Can State Laws Prevent International Arbitration of Insurance Disputes under the New York Convention?

By Goss, Roland C. | Dispute Resolution Journal, November-January 2010 | Go to article overview
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Can State Laws Prevent International Arbitration of Insurance Disputes under the New York Convention?


Goss, Roland C., Dispute Resolution Journal


The Supreme Court recently denied certiorari in Louisiana Safety Association of Timber - men-Self Insurers Fund v. Certain Un - derwriters at Lloyds' London,1 de clining to decide at this time whether state laws prohibiting arbitration of insurance disputes prevent the enforce - ment of arbitration agreements and foreign arbitral awards that the United States has agreed to enforce under the Convention on the Recog - nition and Enforcement of Foreign Arbitral Awards (the New York Convention).

This decision left in place a conflict be tween two federal circuit courts, the 5th Circuit, which had decided that the New York Conven - tion prevails over conflicting state laws, and the 2nd Cir cuit, which reached the opposite conclusion. These decisions result in uncertainty as to the viability of arbitration for the resolution of international insurance disputes. This article discusses the issues in the case and explains the basis for the conflicting decisions. It begins with a discussion of the public policies involved, several favoring arbitration and one favoring state regulation of insurance.

Public Policies Affecting Arbitration

Four public policies are involved in the conflict between the New York Convention and state laws prohibiting arbitration of insurance disputes. The first policy calls for international arbitration as a favored means of re - solving international commercial disputes. International commercial arbitration has long been recognized as an important aspect of doing business internationally. In the 1920s, under the auspices of the League of Na - tions, two international agreements were reached to facilitate the resolution of international commercial disputes, one in 1923 to recognize and promote arbitration provisions in international commercial agreements,2 and the other in 1927 to facilitate the recognition and enforcement of commercial arbitration awards in signatory countries other than those in which the awards were entered.3

These agreements were perceived to be inadequate in promoting dispute resolution and, at the request of the International Chamber of Com merce, the United Nations convened a conference in New York City in 1958 that resulted in the New York Con - vention.4 This convention was intended to simplify and make it easier to enforce foreign arbitral awards in signatory states and provide contracting parties with more flexibility to determine arbitration procedures.5 The United States participated in the New York conference but its accession to the convention was delayed more than 10 years due to the belief that certain provisions "were in conflict with some of our domestic laws."6

The second policy is the U.S. policy favoring arbitration of disputes embodied in the Federal Arbitration Act (FAA). In 1925, 45 years prior to the Untied States' accession to the New York Convention, Con gress enacted the FAA "to reverse the longstanding judicial hostility to arbitration agreements ... and to place arbitration agreements upon the same footing as other contracts."7 U.S. courts have found that the FAA, which provides that contractual agreements to submit to arbitration disputes arising out of a contract shall be valid, irrevocable and enforceable, manifests a "liberal federal policy favoring arbitration agreements."8

The third policy is the primacy of international treaties over U.S. law. The source of this authority is Article VI, Section 2 of the U.S. Consti tu - tion, which provides that "all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land ...."9 This policy has been implemented through various treaty-interpretation doctrines.

The fourth policy, which in this context may conflict with the other three, is the primacy of state regulation of the insurance business. Historically this business has been regulated by the states, not the federal government. In 1868, in Paul v. Virginia,10 the Su - preme Court held that the issuance of a policy of insurance was not commerce subject to the Com merce Clause of the U.

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