Insurance Law

Mandatory Provisions—Not in My State—McCarran-Ferguson, the FAA, and Reverse Preemption

John James and Michael Rush   By John E. James and Michael B. Rush, Attorneys, Potter Anderson & Corroon LLP

In their article appearing in the May/June 2011 issue of Coverage, "Mandatory Provisions-Not in My State-McCarran-Ferguson, the FAA, and Reverse Preemption," John E. James and Michael B. Rush examine how courts have dealt with the issue of the enforceability of laws that prohibit the implementation of mandatory arbitration clauses in insurance policies. The article notes that 24 states and D.C. restrict the use of mandatory arbitration in insurance policies to some extent and provides examples of such statutes that reveal a wide divergence in the scope of those restrictions. Surveying the litigation, the article finds a "fault line created by the broad mandate of the Federal Arbitration Act on one side and state statutes enacted under the aegis of the McCarran-Ferguson Act on the other." The article analyzes court decisions that have ruled that the McCarran-Ferguson Act reverse preempts the FAA when applied to state anti-arbitration laws as well as those that have ruled the FAA preempts state anti-arbitration statutory provisions when applied to insurance coverage disputes. It also considers a Fifth Circuit ruling on the anti-arbitration preemption question relating to Oklahoma insurance receivership proceedings. The article further explores disputes as to the application of state anti-arbitration provisions aside from the preemption question. It examines an Iowa Supreme Court case where the insured sought to compel arbitration while the insurer argued that the state anti-arbitration provision prohibited it. The article analyzes a Kentucky Supreme Court decision on whether a law prohibiting arbitration of insurance coverage disputes also applies to disputes concerning surety or performance bonds. Lastly, it examines decisions of the Nebraska and Montana Supreme Courts as to the applicability of state anti-arbitration provisions to "appraisal" or "adjustment" provisions in first-party policies that reach opposite holdings. The article closes with intriguing questions as to the potential effect of choice of law issues on the question of the enforceability of anti-arbitration state provisions.

Gavel of Justice and Arbitration

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