A district court judge in the U.S. District Court for the Eastern District of Louisiana has issued an order attempting to resolve the apparent tension created by Louisiana law barring compulsory arbitration provisions in insurance contracts, a contract containing both an arbitration provision and a "conformity to statute" clause, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention), and the McCarran-Ferguson Act.
The matter arose out of the defendant's refusal to pay claims under an insurance policy covering hail and wind damage. Plaintiffs sued in Louisiana state court, but defendant, which is a citizen of the United Kingdom, removed the matter to federal court pursuant to the Convention. Plaintiff Pannagl then moved to remand on several grounds.
First, plaintiff argued that the removal was untimely, as it was not filed within 30 days after service of the complaint, as is required for removal based on diversity jurisdiction. The court found that the timeliness argument would not apply if the Convention applied, as removal under the Convention may occur at any time before trial. The court further found that the basic requirements for application of the convention— (1) an agreement arising out of a commercial legal relationship, (2) a written agreement to arbitrate in the territory of a Convention signatory, and (3) a party that is not an American citizen—were all met.
Second, plaintiff argued that the Convention only applies to the recognition of arbitral awards, but the court held that the plain language of the statute implementing the Convention requires its application to attempts to enforce covered arbitration agreements.
Third, plaintiff argued that the policy's "conformity to statute" clause required the policy to be amended to remove the arbitration provision in order to comply with Louisiana law barring compulsory arbitration provisions in insurance contracts. The court held, however, that the Convention preempts state law, such that the policy could not be amended to remove an arbitration provision covered by the Convention.
Finally, plaintiff argued that Louisiana's prohibition of arbitration in insurance disputes reverse-preempts the Convention under the McCarran-Ferguson Act, as the Convention as applied is contrary to a Louisiana public policy enacted for the purpose of regulating the business of insurance. But the court held that while the McCarran-Ferguson Act applies generally to federal statutes, it does not apply to treaties such as the Convention. As a result, the court denied the motion to remand.
Plaintiff immediately appealed this ruling to the Fifth Circuit Court of Appeals, which denied the appeal on the basis that denial of a motion to remand is interlocutory and not appealable unless the district court certifies the issue, which had not occurred in this case.
Gulledge and Pannagl v. Certain Underwriters at Lloyds, London, Case No. 18-6657 (USDC E.D. La. Sept. 27, 2018)
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