In a rare win for policyholders regarding arbitration clauses, a Louisiana federal court ruled that Louisiana policyholders do not have to go to arbitration so long as the insurers are American insurers.1 The judge stated the law in Louisiana regarding this issue: 

Louisiana law prohibits arbitration agreements in insurance policies covering property within the state. La. R.S. § 22:868(A)(2). Under the McCarran-Ferguson Act, state laws regulating insurance are shielded from the preemptive effect of federal law. 15 U.S.C. §§ 1011, 1012. Accordingly, McCarran-Ferguson allows state laws like Louisiana Revised Statute section 22:868(A)(2) to ‘reverse-preempt’ the Federal Arbitration Act’s provisions on the enforceability of insurance agreements. See, e.g., Am. Bankers Ins. Co. of Fla. v. Inman, 436 F.3d 490 (5th Cir. 2006). However, this ‘reverse preemption’ applies only to ‘Acts of Congress’ and not to treaties. Safety Nat’l Cas. Corp. v. Certain Underwriters at Lloyd’s, London, 587 F.3d 714, 723 (5th Cir. 2009). The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘Convention’) is one such treaty and requires signatory nations to ‘recognize an agreement in writing under which the parties undertake to submit to arbitration’ their dispute ‘concerning a subject matter capable of settlement by arbitration.’ (quoting Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. II(1), June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3)). State insurance law thus has no impact on arbitration agreements arising under the Convention. see also McDonnel Group, LLC v. Great Lakes Ins. Branch SE, UK Branch, 923 F.3d 427 (5th Cir. 2019).

If non-American companies, like those Certain Underwriters at Lloyds, issue a policy with an arbitration clause, the treaty makes a policyholder go to arbitration. But if you are in a state with an anti-arbitration law like Louisiana, and all the insurers are American insurance companies that issued the policy, arbitration cannot be compelled. 

An interesting part of the case is that some of the insurers were with the Lloyds market. But the policyholder dismissed them with prejudice from the case so that the only remaining insurers were American-based companies. So, for now, they have escaped arbitration—but there is always the chance of an appeal. 

Arbitration clauses are becoming more prevalent. Most states do not have anti-arbitration clauses, so arbitration is required if the policy has such a clause. Please remember that arbitration is not appraisal, as discussed in Arbitration Is an Increasing Trend Found Within Property Insurance Policies, and Arbitration is Not Appraisal. 

Thought For The Day 

You can always count on Americans to do the right thing – after they’ve tried everything else.

—Winston Churchill

1 Bufkin Enterprises v. Indian Harbor Ins. Co., No. 2:21-cv-04017 (W.D. La. March 7, 2023).