Wash. Schs. Risk Mgmt. Pool v. Am. Re-Ins. Co.
| Decision Date | 20 April 2022 |
| Docket Number | C21-0874-LK |
| Parties | WASHINGTON SCHOOLS RISK MANAGEMENT POOL, Plaintiff, v. AMERICAN RE-INSURANCE COMPANY et al., Defendants. |
| Court | U.S. District Court — Western District of Washington |
AMENDED REPORT AND RECOMMENDATION
This is an insurance dispute concerning Plaintiff Washington Schools Risk Management Pool's (“WSRMP”) entitlement to reinsurance payments from Defendants Sompo International Reinsurance and American Re-Insurance Company. See Dkt. 27. Defendant Sompo moves to compel arbitration and dismiss WSRMP's claims pursuant to an arbitration clause in Sompo's reinsurance policy with WSRMP. Dkt. 21; Dkt. 32. WSRMP moves on partial summary judgment for an order holding that the arbitration clause is void, confirming that jurisdiction and venue are proper in this Court, and determining that Washington law governs this lawsuit. Dkt. 14.
Enforcement of the arbitration clause turns on the relationship between three sources of law: (1) RCW 48.18.200(1)(b), which bars mandatory arbitration clauses in insurance contracts issued for delivery in Washington and covering subjects in this state; (2) the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. II, Sec. 3 (the “Convention”), which requires U.S. courts to enforce arbitration clauses upon request; and (3) the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, which provides that state insurance law reverse-preempts conflicting federal law. The question is whether the Convention-an international treaty implemented by a congressional statute-is reverse-preempted by RCW 48.18.200(1)(b) under the McCarran-Ferguson Act.
For the following reasons, the Court finds that the Convention is not reverse-preempted. Accordingly, Sompo's Motion to Compel Arbitration and Dismiss WSRMP's Amended Claims, Dkt. 32, should be GRANTED and WSRMP's Motion for Partial Summary Judgment Re Arbitration and Choice of Law Provisions in Reinsurance, Dkt. 14, should be DENIED. Sompo's Motion to Compel Arbitration and Dismiss WSRMP's Claims, Dkt. 21, should be DENIED as moot.
WSRMP is a Washington interlocal cooperative whose membership includes various public school districts, educational service districts, and other public school interlocal cooperatives in Washington. Dkt. 27 ¶ 1. WSRMP is authorized to jointly self-insure risks; purchase insurance and reinsurance; and contract for risk management, claims, and administrative services for the benefit of itself and its member schools. Id. at ¶ 18. At all relevant times, Puyallup School District (the “District”) was a member of WSRMP. Id.
WSRMP issued a series of coverage agreements to the District, including (of relevance) an agreement for the 2003-2004 coverage year, effective from September 1, 2003 to August 31, 2004, and an agreement for the 2004-2005 coverage year, effective from September 1, 2004 to September 1, 2005 (the “Coverage Agreements”). Dkt. 27 ¶ 19. WSRMP then procured reinsurance from Defendants Sompo (the “Sompo Policy”) and American Re-Insurance (the “American Re-Insurance Policy”) covering losses that exceeded its self-insured limit. Id. at ¶ 30.
The Sompo Policy contained an arbitration clause (the “Arbitration Clause”), which provided, in relevant part:
The Sompo Policy also contained a “choice of law” provision, which provided: “This Agreement shall be governed by and construed according to the laws of the State of New York.” Dkt. 15 at 69, 79. Sompo is a citizen of Bermuda, Dkt. 34 ¶ 2, and it is undisputed that the Sompo Policy was issued for delivery to WSRMP in Washington and covers subjects in this state.
Starting in 2005, the District was sued in three lawsuits, each alleging inappropriate relationships and/or sexual misconduct by a former District teacher (the “Underlying Lawsuits).
Dkt. 27 ¶¶ 8-13. The Underlying Lawsuits all settled, with payment by WSRMP pursuant to the terms of the Coverage Agreements. Id. at ¶¶ 15-17, 29.
Following settlement, WSRMP provided Sompo with documents detailing its settlement payments and asked Sompo to reimburse it pursuant to the terms of the Sompo Policy. Dkt. 27 ¶ 37. Sompo disputed coverage and demanded arbitration under the Arbitration Clause. Id. at ¶ 38. In response, WSRMP asked Sompo and American Re-Insurance to participate in alternative dispute resolution with all three parties to avoid the possibility of inconsistent outcomes. Id. at ¶ 39. Sompo declined this request. Id.
On June 21, 2021, WSRMP filed suit against Sompo and American Re-Insurance in King County Superior Court, seeking a declaration that Sompo and American Re-Insurance were obligated to reimburse WSRMP for the amounts paid by WSRMP in settling the Underlying Lawsuits, and bringing claims against them for breach of contract and injunctive relief. See Dkt. 1-1. On June 28, 2021, Sompo removed the action to this Court. See Dkt. 1.
Subsequently, on July 15, 2021, WSRMP filed a Motion for Partial Summary Judgment, Dkt. 14, asking the Court to rule as a matter of law that the Arbitration Clause and choice of law provision in the Sompo Policy are void and inapplicable to this dispute. On August 18, 2021, after Sompo filed a Motion to Compel Arbitration and Dismiss WSRMP's Claims, Dkt. 21, WSRMP filed an Amended Complaint, Dkt. 27, pleading additional claims for bad faith and for violations of the Washington Consumer Protection Act, Chapter 19.86 RCW (“WCPA”), and Washington's Insurance Fair Conduct Act, RCW 48.30.015 (“IFCA”). Sompo then filed a Motion to Compel Arbitration and Dismiss WSRMP's Amended Claims. Dkt. 32.
Currently before the Court are (1) WSRMP's Motion for Partial Summary Judgment, Dkt. 14, (2) Sompo's Motion to Compel Arbitration and Dismiss WSRMP's Claims, Dkt. 21,[1]and (3) Sompo's Motion to Compel Arbitration and Dismiss WSRMP's Amended Claims, Dkt. 32.
The Court must compel arbitration of WSRMP's claims against Sompo if (1) the Convention controls, (2) the Arbitration Clause is enforceable under the Convention, and (3) WSRMP's claims are arbitrable under the Arbitration Clause. If RCW 48.18.200(1)(b) controls, however, then the Arbitration Clause is invalid. Thus, the Court must first determine whether RCW 48.18.200(1)(b) reverse-preempts the Convention by operation of the McCarran-Ferguson Act such that the Convention is inapplicable.
In most cases involving arbitration agreements, the enforceability of an arbitration clause is governed by Chapter I of the Federal Arbitration Act, 9 U.S.C. §§ 1-16 (“FAA”), which requires courts to order parties to proceed to arbitration in accordance with the terms of a mandatory arbitration agreement. In 1970, however, the U.S. acceded to the Convention. See Convention Done at New York June 10, 1958, 21 U.S.T. 2517 (). Thereafter, Congress amended the FAA to implement the Convention in Chapter II. See 9 U.S.C. §§ 201-208. The Convention applies to disputes that are related to a foreign state or that involve foreign parties like Sompo. See 9 U.S.C. § 202. Article II, Section 3 the Convention provides that “[t]he court of a Contracting State . . . shall, at the request of one of the parties, refer the parties to arbitration ....”
While the FAA requires enforcement of binding arbitration clauses, RCW 48.18.200(1)(b) bars their enforcement in insurance contracts that are issued for delivery in Washington and cover subjects in this state. See State, Dep't of Transp. v. James River Ins. Co., 176 Wn.2d 390, 399-400, 292 P.3d 118 (2013) ( RCW 48.18.200(1)(b)). It provides, in relevant part, that “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 . . . depriving the courts of this state of the jurisdiction of action against the insurer ....”[2]The FAA would normally preempt this conflicting state law under the Supremacy Clause; however, the McCarran-Ferguson Act creates a system of “reversepreemption” for insurance law. See United States Dep't of Treasury v. Fabe, 508 U.S. 491, 50002 (1993).
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 U.S.C. § 1012(b). Courts have held that, applying the McCarran-Ferguson Act, RCW 48.18.200(1)(b) reverse-preempts Chapter I of the FAA, which does not relate to the business of insurance. See James River Ins. Co., 176 Wn.2d at 402; Landmark Am. Ins. Co. v. QBE Ins. Corp., No C15-1444 RSM, 2015 WL 12631550, at *6 (W.D. Wash. Dec. 9,...
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