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Dobrovolny v. Rain and Hail, LLC

United States District Court, D. Nebraska

August 26, 2014

RAIN AND HAIL, LLC, Defendant.


JOSEPH F. BATAILLON, District Judge.

This matter is before the court on defendant's motion to dismiss, Filing No. 7, [1] and motion to dismiss amended complaint, Filing No. 15. In its second motion to dismiss, defendant moves this court to dismiss the amended complaint, or in the alternative, to compel arbitration and stay the proceedings. In their amended complaint, plaintiffs allege four separate causes of action: (1) violations of the Consumer Protection Act; (2) violations of the Unfair Insurance Trade Practices Act; (3) legal rescission; and, alternatively, (4) equitable rescission. Amended Complaint, Filing No. 13. Each of these claims is based on the same alleged misrepresentation concerning "the measurement of precipitation in the grid." Id., at ¶34 (Consumer Protection claim); id. at ¶¶ 40, 41 and 45 (deceptive practices); id. at ¶ 47 (legal rescission); and id. at ¶ 54 (equitable rescission).

Plaintiffs initially filed this suit in Holt County, Nebraska, alleging defendant fraudulently misrepresented the terms of a federally reinsured Rainfall Index policy. The Rainfall Index policy provides indemnity to policyholders if the amounts of precipitation for insured acreages deviate from certain expected, historical levels. There is significant dispute as to how such coverage is based, for example, a grade experience factor or weather stations in the general area. Defendant then removed the case to federal court and filed these motions.

Each of the named plaintiffs applied for and received a rain and hail policy. Plaintiffs received up to six documents explaining their coverage, including four from the federal government. There is language in the documents that limits recovery under certain circumstances. See, e.g., Filing No. 13-7 p. 39, Standards Handbook, which states: "It is possible for me to have low crop production or receive low precipitation amounts on the acreage I insure and still not receive an indemnity payment under this plan." The court will first address the motion to compel arbitration.

The defendant, in the alternative, moves the court to compel plaintiffs' claims to binding arbitration pursuant to 9 U.S.C. § 1 et seq. The Rainfall Index policies contain an arbitration provision which states:

15. 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 15(d), the disagreement may be resolved through mediation in accordance with section 15(g).
(1) 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, except as provided in sections 15(c) and (f), and unless rules are established by FCIC for this purpose....
(3) All disputes involving determinations made by us, except those specified in section 15(d), are subject to mediation or arbitration....
(c) Any decision rendered in arbitration is binding on you and us unless judicial review is sought in accordance with section 15(b)(3). Notwithstanding any provision in the rules of the American Arbitration Association, you and we have the right to judicial review of any decision rendered in arbitration.

Filing No. 16, Trent-Vilim Aff., Atts. 1-10, at pp. 18-19, respectively. Further, plaintiffs have filed a demand in arbitration with the American Arbitration Association, alleging:

Respondent failed to pay proper indemnity payments to Claimants under the Pasture, Rangeland, Forage Rainfall Index Policy for lack of rainfall compared to the historical average in insured grids for 2013 index intervals: Jan/Fen, Mar/Apr, and Nov/Dec, totaling $461, 975.23 plus interest. Claimants are parties to the policy, which includes a provision (§ 15) requiring arbitration under the rules of the American Arbitration Association; accordingly, Claimants demand arbitration."

Filing No. 8, Trent-Vilim Aff., Att. 11).

Congress enacted the Federal Arbitration Act, 9 U.S.C. §§ 1-16. There is a national policy favoring arbitration. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443-44 (2006). A party can challenge the arbitration agreement in one of two ways, either the validity of the ...

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