Crop Insurance Update: Disputes and Settlements

Written by M. Sean High—Staff Attorney

Federal crop insurance is a valuable risk management tool that may provide farmers with an extra layer of protection against many of the uncertainties of agricultural production.  Nevertheless, participation in the crop insurance program comes with a contractual agreement to abide by the rules set forth in the basic provisions of the common crop insurance policy.  Specifically, crop insurance contracts provide that when producers disagree with determinations regarding crop insurance claims, those disagreements are generally required to be settled, not through the court system, but through arbitration.[1]    

All federal crop insurance policies are issued under the terms of the Federal Crop Insurance Act (FCIA), underwritten by the Federal Crop Insurance Corporation (FCIC), and administered by the United States Department of Agriculture’s (USDA) Risk Management Agency (RMA).  Each crop insurance policy contains a clause written in accordance with the common crop insurance basic provisions.[2]

According to the common crop insurance policy basic provisions, if a disagreement arises regarding a crop insurance claim, the disagreement is generally permitted to be settled through the process of mediation.[3]

Representing an alternative form of dispute resolution, mediation involves a procedure where a neutral third party is employed “to help the disputing parties reach a mutually agreed upon solution.”[4] Importantly, during the mediation process the neutral third party only serves as a facilitator and does not have the power to decide the dispute.  

If an agreement regarding a crop insurance claim dispute cannot be settled through mediation, the common crop insurance policy basic provisions dictate that “the disagreement must be resolved through arbitration.”[5]

Unlike mediation, however, arbitration is an alternative dispute resolution process “involving one or more neutral third parties [called arbitrators] who are usually agreed to by the disputing parties and whose decision is binding.” Arbitration takes the place of conventional litigation and provides the disputing parties with a trial procedure.  Significantly, the disputing parties must abide by the final decision rendered by the arbitration and may not appeal to the courts simply because they disagree with the decision.

Arbitration is governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16; more commonly known as the Federal Arbitration Act (FAA).  Under FAA, any judicial review of an arbitral decision is extremely restricted.  Accordingly, FAA stipulates that the only grounds permitting a court to vacate an arbitral award are limited to:

(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 of any 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.[6]

While FAA offers the possibility of having an arbirtral award vacated, in practice, most federal courts adhere to “the dictates of the emphatic federal policy favoring arbitration.”[7] As a result, decisions by arbitrators regarding crop insurance claims are almost always final and binding.

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[1] 7 CFR § 457.8

[2] Id

[3] Id

[4] Black’s Law Dictionary, Ninth Edition pp. 1070-1071

[5] 7 CFR § 457.8

[6] 9 U.S.C. § 10(a)

[7] Arbitration in a Nutshell, Second Edition, Thomas E. Carbonneau (2007) p. 229

WTO Arbitrator Rules against U.S. COOL Law

Written by M. Sean High – Staff Attorney

On December 7, 2015, the U.S. Country of Origin Labeling (COOL) law suffered a significant blow as a World Trade Organization (WTO) arbitrator determined that COOL violated international trade obligations, and awarded Canada and Mexico the right to impose over $1.2 billion in retaliatory tariffs against U.S. exports.

Under COOL, certain food retailers (such as supermarkets and grocery stores) are required to provide the name of the country of origin on the labels on specific food products including “muscle cut and ground meats: beef, veal, pork, lamb, goat, and chicken; wild and farm-raised fish and shellfish; fresh and frozen fruits and vegetables; peanuts, pecans, and macadamia nuts; and ginseng.” 

According to Canada and Mexico, through the enactment of COOL, the U.S. violated Article 2.1 of the Agreement on Technical Barriers and Trade (TBT Agreement) requiring that all signatory members (which include the U.S., Canada, and Mexico) “shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.” Canada and Mexico contended that by requiring country of origin labeling, the two nations were “accorded less favourable treatment of imported livestock than to like domestic livestock,” and because of this treatment, the U.S. failed to carry-out its TBT Agreement obligations.

During the arbitration proceedings, Canada and Mexico’s asserted that because of COOL, they each experienced “export revenue losses” and “revenue loss as a result of domestic price suppression.” Canada claimed annual revenue losses totaling $1,054,729,000 and Mexico claimed annual revenue losses totaling $227,758,000.  Ultimately, the presiding arbitrator agreed with Canada and Mexico and awarded each nation the ability to impose retaliatory tariffs on the U.S. commensurate with their claimed annual revenue losses.  

Following the WTO arbitral ruling, U.S. House Agriculture Committee Chairman K. Michael Conaway (R-TX) stated, “We have known for some time that the Country of Origin Labeling law violates our international trade obligations.” Significantly, on June 10, 2015, legislation sponsored by Chairman Conaway that would repeal COOL (H.R. 2393), passed the U.S. House of Representatives by a vote of 300-131.  Currently, H.R. 2393 awaits action by the U.S. Senate. 

COOL Dispute Arbitration Date Set

By Tyler R. Etter

A date has been set by the World Trade Organization’s Dispute Settlement Body for the arbitration hearing on Canada and Mexico’s retaliatory tariffs against the United States in response to Country of Origin Labeling (COOL). At the request of the parties, the hearing will be open to the public, occurring on September 15 and 16, 2015.

A decision in May found the mandatory COOL labeling to be in violation of the United States’ international obligations to Canada and Mexico. The two nations are seeking over $3 billion in retaliatory tariff measures against U.S. goods. The U.S. has requested a decision rejecting the proposed damages, instead setting totals at $43.22 million and $47.55 million.

The U.S. House of Representatives has since passed a bill to repeal COOL, but the Senate has passed competing measures. One proposal is for the creation of a voluntary “Product of the U.S.” label, and another would repeal COOL for beef, pork, and chicken from the surface transportation bill.

Canada and Mexico have already voiced opposition to the voluntary label, and will proceed if COOL is not fully repealed.