(Article from Insurance Law Alert, September 2021)
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As discussed in our May 2019 Alert, federal circuit courts are divided as to whether state laws that prohibit the arbitration of insurance disputes reverse preempt the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a multilateral treaty. The Fourth and Fifth Circuits have held that reverse preemption under the McCarran Ferguson Act is limited to federal legislation (such as the Federal Arbitration Act) and does not encompass an international treaty such as the Convention. See ESAB Grp. Inc. v. Zurich Ins. PLC, No. 11-1243 (4th Cir. July 9, 2012); Safety Nat’l Cas. Corp. v. Certain Underwriters at Lloyd’s, London, 587 F.3d 714 (5th Cir. 2009). However, the Second Circuit reached the opposite conclusion in Stephens v. American International Ins. Co., 66 F.3d 41 (2d Cir. 1995). Last month, the Ninth Circuit weighed in, ruling that the Convention is not subject to reverse preemption by Washington state law. CLMS Mgmt. Servs. Ltd. Partnership v. Amwins Brokerage of Georgia, LLC, 8 F.4th 1007 (9th Cir. 2021).
In this insurance dispute, plaintiffs argued that an arbitration provision in the relevant policy was unenforceable because Washington statutory law specifically prohibits enforcement of arbitration clauses in insurance contracts. Plaintiffs further argued that, pursuant to the McCarran-Ferguson Act, Washington state law reverse preempts the Convention. A Washington district court disagreed and enforced the arbitration provision pursuant to the Convention. The Ninth Circuit affirmed.
The Ninth Circuit ruled that the relevant provision of the Convention is “self-executing,” and therefore not an “Act of Congress” subject to reverse preemption under the McCarran-Ferguson Act. In so ruling, the court expressly rejected the Second Circuit’s reasoning in Stephens.