Balvin v. Rain and Hail, LLC

Filing 21

MEMORANDUM OPINION AND ORDER granting in part and denying in part 11 Motion to Vacate Arbitration Award; granting in part and denying in part 14 Motion to Confirm Arbitration Award. Signed by U.S. District Judge Lawrence L. Piersol on 8/21/18. (SLW)

UNITED STATES DISTRICT COURT

FILED

DISTRICT OF SOUTH DAKOTA

2 1 2018

SOUTHERN DIVISION

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TERRY R. BALVIN,

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Plaintiff,

4:18-cv-4049-LLP

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V.

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RAIN AND HAIL,LLC,
Defendant.

MEMORANDUM OPINION AND ORDER

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REGARDING MOTION TO VACATE,

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Doc. 11, AND MOTION TO CONFIRM
ARBITRATION AWARD,Doc. 14

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This case arises out of Defendant Rain and Hail, LLC's denial of Plaintiff Terry Balvin's

claim for crop insurance benefits under Plaintiffs federally reinsured multiple peril crop
insurance policy. The matter was arbitrated on December 15, 2017, and the arbitrator ultimately
concluded that Defendant's denial of benefits was proper. Now pending before the Court is
Plaintiffs Amended Motion to Vacate Arbitration Award, Doc. II, and Defendant's Motion to

Confirm Arbitration Award, Doc. 14. Having reviewed the pleadings, for the reasons below, the
Court grants Plaintiffs Motion to Vacate and denies Defendant's Motion to Confirm.
BACKGROUND

In 2015, Plaintiff purchased the relevant multi-peril crop insurance policy. Policy No.
MP-0753754(the Policy), with revenue protection to cover approximately 2,077 acres ofcom
and soybeans among seventeen fields located in Bon Homme County, South Dakota.
Specifically, the Policy covered 1,130.3 acres ofcom at a .75 level. The Policy is reinsured

pursuant to the Federal Crop Insurance Act, which is administered by the Federal Crop Insurance
Corporation(FCIC). The Policy was issued in accordance with the Federal Crop Insurance Act
and is codified in federal regulations at 7 CFR § 457.8. The basic provisions have the full force
and effect of federal law. See Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 385 (1947).
In October of2015, Plaintiff cut about 23 acres of com for silage. During the October 13
to November 20 interval, there was virtually no precipitation for 34 straight days. On October 19,
adjuster Allen Skotvold recorded a moisture content of about 22%. On October 23, there was an

inch of rain. During the 34-day stretch between October 13 and November 20, Plaintiff

combined 947 acres of beans in eight days but did not combine any com,though the eom and
bean fields were adjacent to each other. It snowed 12 inches on November 20 and on December

4, 2015, Plaintiff submitted a claim on his remaining com crop. Claim No. 15-005951, under the

Policy based on his assertion that "excess moisture" prevented him from harvesting his com
during the period ofcoverage due to "significant amount[s] of excess moisture, as well as a

severe blizzard and large snowfall late in the season." The deadline for completing the harvest,
referred to as the "end ofthe insurance period"(EOlP), was December 10, 2015. On Deeember
18, Allen Skotvold, an independent adjuster, cheeked on Plaintiffs "unharvest claim." Skotvold

testified to driving around the county mapping Plaintiffs fields when he saw neighboring fields
that had "maybe two acres left standing" in places. He testified that though Plaintiff had full
fields of com left standing, there were no other full fields standing in the area. Skotvold did not

drive in the fields, but testified that they were "dry enough to do anything you wanted to."
On January 11, 2016, Skotvold had a phone conversation with Plaintiff. Skotvold's notes

from the phone conversation assert that Plaintiff"has not attempted to do any more harvesting"
and noted the need for an appraisal, though "[sjome fields may not be accessible due to snow
drifts." On January 29, Skotvold retumed to do the appraisal. Skotvold found the moisture

content of the com was 14.8% and appraised the net yield at 193.1 bushels per acre. Skotvold,
however, did not sign the appraisal because he thought the yield was "possibly" too low and not
fairly representative of Plaintiffs claim for determining Actual Production History. Skotvold
testified that on January 29 he observed snow here and there, a little bit ofsnow where shaded,

but nothing "you would need to plow through," nothing that would keep Plaintiff from
harvesting.

At arbitration. Plaintiffs neighbor Jerome Nedved testified that the topography of his
farmland is "real similar" to that of the Plaintiff. Nedved raised and harvested 400 acres of com

in 2015 and testified to harvesting about half ofthat before the EOlP. He harvested the

remaining com acreage at the end of Febmary and the first part of Mareh. Nedved testified that

the ground firmed up for about three days at the end of Febmary and for a couple of days in early
March, and the "com stalks were still standing up pretty good." Snowfall records indicate that

from Febmary 9, 2016 through March 15, 2016, there were only three days on which there was
measurable snowfall, the highest being 0.7 inches. It was during that 35 day stretch that Nedved
was able to finish harvesting his com.

Plaintiff himself combined about 78 acres on February 25-27 in a field called "Doc's 80"

and obtained a yield of61.79 bushels per acre- Plaintiff kept a diary of bis daily activities, which
be referred to as a "Timeline" and the notes from that time state "Knee deep plus track in field,"
and "Com laying flat in both fields." On March 30, adjuster Justin Morrison appraised four of
Plaintiffs fields. All the fields appraised out above Plaintiffs guarantee.
Plaintiffs entry to bis Timeline on June 17, 2016 states "Rain Storm w/ terrible

Hurricane Type Winds out of Northeast—Laid all 2015 com Flat—Blew the stalks w/roots right
out ofthe ground." Plaintiffs Timeline also documents a meeting on June 20 with a former

employee of Defendant, who took pictures for a 2016 prevent-plant claim. According to
Plaintiffs notes "He told me today that if be was me—He would Pursue a claim on the 2015

unbarvested com—but be wanted bis name left out of it." The former employee of the

Defendant, at the time be evaluated Plaintiffs claim, was then an employee of Diversified Crop
Insurance Services(DCIS), with whom Plaintiff bad filed a claim that be was prevented from
planting bis 2016 bean crop in a timely manner. That employee, in an Adjuster Special Report
made to support Plaintiffs claim with DCIS, stated that be "didn't see where [Plaintiff] would
have bad an opportunity to get the 2015 crop harvested and planted to the 2016 spring crop." He
also noted that Plaintiffs fields "were still wet and the 2015 crop was still standing" on June 21,
2016. The pictures taken that day have since disappeared. The arbitrator, in considering the
former employee's report as evidence, noted that the statement was made just a few days after
the wind and rain storm, which would account for the fields being wet.

On July 14, 2016, Plaintiff resumed combining the 2015 corn. After completing the
investigation ofthe loss claim. Defendant "withdrew" or "released" the claim as a "non-loss"

claim. Plaintiff filed a demand for arbitration, claiming crop insurance indemnity for bis loss in
the sum of $451,042.00. The arbitration bearing was held on December 15, 2017 and declared
closed on January 29, 2018. On February 7, 2018, the arbitrator, Waldine H. Olson, denied

Plaintiffs claim for losses on bis 2015 com crop, concluding that 1)"Claimant bad windows of

opportunity, both during and after the EOlP,to harvest bis 2015 com crop;" 2)"For unexplained
reasons. Claimant abandoned bis 2015 com crop by failing to harvest the crop in a timely
manner, even though be was allowed the opportunity to continue harvesting after the EOIP;" and

3)"The 2015 com crop suffered additional loss or deterioration before a majority ofthe crop was
eventually harvested."

STANDARD OF REVIEW

"This Court's review of an arbitration award is limited and the arbitrator's deeision is

entitled to 'an extraordinary level of deferenee.'" See Hasel v. Kerr Corp., Civ. No. 99-1376,
2010 WL 148437 at *3(D. Minn. 2010)(quoting Stark v. Sandberg, Phoenix & Von Gontard,

PC,381 F.3d 793, 798 (8th Cir. 2004). Indeed, the Court's "scope of review of[a]n arbitration
award ... is among the narrowest known to the law." Bhd. OfMaint. Of Way Employees v.
Terminal R.R. Ass'n, 307 F.3d 737, 739(8th Cir. 2002).
"It is not enough for [Plaintiff] to show that the [arbitrator] committed an error—or even

a serious error." Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662,671 (2010). "It is
only when [an] arbitrator strays from interpretation and application of the agreement and
effectively dispenses his own brand ofindustrial justice that his deeision may be unenforceable."
Major League Baseball Players Assn. v. Garvey, 532 U.S. 504, 509(2001)(per euriam)(internal
quotations omitted)."An arbitrator derives his or her powers from the parties' agreement to
forgo the legal process and submit their disputes to private dispute resolution" and "arbitrators

must not lose sight of the purpose ofthe exercise: to give effect to the intent ofthe parties." See
Stolt-Nielsen S.A., 559 U.S. at 682-84.
ANALYSIS

The Federal Arbitration Act(FAA)provides that a court may vacate an arbitration award
under four circumstances:

(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of
them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the
hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent
and material to the controversy; or ofany other misbehavior by which the rights
of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them
that a mutual, final, and definite award upon the subject matter submitted was
not made.

9 U.S.C. § 10(a). Plaintiff argues that the arbitration award in this case should be vacated

because the arbitrator 1) committed misconduct in refusing to hear evidence pertinent and
material to the controversy; and 2)exceeded his power in interpreting policy and procedure as
well as what constitutes good farming practices.

ARBITRATOR MISCONDUCT

Where an arbitrator refuses "to hear evidence pertinent and material to the controversy,"
an arbitration award may be vacated under 9 U.S.C. § 10(a)(3). "In making evidentiary
determinations," however,"an arbitrator need not follow all the niceties observed by the federal
courts." Hasel, 2010 WL 148437 at *3(quoting Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16,

20(2d Cir. 1997)(internal quotation marks and citations omitted). "In fact,'an error that requires
the vacation of an award must be one that is not simply an error of law, but which so affects the

rights of a party that it may be said that be was deprived of a fair bearing.'" Id. (quoting
Grahams Serv., Inc. v. Teamsters Local 975, 700 F.2d 420,422(Stb Cir. 1982)(intemal
quotation marks and citation omitted)).

Plaintiff argues that be was improperly denied the opportunity to effectively crossexamine two of Defendant's witnesses at the arbitration bearing. Justin Morrison testified that be

would have been in the field assessing production most ofthe morning on March 28, 2016.

Plaintiff testified that no one was in the field that morning. Plaintiffs counsel sought to impeach
Morrison's testimony and corroborate Plaintiffs testimony with scale tickets, which would

allegedly corroborate Plaintiffs claim that no one was in the field that morning. Defense counsel
objected because the scale tickets bad not previously been produced. The arbitrator ruled that the
scale tickets could not be offered.

Chris Kluge offered testimony regarding bis experience and training, as well as the claim
and appraisal process. Plaintiff argues that Kluge bad previously given sworn testimony in a

similar case during a similar timeframe regarding Defendant's failure to follow the Policy's
mandatory adjustment process. Plaintiff wanted to use Kluge's "not entirely consistent" previous
testimony to impeach Mr. Kluge as well as to further explore the actions and motives elicited in

that prior case. Upon objection by Defendant, Plaintiff was not permitted to further cross
examine Mr. Kluge on the matter.

Hasel is particularly instructive in that there, as is the case here, no record or transcript of
the arbitration bearing was made. Accordingly, the Court is left with the award itself and the

affidavits and argument of counsel. For purposes ofthis motion, however, the burden rests upon
Plaintiff to establish a basis to vacate. See Stark, 381 F.3d at 802. Even if the evidence was

excluded to the extent Plaintiff contends. Plaintiff carmot meet bis burden."Every failure of an
arbitrator to receive relevant evidence does not constitute misconduct requiring vacatur of an

arbitrator's award." Hasel, 2010 WL 148437 at *4(quoting Hoteles Condado Beach v. Union De

Tronquistas Local 901, 763 F.2d 34,40(1st Cir. 1985)). "Indeed, in conducting arbitration
hearings,"[a]rbitrators must be given discretion to determine whether additional evidence is

necessary or would simply prolong the proceedings." Id. (quoting Tempo, 120 F.3d at 19). Each
party had "an adequate opportunity to present its evidence and argument" and it cannot be said

that Plaintiff was deprived of a fair hearing. Id. (quoting Hoteles, 163 F.2d at 39). Therefore, the
arbitration award may not be vacated under 9 U.S.C. § 10(a)(3).
GOOD FARMING PRACTICES

Plaintiff also argues that the arbitration award must be vacated because the arbitrator

exceeded his authority by 1) interpreting "good farming practices" and 2)failing to submit

disputes of interpretation of policy and procedure, including whether specific policy provisions
or procedures were applicable, to the FCIC. In response. Defendant asserts that the arbitration
award was not based on policy or procedural interpretation, but rather on several alternative

factual determinations by the arbitrator. Defendant characterizes the issue raised by the motion as

whether the arbitrator found, as a matter of fact, that Balvin failed to meet his burden of proof
that an insured cause of loss was present. In reply, Plaintiff, in effect, argues that he met this
burden because the arbitrator, in order to determine an insured cause of loss was present, needed
to determine how much revenue was generated from Plaintiffs com enterprise versus the
revenue protection guarantee provided by the insurance policy. Because the arbitrator could not

determine the revenue without raising issues of good farming practices and interpretation and
applicability of certain policies and procedures, and because the arbitrator must resolve such

issues by submitting them to the FCIC, which was not done. Plaintiff argues the arbitration
award must be vacated.

The basic provisions ofthe Policy provide for arbitration in the event of a dispute.
"However, if the dispute in any way involves a policy or procedure interpretation, regarding
whether a specific policy provision or procedure is applicable to the situation, how it is
applicable, or the meaning of any policy provision or procedure, either [the insured] or [the
insurer] must obtain an interpretation from FCIC." Policy § 20(a)(1). Further, the insurer makes
decisions regarding what constitutes a good farming practice and if the insured disagrees with the

decision, the insured must request a determination of what constitutes a good farming practice

from FCIC. Id. at § 20(d)(1). Failure to obtain an FCIC interpretation when it is required will
result in the nullification of any agreement or award. Id. at § 20(a)(l)(i).

Under the Policy, insurance is provided only to protect against unavoidable, naturally
occurring events, including "excess moisture." Id. at § 12. Failure to follow recognized good

farming practices for the insured crops, however, is not a covered loss under the policy. Id. at
12(b). The Risk Management Agency(RMA)of the United States Department of Agriculture's

(USDA)Loss Adjustment Manual(LAM)Standards Handbook' further provides,"[t]he contract
does not cover any loss that is due to the insured's failure to follow recognized good farming
practices. LAM § 281(K). Included in its list of more common uninsured causes of loss due to

failure to follow recognized good farming practices is "[fjailure to properly plant, care for, or
harvest the insured crop." Id. at § 281(K)(4).

"Abandoned" is defined in the Policy as "failure to continue to care for the crop,
providing care so insignificant as to provide no benefit to the crop, or failure to harvest in a

timely manner, unless an insured cause of loss prevents you from properly caring for or
harvesting the crop or causes damage to it to the extent that most producers ofthe crop on
acreage with similar characteristics in the area would not normally further care for or harvest it."

"For 'failure to timely harvest' to be considered as abandonment, the crop must be in a condition
where harvest would be considered as a good farming practice. A crop damaged to the extent
that harvest is not practicable will not be considered as abandoned because the producer fails to
harvest the crop." Id. at § 194(A)(4).
To vacate an award under 9 U.S.C. § 10(a)(4) on the ground that the arbitrator "exceeded

[his] powers," the arbitrator must have "stray[ed] from interpretation and application ofthe
agreement and effectively 'dispense[d] his own brand of industrial justice.'" Stolt-Nielsen S.A.,
559 U.S. at 671 (quoting Garvey, 532 U.S. at 509). Plaintiff argues that the arbitrator could not
conclude that Plaintiff had abandoned his crop for,failure to harvest in a timely manner without
exceeding his authority by interpreting "good farming practices." In response. Defendant argues
that the arbitrator merely made factual determinations required to determine whether or not
Plaintiff met all ofthe conditions for insurability required by the Policy and therefore did not
exceed his authority. The Court agrees.

' RMA is the federal administering agent ofthe FCIC. RMA's handbooks are official publications for all levels
The
ofinsurance provided under the Federal Crop Insurance program. See LAM § I.

To determine whether a erop has been abandoned, the arbitrator was required to reach a

factual conclusion that an insured cause of loss did not prevent proper care or cause damage to
the extent that "most producers ofthe erop on acreage with similar characteristics would not

normally further care for or harvest it." Through witness testimony, it was shown that Plaintiffs
com crop was the only crop left standing in the area and the only excess moisture claim made in

the county. Further, Plaintiffs neighbor was able to harvest an adjacent field and Plaintiff
himself was able to harvest an adjacent bean field. The Court must defer to the arbitrator in his

factual conclusion that this was enough to show Plaintiff could not establish that "most producers
of the erop on acreage with similar characteristics would not normally further care for or harvest

it." Regarding Plaintiffs argument that determining Plaintiff had abandoned his erop for failure
to harvest in a timely manner necessarily requires an interpretation of"good farming practices,"
included in the Loss Adjustment Manual's list of more common uninsured causes of loss due to

failure to follow recognized good farming practices is "[fjailure to properly plant, care for, or
harvest the insured crop." LAM § 281(K)(4). Thus, the arbitrator did not have to interpret "good

farming practices" itself to come to his conclusion. Instead, he needed only to apply the factual
conclusions made from testimony at the hearing to the Policy and Manual's language.
This finding is further bolstered by the fact that Plaintiff showed no further deterioration
or causes of loss when the harvest is completed after the EOIP. When the insured harvests their

crops after the end ofthe insurance period, if the harvested production is less than the appraised
production, the appraised production will be used to adjust the loss "unless you can prove that no
additional causes of loss or deterioration ofthe crop occurred after the end ofthe insurance
period." § 15(b)(3)(i). Subsequent damage to the erop is covered only when the insured has made

"every reasonable attempt to harvest erop timely and properly." LAM § 177B(2)(b). The insured
is "expected to harvest the erop if a window of harvest opportunity arises." Id. at § 177B(6).
Testimony at the hearing established that surrounding farmers were able to harvest their own

erop after the EOIP when the land had dried up in February and March, leading the arbitrator to
again make a factual conclusion that Plaintiff himself had a window of opportunity to harvest.
Further, Plaintiffs own testimony provided that a June wind storm laid his crop flat, denying
Plaintiff the ability to prove that no additional causes of loss occurred. Therefore, the arbitrator

did not exceed his authority in making factual determinations regarding failure to harvest during
windows of harvest opportunity presented after the EOIP.

APPRAISED VALUE

When the insured harvests their crop after the end of the insurance period, if the
harvested production is less than the appraised production, the appraised production will be used
to adjust the loss "unless you can prove that no additional causes of loss or deterioration of the
crop occurred after the end of the insurance period." § 15(b)(3)(i). Because Plaintiff could not
establish that he made "every reasonable effort" to harvest during "windows of harvest
opportunity" and could not show that no additional causes of loss or deterioration occurred after

the EOlP,the appraised production ofthe crop must be used. If the appraised production of the
crop exceeded the Policy's guarantee, however. Plaintiff was not entitled to insurance benefits.

Here, Plaintiff argues that the arbitrator exceeded his authority in interpreting that the
"appraised value" could be measured by the un-signed appraisal worksheets. In Section K of the

Arbitration Award,the arbitrator mentioned that Plaintiffs 2015 com crop was appraised twice,
that those appraisals exceeded his guaranteed production, and "the policy provides that those
appraisals must be used to calculate the farmer's claim if he decides not to harvest his acreage.
(Basic Provisions ^ 15(b))." That Basic Provision does indeed provide that the appraised

production^ will be used to adjust the loss, however, according to the Com Loss Adjustment
Standards Handbook(CLASH),a com appraisal requires both an Appraisal Worksheet,"a form
used by an adjuster to enter appraisal information," and a Production Worksheet,"a progressive
form containing all notices of damage for all preliminary, replant, and final inspections on a
unit." See LAM Ex. 2(defining Appraisal Worksheet); CLASH § 37.

"A final inspection must be made in order to document production, acreage, insured and
uninsured causes of loss, and all other pertinent entries to determine the amount of indemnity,
unless the notice has been withdrawn or cleared." LAM § 176."Anytime a loss adjustment
inspection takes place and the claim is denied by the [insurer], a [Production Worksheet] must be
completed with at least the following information: Claim Number; Policy Number; Crop Year;
Crop Code; United Number; Type, Class, or Variety; Practice; Stage Code"DC"(means denied

claim); Acres or number oftrees for tree crops; First Notice of Loss Date; Adjuster's signature;
Adjuster's code number; and Adjuster's signature date." Id. at § 176K."For the purpose ofthis

procedure a denied claim is any claim for which the insured believes they should be paid an

^ "Appraised production" is defined as "production from unharvested acreage determined by the [insurer] that
reflects potential production ofthe crop at the time of appraisal." LAM Ex. 2.

indemnity, replant payment, or prevented planting payment but results in the [insurer] denying
sueh a claim." Id.

Under the Policy if a dispute "m any way involves a policy or procedure interpretation,
regarding whether a specific policy provision or procedure is applicable to the situation, how it is
applicable, or the meaning of any policy provision or procedure, either [the insured] or [the
insurer] must obtain an interpretation from FCIC." Policy § 20(a)(1)(emphasis added). Plaintiff
asserts that no Production Worksheet was ever completed and Defendant does not dispute that
fact. The loss adjustment procedures clearly call for a Production Worksheet to be completed
when an insured files a claim for indemnity and the insurer denies that claim. The Parties do not

point to, and the Court cannot find, an applicable procedure for determining appraised value
when a Production Worksheet is not done and Appraisal Worksheets are not signed. This is
precisely the type of dispute regarding the application of policy and procedure that needed to be
submitted to the FCIC for interpretation. Accordingly,
IT IS ORDERED that:

1. Plaintiffs Motion to Vacate Arbitration Award, Doe. 11, is DENIED in part
and GRANTED to the extent necessary to determine and apply proper
procedure when a Production Worksheet is not done and Appraisal Worksheets
are incomplete and
2. Defendant's Motion to Confirm Arbitration Award, Doc.14, is GRANTED in

part and DENIED to the extent necessary to determine and apply proper
procedure when a Production Worksheet is not done and Appraisal Worksheets
are incomplete.
Dated this

day of August. 201R.
BY THE COURT:

awrence L. Piersol

United States District Judge
ATTEST:

MATTHEW W.THELEN,CLERK

BY-SiMm li Deputy
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