WSHB secured a significant victory for carriers in the Lloyd’s of London insurance market yesterday when the Ninth Circuit affirmed an order compelling arbitration under the Convention on the Recognition of Foreign Arbitral Awards (the “Convention”). In its holding, the Ninth Circuit made clear that foreign insurers, like those participating in the Lloyd’s of London insurance market, can enforce arbitration provisions, even if a state statute prohibits their enforcement in insurance contracts. This decision should pave the way for foreign insurers to enforce arbitration provisions. Underwriters and their third-party administrator were represented by WSHB’s coverage team of Colleen McCaffrey and Trevor Peck.
The central issue involved the intersection of federal, state, and international law. The plaintiff, a Washington entity, filed suit against certain underwriters in the Lloyd’s Market seeking to recover additional amounts under an insurance policy for alleged Harvey-related damages. Underwriters moved to compel arbitration under the policy’s terms and the Convention, an international treaty that requires the courts of signatory nations to enforce arbitration provisions in contracts between foreign entities. In response, the plaintiff argued that the court could not compel arbitration because a Washington statute prohibits the enforcement of arbitration provisions in insurance contracts. While a treaty generally supersedes a state statute under the Constitution’s Supremacy Clause, the plaintiff argued that the McCarran-Ferguson Act (which allows state insurance laws to preempt conflicting “Acts of Congress”) permitted the state statute to “reverse-preempt” the Convention. The District Court rejected plaintiff’s argument and compelled arbitration. The plaintiff appealed the decision to the Ninth Circuit.
The Ninth Circuit affirmed the District Court’s decision compelling arbitration. It held that the Convention was not an “Act of Congress” that could be reverse-preempted by a state statute. Practically, this means that insurers in the Lloyd’s of London insurance market and other foreign insurers should be able to enforce arbitration agreements, regardless of where suit is filed or whether there are any state statutes prohibiting enforcement.
This is a big win that should help solidify the enforceability of arbitrations provisions under the Convention.