Lloyd’s, reinsurers win arbitration dispute with contractor

A Louisiana contractor must submit its coverage dispute with insurers that include Munich Reinsurance Co. and Hannover Re SE units and Lloyd’s of London syndicates to arbitration, says a federal appeals court in upholding a lower court ruling.

In 2015 Metairie, Louisiana-based McDonnel Group LLC purchased a builder’s risk policy from Munich Re unit Great Lakes Insurance SE, Hannover Re unit International Insurance Co. of Hannover SE and Lloyd’s syndicates for a construction project on property in New Orleans, according to Monday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in McDonnel Group LLC v. Great Lakes Insurance SE, UK Branch et. al.

The policy included a written agreement to arbitrate disputes, according to the ruling. Two years later, according to McDonnel, the property suffered significant water damage. McDonnel submitted a claim that the insurers refused to pay.

McDonnel filed suit against the insurers, charging breach of contract and breach of the duty of good faith and fair dealing. Insurers responded by invoking the contract’s arbitration provision pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The policy, however, also contained a “conformity to statute” provision that states state law prevails, and Louisiana law prohibits arbitration agreements in insurance contracts covering property in the state, said the ruling.

The U.S. District Court in New Orleans held the state statute was preempted by federal law and the arbitration agreement remained valid. The ruling was upheld by a unanimous three-judge appeals court panel.

The state statute is preempted by the Convention, said the ruling. The statute “does not and cannot apply to McDonnel’s policy. And because the statute does not apply to the policy, there is no conflict between the policy and the state statute.

“With that premise established, the conformity provision is not triggered; its inapplicability leads only to the conclusion that the arbitration provision survives, undiminished by state law,” said the ruling, in affirming the lower court’s decision.

Attorneys in the case could not be reached or had no comment.

In April, a federal appeals court overturned a lower court ruling that required a Brazilian reinsurer to pay a $5 million arbitration award to a Berkshire Hathaway Inc. unit.