February/March 2010 / Cover Story
Will Policy Holders Be Compelled To Arbitrate International Coverage Disputes?
This article deals with a question that could be significant for U.S. policy holders who become involved in international insurance coverage disputes: Do state laws barring arbitration of insurance disputes preempt private international agreements to arbitrate?
In a recent Fifth Circuit Appeals Court case, the authors write, the answer was a “resounding no.” The authority of the international Convention on the Recognition and Enforcement of Foreign Arbitral Awards was weighed against a Louisiana law that purports to bar enforcement of arbitration clauses in insurance contracts. The international treaty prevailed.
The legal issue devolved into the question of whether U.S. entry into the treaty should be construed as an act of the executive branch or, because of requisite enabling legislation, an act of Congress. (The McCarran-Ferguson Act says that no act of Congress can pre-empt state insurance regulation.)
According to the authors, the Fifth Circuit decision is a win for insurance companies, who well understand the significant benefits of avoiding state and federal courts.
The Fifth Circuit decision was contrary to an earlier decision in the Second Circuit, and the authors suggest the issue could eventually reach the Supreme Court.