Submission of Aviation Insurance Program Claims to Binding Arbitration, 96-37

• Decision Date: 27 September 1996
• Docket Number: 96-37
• Citation: 20 Op. O.L.C. 341
• Court: Opinions of the Office of Legal Counsel of the Department of Justice
• Parties: Submission of Aviation Insurance Program Claims to Binding Arbitration

20 Op. O.L.C. 341

Submission of Aviation Insurance Program Claims to Binding Arbitration

No. 96-37

United States Department of Justice

September 27, 1996

RICHARD L. SHIFFRIN Deputy Assistant Attorney General Office of Legal Counsel

Submission of Aviation Insurance Program Claims to Binding Arbitration

In insurance policies issued to air carriers pursuant to authority arising under chapter 443 of title 49, the Secretary of Transportation may include "50-50 clauses " which require that disputes between insurers over coverage liability be submitted to binding arbitration unless the insurers are able to negotiate a settlement in advance if the use of such clauses is an accepted practice in the aviation insurance business.

49 U.S.C. §44309 does not preclude the use of binding arbitration to resolve disputes regarding the liability of the United States for losses insured under chapter 443.

50-50 clauses included in insurance policies issued under chapter 443 may include a provision for arbitration under state or foreign law if it is a common practice of the commercial insurance business to resolve liability disputes by reference to the decisional rules of a non-federal sovereign.

MEMORANDUM OPINION FOR THE GENERAL COUNSEL FEDERAL AVIATION ADMINISTRATION

Chapter 443 of title 49 authorizes the Secretary of Transportation to offer insurance and reinsurance to air carriers conducting flights "necessary to carry out the foreign policy of the United States Government." 49 U.S.C. §44302(b). Apparently, disputes arise from time to time as to whether liability to compensate an air carrier is properly assigned to the policy issued under the Secretary's authority, the so-called "war-risk" insurance, or to the air carrier's general, or "all-risk, " policy. You have asked whether such insurance and reinsurance policies issued pursuant to the Secretary's authority may provide for resolution of such disputes under a "50-50 clause." Under a 50-50 clause, the all-risk and war-risk insurers each advance half of the amount payable under their policy at the time of the loss, assuring that the insured air carrier is fully compensated immediately. The 50-50 clause provides that insurers then submit their dispute as to liability to binding arbitration, unless the insurers are able to negotiate a settlement in advance.

There is no constitutional prohibition on the use of binding arbitration to resolve disputes involving a governmental program, see Thomas v. Union Carbide Agric. Prods Co., 473 U.S. 568 (1985), or on the use of binding arbitration to resolve the government's liability to make payments, see Schweiker v. McClure, 456 U.S. 188 (1982); United States v. Erika, Inc., 456 U.S. 201 (1982). See generally Constitutional Limitations on Federal Government Participation in Binding Arbitration, 19 Op. O.L.C. 208 (1995). This is not to say that there can be no limits [ 342] on the use of binding arbitration to resolve questions of governmental liability. ^[1] For example, federal officials may agree to this means of resolution only where there is a basis of authority for doing so. You have asked whether the Administrator of the Federal Aviation Administration ("FAA"), pursuant to a delegation from the Secretary of Transportation, is so authorized.

The statute provides that, in offering insurance and reinsurance "[t]he Secretary of Transportation may carry out this chapter consistent with the commercial practices of die aviation insurance business." 49 U.S.C. § 44308(a). You have represented that use of 50-50 clauses is "widespread" in the aviation insurance industry. We have not sought to verify this factual assertion. If the use of 50-50 clauses is an accepted practice in the aviation insurance business, then we believe that § 44308(a) authorizes the Secretary to include such a clause in insurance and reinsurance policies offered under chapter 443 of title 49, United States Code.

We faced a similar question with respect to the Export-Import Bank. The federal statute establishing the Bank provided that it would be a "corporation . . . which shall be an agency of the United States" and that "[i]n connection with and in furtherance of its objects and purposes, the bank is authorized and empowered to do a general banking business." 12 U.S.C §635(a). We concluded that, under this charter, the Bank "was intended to have similar powers" to those of other banks. See Arbitration—Export-Import Bank—Sovereign Immunity—Representation of Bank by Department of Justice, 3 Op. O.L.C. 226, 228 (1979). We held, therefore, that the Export-Import Bank was authorized to include a binding arbitration clause in contracts the Bank entered into as part of "its normal banking operations." Id.^[2]

The Secretary's authority to enter into 50-50 clauses follows a fortiori from our holding with respect to the Export-Import Bank. There, we inferred from the Bank's structure that it was to have the power to engage in the practices that private banks employ and that this included the use of binding arbitration. The Secretary's authority does not arise by inference from the structure of the war-risk insurance program. Rather, the authority to engage in common commercial practices is express. You have informed us, and we have no reason to doubt, that binding arbitration is such a practice. The Secretary, and by delegation the Administrator of FAA, is therefore statutorily authorized to include the 50-50. [ 343] clause binding arbitration provision in war-risk insurance policies issued under chapter 443 of title 49. Our holding regarding the Export-Import Bank did not rest on the fact that the Bank is established formally as a government corporation. Rather, we inferred from the use of the corporate form statutory authority to engage in whatever practices non-governmental corporations might engage in. A governmental entity that is not chartered formally as a corporation might be given the same authority by express statutory provision, such as a provision authorizing a government agency to act in a manner that is consistent with the commercial practices of a given industry. See Tenaska Washington Partners II v. United States, 34 Fed. CI. 434, 442 (1995) (holding that statute authorizing Bonneville Power Administration to operate as a "business enterprise" creates authority to agree to binding arbitration).^[3]

You have asked us to consider whether the provisions of chapter 443 — specifically, those at 49 U.S.C. §44309—relating to civil actions preclude the use of binding arbitration to resolve disputes regarding the liability of the United States for losses insured under this chapter. Section 44309 waives the United States' sovereign immunity and provides that, when a loss under chapter 443 is in dispute, a person may bring a civil action against the United States in a district court. The section goes on to define the districts in which such a case may be brought, toll the statute of limitations, and provide for interpleader. See 49 U.S.C § 44309.

If § 44309 were the exclusive mechanism for resolving disputes regarding the government's liability under policies issued pursuant to chapter 443, then § 44309 would preclude the use of binding arbitration. We do not read § 44309 as exclusive or as precluding the use of binding arbitration. Nothing in § 44309 states or otherwise indicates that it is meant to be exclusive. More significantly, the structure of chapter 443 strongly suggests that it is not exclusive. The preceding section, 49 U.S.C. § 44308, expressly authorizes the Secretary to settle claims against the United States. See 49 U.S.C. § 44308(b)(2)(A). Disputes regarding the liability of the United States may therefore be resolved without ever reaching a district court or ever being subject to the processes of § 44309.

Finally you have asked whether the 50-50 clause may include a "provision for arbitration in London under British law" or "in New York under the laws of that state." We believe that such a provision is permissible. Federal law often incorporates the law of other sovereigns. Such statutes have frequently been attacked as an impermissible delegation of Congress's legislative power. These challenges have consistently been rejected on the grounds that Congress has not delegated [ 344] any legislative power. Instead, Congress has made the legislative judgment that a given federal law shall operate in cognizance of and conformity with state or foreign law, whatever that might be. Thus, the federal Assimilative Crimes Act^[4] is valid, even though it prospectively...