FEDERAL COURT COMPELS ARBITRATION AND STAYS ACTION UNDER FEDERAL LAW DESPITE STATE LAW PROHIBITING ARBITRATION OF INSURANCE DISPUTES
In an action for breach of an insurance policy and the tort of bad faith, the Western District of Arkansas recently compelled arbitration and stayed the action. The court considered whether an arbitration clause in a policy governed by the Federal Arbitration Act (FAA) was invalidated by an Arkansas state law that purports to invalidate arbitration clauses “in any insurance policy” in Arkansas. The court held that although the McCarran-Ferguson Act would typically operate to preempt the FAA with the state insurance law, in this case an exception to McCarran-Ferguson existed, namely that another federal law that “specifically relates to the business of insurance” and provides for arbitration (the Federal Crop Insurance Act), applied to the policy at issue and required arbitration. The court also stayed the entire action, rather than just the claim for breach of contract, based on the language of the relevant arbitration clause, on the broad mandate of the FAA to “stay the trial of an action” until arbitration has occurred, and in the interests of judicial economy. Hays v. Rural Community Insurance Services, Case No. 1:10-cv-01020 (W.D. Ark. Oct. 7, 2010) (Magistrate Report and Recommendation adopted on October 26, 2010).
This post written by Michael Wolgin.
