Supreme Court May Be Asked To Decide Whether State Insurance Laws Reverse-Preempt The New York Convention

• Published date: 21 September 2021
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Arbitration & Dispute Resolution
• Law Firm: Sheppard Mullin Richter & Hampton
• Author: Mr Neil Popović, Shin Y. Hahn and William De Sierra-Pambley

On August 12, 2021, the Ninth Circuit Court of Appeals decided whether Washington state law reverse-preempts the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"), in which case the state law would bar the enforcement of arbitration clauses in insurance contracts in states with similar anti-arbitration laws. CLMS Management Services LP et al. v. Amwins Brokerage of Georgia LLC et al., -F.4th', 2021 WL 3557591 (9th Cir. 2021). While the Ninth Circuit agreed with the defendants that state law does not reverse-preempt the Convention, plaintiffs have indicated that they will seek review in the U.S. Supreme Court. Plaintiffs point to a circuit split, since the Second Circuit has previously held that an anti-arbitration provision in Kentucky insurance law trumps the New York Convention. If plaintiffs follow through with their intended petition for certiorari, and if the High Court grants review, the Court's decision should provide insurance companies clearer guidance with respect to the arbitration clauses in their non-domestic policies, as companies should be able to determine whether they can invoke international arbitration in states that bar arbitration clauses in insurance contracts.

In CLMS Management Services, plaintiffs CLMS Management Services Limited Partnership ("CLMS") and Roundhill I, LP ("Roundhill") entered into an insurance contract with defendant Amrisc, LLC ("Amrisc"), underwritten by defendants Certain Underwriters at Lloyd's London ("Lloyd's"). The contract called for all disputes arising out of the contract to be resolved by arbitration in New York. In August 2017, Hurricane Harvey caused damage to a townhome complex in Texas owned by Roundhill and operated by CLMS. The damage was estimated at $5,660,000, and plaintiffs submitted a claim. Lloyd's third-party claims administrator and defendant CJW & Associates ("CJW") responded that the policy deductible was $3,600,000. Plaintiffs filed a complaint in the Western District of Washington asserting multiple claims and alleging that the deductible should be $600,000. Lloyd's and CJW filed a motion to compel arbitration, citing the arbitration clause in the contract and arguing that the arbitration provision fell within the scope of the New York Convention. Plaintiffs opposed the motion, arguing that the Washington state law bans the enforcement of arbitration provisions in insurance contracts and that because of the federal...