Crop Insurance Fraud Case Stays Alive
In 1938, Congress enacted the Federal Crop Insurance Act (FCIA), establishing the Federal Crop Insurance Corporation (FCIC) (a wholly owned government corporation within the U.S. Department of Agriculture). In 1996, the system was updated with the creation of the Risk Management Agency (RMA) which was tasked with the administration of the FCIC. What developed was a system of private crop insurance companies that would be reinsured by the FCIC. Thus, farmers could purchase a policy from a private insurance company which would pay farmers for covered losses, and the insurance company could then seek reimbursement by the federal FCIC. At issue in this case was whether the defendant, the owner of a private crop insurance company in Iowa committed crop insurance fraud when, as the government claimed, he submitted false insurance claims to the FCIC for reimbursement.
The defendant sold Multi-Peril Crop Insurance (MPCI) policies to farmers across the Midwest and received commissions on those policies. To obtain MPCI, a farmer must have an “insurable interest” in the crop “at the time the coverage begins.” Each farmer must turn in annual acreage reports to certify their insurable interest. Throughout the years of 2000 and 2001, the agent turned in crop insurance applications in the names of several farmers who had no insurable interest in the crops that they claimed losses on. Thus, these farmers were not eligible to receive FCIC reinsured coverage. Even though the agent knew these farmers had no insurable interest, he submitted claims for crop losses in excess of $300,000 and the FCIC reimbursed his company. In addition, some of the farmers submitted false acreage reports on non-eligible property and others never even signed the crop insurance application and were generally confused as to what ground they had covered. Even so, the defendant knew the reports were false and that some of the claims had not been properly made.
When the federal government learned of the agent’s actions in 2006, they sued him for violation of the False Claims Act (31 U.S.C. §3729(a) (1)-(3) and Iowa law. The defendant moved for summary judgment and the trial court agreed. The court determined that the government failed to prove that the agent actually “presented” a false claim to representatives FCIC because the claims were actually presented to the North Central Crop Insurance (NCCI), a private company, who then presented the claims to the FCIC. The trial court believed that the government was unable to prove that the agent intended for the government to rely on false documents to reimburse the private insurance company’s pay out for claims. The court also tossed the Iowa fraud claim.
On appeal, the court reversed. On the issue of “presentment of false claims,” the appellate court found that there was a “genuine issue” as to whether the insurance agent actually presented, or caused to be presented, a false claim to the U.S. government. The court focused on the depositions of witnesses who would testify at trial that the agent did, indeed, submit false information on loss data electronically. An official of the USDA testified in his deposition that the insurance agent would have to initially submit the loss amount through FCIC’s electronic “Data Acceptance System” to begin the reimbursement process. The court found that submitting false claims electronically to FCIC, even though it is initially presented to a private company, still amounts to the presentation of a false claim to the federal government.
On the issue of whether there was enough evidence to present a triable question concerning whether the agent made a false claim “knowingly using” false documentation, the primary issue was whether the false records were material to the Government’s decision to pay the claims. Central to the court’s analysis was evidence of the agent’s intent that the government rely on the electronic claim submissions. The court noted that there must be a direct link between the false statement and the Government’s decision to pay the claim, and the court determined that there was sufficient evidence to show that there was a direct link – there existed a question of whether the farmers and the defendant knowingly agreed to participate in a “scheme” to allow ineligible farmers to obtain crop insurance. On that point the court noted that the defendant had extensive experience selling federally reinsured crop insurance.
The appellate court also reversed the trial court on the Iowa common law fraud charge. On that claim, the court noted that the government must prove that the defendant knowingly committed a material misrepresentation with the intent to induce the plaintiff to act, and that the plaintiff acted in justifiable reliance to the plaintiff’s detriment. Here, the court determined that the agent had reason to expect that his actions would achieve their desired outcome. As such, the case was remanded to the trial court where the case will proceed. United States v. Hawley, No. 08-2992, 2010 U.S. App. LEXIS 17592 (8th Cir. Aug. 23, 2010).