Safety Nat. v. Certain Underwriters at Lloyd's

• Decision Date: 29 September 2008
• Docket Number: No. 06-30262.,06-30262.
• Citation: 543 F.3d 744
• Parties: SAFETY NATIONAL CASUALTY CORPORATION, Plaintiff-Appellee, Louisiana Safety Association of Timbermen-Self Insurers Fund, Intervenor Plaintiff-Appellee, v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON; et al., Defendants, Certain Underwriters At Lloyd's, London, Defendant-Appellant. Certain Underwriters At Lloyd's, London, Plaintiff-Appellant, v. Safety National Casualty Corporation; Louisiana Safety Association of Timbermen, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

543 F.3d 744

SAFETY NATIONAL CASUALTY CORPORATION, Plaintiff-Appellee, Louisiana Safety Association of Timbermen-Self Insurers Fund, Intervenor Plaintiff-Appellee, v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON; et al., Defendants, Certain Underwriters At Lloyd's, London, Defendant-Appellant.

Certain Underwriters At Lloyd's, London, Plaintiff-Appellant, v. Safety National Casualty Corporation; Louisiana Safety Association of Timbermen, Defendant-Appellee.

No. 06-30262.

United States Court of Appeals, Fifth Circuit.

September 29, 2008.

William E. Scott, III, Michael P. Wilson, Watson, Blanche, Wilson & Posner, Baton Rouge, LA, Andrew K. Epting, Jr. (argued), Pratt-Thomas, Pearce, Epting & Walker, Charleston, SC, for Safety Nat. Cas. Co.

Joseph John Bailey (argued), Provosty, Sadler, deLaunay, Fiorenza & Sobel, Alexandria, LA, for LA Safety Ass'n of Timbermen-Self Insurers Fund.

James M. Garner, Joshua Simon Force, Sher Garner Cahill Richter Kelin & Hilbert, Alan D. Ezkovich (argued), New Orleans, LA, Jacob Albert Airey, Airey & Blanchard, Slidell, LA, for Certain Underwriters At Lloyds, London.

Appeal from the United States District Court for the Middle District of Louisiana.

Before KING, DeMOSS and OWEN, Circuit Judges.

OWEN, Circuit Judge:

The basis for this interlocutory appeal pursuant to 28 U.S.C. § 1292(b) is the district court's denial of a motion to compel arbitration of a contractual dispute among three insurers. The district court concluded that because of the McCarran-Ferguson Act,¹ the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention)² and federal legislation providing that the Convention shall be enforced in United States courts, found in 9 U.S.C. §§ 201-208, are reverse preempted by LA.REV.STAT. ANN. § 22:629. We disagree.

I

Louisiana Safety Association of Timbermen-Self Insurers Fund (LSAT) is, as its name implies, a self-insurance fund operating in Louisiana. It provided workers' compensation insurance for its members. Certain Underwriters at Lloyd's, London (the Underwriters) provided excess insurance to LSAT by reinsuring claims for occupational-injury occurrences that exceeded the amount of LSAT's self-insurance retention. Each reinsurance agreement contained an arbitration provision.

Safety National Casualty Corporation (Safety National) also provides excess workers' compensation coverage and alleges that in a loss portfolio transfer agreement, LSAT assigned its rights under the reinsurance agreements with the Underwriters to Safety National. The Underwriters refused to recognize the assignment, contending that LSAT's obligations were strictly personal and therefore non-assignable.

Safety National sued the Underwriters in federal district court. The Underwriters filed an unopposed motion to stay proceedings and compel arbitration. The district court initially granted that motion and stayed the lawsuit.

The Underwriters initiated arbitration proceedings with Safety National and LSAT; however, the parties could not agree upon how arbitrators were to be selected. The Underwriters then filed a motion to lift the stay in order to join LSAT as a party in the district court and to compel arbitration to resolve the dispute about how to compose the arbitration panel. In response, LSAT moved to intervene, lift the stay, and quash arbitration. LSAT asserted that the arbitration agreements were unenforceable under Louisiana law. While those motions were pending, the Underwriters filed a separate action against Safety National and LSAT seeking recovery of unpaid premiums under the policies. The district court consolidated the two actions.

The district court ultimately reconsidered its initial decision and granted LSAT's motion to quash arbitration. The district court concluded that although the Convention would otherwise require arbitration, a Louisiana statute³ that has been interpreted to prohibit arbitration agreements in insurance contracts was controlling. The district court reasoned that since that statute had "the purpose of regulating the business of insurance" within the meaning of the McCarran-Ferguson Act, the Louisiana statute reverse preempted the Convention.⁴ The district court subsequently certified that its order embodying these rulings involves a controlling question of law as to which there is substantial ground for difference of opinion and an immediate appeal pursuant to 28 U.S.C. § 1292(b) may materially advance the termination of the litigation. We granted leave to appeal.

II

The Louisiana statute at issue provides:

A. No insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state ... shall contain any condition, stipulation, or agreement:

....

(2) Depriving the courts of this state of the jurisdiction of action against the insurer.

....

C. Any such condition, stipulation, or agreement in violation of this Section shall be void, but such voiding shall not affect the validity of the other provisions of the contract.⁵

Although it is not clear from this provision's text that arbitration agreements are voided, Louisiana courts have held that such agreements are unenforceable because of this statute.⁶

The McCarran-Ferguson Act provides that "Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States."⁷ The Act further provides, "[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance ...."⁸

The Convention does not specifically relate to the business of insurance. Nor do Underwriters challenge the district court's conclusion that LA.REV.STAT. ANN. § 22:629, when applied to disputes arising under reinsurance agreements between insurers, regulates the business of insurance within the meaning of the McCarran-Ferguson Act.⁹ Accordingly, we will assume, without deciding, that the Louisiana statute does regulate the business of insurance, although the matter is not entirely free from doubt. One of the criteria for determining whether a law regulates the business of insurance is whether it has the effect of spreading or transferring a policyholder's risk.¹⁰ The Supreme Court has emphasized that arbitration agreements are forum-selection provisions and do not displace substantive rights afforded by a statute or other substantive law.¹¹ An argument could be made that at least in theory, resolving claims in an arbitration rather than in a court before a jury does not substantially affect the risk pooling arrangement between the insurer and the insured. However, this court has held in American Bankers Insurance Co. of Florida v. Inman that the Federal Arbitration Act¹² was reverse preempted by the McCarran-Ferguson Act in the context of a dispute between an injured insured and his insurer regarding underinsured-motorist coverage governed by Mississippi law.¹³ Therefore, this issue is foreclosed in this circuit and in any event is not before us.

The Underwriters set forth three issues: whether (1) the Convention on the Recognition and Enforcement of Foreign Arbitral Awards is an "Act of Congress" within the meaning of the McCarran-Ferguson Act,¹⁴ (2) the McCarran-Ferguson Act applies to international commercial transactions, and (3) the Convention takes precedence over the McCarran-Ferguson Act even if the latter applies to international transactions. For the reasons we consider below, we are persuaded that Congress did not intend to include treaties within the scope of an "Act of Congress" when it used those words in the McCarran-Ferguson Act, and we therefore do not reach other issues pressed by the Underwriters.

III

LSAT contends that treaties stand on equal footing with acts of Congress, the Convention was not self-executing and could only have effect in the courts of this country when Congress passed enabling legislation, and therefore, the Convention's enabling legislation is the equivalent of an "Act of Congress" within the meaning of the McCarran-Ferguson Act. LSAT is correct that an act of Congress is on full parity with a treaty.¹⁵ "`[W]hen a statute which is subsequent in time is inconsistent with a treaty, the statute to the extent of conflict renders the treaty null.'"¹⁶ The Underwriters maintain that the Convention was ratified after the McCarran-Ferguson Act was enacted and that in any event, the Convention is self-executing, which means that it did not require an act of Congress to have effect in United States courts. The Underwriters assert that a "later-in-time self-executing treaty supercedes a federal statute if there is a conflict."¹⁷ The Convention is not an act of Congress, the Underwriters alternatively contend, even if the Convention was not self-executing, because a treaty is more than an act of Congress.

It is unclear whether the Convention is self-executing. The Supreme Court's recent decision in Medellin v. Texas instructs that "[t]he interpretation of a treaty, like the interpretation of a statute, begins with its text."¹⁸ In Medellin, the Court examined the Vienna Convention on Consular Relations¹⁹ and the Optional Protocol Concerning the Compulsory Settlement of Disputes to the Vienna Convention²⁰ to determine whether a judgment of the International Court of Justice (ICJ) was "directly enforceable as domestic law in a state court in the United States."²¹ The United States had agreed to submit disputes arising out of the Vienna Convention to the ICJ, but the Supreme Court recognized that "submitting to jurisdiction and agreeing to be bound are two different things."²²...