Safety Nat. Cas. v. Cert. under., Lloyd's, London

Decision Date09 November 2009
Docket NumberNo. 06-30262.,06-30262.
Citation587 F.3d 714
PartiesSAFETY 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, Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Andrew K. Epting, Jr., Charleston, SC, William E. Scott, III, Watson, Blanche, Wilson & Posner, Michael P. Wilson, Baton Rouge, LA, for Plaintiff-Appellee.

Joseph John Bailey (argued), Provosty, Sadler, deLaunay, Fiorenza & Sobel, Alexandria, LA, for Intervenor Plaintiff-Appellee.

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 Defendant-Appellant.

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



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. We consider en banc whether the McCarran-Ferguson Act1 authorizes state law to reverse-preempt the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention)2 or its implementing legislation (Convention Act).3 We conclude that it does not. We vacate the district court's order and remand for further proceedings.


Louisiana Safety Association of Timbermen-Self Insurers Fund (LSAT) is, as its name implies, a self-insurance fund operating in Louisiana. It provides 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.

The Underwriters commenced 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 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 statute4 that has been interpreted to prohibit arbitration agreements in insurance contracts was controlling and reverse-preempted the Convention because of the McCarran-Ferguson Act.5 The district court subsequently certified that the order embodying its 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. A panel of this court concluded that the McCarran-Ferguson Act did not cause the Louisiana statute under consideration to reverse-preempt the Convention or the Convention Act.6 Rehearing en banc was granted, thereby vacating the panel opinion.7 Because the McCarran-Ferguson Act does not apply to the Convention, we vacate the district court's order and remand for further proceedings consistent with this opinion.


The Underwriters raise three issues: whether (1) the Convention is an "Act of Congress" within the meaning of the McCarran-Ferguson Act,8 (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. Because our resolution of the first issue resolves the question presented in this interlocutory appeal, we do not reach the other issues pressed by the Underwriters. We are persuaded that state law does not reverse-preempt federal law in the present case for two related but distinct reasons: (1) Congress did not intend to include a treaty within the scope of an "Act of Congress" when it used those words in the McCarran-Ferguson Act, and (2) in this case, it is when we construe a treaty—specifically, the Convention, rather than the Convention Act—to determine the parties' respective rights and obligations, that the state law at issue is superseded.

The starting point of our inquiry is the statutory and treaty texts.9 Here, the texts of the Convention, the Convention Act, and the McCarran-Ferguson Act support the conclusion that the McCarran-Ferguson Act does not authorize Louisiana to reverse-preempt the Convention by means of contrary legislation prohibiting arbitration of disputes regarding contracts of insurance.

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.10

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.11

The Louisiana statute, as so interpreted, conflicts with the United States's commitments under the Convention. The Convention states that each signatory nation "shall recognize an agreement in writing under which the parties undertake to submit to arbitration" their dispute "concerning a subject matter capable of settlement by arbitration."12 The Convention contemplates enforcement in a signatory nation's courts, directing that courts "shall" compel arbitration when requested by a party to an international arbitration agreement, subject to certain exceptions not at issue in the present case:

The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.13

This treaty is the subject of the Convention Act. That Act states that the Convention "shall be enforced in United States courts in accordance with this chapter."14 The Act additionally provides relevant definitions15 and establishes federal court jurisdiction and venue.16 The parties agree that requiring arbitration of the present dispute in compliance with the Convention would contravene the Louisiana statute.

LSAT contends that the McCarran-Ferguson Act resolves this conflict in favor of the application of state law because the Louisiana statute regulates the business of insurance. 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."17 The Act further provides, "No 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 ...."18 The McCarran-Ferguson Act thus allows state law to reverse-preempt an otherwise applicable federal statute because the McCarran-Ferguson Act does not permit an "Act of Congress" to be "construed to invalidate, impair, or supersede" state law unless the Act of Congress "specifically relates to the business of insurance."

For the purposes of the McCarran-Ferguson Act, neither the Convention nor the Convention Act specifically relates to the business of insurance. Nor do the Underwriters challenge the district court's conclusion that Louisiana Revised Statutes § 22:868, when applied to disputes arising under reinsurance agreements between insurers, regulates the business of insurance within the meaning of the ...

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