OFW Law recently prevailed in Arbitration on behalf of a farm producer against a major insurance provider under USDA’s Federal crop insurance program. The case hinged on whether a foreign individual with an ownership interest several layers removed from the insured held a “substantial beneficial interest” (“SBI”) as defined in USDA Risk Management Agency (RMA) rules. OFW argued that the plain meaning of the term SBI, as consistently understood by the regulated community prior to this case, only required disclosure on the policy application of one tier of ownership above the farm itself.
OFW further argued that, even if the term SBI were ambiguous, the definition must be read in favor of the insured. The insurance company had argued that the definition was ambiguous and RMA’s interpretation was entitled to deference by the Arbitrator. Finally, OFW argued that the insurance provider made assurances to the ranch with respect to its eligibility to obtain crop insurance, and the insured reasonably relied on those assurances to its detriment. The Arbitrator agreed with OFW on all three counts.
The issue arose when RMA, in a Compliance Finding, pronounced a new interpretation of SBI, requiring for the first time that an insured must report SBI information (SSN or EIN) on its insurance application of “embedded entities” – owners far removed but with greater than a ten percent ultimate interest in the insured. The insurance company initially challenged that determination, but ultimately settled its dispute with RMA and declared the customer ineligible for indemnities.
Key to the insured customer’s victory was the Arbitrator’s reliance on the U.S. Supreme Court’s decision in Christopher v. SmithKline Beecham Corp. In Christopher, the Court recognized that a Federal Agency is normally entitled to deference in the interpretation of its own regulations, but noted that an Agency is not to be afforded deference when the interpretation is inconsistent with prior Agency interpretations and is simply designed to fit conveniently a litigation position. The Arbitrator ruled that RMA conveniently changed its interpretation of SBI to fit the facts in the case at hand.
A copy of the Arbitration decision (with the names of the parties and individuals involved changed) can be accessed here.
