crops are insured by a private party or directly
by the federal government. Nobles v. Rural Comm. Ins. Servs., 122 F.Supp.2d 1290, 1303 – 04
(M.D. Ala. 2000); Walpole v. Great American Insurance Companies, 914 F. Supp. 1283, 1290
(D. S.C. 1994) aff'd, 56 F.3d 63 (4th Cir. 1995).
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In finding the Merrill doctrine does not apply in transactions with private insurers, courts
have generally cited Merrill’s remark that “[W]e assume that recovery could be had against a
private insurance company. But the [FCIC] is not a private insurance company.” 332 U.S. at 383;
see also Laux, 442 F.Supp.2d at 491 n.4; Dailey, 103 S.W.3d at 69 (Cooper, J., concurring).
However, Merrill’s statement compares a purely private entity and a government entity. When
that case was decided, private insurers did not offer insurance under the FCIA. Indeed, Merrill
rested its decision in part on the observation that all courts have a duty “to observe the conditions
defined by Congress for charging the public treasury.” 332 U.S. at 385. The question here is
whether Merrill extends to the reinsurance of a private insurance contract that the federal law
regulates, dictates, and promotes.
Buckman argues that this constructive knowledge should only apply when claims are
against a government entity. However, federal crop insurance is not just another form of
insurance, but a government remedial program that does impact the public fisc through
reinsurance. Congress did not intend to insure farmers’ profits, but to prevent “disastrous losses.”
Mann, 710 F.2d at 147. As a government remedial program, the federal treasury covers program
costs – here through reinsuring a private insurer’s policy. As other courts have found, the impact
to the public fisc requires that “the insured must be charged with notice of the regulations and
policy provisions.” Id. at 1290 n.12.
The federal flood insurance program established under the National Flood Insurance Act
of 1968 (“NFIA”) is an apt analogy to the federal crop policy at issue. Although insurers are
explicitly considered to be “fiscal agents of the United States” under the NFIA, 42 U.S.C.
§ 4071(a)(1), the federal reinsurance framework is remarkably similar to the FCIA. In both
instances, a private insurer issues a federally reinsured policy that a federal agency promulgated
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and published in the federal register. If there is a claim on the policy, the federal fisc is likely
impacted through the reinsurance. In the NFIA context, insureds are presumed to have
knowledge of the federal flood insurance policy and associated regulations. See Fadel v.
National Mut. Fire Ins. Co., 3:12–CV–00337–H, (W.D. Ky. 2013). This Court sees no principled
reason to treat the FCIA differently. This is in line with Merrill’s pronouncement that “everyone
is charged with knowledge of the United States Statutes at Large,” and “the appearance of rules
and regulations in the Federal Register gives legal notice of their contents.” Fed. Crop Ins. Corp.
v. Merrill, 332 U.S. 380, 384–85 (1947). The Court finds Buckman is charged with knowledge
of his GRIP policy.
As Buckman is charged with knowledge of the policy, the Court must decide whether his
reliance was reasonable on AgPerspective’s agent’s statements. In Buckman’s amended
complaint, he says he relied on the agent’s representation that Buckman “would be entitled to
recover an indemnity payment under the GRIP Policy if the actual 2011 Marion County corn
crop was more than ten percent (10%) less than the expected yield of 136.7 bushels per acre....
[and] that the calculation of the Marion County 2011 actual corn crop yield would be based on
planted acres.” Amend. Compl. ¶ 6, ECF No. 19. Buckman alleges he relied on these
representations in purchasing the GRIP policy. While this information was erroneous, the correct
information was located within the policy. The GRIP Corn Provisions say that “The actuarial
documents will specify whether harvested or planted acreage is used to calculate the yield that is
used to establish the expected county yield and calculate revenues.” See Group Risk Income
Protection, Corn Crop Provisions, www.rma.usda.gov/policies/2006/grip/pdf/06gripcrn.pdf. The
actuarial documents, which are considered part of the policy, say that the “yield used for this
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offer is calculated by dividing the NASS estimate of Corn for Grain Production in the county by
the NASS estimate of Corn Harvested for Grain Acres in the county.” See ECF No. 26-5.
Buckamn also alleges that he relied on the agent’s representation “that the actual final
Marion County 2011 corn crop yield was 102.1 bushels per acre and that as a result he would be
getting an indemnity payment of $104,961.00 from NAU.” Id. ¶ 9. Buckman alleges that the
agent also “presented Buckman with a document purporting to be a government calculated final
Marion County 2011 corn crop yield.” Id. Buckman argues that he relied on these representations
in leasing his farm, terminating his leases on other acreage, disposing of farming equipment, and
ultimately exiting farming.
AgPerspective argues that Buckman could not have reasonably relied on these statements
as he had constructive knowledge of enough information to determine the actual yield as well as
to calculate the indemnity payment. The Court agrees. A reasonable person with knowledge of
the actual totals, even when an insurance agent confronts him with differing totals, does not
reasonably rely on the agent’s representations without minimal due diligence. Here, Buckman
had constructive knowledge of all the necessary information to quickly determine the crop yield
did not trigger an indemnity payment. Prior to receiving any funds, Buckman relied to his
detriment in exiting the corn industry. The Court finds this reliance, however, was not
reasonable. Therefore, the Court will grant AgPerspective’s motion to dismiss.
The Court will enter a separate opinion in accordance with this memorandum.
March 18, 2016
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