Wonder Why You Never Hear About Crop Insurance Coverage Disputes? Here's Why

Short decision today from the Washington Supreme Court reversing the Court of Appeals on enforcement of an arbitration clause in an insurance policy.  Here the farmer wanted to sue both the insurance broker and the insurer at the same time to avoid the risk of inconsistent decisions, and having to litigate in two fora.  That's a common issue.  What is notable about the case is the kind of insurance policy involved: crop insurance, which is one of those features of the ag business that most people don't know about.  Crop insurance is issued by ostensibly private companies but underwritten by the federal government, and claims under those policies are tightly governed by federal law.  Part of the law requires that claims be dealt with in a federal arbitration program with very limited rights of review.  The law is so tight that very few folks challenge the arbitrability of these claims, resulting in a whole body of insurance coverage law being created outside of public view (except for the very intrepid) in an industry where losses are frequent and sometimes enormous.  Whether that's good public policy is for others to debate, but at least you know why you don't see courts issuing decisions on crop losses.

Rely On "Certificates of Insurance" At Your Great Peril

I came across this new decision from the Ninth Circuit, on a Washington case (full disclosure: I learned of it courtesy of a national firm's "Lexology" article), and it reminded me of a point that I continually try to hammer home with clients and transactional lawyers, who deal in these things daily: a "certificate of insurance" is barely worth the paper that it is printed on, and is never a substitute for a thorough review of the insurance policy itself.

In this case a hospital contracted with a nursing staffing service to provide skilled nurses.  As part of the deal the hospital required that the nursing staffing service demonstrate that it had adequate liability insurance.  The staffing service provided a certificate of insurance, which the underwriter prepared, showing that it had $5m of insurance.  Great.  What the certificate didn't show was that there was a $1m self-insured retention (SIR), meaning that the staffing service was responsible for the first $1m of any loss.  A patient was injured and sued both the hospital and the staffing service; damages were slightly less than $1 million.  The hospital convinced the plaintiff to drop the claim against the hospital by showing plaintiff's lawyer the certificate indicating plenty of coverage.  Plaintiff dropped the hospital, but when it got a judgment against the staffing service within the SIR, the service could not pay, and declared bankruptcy.  The plaintiff succeeded in getting its claim against the hospital revived.  Hospital sued the insurance company and the underwriter claiming that the certificate was deceptive.  Problem: the certificate (a standard form) has no blank for SIR or deductible, despite the fact that that is absolutely critical information.  The Ninth Circuit agreed with the trial judge that the hospital had no claim.

Lesson: if you do not have a long-standing business relationship, don't just ask for the certificate of insurance when entering into any kind of contract where insurance matters (and there are few such contracts) - ask for the policy itself, with all declarations and endorsements, and have it reviewed by someone familiar with insurance policies and finding "holes" in coverage, like a large SIR.