Reinsurance Focus

The plaintiff farmers brought an action in federal district court to enforce two arbitration awards against the Federal Crop Insurance Corporation (“FCIC”), a division of the United States Department of Agriculture. FCIC is a reinsurer of crop insurance policies issued by private insurance companies. It issues cooperative financial agreements with the private insurers that are referred to as “standard reinsurance agreements.” Plaintiffs purchased policies with American Growers Insurance Company (“AGIC”). In turn, AGIC entered into standard reinsurance agreements with FCIC. Plaintiffs filed arbitration demands against AGIC, but in 2005, the State of Nebraska liquidated AGIC. On the order of liquidation, FCIC notified plaintiffs that it would review their claims. The arbitration proceeded, however, over FCIC’s objections that it was not a party to the arbitration agreement, and that it would not submit to the arbitrator’s jurisdiction. Eventually, the arbitrator granted awards against FCIC.

When plaintiffs sought to enforce the awards in the United States District Court for the Eastern District of Washington, the court ruled against them on cross-motions for summary judgment. The court found that FCIC had not agreed to submit to arbitration, being neither a party to the crop insurance policies at issue nor otherwise in privity of contract with plaintiffs. Among other things, FCIC was found to be a reinsurer, not a “substituted insurer,” i.e., an entity that assumes direct liability to the policyholder. Accordingly, the arbitrator lacked jurisdiction to preside over any dispute between FCIC and plaintiffs. The district court, therefore, vacated the awards. Olsen v. United States, Case No. CV-06-5020-FVS (USDC E.D. Wash. Mar. 8, 2008).

This post written by Brian Perryman.