The Remaining Hostility Towards Arbitration Shielded by the McCarran-Ferguson Act: How Far Should the Protection to Policy Holders Go?
| Autor | Mariana I. Hernández-Gutiérrez |
| Cargo | L.L.M., Columbia Law School, 2010 |
| Páginas | 35-63 |
35
THE REMAINING HOSTILITY TOWARDS ARBITRATION SHIELDED
BY THE MCCARRAN-FERGUSON ACT: HOW FAR SHOULD THE
PROTECTION TO POLICYHOLDERS GO?
ARTICLE
MARIANA ISABEL HERNÁNDEZ-GUTIÉRREZ*
I. Introduction .......................................................................................................... 35
II. The McCarran-Ferguson Act and the Reverse-Preemption of the
Federal Arbitration Act ........................................................................................ 36
III. States and Territories Precluding or Limiting the Enforcement of
Arbitration Clauses in Ins urance Disputes ........................................................45
A. Louisiana ........................................................................................................ 47
B. Puerto Rico ...................................................................................................... 51
C. Vermont ........................................................................................................... 53
D. Arkansas .......................................................................................................... 53
E. South Carolina ................................................................................................54
F. Missouri........................................................................................................... 55
G. Montana, Oklahoma, Kansas, Nebraska, South Dakota,
Georgia, and Kentucky ................................................................................... 55
IV. The New York Conventi on Escapes the McCarran-Ferguson
Reverse-Preemption Rule ................................................................................... 59
V. Conclusion ............................................................................................................ 61
I. INTRO DUCTION
TATES HAVE THE POWER TO REGULATE THE BUSINESS OF INSURANCE. UNDER
the veil of their power to regulate this business, some States and Terri-
tories have prohibited pre-dispute arbitration agreements in insurance
contracts. Others have limited the statutory preclusion to arbitration agree-
ments contained in insurance contracts between a policyholder and an insurer,
thus allowing pre-dispute arbitration agreements in contracts of reinsurance or
in contracts between insurance companies. At the same time, there is a strong
national policy favoring arbitration and, in some cases, a State public policy fa-
* L.L.M., Columbia Law School, 2010; J.D., University of Puerto Rico School of Law, 2007; B.A.,
University of Puerto Rico, 2004. The author wishes to thank Professor Stephen J. Ware, Professor of
Law at the University of Kansas School of Law, for his insightful comments on an earlier draft of this
article.
S
36 U.P.R. BUSINESS LAW JOURNAL Vol. 1
voring arbitration in evident tension with the broad anti-insurance arbitration
statutes in these jurisdicti ons.
In this paper, I will analyze the provisions of the McCarran-Ferguson Act,
the case law pertaining to the States’ powers to regulate the business of insur-
ance and the reverse-preemption rule over federal statutes that do not specifical-
ly relate to the business of insurance. With more detail, I will examine the case
law and governing rules of law that are considered, and those that should be but
have not been properly considered, in determining whether an anti-ins urance
arbitration state law does reverse-preempt the provisions of the Federal Arbitra-
tion Act under the McCarran-Ferguson Act. Furthermore, I will argue that, for-
mally, arbitration agreements do not have the effect of transferring or spreading
a policyholder’s risk, which in turn considerably weakens the theory that anti -
insurance arbitration state laws regulate the busines s of insurance.
I will examine in detail the statutes and related case law of those U.S. juris-
dictions that preclude arbitration agreements in insurance policies or, more gen-
erally, in insurance contracts, as well as the policy reasons that have inspired
these statutes vis à vis the strong national public policy favoring arbitration. In
Part IV I will discuss the recent e n banc holding of the Court of Appeals for the
Fifth Circuit in Safety Nat’l. Casualty C orp. v. Certain Underwriters at Lloyd’s
London. In that case, the Fifth Circuit concluded that the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards is not within the scope
of the McCarran-Ferguson Act, and, thus, the anti-insurance arbitration statute
of Louisiana does not reverse-preempt the Convention.
Finally, I will propose alternatives that State legislatures may adopt in order
to regulate arbitration of insurance contracts, instead of precluding arbitration
agreements in insurance contracts. These alternatives are driven to be more con-
sistent with the national policy favoring arbitration as well as the parties’ li berty
to contract. The reason for formulating these proposals is to allow the states to
protect policyholders from insurance companies’ potential abuse of arbitration
procedures, while at the same time leaving the door open for the benefits of arbi-
tration.
II. T HE MCCARRAN- F ERGUSON ACT AND THE REVERSE-P REEMPTION OF
THE FE DERAL ARBITR ATION ACT
In 1925, the Federal Arbitration Act1 (“FAA”) was enacted to declare a na-
tional policy favoring arbitration and to reverse the longstanding judicial hostili-
ty to arbitration agreements that had been inherited by American courts from
the English common law.2 As a result, arbitration agreements were placed upon
Dobson, 513 U.S. 265, 270-271 (1995) (“The origins of [court’s refusals to enforce agreements to arbi-
trate] apparently lie in ‘ancient times’ when the English courts fought for extension of jurisdiction-all
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