STATE INSURANCE LAW THAT PRECLUDES ARBITRATION PREEMPTED IN FAVOR OF THE FAA UNDER THE LIABILITY RISK RETENTION ACT
A court recently compelled arbitration in a dispute between an insured and an insurer-risk retention group, concluding that the McCarren-Ferguson Act did not mandate the enforcement of a state anti-arbitration law over the FAA and broad arbitration agreements between the parties. The court held that while McCarran-Ferguson was met to the extent that (1) the federal law (the FAA) impaired the state insurance law, and that (2) the FAA does not clearly relate to the “business of insurance,” here the relationship between the parties was not a classic insurance relationship. The insurer was not a public offering insurance company, but rather a risk retention group, which necessitates the application of the federal Liability Risk Retention Act, a law that preempts state laws that impair the “formation or operation” of risk retention groups. The court concluded that such an impairment existed in this case because the state law prohibiting arbitration would significantly increase the costs of litigation, adversely affecting the risk retention group’s operations. Central Claims Service, Inc. v. Claim Professionals Liability Insurance Co., Case No. 10-04672 (USDC E.D. La. Sept. 2, 2011).
This post written by Michael Wolgin.
