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Struss v. Rural Community Insurance Services

United States District Court, D. Kansas

February 28, 2019

KEVIN STRUSS, et al., Plaintiffs,



         Plaintiffs Kevin Struss, Struss Farms, L.L.C., and Struss & Cook Farms bring several tort claims and a breach of contract claim against defendants Rural Community Insurance Company (“RCIC”)[1] and Scott Laaveg, RCIC's claims representative. These claims generally arise from a contractual relationship between the parties. Namely, RCIC insured plaintiffs' crops under several insurance contracts issued under a federal crop insurance program. The Complaint alleges that defendants breached the insurance contract, defamed plaintiffs, committed false light invasion of privacy, acted negligently, and tortiously interfered with plaintiffs' prospective business advantage or relationship.

         Now, defendants ask the court to dismiss the Complaint under Fed.R.Civ.P. 12(b)(3) and 12(b)(6), and, alternatively, to compel arbitration (Doc. 7). In their Response to Defendants' Motion to Dismiss, plaintiffs recite that they are willing to proceed to arbitration (Doc. 16). Separately, plaintiffs made a “counter-motion” to compel arbitration (Doc. 18).[2] For reasons explained below, the court grants, in part, the parties' requests that the court compel arbitration. See Doc. 18 at 4-8 (plaintiffs' Response to Defendants' Motion to Dismiss and Counter-Motion to Compel Arbitration to Proceed Immediately); Doc. 20 at 11-14 (defendants' Reply in Support of Motion to Dismiss and Response to Plaintiffs' Counter-Motion to Compel Arbitration to Proceed Immediately). But the court denies plaintiffs' request to compel arbitration to begin immediately (Doc. 18 at 4-8) and defendants' request to stay arbitration (Doc. 20 at 2-3). The court also grants plaintiffs' motion to stay proceedings in this court case (Doc. 18 at 8), including claims plaintiffs have asserted against defendant Scott Laaveg. And the court denies defendants' request to dismiss plaintiffs' extra-contractual tort claims. Doc. 20 at 4-12.

         I. Facts

         The court takes the following facts from the Complaint (Doc. 1). The court accepts the facts asserted in the Complaint as true and views them in the light most favorable to plaintiffs. Burnett v. Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231, 1235 (10th Cir. 2013) (citing Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)).

         RCIC issued plaintiffs seven policies of federally reinsured crop insurance for the 2016 crop season. These policies insured plaintiffs' 2016 corn crop. Plaintiffs experienced a loss to their 2016 corn crop because of drought. So, plaintiffs timely submitted claims under their seven insurance policies through their agent.

         RCIC investigated the claims and issued a letter to plaintiffs on April 18, 2017. This letter denied plaintiffs' claims, and defendant Scott Laaveg signed the letter on RCIC's behalf. This letter accused plaintiffs of failing to comply with the terms of their policies, intentionally concealing or misrepresenting material facts about the policy, making misrepresentations, and committing fraud, waste, or abuse of the federal crop insurance program. The letter also accused plaintiffs-falsely, they contend-of failing to: (1) report the claims timely; (2) provide production records; and (3) explain yield variances.

         The Complaint also asserts that defendants did not follow the requirements of the Risk Management Agency's Loss Adjustment Manual (“LAM”). Those requirements included questions about plaintiffs' perceived shortcomings in production records and corrected claims necessary to reflect an accurate production count. Though defendants alleged that plaintiffs had failed to provide production records for one policy and for one claim, defendants denied plaintiffs' claims on their six other policies. The Risk Management Agency (“the Agency”) has interpreted its policy to permit insurers to deny claims only when an insured has failed to comply with certain terms. Also, the Complaint alleges, the Agency has interpreted its policy to prohibit insurers from using non-compliance with one policy as a reason to deny claims based on other policies. Despite this interpretation, plaintiffs contend, defendants have refused to pay claims made under plaintiffs' other six policies. No. adequate justification or excuse supports defendants' refusal to pay the claims, the Complaint asserts.

         Plaintiffs allege that they were required to share Mr. Laaveg's April 18 letter with their banks, lenders, suppliers, tenants, other insurers, and landlords. Plaintiffs assert that the letter has harmed their reputations with those third parties and thereby caused them to sustain damages. These damages include: (1) loss of financing for their farming operations for the 2017 crop season and beyond; (2) loss of revenue from farming in 2017; (3) damaged credit; (4) loss of leases; (5) loss of farmland; (6) loss of equipment; and (7) for plaintiff Kevin Struss, mental, emotional, and physical distress.

         When considering the parties' motions, the court also considers the Common Crop Insurance Policy Basic Provisions, found in 7 C.F.R. § 457.8. These Basic Provisions, published as a federal regulation, serve as the “umbrella policy” covering plaintiffs' crops. Doc. 8 at 4; see also Doc. 16 at 5. Specifically, the parties direct the court to Section 20(a), titled “Mediation, Arbitration, Appeal, Reconsideration, and Administrative and Judicial Review.” Doc. 8 at 4, Doc. 16 at 5. Section 20(a) includes the following provision:

If [the insured] and [the insurance company] fail to agree on any determination made by [the insurance company] except those specified in section 20(d) or (e), the disagreement may be resolved through mediation in accordance with section 20(g). If resolution cannot be reached through mediation, or [the insured] and [the insurance company] do not agree to mediation, the disagreement must be resolved through arbitration in accordance with the rules of the American Arbitration Association (AAA) . . . .

7 C.F.R. § 457.8 subsec. 20(a).

         II. Analysis

         To begin, the parties agree that the insurance contract between plaintiffs and RCIC contains an arbitration agreement. And both plaintiffs and defendants have asked the court to compel arbitration and stay these proceedings. Docs. 7, 18. But after that, the parties' positions diverge. First, the parties disagree about which claims should go to the arbitrator. Plaintiffs assert that only their breach of contract claims-and not their tort claims-should go to arbitration. In contrast, defendants contend that only the arbitrator has jurisdiction to decide which claims are arbitrable. And second, plaintiffs ask the court to order arbitration to proceed immediately. But defendants ask this court to stay ...

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