Court Rules Non-American Insurers Can Still Compel Arbitration Under Louisiana-Issued Insurance Policies

Whether arbitration provisions in insurance policies issued in Louisiana are enforceable is a legal quandary courts have grappled with for years. The latest chapter in this saga comes from the U.S. Second Circuit Court of Appeals’ recent decision in Certain Underwriters at Lloyd’s, London v. 3131 Veterans Blvd LLC.

In that case, the Second Circuit held that foreign insurers insuring property risks in Louisiana may compel arbitration pursuant to arbitration provisions contained in Louisiana-issued insurance policies, resolving a long-standing circuit split between the federal circuit courts of appeal.

To fully appreciate the 3131 Veterans holding, it is helpful to consider the history.

La. R.S. § 22:868(A), the predecessor of which was enacted in 1948, has long forbidden clauses in insurance policies that deny a Louisiana court’s jurisdiction over policy disputes. Applying this statute, Louisiana courts have consistently held that arbitration clauses in insurance policies are unenforceable. Moreover, most courts assumed that the statute also prohibited forum selection clauses in insurance policies. However, in 2019, the Louisiana Supreme Court authored a twist in Creekstone Juban I, L.L.C. v. XL Insurance America, Inc., which held for the first time that forum selection clauses are permissible in commercial insurance policies under La. R.S. § 22:868(A)’s then-existing text.

In 2020, the legislature responded to Creekstone by amending La. R.S. § 22:868(A) to expressly prohibit forum selection clauses in insurance policies. It also, however, enacted La. R.S. § 22:868(D), which states that “[t]he provisions of Subsection A of this Section shall not prohibit a forum or venue selection clause in a policy form that is not subject to approval by the Department of Insurance.” Seizing on La. R.S. § 22:868(D), surplus lines insurers (not subject to approval by the Department of Insurance) took the position that the legislatively created exception extended to both forum selection clauses and arbitration clauses.

In 2024, the Louisiana Supreme Court issued an opinion in Police Jury of Calcasieu Parish. This ruling limited the scope of the exception in § 22:868(D) to forum and venue selection clauses to the exclusion of arbitration clauses.

While the issue of the enforceability of arbitration clauses in insurance policies roiled the Louisiana courts, a related dispute simmered between the New Orleans-based U.S. Fifth Circuit Court of Appeals in Louisiana and the New York-based Second Circuit: Can a non-American insurer rely on a long-standing treaty to enforce an arbitration clause in an insurance policy issued in Louisiana, notwithstanding Louisiana’s statute prohibiting arbitration clauses in insurance policies? While one might intuitively assume that treaty obligations trump all competing laws, the analysis is not so simple.

The backdrop of this unique dispute stems from an 80-year-old federal statute. In 1945, Congress passed the McCarran-Ferguson Act, which allows states to reverse-preempt “Act[s] of Congress” when regulating the business of insurance. The McCarran-Ferguson Act thus allows states to pass statutes prohibiting arbitration clauses in insurance policies, notwithstanding the pro-arbitration rule espoused in the Federal Arbitration Act, U.S. Code Title 9, Chapter 1. Louisiana did just that when it enacted the predecessor to La. R.S. § 22:868(A).

But there is more to this preemption question. In 1970, the United States acceded to a multilateral treaty called the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, often referred to as the New York Convention. The New York Convention generally obligates its signatories to respect and enforce arbitration agreements and judgments stemming from commercial relationships. Congress memorialized the New York Convention in U.S. Code Title 9, Chapter 2.

The New York Convention and the McCarran-Ferguson Act conflict. The former requires all U.S. courts to honor arbitration clauses in commercial conflicts, so long as one of the parties to the contract is from a treaty signatory nation and is not a U.S. citizen. But the McCarran-Ferguson Act provides that state legislatures can override any “Act of Congress” on the issue of insurance business, and Congress implemented the New York Convention through an “Act of Congress” when it created Title 9, Chapter 2.

In 1995, the Second Circuit held in Stephens v. American International Insurance that the New York Convention was not “self-executing,” meaning that a party seeking to enforce an arbitration clause in an insurance policy could not rely on the treaty itself and, instead, could only rely on the “Act of Congress” that created U.S. Code Title 9, Chapter 2. The Stephens court reasoned that because the McCarran-Ferguson Act allows states to reverse-preempt federal statutes when regulating the business of insurance, foreign insurers could not rely on the New York Convention to overcome state statutes forbidding arbitration clauses in insurance policies.

Years later, the Fifth Circuit reached the opposite conclusion in Safety National Casualty Corp. v. Certain Underwriters At Lloyd's, London. There, the Fifth Circuit held that the New York Convention is self-executing, meaning the foreign insurers were able to compel arbitration under, ultimately, the treaty itself, not the “Act of Congress” that codified the treaty in the U.S. Code. What that meant as a practical matter is that the United States’ accession to the New York Convention—and not Congress’ subsequent legislation implementing the treaty—controlled, allowing foreign insurers to successfully enforce arbitration clauses in policies issued in Louisiana, notwithstanding La. R.S. § 22:868(A) and the McCarran-Ferguson Act.

This circuit split created an unusual and recurring scenario: Federal courts in Louisiana routinely compelled insureds to arbitrate their disputes in the oft-selected arbitral venue of New York, while federal district courts in New York refused to enforce arbitration clauses in insurance policies issued in Louisiana due to Louisiana’s prohibition on those clauses in insurance policies. Thus, a Louisiana insured could theoretically sue its insurer in New York federal court to obtain a ruling that it had the right to litigate its claims against its insurer in Louisiana.

However, after years of tension, the Second Circuit resolved this circuit split in 3131 Veterans, giving foreign insurers clarity as to whether arbitration clauses in Louisiana-issued policies are enforceable.

In 3131 Veterans, the court held that Stephens is no longer good law in light of the three-part test established by the United States Supreme Court in Medellín v. Texas. In Medellín, the Supreme Court held that a treaty is self-executing if it meets all three of these factors:

• It provides a directive to the domestic courts of a signatory nation.
• It states that the United States “shall” or “must” take some particular action.
• The negotiation of the treaty evinces the Senate or president’s intention that the treaty will take immediate effect.

Finding that the New York Convention satisfied all three of these requirements, the 3131 Veterans court concluded that McCarran-Ferguson does not apply and thus foreign insurers are permitted to enforce arbitration provisions in Louisiana-issued policies, notwithstanding La. R.S. § 22:868(A).

The bottom line is that foreign insurers may enforce arbitration clauses in Louisiana-issued policies, so long as the foreign insurer is from a country that is a signatory to the New York Convention. Domestic insurers, however, remain barred from forcing arbitration of disputes under Louisiana-issued policies.

Phelps has tracked the winding road of enforceability of arbitration agreements in Louisiana-issued policies and will continue to share the impacts for insureds and insurers as this issue develops. Contact Kevin Welsh, Caroline Crosby, Ryan Telep, Jay Knighton or any member of the Phelps’ insurance team if you have questions or need advice or guidance. Top of Form