Should the NY Convention Preempt State Anti-Insurance Arbitration Statutes?

Under Article 6 of the U.S. Constitution, federal laws are given precedence over conflicting state laws.[1] However, the insurance business is an exception.[2] The McCarran-Ferguson Act (the “Act”) delegates the power to regulate and tax the insurance industry to the states.[3] The Act was passed after the Supreme Court ruled that the insurance industry does not fall under interstate commerce and therefore cannot be regulated by the federal government under the Commerce Clause.[4] Under the Act, federal laws shall not “invalidate, impair or supersede” any state law regarding the regulation and taxation of the insurance business.[5]

A handful of states have enacted laws that prohibit mandatory arbitration clauses in insurance policies.[6] In these states, insurance disputes must be adjudicated in courts. These laws conflict with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “NY Convention”) to which the U.S. is a signatory.[7] The NY Convention requires member states to refer parties to arbitration if a dispute arises where there is a valid arbitration agreement.[8]

Federal courts have come to different conclusions when deciding whether an arbitration clause in an insurance policy is enforceable when the state has an anti-arbitration statute in place. In Stephens v. American International Insurance Co., the Second Circuit held that the state’s anti-arbitration provision takes precedence over the NY Convention.[9] The court rejected the argument that the NY Convention supersedes the state statute under the Supremacy Clause.[10] It held that the NY Convention is not self-executing because it relies on an act of Congress to be implemented.[11] This extra step means that it is preempted under the Act.[12]

The First Circuit took the opposing view in Green Enterprises, LLC v. Hiscox Syndicates Ltd. at Lloyd’s of London.[13] The court held that the NY Convention was self-executing and was not subject to the Act.[14] The court issued its decision decades after the Second Circuit’s decision in Stephens so it had some additional clarity from the Supreme Court on how to determine whether a treaty is self-executing or not.[15] The court determined that the NY Convention had language commanding domestic courts to enforce arbitration agreements which made it self-executing.[16] The Fourth, Fifth, and Ninth Circuits have all reached similar conclusions throughout the years.[17]

To date, the Supreme Court hasn’t addressed the circuit split. It has denied certiorari in cases in the Fifth and Ninth Circuit.[18] The NY Convention is the foundation for international commerce. It ensures that foreign companies have access to a neutral adjudication process if a dispute were to arise. Its importance can be illustrated simply by looking at the overwhelming number of signatories.[19] In order for insurance companies to have certainty about the adjudication avenues available to them in the United States, this conflict needs to be resolved.

Samanta Kolenovic is a staff member of Fordham International Law Journal Volume XLVIII. 

[1] See U.S. Const. art. VI.

[2] See 15 U.S.C.A. § 1012.

[3] See id.

[4] See Paul v. Virginia, 75 U.S. 168, 183 (1944).

[5] See 15 U.S.C.A. § 1012.

[6] See Ark. Code Ann. § 16-108-233 (2016); Haw. Rev. Stat § 431:10-221 (2024); (2019); Neb. Rev. Stat. § 25-2602.01 (2010); S.D. Codified Laws § 21-25A-3; Va. Code Ann. § 38.2-312 (1986). Some state anti-insurance statutes have been overturned by federal courts. See Ky. Rev. Stat. Ann. § 417.050 which was partially overturned by In re Transport Authorities, 263 B.R. 531, 534 (Bankr. W.D. Ky. 2001); La. Rev. Stat. § 22:868 which was overturned by Goux Enters. v. Indian Harbor Ins. Co., 741 F. Supp. 3d 478 (E.D. La. 2023); S.C. Code Ann. § 15-48-10(b)(4) (2001) which was overturned by Munoz v. Green Tree Fin. Corp., 542 S.E.2d 360, 363 (2001); Wash. Rev. Code Ann. § 48.18.200(1)(b) (2020) which was overturned by Allied Pros. Ins. Co. v. Anglesey, 952 F.3d 1131 (2020).

[7] See Contracting States, New York Convention, https://www.newyorkconvention.org/contracting-states.

[8] See New York Convention, Art. II(3) (“[t]he court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”)

[9]  See 66 F.3d 41, 45-46 (2d Cir. 1995)

[10] See id. at 45.

[11] See id.

[12] See id.

[13] 68 F.4th 662 (1st Cir. 2023).

[14] See id.

[15] See Medellín v. Texas, 552 U.S. 491, 508 (2008) (holding that a treaty is non-self-executing because it is not a “directive to domestic courts.”)

[16] See id.

[17] See McDonnel Grp., L.L.C. v. Great Lakes Ins. SE, UK Branch, 923 F.3d 427, 431 (5th Cir. 2019) amended (June 6, 2019) (holding that the McCarran-Ferguson Act doesn’t reverse-preempt the NY Convention or the legislation implementing it- the Federal Arbitration Act); ESAB Grp., Inc. v. Zurich Ins. PLC, 685 F.3d 376, 388 (4th Cir. 2012) (holding that the McCarran-Ferguson Act is limited to legislation in the domestic field and therefore does not preempt the NY Convention); CLMS Mgmt. Servs. Ltd. P'ship v. Amwins Brokerage of Georgia, LLC, 8 F.4th 1007, 1017 (9th Cir. 2021) (holding that Art. II(3) of the NY Convention is self-executing and requires enforcement of an arbitration agreement).

[18] See Louisiana Safety Ass'n of Timbermen--Self Insurers Fund v. Certain Underwriters at Lloyd's, London, 562 U.S. 827 (2010); CLMS Mgmt. Servs. Ltd. P'ship v. Amwins Brokerage of Georgia, LLC, 142 S. Ct. 862 (2022).

[19] See Contracting States, supra note 7.

This is a student blog post and in no way represents the views of the Fordham International Law Journal.