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Great American Insurance Co. v. Russell

United States District Court, W.D. Missouri, Western Division

November 19, 2019

GREAT AMERICAN INSURANCE COMPANY, Plaintiff,
v.
JONATHAN RUSSELL, Defendant.

          ORDER AFFIRMING ARBITRATION AWARD

          GREG KAYS, JUDGE UNITED STATES DISTRICT COURT.

         This case arises out of a $1, 433, 008 arbitration award (the “Award”) in favor of Defendant Jonathan Russell. After Plaintiff Great American Insurance Company denied Russell's claims for indemnity under a federal crop insurance policy, the parties proceeded to arbitration. A three-member arbitration panel (the “Panel”) held that Great American was required to indemnify Russell's loss and issued the Award in his favor.

         Now before the Court is Great American's Motion to Vacate Arbitration Award (Doc. 1). The motion is DENIED, and the Award is AFFIRMED.

         Background

         I. The Underlying Insurance Claim

         Great American is an approved crop insurance provider under the United States Department of Agriculture's Federal Crop Insurance Program (the “Program”), a federal benefit program established by the Federal Crop Insurance Act (“FCIA”), 7 U.S.C. § 1501 et seq., and its implementing regulations, 7 C.F.R. §§ 400 et seq. The Federal Crop Insurance Corporation (“FCIC”)[1]-a wholly-owned government corporation-administers the Program and promulgates rules and regulations setting mandatory terms and conditions for crop insurance policies. So long as the approved private insurers use the standard policy terms and conditions established by FCIC's rules and regulations, FCIC reinsures and subsidizes the policies.

         In 2013, Great American issued Jonathan Russell a policy through the Program that covered Russell's 2013 corn and soybean losses (the “Policy”). FCIC reinsured the Policy, which incorporated the FCIC's Common Crop Insurance Policy Basic Provisions (the “Basic Provisions”) appearing at 7 C.F.R. § 457.8.[2]

         On November 4, 2013, Russell claimed losses under the Policy for his 2013 corn and soybean crops due to drought. In early 2014, though, he amended his claim to allege that the loss was due not only to drought, but also to wind and rootworm damage. After Great American conducted an on-the-farm inspection in the spring of 2014, it denied Russell's claims based on its inability to substantiate an insurable cause of loss. Russell demanded arbitration under the Policy's arbitration clause.

         II. Arbitration Proceedings

         In January 2016, the arbitration Panel held a three-day evidentiary hearing on Russell's claims. Less than two months later, the Panel issued its award, which found that Russell was entitled to indemnity for his corn crop losses, but not his soybean losses, and awarded him $1, 433, 008.

         In its analysis, the Panel first determined that Russell's corn crops were destroyed from a combination of drought, wind damage, and rootworm-all insurable perils. But Russell had delayed informing Great American that wind damage and rootworm were a contributing cause of the loss, so the Panel had to determine whether he forfeited his right to indemnity under ¶ 14(b)(1) of the Basic Provisions, which provides that an insured must give notice of “damage or loss” to the insurer within seventy-two hours of its initial discovery.

         The Panel suggested that although Russell did not give notice that rootworm was a contributing cause of the loss within seventy-two hours of its discovery, ¶ 14(b)(1) requires only notice of “damage or loss, ” not notice of each contributing cause of such loss. Russell was, therefore, not required to list all insurable causes in his notice of loss since the damage from the three causes was singular and indivisible. And because no one disputed that Russell's November 2013 notice was timely, the Panel found he did not forfeit his right to indemnity.

         The Panel went a step further, though, and concluded that even if Russell's notice was untimely, ¶ 14(b)(5) of the Basic Provisions excused that failure. That paragraph provides that an insured may be absolved of an untimely report of loss if the insurer has the “ability to accurately adjust the loss.” Here, the Panel determined that Great American could have accurately adjusted Russell's loss by either: asking Russell to leave some crop rows unharvested or performing an on-the-farm inspection in the three weeks between when Russell notified Great American of the damage and when he harvested the crops.

         The Panel found insufficient Great American's explanation that it had no reason to inspect what it thought was only a drought-induced loss in those three weeks. Great American, the Panel noted, was required to follow the FCIC's Loss Adjustment Manual Standards Handbook (“LAM”), which provided:

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.
A. Field Visit. To make adequate determination, actual visits to the field(s) where the crop ...

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