An Overview of the Arbitration Process

Arbitration can be very different from a traditional lawsuit in a court, and knowledge about the arbitration process can be important in achieving good results, especially in crop insurance disputes.

Federal crop insurance policies require the parties to use the rules of the American Arbitration Association (AAA), an organization that administers and manages arbitration cases (see a copy of their rules on their website, www.adr.org/sp.asp?id=22440). However, the parties do not have to hire AAA to manage their arbitration case (see RMA Final Agency Determination FAD-007).

Any arbitration organization, or independent arbitrator, who agrees to use AAA’s rules can handle a crop insurance arbitration. This is an important consideration, since one aspect of the arbitration process is that some arbitration organizations, including AAA, charge relatively hefty filing fees to the party who initiates the arbitration. So, for example, hiring an independent arbitrator (which would require the agreement of both parties) could completely eliminate filing fees.

Once a basic arbitration demand (typically a short form listing the parties’ contact information, the amount in dispute, and a brief summary of the disputed issue) is filed, AAA will provide the parties with a list of potential arbitrators. If the parties do not agree on an arbitrator from that list, each party ranks the arbitrator candidates (crossing off any arbitrator from the list whom it absolutely refuses to use) and separately submits their ranked list to AAA. AAA chooses an arbitrator based upon the parties’ rankings.

After an arbitrator is appointed, the arbitrator can conduct a preliminary conference with the parties, to discuss (and if necessary, make rulings upon) procedural issues, such as what discovery the parties will conduct and when, what documents or motions the parties can or must submit before the arbitration hearing, and when and how the arbitration hearing will be conducted.

An important consideration in deciding which procedural matters to try to work out directly with the other party, and which to have the arbitrator decide (and an important consideration throughout the arbitration process, really) is that the arbitrator usually charges an hourly rate for all time spent on the case. So before you have the arbitrator spend 50 hours deciding every little aspect of the case, it is important to think about how much that is going to cost (50 hours times an hourly rate of $100 to $600 or more).

Unlike a lawsuit in court, where there are very precise procedural rules governing motions and discovery, there are no procedural rules in the arbitration process, except whatever rules the parties agree upon, or whatever rules the arbitrator decides will apply to your individual case.

The arbitration hearing is the equivalent of a trial. The parties will present their evidence and witness testimony to the arbitrator, who acts as judge and jury. Few rules exist in arbitration as to what evidence is admissible and as to how parties can present evidence and testimony (which, again, is very different from a court, which has very strict evidence rules). If possible, the arbitration parties should agree on evidentiary matters before the arbitration hearing, or have the arbitrator decide what rules will apply.

Federal crop insurance policies state that if there is any question of what a particular policy term means, or how it should apply, the arbitrator should not decide that issue (see 2011 MPCI Basic Provisions, Section 20(a)(1)). In a traditional lawsuit (not involving a federal crop insurance dispute), a judge would decide such legal issues, and some arbitrators have decided such legal issues in crop insurance arbitrations, despite the policy provisions.

After the arbitration hearing ends, the arbitrator will take some time to make a decision (often 30 days or less), which can be as simple as a “yes” or “no,” or which can be a detailed, written determination. Typically, the parties can choose how detailed of a decision they want from the arbitrator (remember that the arbitrator will probably charge an hourly rate for the time it takes to write out the determination). However, the federal crop insurance policies require the parties to ask for a detailed determination describing the issues in dispute, the factual findings, and the determinations and the amount and basis for any award (see 2011 MPCI Basic Provisions, Section 20(a)(2)).

The arbitrator’s decision often ends the dispute, although the federal crop insurance policies seem to provide either party the right to a judicial review of that decision. However, in the five years that the federal policies have provided that apparent right, there has been no good explanation of how extensive that review must be. It is possible that the only right of review is the one that the Federal Arbitration Act (9 U.S.C. §1, et seq.) provides, which is a very limited review, and which is available only in certain circumstances (see 9 U.S.C. §§10-11).

Although this is already a long post, this is only an overview of the arbitration process, and later posts will go into more detail about some of the above issues.

What is an RMA Final Agency Determination?

More basics: What is an RMA Final Agency Determination (FAD)?

The crop insurance policy terms, and the federal laws and regulations governing them, are not always black and white. The government decided that there should be a way for people to ask the USDA to interpret the gray areas. The RMA Final Agency Determination (FAD) process is one of those ways.

Under 7 CFR Part 400, Subpart X, RMA (acting for FCIC) will respond to properly formatted requests for interpretations of any provision of the Federal Crop Insurance Act (7 U.S.C. §1501, et seq.) and of any regulation promulgated under that Act. Since almost all policy provisions are themselves federal regulations (or at least have identical language as the ones that are federal regulations), that means RMA will interpret policy provisions through the FAD process.

RMA must provide its response to a requested interpretation within 90 days (if it does not, then the requesting person’s proposed interpretation is presumed valid for certain, limited circumstances). See 7 CFR §400.768.

Once RMA issues its interpretation in a FAD, that interpretation is binding on all participants in the federal crop insurance program. See 7 CFR §400.765(c). A “participant” is anyone who has applied for crop insurance, any producer with a valid crop insurance policy, and any crop insurance company (and anyone acting for such a company). See 7 CFR §400.766.

However, it is important to realize that RMA cannot interpret any specific factual situation, such as whether a particular policyholder followed a particular policy provision. See 7 CFR §400.768(a).

The FAD process can be a useful tool in figuring out what certain policy terms mean. This can be useful when disputes arise. For example, you can bolster your argument by submitting a FAD request to show that your interpretation of a policy term is correct. If RMA agrees with your interpretation, then the insurance company must follow that interpretation.

RMA maintains a list of its FADs from the current year (and a link to FADs from past years) at www.rma.usda.gov/regs/533.

What is RMA?

Some basics: What is the USDA Risk Management Agency (RMA)?

Under federal law (7 U.S.C. §6933), RMA administers and oversees all aspects of the federal crop insurance program. Technically, RMA supervises the Federal Crop Insurance Corporation (FCIC), which is the entity that Congress created to implement the federal crop insurance program (7 U.S.C. §1501, et seq.), but as a practical matter, RMA and FCIC are one and the same.

RMA either writes or approves all policy provisions for all federal multiple peril crop insurance policies. RMA also writes the underwriting and loss adjusting rules for all the policies. RMA issues strict guidelines for many of the forms that the private insurance carriers use.

Through a Standard Reinsurance Agreement (SRA), RMA authorizes private insurance companies to sell and service federal crop insurance policies. Under the SRA, the private carriers must use exactly the policy provisions that RMA has approved, charge only the premiums that RMA has authorized, and follow all of RMA’s underwriting and loss adjusting procedures. So in terms of the provisions and rules, the policy that a producer buys from Insurance Company A is exactly the same (at exactly the same price) as a comparable policy from Insurance Company B.

RMA reinsures the private insurance companies, which means that RMA reimburses the companies for some of their operating expenses, and for some of the losses that the companies sustain when they pay claims. RMA also pays the companies a portion of the premiums that the producers owe (that is, the producers pay the companies only a fraction of the total premium due for the policy, and RMA pays the rest of that premium for the producer).

It is important for producers to realize that RMA is functioning in the background of what the private insurance companies do in the federal crop insurance program, even though RMA’s activities often remain invisible to the producers. RMA’s rules and oversight can explain a lot about why an insurance company acts the way it does, and understanding RMA’s rules can be especially important when disputes arise between producers and their insurance companies.

You might want to review RMA’s website (www.rma.usda.gov), which contains copies of all policy provisions and rules, as well as other useful information.

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Welcome to The O'Connor Law Firm's blog. Please also visit our website by clicking here. Most of our posts will deal with crop insurance law and veterans benefits law, two of our practice areas. Please review our website for other services that we offer, some of which we may blog about from time to time.