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Member, Beacon International Group, Ltd.
NEW ORLEANS—State laws that restrict or prohibit arbitration involving international insurance contracts are trumped by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the 5th U.S. Circuit Court of Appeals has ruled.
In its Nov. 9 opinion, the court vacated a decision denying arbitration by the U.S. District Court for the Middle District of Louisiana in the case of Safety National Casualty Corp. and Louisiana Safety Assn. of Timbermen-Self Insurers Fund vs. Certain Underwriters at Lloyd's of London et al.
The en banc court voted 15-1-2—one judge concurred with the opinion, while two judges dissented—to remand the case for further proceedings.
In an earlier ruling, the 5th Circuit in October 2008 ruled that treaties are not an “Act of Congress” within the meaning of the McCarran-Ferguson Act allowing state laws to trump federal laws pertaining to international arbitration. In its latest opinion, the full court again concluded McCarran-Ferguson does not apply to the international arbitration convention.
The question the federal appeals court was grappling with was whether the convention, or treaty, was self-executing. A self-executing treaty between nations is effective without supporting legislation. The judges, therefore, had to determine if the treaty was an act of Congress.
LSAT, a Louisiana workers compensation insurer, was reinsured by syndicates at Lloyd's. The issue arose about six years ago, when Lloyd's refused to recognize LSAT's assignment of rights to Safety National under reinsurance agreements, prompting LSAT to sue.
LSAT and Safety National also argued that arbitration would violate Louisiana law.
Lloyd's had sought arbitration to settle the matter, but neither side could agree on an arbitration panel.
LSAT has sought a 90-day stay of the appeals court's order to determine whether to appeal to the U.S. Supreme Court.