Reed Smith LLP on The Fifth Circuit's Decision in Safety National

Reed Smith LLP on The Fifth Circuit's Decision in Safety National

 
In Safety Nat’l Cas. Corp. v. Certain Underwriters At Lloyd's, London, --- F.3d ----, 2009 U.S. App. LEXIS 24585 (5th Cir. Nov. 9, 2009), an en banc panel of the United States Court of Appeals for the Fifth Circuit held that a Louisiana anti-arbitration statute did not “reverse-preempt” the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) under the McCarran-Ferguson Act. The McCarran-Ferguson Act, which was enacted in 1945, provides that the “business of insurance” shall be regulated by the individual states. 15 U.S.C. § 1012(a). The McCarran-Ferguson Act further provides that, “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. . . .” Id. § 1012(b).
 
In ruling that the Louisiana statute was not reverse preempted by the McCarran-Ferguson Act, the majority in Safety National determined that Congress did not intend to include a federal treaty such as the New York Convention within the scope of an “Act of Congress” as set forth in the McCarran-Ferguson Act. The majority rejected the appellee’s argument that because the New York Convention was not self-executing, but rather took effect through the enabling legislation enacted by Congress under the Federal Arbitration Act (the “Convention Act), the McCarran-Ferguson Act precluded application of the New York Convention. Instead, the majority found that while it was “unclear” whether the New York Convention was self-executing, the “fact that a treaty is implemented by Congress does not mean that it ceases to be a treaty and becomes an ‘Act of Congress’” under the McCarran-Ferguson Act.
 
The Fifth Circuit’s en banc ruling presents an unexpected setback for policyholders invoking the protections of state statutes regulating insurance as a means to overcome provisions mandating arbitration of coverage disputes in foreign tribunals that increasingly appear in insurance policies issued by London and Bermuda market insurers. Moreover, the Fifth Circuit’s ruling in Safety National creates a split with the Second Circuit’s decision in Stephens v. Nat’l Distillers & Chem. Corp., 66 F.3d 41 (2d Cir. 1995). The appellee in Safety National has applied to the United States Supreme Court for a Writ of Certiorari, and the conflicting decisions between the Fifth and Second Circuits may now pave the way for review of this issue by the high court. The Fifth Circuit’s ruling and potential review by the United States Supreme Court presents substantial implications for policyholders and foreign insurers seeking to enforce foreign arbitration provisions in their insurance policies.
 
 
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