(Article from Insurance Law Alert, November 2024)
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Holding
The Louisiana Supreme Court ruled that a statutory amendment allowing forum or venue selection clauses in certain types of insurance contracts did not implicitly repeal Louisiana’s statutory prohibition of arbitration clauses in insurance contracts. Police Jury of Calcasieu Par. v. Indian Harbor Ins. Co., 2024 La. LEXIS 1582 (La. Oct. 25, 2024).
Background
Calcasieu Parish, a political subdivision of Louisiana, sustained hurricane-related damage in 2020. In a lawsuit that ensued, Calcasieu alleged that a syndicate of foreign and domestic insurers underpaid claims and made untimely payments. The only two foreign insurers were dismissed from the suit and the remaining domestic insurers moved to compel arbitration pursuant to arbitration clauses in the foreign insurers’ policies with Calcasieu.
A Louisiana district certified the following three questions to the Louisiana Supreme Court:
- Whether the 2020 amendment adding Subsection D (Act No. 307 1 of 2020) to La. R.S. 22:868 to allow forum and venue selection clauses in limited circumstances implicitly repealed Subsection A’s longstanding prohibition of arbitration clauses in all insurance policies in Louisiana?
- Whether La. R.S. 9:2778 applies to all contracts with political subdivisions of the State, including insurance contracts, and thereby prohibits venue or arbitration outside of Louisiana or the application of foreign law in claims involving the State and its political subdivisions?
- If arbitration continues to be prohibited in all insurance policies delivered or issued for delivery in Louisiana, whether a domestic insurer may resort to equitable estoppel under state law to enforce an arbitration clause in another insurer’s policy in contravention of the positive law prohibiting arbitration in La. R.S. 22:868 (A)(2); and related, whether estoppel can be applied to political subdivisions without satisfying the distinct and heightened standard otherwise required by the Louisiana Supreme Court for application of estoppel to public bodies?
Decision
The court answered the first question in the negative, ruling that the amendment of La. R.S. 22:868 to allow for forum and venue selection clauses in certain circumstances does not constitute an implicit repeal of the state ban on the arbitration of insurance disputes set forth in the body of that statute. In so ruling, the court emphasized the distinction between the concepts of venue and forum on the one hand, and jurisdiction on the other, noting that the former relates to the location of litigation, whereas the latter concerns the method of dispute resolution. Thus, the court found no conflict between the amendment allowing forum or venue selection and the existing statutory language prohibiting arbitration.
The court answered the second question in the affirmative, ruling that La. R.S. 9:2778 applies to the insurance policies at issue so as to preclude venue or arbitration outside the state of Louisiana. The determinative issue for this question was whether the insurance policies constituted “public contracts” within the meaning of the statute. In finding that they did, the court reasoned that an insurance policy is indisputably a contract, and that a contract with a political subdivision is a “public contract.”
The court answered the first part of the third question in the negative, ruling that a domestic insurer may not use equitable estoppel to enforce an arbitration clause in another insurer’s policy in contravention of state statutory law. The court cited the “anti-arbitration” nature of state statutory law and Louisiana’s disfavor of estoppel as a “doctrine of last resort.” Having reached that conclusion, the court deemed the second prong of the third certified question to be moot.
Comments
The Fifth Circuit reached a contrary conclusion in Bufkin Enters., L.L.C. v. Indian Harbor Ins. Co., 96 F.4th 726 (5th Cir. 2024). There, the court ruled that non-signatory domestic insurers may use the doctrine of equitable estoppel to compel arbitration pursuant to policies with foreign insurers under the Convention on the Recognition and Enforcement of Arbitral Awards of 1958. The Louisiana Supreme Court deemed that ruling “flawed” and “not supported by Louisiana law.”