The Insurers are private insurance companies. They entered into reinsurance agreements with the FCIC for the 1984, 1985 and 1986 crop years. Old Republic was the lead entity and International Business and Mercantile Reassurance Company was one of its fronting companies whose policies were also reinsured under the agreements. Pursuant to the terms of each agreement, known as the Standard Reinsurance Agreements ("SARs"), the Insurers sold their own insurance to producers, and the FCIC provided reinsurance coverage for those policies.
Beginning in 1986 and continuing into 1987, the General Accounting Office ("GAO"), the Office of the Inspector General ("OIG") and, subsequently, the Compliance Division of the FCIC began reviewing some of the claims paid by the FCIC to the Insurers. These audits produced initial determinations by the FCIC of alleged overpayments to the Insurers, although the various investigating bodies were not in agreement as to the precise amounts of the overpayments. Commencing in the fall of 1987 and continuing through the spring of 1988, FCIC sent the Insurers notices stating that claims adjusted by the Insurers had been overpaid. FCIC asserted a right to recover the overpayments directly from the Insurers and threatened to offset the amount from monies otherwise due to the Insurers from FCIC. The FCIC also advised the Insurers that they could appeal these determinations pursuant to an informal appeals process set forth in 7 C.F.R. § 400.80 (later amended and renumbered as 7 C.F.R. § 400.149).
The Insurers appealed each of the FCIC's findings. Informal hearings were held in Washington, D.C. on April 25, 26 and 27, 1989, after which the FCIC made a final determination that, out of a total of 50 claims that it reviewed, overpayments had been made on fourteen in 1984, eighteen in 1985 and six in 1986. On July 5, 1989, the FCIC issued three separate letters to the Insurers requesting payment for the 1984, 1985 and 1986 years, respectively. These letters requested that the Insurers correct the applicable Crop Year Accounting Report for each policy listed or pay the amount due by check. Old Republic has done neither and instead has challenged both the authority of the FCIC to readjust claims and recover overpayments and the sufficiency of the procedures by which the FCIC makes its determinations regarding overpayments.
A. FCIC's Right to Recover the Overpayments
The Insurers claim that the FCIC possesses neither the statutory nor the contractual right to recover overpayments from the Insurers. On the issue of contractual authority, the FCIC points out that a clause in the SAR for 1984 and 1985 holds FCIC "harmless for any loss that FCIC may incur as a result of the [plaintiffs'] conduct in the investigation, negotiation, defense or handling of any claim, or suit or in any dealing with its policy holder." (Section XVII(D)) (Emphasis added.) Also, the 1986 agreement expressly contemplates payment by the Insurers to the FCIC "as a result of a claim by the [plaintiffs] that is subsequently found not to have been due." (Section V(H)). We find that this language, though not as explicit as it might be, adequately shows that the SARs contemplated the reconsideration of claims and the recovery of wrongfully paid monies from the Insurers.
In addition to its apparent contractual authority, the FCIC also points to statutory authority which further and independently establishes its right to recover wrongfully paid claims. It is well established that the government by appropriate action may recover funds "which its agents have wrongfully, erroneously or illegally paid." United States v. Wurts, 303 U.S. 414, 415, 58 S. Ct. 637, 638, 82 L. Ed. 932 (1938). The Federal Claims Collection Act of 1966, as amended by the Debt Collection Act of 1982, provides the statutory authority and initial mechanisms for heads of executive or legislative agencies to "try to collect a claim of the U.S. government for money or property arising out of the activities, or referred to, the agency." 31 U.S.C. § 3711(a)(1). Section 3716(a) of the Claims Collection Act further provides that, when other methods of trying to collect a claim from a person under section 3711(a) are unavailing, "the head of an . . . agency may collect the debt by administrative offset." 31 U.S.C. § 3716(a). In addition, the FCIC relies on 7 C.F.R. § 3.23(a), issued under the authority of the Federal Claims Collection Act of 1966, as amended by the Debts Collection Act of 1982, which states that "whenever feasible, each agency must use . . . administrative offset in accordance with 4 C.F.R. § 102.3 to collect debts due to the U.S." (Emphasis added.) This scheme shows that the government contemplates recovery of wrongful payments; clearly, the government would not make provisions for methods of recovery of debts if recovery itself was not contemplated.
The only time a government agency is barred from exercising its right to recover overpayments is when Congress has clearly manifested its intention to raise a statutory barrier. Wurts, 303 U.S. at 415, 58 S. Ct. at 638. This exception provides the basis upon which the Insurers ultimately rely in support of their contention the cited statutory authority does not apply to their reinsurance agreements with the FCIC. According to the Insurers, the specific statutory language and the legislative intent of the Federal Crop Insurance Act of 1982 negate the FCIC's otherwise valid authority to recover overpayments. First, the Insurers argue that the FCIC's readjustment of these claims violates the commission's statutory mandate that it act in accordance with "sound reinsurance principles." 7 U.S.C. § 1508(e). The Insurers assert that "sound reinsurance principles" do not permit the readjustment of claims and the recovery of overpayments directly from a primary insurer after the claims have been paid to third parties. Yet, the Insurers offer no authority or any evidence of industry practice to support that assertion. Instead, the Insurers simply comment: "Although disputes between reinsured companies and their reinsurers may and do at times arise, and are customarily resolved in arbitration, reinsurance is designed and intended to minimize and eliminate disputes between the reinsured company and its reinsurer." Mem. at 8. This comment does little to clarify how the Insurers would have us interpret the phrase "sound reinsurance principles" to mean that reinsurers may never readjust and recover wrongfully paid claims. Certainly the goal of minimizing disputes does not require a reinsurer to fully abdicate any opportunity to recover money paid on wrongful claims. Indeed, the Insurers acknowledge that disputes concerning claims do arise and are typically resolved by less formal means of adjudication such as arbitration.
The Insurers further maintain, however, that a decision allowing the FCIC to recover overpayments will defeat the Congressional purpose in enacting the Act, which was to encourage private sector involvement in the crop insurance business. Of course, if we grant the Insurers the blanket, unreviewable indemnity they seek with respect to all claims filed with the FCIC, we can imagine that private sector involvement in the crop insurance business might burgeon at an astronomical rate. Yet, it defies common sense to suppose, and the Insurers have offered no legislative history to suggest, that Congress intended to give a blank check to all private insurance companies in order to encourage participation in the program, regardless of whether claims are later discovered to have been paid based on wrongful or negligent adjustment by the reinsured companies.
The FCIC's actions will serve only to discourage such potentially wrongful or negligent adjustment practices by insurance companies participating in the federal program. This is a goal which the FCIC should pursue to efficiently administer its resources. In our view, these goals accord with what Congress meant by "sound reinsurance principles." Accordingly, we find that FCIC is entitled to recover wrongfully paid funds directly from the Insurers, and may use offsets for the recovery of such funds if necessary.
B. Due Process
The Insurers next claim that even if the FCIC is entitled to recover overpayments, the FCIC's procedures for making final overpayment and underpayment determinations lack the requisites of due process. The three often-cited factors needed to evaluate the due process sufficiency of an administrative determination were articulated by the Supreme Court in Mathews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976):
First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such an interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural safeguards would entail.
Id. at 335, 96 S. Ct. at 903; Mayo v. Lane, 867 F.2d 374, 384 (7th Cir. 1989). The test in Mathews balances the government's interests with the private interests involved. This balance will sometimes result in discarding certain procedural safeguards for the benefit of economy, efficiency and administrative discretion.
The private interests affected by this action are contractual monetary obligations totaling $ 337,558.00. Such an interest is not as compelling as the kind of interest that has been held to require a full trial-type evidentiary hearing before any deprivation. For example, in Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 287 (1970), the plaintiff's interest in continued receipt of welfare benefits was deemed substantial enough to warrant an evidentiary hearing in light of the fact the denial of benefits would deprive the recipient of "the very means by which to live." Id. at 264, 90 S. Ct. at 1018. The private contractual interest in this case also is not as substantial as other private interests, such as the right to Social Security disability benefits, the deprivation of which does not require a full-trial type hearing. Thus, the FCIC was not inherently obligated to provide a full scale formal proceeding in making its determinations.
The next factor for us to consider, then, is the "fairness and reliability of the procedures used and the probable value, if any, of additional procedural safeguards." Id. 424 U.S. at 343, 96 S. Ct. at 907 (1976). Regarding the reliability of the procedures, we must focus on the "risk inherent in the truth finding process as applied to a generality of the cases, not the rare exceptions." Id. at 344, 96 S. Ct. at 907. Accordingly, we shall look at the adequacy of the FCIC's procedures in generally resolving questions regarding overpayments.
At the outset we observe that the Insurers were afforded virtually all of the procedural due process requirements delineated under the APA for formal adjudication and recognized by the Supreme Court in Goldberg. The Insurers were given notice of the hearing, an opportunity to participate in the hearing, an impartial decisionmaker, right to counsel, right to present oral and written evidence, right to submit proposed findings, conclusions and exceptions, the compiling of a record on which the decision would be based, and a hearing on the record. Compare Administrative Procedure Act, 5 U.S.C. §§ 554-57. Notwithstanding all of this, the Insurers allege that the informal hearing process was procedurally deficient in two specific respects.
1) Lack of Joinder of the Producers
The Insurers first argue that the FCIC's failure to join the producers, in accordance with Rule 19 of the Federal Rules of Civil Procedure, rendered the administrative proceedings constitutionally unfair. Rule 19 requires in relevant part that persons who are
(a) . . . subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if . . . (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may . . . (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.