(Article from Insurance Law Alert, April 2023)
For more information, please visit the Insurance Law Alert Resource Center.
Holding
A Missouri federal district court ruled that arbitration provisions subject to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”) are enforceable against a policyholder notwithstanding a state anti-arbitration statute. Foresight Energy, LLC v. Ace American Ins. Co., No. 4:22-cv-00887 (E.D. Mo. Mar. 21, 2023).
Background
When the policyholder sought coverage for damage resulting from a coal mine fire, several insurers invoked the international arbitration clauses contained in their policies. Thereafter, the policyholder sued, alleging breach of contract and seeking a declaration of coverage. The policyholder argued that the arbitration clauses were unenforceable under Missouri’s Uniform Arbitration Act, Mo. Rev. Stat. § 435.530, which prohibits mandatory arbitration in insurance contracts. The court granted the insurers’ motion to dismiss or stay pending arbitration.
Decision
The central issue in dispute was whether Missouri’s anti-arbitration statute reverse-preempts the Convention, a multi-national treaty that provides for the reciprocal enforcement of international arbitration agreements by signatory nations. Under the McCarran-Ferguson Act, state laws may preempt Acts of Congress where the state law specifically regulates the business of insurance. The court concluded that there was no reverse preemption under the McCarran-Ferguson Act, reasoning that the Act applies only to domestic legislation and was not intended to allow state laws to preempt international treaties. The court therefore held that the international arbitration clauses were enforceable notwithstanding state law barring arbitration of insurance disputes. In so ruling, the court cited the “mounting precedent favoring the enforcement of the Convention,” including decisions by Courts of Appeals in the Fourth and Fifth Circuits.
Comments
As the court noted, there is no judicial consensus on whether state laws prohibiting arbitration of insurance disputes reverse preempt the Convention. The Second Circuit has ruled that the Convention is subject to reverse preemption under the McCarran-Ferguson Act, whereas the Ninth Circuit reached the opposite conclusion. Those two decisions were based on analysis of whether the Convention is a “self-executing” treaty (i.e., is automatically enforced as domestic law), or conversely, whether it requires an “Act of Congress” to become domestic law, in which case it would implicate reverse-preemption under the McCarran-Ferguson Act.
The Foresight court deemed it unnecessary to decide whether the Convention is a self-executing treaty or instead required congressional action for its implementation. The court based its ruling on the more general principle that the Convention is not reverse-preempted by state anti-arbitration statutes because the McCarran-Ferguson Act applies only to domestic laws and not international treaties.