Case Summary: Safety Nat'l Cas. Corp. v. Certain Underwriters.*
The United States Court of Appeals for the Fifth Circuit ruled on November 9, 2009 that the McCarran-Ferguson Act does not allow a state law to reverse preempt a foreign treaty or its implementing legislation.
Whether a treaty that encouraged enforcement of arbitration awards was an "Act of Congress" under the McCarran-Ferguson Act, such that the McCarran-Ferguson's grant of reverse preemption arose.
A non-self-executing treaty with implementing legislation is not an "Act of Congress" as contemplated by the McCarran-Ferguson Act and as such, Louisiana statutes could not reverse preempt an international treaty favoring arbitration agreements.
The Louisiana Safety Association of Timbermen-Self Insurers Fund (LSAT) provided insurance for members’ occupational injuries. LSAT contracted with Certain Underwriters at Lloyd’s London for excess insurance coverage, and the contract included an arbitration provision. Safety National sued Certain Underwriters in the Louisiana federal district court, and Certain Underwriters moved to stay proceedings and compel arbitration. The parties could not agree on the process by which an arbitrator would be selected. Certain Underwriters then petitioned the district court to lift the stay, join LSAT as a party, and compel arbitration on composing the arbitration panel. LSAT moved for the court to quash the arbitration because such agreements were unenforceable under Louisiana law. The district court concluded that a Louisiana statute prohibits arbitration agreements. The Fifth Circuit granted the appeal and concluded that the McCarran-Ferguson Act did not provide the Louisiana statute the power to reverse preempt the New York Convention. However, the panel opinion was vacated upon the granting of a rehearing en banc.
Judge Owen wrote the majority opinion. The Court determined that the text of the statutes and treaties would control and their interaction would resolve whether the Mccarran-Ferguson Act considered an international treaty in its reverse preemption language. The Louisiana statute did not clearly prohibit arbitration agreements, but previous Louisiana court decisions read this prohibition into the statute. The New York Conventions required contracting nations to enforce arbitration agreements and to recognize arbitration awards from other states. The New York Convention was backed up by the Convention Act, which provided that the New York Convention will be enforced in the United States in accordance with the language of the New York Convention. The McCarran-Ferguson Act provided that "silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business [of insurance] by the several States." Therefore, the McCarran-Ferguson Act allowed reverse preemption if the state statute related to the business of insurance.
The Louisiana statute, regulating reinsurance agreements between insurers, operated within the meaning of the McCarran-Ferguson Act. Therefore, Judge Owen had to determine whether the New York Convention was a self-executing treaty and, therefore, did not require an "Act of Congress" to implement it. Previous Supreme Court precedent determined that a treaty was self-executing when it did not require implementing legislation to have enforcement effect in the United States. In regards to the New York Convention, the Fifth Circuit held that even though a treaty has been implemented by legislative action by Congress, the implementation does not make the treaty an "Act of Congress." Additionally, the Fifth Circuit held that Congress was not trying to except out self-executing treaty provisions and non-self-executing treaty provisions when it allowed reverse preemption by an "Act of Congress" in the McCarran-Ferguson Act. Moreover, the Fifth Circuit examined the language of the New York Convention and determined that the treaty, not the implementing legislation, was the operative legal document. Therefore, the Fifth Circuit held that the McCarran-Ferguson Act was not intended to abrogate treaties implemented by an Act of Congress when the treaties conflicted with state laws regarding the business of insurance. Reverse preemption could not arise because the New York Convention was not an "Act of Congress."
The Fifth Circuit's decision is in direct conflict with previous decisions by the Second Circuit, despite the Fifth's Circuit’s attempt to find harmony. However, Judge Owen's opinion was in harmony with the broad federal preference towards arbitration. Finally, this decision does allow more agreements to be guided towards arbitration, as now international agreements have a federal presumption towards arbitration. Thus, this decision has been appealed to the Supreme Court; petition for certiorari was filed February 5th, 2010.
* Case Summary written by Kevin Oles, Class of 2010.