Sunset Ranches, Inc. v. Nau Country Ins. Co.

SUNSET RANCHES, INC., Plaintiff and Appellant, v. NAU COUNTRY INSURANCE COMPANY, Defendant and Respondent.

F078916

California Court of Appeals, Fifth District

August 16, 2021

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Fresno County No 15CECG01013. Mark W. Snauffer and Rosemary T. McGuire Judges. ^[†]

Costanzo & Associates and Neal E. Costanzo for Plaintiff and Appellant.

Emerson Church Law and Ryan D. Libke; Mullin Hoard & Brown and Mitch D. Carthel for Defendant and Respondent.

OPINION

DETJEN, J.

Plaintiff and appellant Sunset Ranches, Inc. (Sunset) purchased a multiple peril crop insurance policy covering 10 acres of cherry orchard crops for the 2014 harvest season. The policy was issued by defendant and respondent NAU Country Insurance Company (NAU) and reinsured by the Federal Crop Insurance Corporation (7 U.S.C. § 1503), an agency established pursuant to the Federal Crop Insurance Act (7 U.S.C. § 1501 et seq.). Sunset filed an indemnity claim, which was denied by NA U.Sunset then sued NAU, among others, alleging negligence, breach of contract, and unfair insurance practices. NAU filed a petition to compel arbitration, which was granted by the superior court. Following arbitration, the arbitrator rendered an award against Sunset, finding that NAU did not breach the contract and properly denied indemnity. The court denied Sunset's petition for an order vacating the arbitration award and granted NAU's petition for an order confirming it. Thereafter, NAU filed a motion for summary judgment or summary adjudication on the remaining state law claims for negligence and unfair insurance practices. The court granted the motion for summary adjudication as to the causes of action for negligence and unfair insurance practices on the basis of federal preemption. With respect to the cause of action for breach of contract, the court treated NAU's motion as a request for entry of judgment on confirmation of an arbitration award and granted it.

On appeal, Sunset presents three contentions. First, “the dispute was not subject to arbitration.” (Capitalization omitted.) Second, “the trial court erred failing to vacate the [arbitration] award and in confirming the award.” (Capitalization omitted.) Finally, state law causes of action for negligence and unfair insurance practices “do not conflict with, and are therefore not preempted by the [insurance] policy, the [Federal Crop Insurance Act], or the [Federal Crop Insurance Corporation]'s regulations.” (Capitalization omitted.)

We conclude: the court properly granted NAU's petition to compel arbitration; Sunset's failure to initiate arbitration in accordance with the terms of the policy precluded judicial review of the arbitration award; and Sunset's claims for negligence and unfair insurance practices were preempted by federal law.

FACTUAL AND PROCEDURAL HISTORY

I. Relevant insurance policy provisions

The multiple peril crop insurance policy incorporated-among other things-an earlier version of the Common Crop Insurance Policy Basic Provisions (Basic Provisions), which are set forth in 7 Code of Federal Regulations part 457.8 and “used by insurers, standard throughout the industry, when the [Federal Crop Insurance Corporation] provides reinsurance.” (Davis v. Producers Agricultural Insurance Co. (11th Cir. 2014) 762 F.3d 1276, 1284 (Davis).) Prior to recent amendments (see 85 Fed.Reg. 76420-76428 (Nov. 30, 2020)), the Basic Provisions read in part:

“This insurance policy is reinsured by the Federal Crop Insurance Corporation (FCIC) under the provisions of the Federal Crop Insurance Act (Act) (7 U.S.C. 1501 et seq.). All provisions of the policy and rights and responsibilities of the parties are specifically subject to the Act. The provisions of the policy may not be waived or varied in any way by us, our insurance agent or any other contractor or employee of ours or any employee of [the United States Department of Agriculture] unless the policy specifically authorizes a waiver or modification by written agreement....

“Throughout this policy, ‘you' and ‘your' refer to the named insured shown on the accepted application and ‘we,' ‘us,' and ‘our' refer to the insurance company providing insurance. Unless the context indicates otherwise, use of the plural form of a word includes the singular and use of the singular form of the word includes the plural. [¶]... [¶]

“14. Duties in the Event of Damage, Loss, Abandonment, Destruction, or Alternative Use of Crop or Acreage.

“Your Duties: [¶]... [¶]

“(b) Notice provisions:

“(1) For a planted crop, when there is damage or loss of production, you must give us notice, by unit, within 72 hours of your initial discovery of damage or loss of production (but not later than 15 days after the end of the insurance period, even if you have not harvested the crop). [¶]... [¶]

“(4) All notices required in this section that must be received by us within 72 hours may be made by telephone or in person to your crop insurance agent but must be confirmed in writing within 15 days.

“(5) If you fail to comply with these notice requirements, any loss or prevented planting claim will be considered solely due to an uninsured cause of loss for the acreage for which such failure occurred, unless we determine that we have the ability to accurately adjust the loss. If we determine that we do not have the ability to accurately adjust the loss: [¶]... [¶]

“(ii) For any claim for indemnity, no indemnity will be paid but you will still be required to pay all premiums owed. [¶]... [¶]

“(d) Consent:

“(1) You must obtain consent from us before, and notify us after you:

“(i) Destroy any of the insured crop that is not harvested;

“(ii) Put the insured crop to an alternative use;

“(iii) Put the acreage to another use; or

“(iv) Abandon any portion of the insured crop. [¶]... [¶]

“(3) Failure to obtain our consent will result in the assignment of an amount of production or value to count in accordance with the Settlement of Claim provisions of the applicable Crop Provisions. [¶]... [¶]

“20. Mediation, Arbitration, Appeal, Reconsideration, and Administrative and Judicial Review.

“(a) If you and we fail to agree on any determination made by us except those specified in section 20(d)^[1] or (e), ^[2] the disagreement may be resolved through mediation in accordance with section 20(g). If resolution cannot be reached through mediation, or you and we do not agree to mediation, the disagreement must be resolved through arbitration in accordance with the rules of the American Arbitration Association (AAA), except as provided in sections 20(c) and (f), and unless rules are established by FCIC for this purpose....

“(1) All disputes involving determinations made by us, except those specified in section 20(d) or (e), are subject to mediation or arbitration.... [¶]... [¶]

“(b) Regardless of whether mediation is elected:

“(1) The initiation of arbitration proceedings must occur within one year of the date we denied your claim or rendered the determination with which you disagree, whichever is later;

“(2) If you fail to initiate arbitration in accordance with section 20(b)(1) and complete the process, you will not be able to resolve the dispute through judicial review;

“(3) If arbitration has been initiated in accordance with section 20(b)(1) and completed, and judicial review is sought, suit must be filed not later than one year after the date the arbitration decision was rendered.... [¶]... [¶]

“(c) Any decision rendered in arbitration is binding on you and us unless judicial review is sought in accordance with section 20(b)(3). Notwithstanding any provision in the rules of the AAA, you and we have the right to judicial review of any decision rendered in arbitration. [¶]... [¶]

“(f) In any mediation, arbitration, appeal, administrative review, reconsideration or judicial process, the terms of this policy, the Act, and the regulations published at 7 CFR chapter IV, including the provisions of 7 CFR part 400, subpart P, are binding. Conflicts between this policy and any state or local laws will be resolved in accordance with section 31. If there are conflicts between any rules of the AAA and the provisions of your policy, the provisions of your policy will control. [¶]... [¶]

“(h) Except as provided in section 20(i), no award or settlement in mediation, arbitration, appeal, administrative review or reconsideration process or judicial review can exceed the amount of liability established or which should have been established under the policy, except for interest awarded in accordance with section 26.

“(i) In a judicial review only, you may recover attorneys fees or other expenses, or any punitive, compensatory or any other damages from us only if you obtain a determination from FCIC that we, our agent or loss adjuster failed to comply with the terms of this policy or procedures issued by FCIC and such failure resulted in you receiving a payment in an amount that is less than the amount to which you were entitled.... [¶]... [¶]

“31. Applicability of State and Local Statutes.

“If the provisions of this policy conflict with statutes of the State or locality in which this policy is issued, the policy provisions will prevail. State and local laws and regulations in conflict with federal statutes, this policy, and the applicable regulations do not apply to this policy. [¶]... [¶]

“33. Notices.

“(a) All notices required to be given by you must be in writing and received by your crop insurance agent within the designated time unless otherwise provided by the notice requirement. Notices required to be given immediately may be by telephone or in person and confirmed in writing. Time of the notice will be determined...