Monarch Consulting, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh
| Decision Date | 18 February 2016 |
| Docket Number | No. 8.,8. |
| Citation | 26 N.Y.3d 659,47 N.E.3d 463,27 N.Y.S.3d 97,2016 N.Y. Slip Op. 01209 |
| Parties | In the Matter of MONARCH CONSULTING, INC., et al., Respondents, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Appellant. In the Matter of National Union Fire Insurance Company of Pittsburgh, PA, Appellant, v. Priority Business Services, Inc., Formerly Known as Inland Valley Staffing Services and Another, Doing Business as Priority Staffing, Respondent. In the Matter of National Union Fire Insurance Company of Pittsburgh, PA, Appellant, v. Source One Staffing, LLC, Respondent. |
| Court | New York Court of Appeals Court of Appeals |
Sidley Austin LLP, Washington, D.C. (Peter D. Keisler, of the District of Columbia bar, admitted pro hac vice, and Paul J. Zidlicky, of the District of Columbia bar, admitted pro hac vice, of counsel), and Sidley Austin LLP, New York City (Andrew W. Stern, Nicholas P. Crowell, Eamon P. Joyce and Benjamin F. Burry of counsel), for appellant in the first, second and third above-entitled proceedings.
Anderson Kill, P.C., New York City (Jeffrey E. Glen, Edward J. Stein and Rene F. Hertzog of counsel), Roxborough, Pomerance, Nye & Adreani, LLP, Woodland Hills, California (Nicholas Roxborough, of the California bar, admitted pro hac vice, of counsel), Pillsbury Winthrop Shaw Pittman LLP, New York City (Alexander D. Hardiman of counsel), and Bond, Schoeneck & King PLLC, Syracuse (Clifford G. Tsan and Suzanne M. Messer of counsel), for respondents in the first, second and third above-entitled proceedings.
Amy R. Bach, of the California bar, admitted pro hac vice, and Whiteman Osterman & Hanna LLP, Albany (Jean F. Gerbini of counsel), for United Policyholders, amicus curiae.
Kamala D. Harris, Attorney General, Los Angeles, California (Stephen Lew, Edward C. DuMont, Kathleen A. Kenealy, Paul D. Gifford and Joshua A. Klein of counsel), for Dave Jones, amicus curiae.
STEIN
, J.
In order to resolve whether the parties' disputes pertaining to certain workers' compensation insurance Payment Agreements should be submitted to arbitration, we must make a threshold determination of whether the McCarran–Ferguson Act (15 USC § 1011 et seq.
) precludes application of the Federal Arbitration Act (9 USC § 1 et seq. [FAA] ) in relation to California Insurance Code § 11658. We conclude that, because application of the FAA does not “invalidate, impair, or supersede” (15 USC § 1012 [b] ) section 11658, the McCarran–Ferguson Act is not implicated, and the FAA applies to the parties' Payment Agreements. Further, under FAA rules of severability, the question of the enforceability of the Payment
Agreements and the arbitration clauses contained therein should be submitted to arbitration. We, therefore, reverse the Appellate Division order.
Three statutes are at the crux of this dispute—the FAA, the McCarran–Ferguson Act, and California Insurance Code § 11658
.
The FAA was enacted by Congress “in response to widespread judicial hostility to arbitration” (American Express Co. v. Italian Colors Restaurant, 570 U.S. ––––, ––––, 133 S.Ct. 2304, 2308–2309, 186 L.Ed.2d 417 [2013]
), and it aims to “ensure judicial enforcement of privately made agreements to arbitrate” (Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219, 105 S.Ct. 1238, 84 L.Ed.2d 158 [1985] ). Under the FAA, an arbitration provision contained in any contract involved in interstate commerce “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” (9 USC § 2 ). “This text reflects the overarching principle that arbitration is a matter of contract” and, “consistent with that text, courts must ‘rigorously enforce’ arbitration agreements according to their terms” (American Express Co., 570 U.S. at ––––, 133 S.Ct. at 2309
, quoting Dean Witter Reynolds Inc., 470 U.S. at 221, 105 S.Ct. 1238 ; see
Rent–A–Center, West, Inc. v. Jackson, 561 U.S. 63, 67, 130 S.Ct. 2772, 177 L.Ed.2d 403 [2010] ). Typically, “the FAA pre [e]mpts state laws [that] ‘require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration’ ” (Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478–479, 109 S.Ct. 1248, 103 L.Ed.2d 488 [1989], quoting Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1 [1984] ; see
Preston v. Ferrer, 552 U.S. 346, 349–350, 128 S.Ct. 978, 169 L.Ed.2d 917 [2008] ; Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 272, 115 S.Ct. 834, 130 L.Ed.2d 753 [1995] ).
In certain circumstances, however, the McCarran–Ferguson Act exempts state laws from FAA preemption (see 15 USC § 1012
[b]; see generally
CompuCredit Corp. v. Greenwood, 565 U.S. ––––, ––––, 132 S.Ct. 665, 669, 181 L.Ed.2d 586 [2012] ). In 1944, the United States Supreme Court held that the federal government has the power, under the Commerce Clause, to regulate the insurance industry (see
United States v. South–Eastern Underwriters Assn., 322 U.S. 533, 553, 64 S.Ct. 1162, 88 L.Ed. 1440 [1944] ). Prompted by concern that the
Supreme Court's ruling in South–Eastern Underwriters would interfere with state regulation of the business of insurance, Congress enacted the McCarran–Ferguson Act to limit congressional preemption in that arena (see Humana Inc. v. Forsyth, 525 U.S. 299, 306, 119 S.Ct. 710, 142 L.Ed.2d 753 [1999]
; Department of Treasury v. Fabe, 508 U.S. 491, 500, 113 S.Ct. 2202, 124 L.Ed.2d 449 [1993] ). The McCarran–Ferguson Act declared that “the continued regulation and taxation by the several States of the business of insurance is in the public interest, and ... 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” (15 USC § 1011 ). Thus, under the McCarran–Ferguson Act, “[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 ... unless such Act specifically relates to the business of insurance” (15 USC § 1012 [b] ). Stated otherwise, “when Congress enacts a law specifically relating to the business of insurance, that law controls,” but the McCarran–Ferguson Act precludes application of—or, in other words, reverse preempts—a federal law in the face of a state law regulating the business of insurance where “the federal measure does not ‘specifically relat[e] to the business of insurance,’ and would ‘invalidate, impair, or supersede’ the State's law” (Humana Inc., 525 U.S. at 306, 307, 119 S.Ct. 710, quoting Department of Treasury, 508 U.S. at 501, 113 S.Ct. 2202 ; see 15 USC § 1012 [b] ).
California Insurance Code § 11658
California law requires most employers to maintain workers' compensation insurance (see Cal. Lab Code § 3700
). The insurers that provide workers' compensation coverage to employers are regulated by the California Department of Insurance (the Department), its Commissioner, and the Workers' Compensation Insurance Rating Bureau of California (WCIRB) (see Cal. Ins. Code §§ 11750.3, 11751, 12921 ). The WCIRB, among other things, provides statistics and rating information, formulates rules and regulations in connection with insurance rates, and “examine[s] policies, daily reports, endorsements or other evidences of insurance for the purpose of ascertaining whether they comply with the provisions of law and ... make[s] reasonable rules governing their submission” (Cal. Ins. Code § 11750.3
[e]; see [a]-[d] ).
In other words, workers' compensation insurers must file copies of their policies, endorsements, and forms with the WCIRB prior to issuing the policies; after performing an initial review, the WCIRB sends the policies to the Department for the Commissioner's review (see Cal. Ins. Code § 11750.3
[e]; Cal. Code Regs. tit. 10, §§ 2218, 2509.30 ; see also Cal. Ins. Code § 11735 ). If, within 30 days, the Commissioner rejects a policy, form, or endorsement as failing to comply with the requirements of the Insurance Law, “it is unlawful for the insurer to issue any policy or endorsement in that form” (Cal. Ins. Code § 11658 [b] ). California regulations also provide that “[n]o collateral agreements modifying the obligation of either the insured or the insurer shall be made unless attached to and made a part of the policy” (Cal. Code Regs. tit. 10, § 2268 ).
Sometime before 2011, the Department became aware that workers' compensation insurers were entering into agreements with their insureds after the initial policy agreements, and that these subsequent agreements were not being filed with the WCIRB or the Department. As reflected in a February 2011 letter written by a Department staff attorney to the president of the WCIRB, the Department took the position that these agreements were required by law to be filed with the State. The Department also expressed its view that arbitration provisions contained in unfiled agreements may be considered unenforceable absent proof that the insured expressly agreed to arbitration when it initially entered into the policy agreement.
In apparent accordance with that view, in 2011, the California Legislature enacted California Insurance Code § 11658.5
(see 2011 Cal. Stat., ch. 566, § 2 [Senate Bill 684] ). That statute provides that arbitration provisions in workers' compensation policies or endorsements must be disclosed to each potential insured contemporaneously with any quote for...
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