BULLETIN NO.: MGR-98-031 TO: All Reinsured Companies All Risk Management Field Offices FROM: Kenneth D. Ackerman /s/ Ken Ackerman 11-9-98 Administrator SUBJECT: Financial Litigation Assistance BACKGROUND: Since 1988, the Risk Management Agency (RMA) has provided financial litigation assistance to reinsured companies under limited circumstances in accordance with MGR-009 and MGR-93-020. The Standard Reinsurance Agreement (SRA) provides for the payment of litigation expenses of the reinsured companies through the administrative expense reimbursement. There has been confusion surrounding the previous bulletins and this bulletin is intended to clarify the criteria for acceptance of a case for financial litigation assistance and provide the procedures for the application and payment of such assistance. ACTION: This bulletin rescinds MGR-009 and MGR-93-020. The acceptance criteria stated in this bulletin are effective beginning with the 1998 reinsurance year which began July 1, 1997. Nothing in this bulletin amends any provisions in the SRA or the rights and responsibilities of the parties thereto. This bulletin does not affect the amount of administrative expense reimbursement paid under the SRA. Litigation expenses paid under this bulletin should not be reported on Exhibit 20. This bulletin provides for additional financial assistance only in those cases where the insured is directly challenging the Federal Crop Insurance Corporation's (FCIC) crop insurance policy provisions or procedures and RMA determines that the case should be fully litigated to a judgment in order to protect the integrity of the program. Fully litigated to judgement means that all favorable defenses have been raised and may include arbitration and settlement if all requirements set forth below are satisfied. RMA's actions, findings, decisions, and determinations under this bulletin that are adverse to reinsured companies may be appealed in accordance with the provisions of 7 C.F.R. 400.169. Acceptance Criteria RMA may accept reinsured company requests for financial litigation assistance in accordance with the following: (A) The case may be accepted if: 1. (a) The insured's formal pleadings that a policy provision, as published in the Federal Register, or loss adjustment procedure written by FCIC, or other applicable written procedure required to be used by FCIC, is ambiguous or challenges whether established agricultural management practices used by the insured constitute "good farming practices" even though they deviate from those recognized by the Cooperative State Research, Education and Extension Service, not factual disputes, such as whether the crop was timely planted, whether herbicides were timely applied, whether the insured used the correct amount of seed, etc.; (b) The insured's formal pleadings specifically alleges that FCIC or the reinsured company lack the authority to preempt state law, such as cases where the insured alleges that the state law statute of limitation or other state policy amendments in conflict with FCIC policy provisions apply to the insured's policy; or (c) RMA (through initial findings, or final determination), or the Office of the Inspector General (through investigative or audit reports) determines that claims were paid based on the improper actions of the policyholder, such as neglect, waste, fraud, and abuse; and 2. RMA determines that the case should be fully litigated to judgment in order to protect the integrity of the program. (B) Litigation assistance may also be provided if the case meets the criteria stated in section (A) above and: 1. The insured exercises the right to arbitration under the terms of the insurance policy; or 2. RMA determines that a case should be settled. (C) If all the requirements stated herein are not met or there are facts discovered after the case is accepted conditionally, or otherwise, that would disqualify the case for acceptance for financial litigation assistance, RMA will rescind its acceptance and the case will not qualify for financial litigation assistance. No payments will be made by RMA unless the reinsured company, in good faith, could not or should not have known the circumstances by which RMA would rescind its acceptance. Rejection Criteria RMA will reject reinsured company requests for financial litigation assistance in accordance with the following: (D) The case will be rejected if: 1. The case involves formal pleadings in which the insured: a) requests only punitive or compensatory damages, costs, or attorney's fees, etc.; b) only objects to removal of the case to federal court and none of the criteria for acceptance are met; or c) brings only a state law cause of action that is not in conflict with federal law. 2. The insured only alleges that the agent, loss adjuster, or reinsured company failed to properly service the policy, adjust the loss, provide correct information to the insured, or any other such error or omission, and no other acceptance criteria are met. Cases involving only an insured's claim of agent, loss adjuster or reinsured company error or omission will not be accepted for financial litigation assistance even if punitive or compensatory damages are awarded since such damages are authorized by law and no other acceptance criteria are met. 3. The case involves a factual dispute between the insured and the agent, loss adjuster or reinsured company with respect to whether the insured complied with all terms of the policy, providing all notices, properly executing and timely filing all required reports and documents, planting the insured crop within published final planting dates, etc., or whether the reinsured company properly computed the production to count, actual production history or any other such determinations. 4. The case was brought by the reinsured company against an insured to collect any amount that may be owed by the insured unless the insured asserts a counterclaim that meets one or more acceptance criteria, in which event financial litigation assistance would be limited to defense of the counterclaim. 5. The insured is only challenging a crop insurance policy provision or procedure that was written by the reinsured company, an insurance industry association or the state, which is a deviation from the provision published in the Federal Register or as FCIC's own published procedures, and such deviation is central to the challenge. 6. The case involves any issue not expressly authorized for acceptance under sections (A) and (B). If a case qualifies for acceptance for litigation assistance because there are multiple issues in the case, at least one of which meets the criteria stated in sections (A) or (B) above, but other issues meet the criteria for rejection in section (D), RMA will apportion the costs and only reimburse those costs associated with the issue that meets the criteria for acceptance. Reinsured Company Responsibilities The reinsured company must: 1. Submit a copy of the formal pleadings and a summary of the actions taken by the agent, loss adjuster, or reinsured company in the handling of the insured's claim and the basis of the reinsured company's denial of the claim or the amount of the claim. 2. Upon RMA's request, submit the reinsured company's answer to the complaint, the complete policyholder file, any other documentation or correspondence between the reinsured company and the insured pertaining to any issue or action that may have caused the complaint to be filed, and any other information requested by RMA to determine the issues in the litigation. 3. Inform RMA in writing of all actions taken in the course of the litigation prior to taking the action, to the extent practicable, and present all defenses suggested by RMA, even if such defense would result in the case no longer meeting the criteria for acceptance in sections (A) or (B) above. In such case, RMA will reimburse such expenses as authorized herein until the date that the criteria are determined to no longer be met. . Submit an itemized summary of all litigation expenses incurred each calendar quarter not later than the forty-fifth day following the end of each calendar quarter, with reimbursement then to be made by RMA within forty-five days of receipt of each itemized summary. RMA responsibilities RMA may: 1. Determine that conditional acceptance will be provided based on the formal pleadings and the summary of actions taken and other documentation submitted or requested, which shows that the criteria have been met and that proceeding to trial would be in the best interests of FCIC and the crop insurance program. 2. Determine that the case does not meet the criteria for acceptance, and reject the request for litigation assistance. If the case is initially rejected, the reinsured company will be notified and provided the opportunity to re-submit the request when additional information or documentation is obtained which causes the original formal pleadings to meet the criteria for acceptance. No rejection is final, and therefore appealable, until after the litigation has been completely resolved. 3. In cases that RMA accepts under the criteria, RMA will reimburse those litigation expenses, attorney's fees and court costs incurred by the reinsured company in accordance with hourly rates and expenses contained in the Equal Access to Justice Act. 4. Provide reasonable non-litigation assistance to support removal of accepted cases to federal court where appropriate. 5. Whether or not a case is accepted by RMA for financial litigation assistance, RMA will provide non-financial support for reinsured companies by making witnesses, including expert witnesses, available for both deposition and trial testimony in accordance with Section V.Q. of the Standard Reinsurance Agreement, or any successor. No witness will be produced for more than one deposition in a case. 6. RMA encourages its personnel and reinsured companies to be proactive in reviewing cases for acceptance or rejection and in submitting cases; thus, RMA will grant conditional acceptance or rejection within ninety days after a case is submitted.