CLMS Management Services Limited Partnership v, Amwins Brokerage of Georgia, No. 20-35428 (9th Cir. 2021)
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Plaintiffs, domestic entities, entered into an insurance contract providing coverage for a Texas townhome complex that they own and operate. The Policy was underwritten by Lloyd’s, members of a foreign organization, and contains a mandatory arbitration provision, providing that the seat of the Arbitration shall be in New York and the Arbitration Tribunal shall apply the law of New York. In 2017, Hurricane Harvey caused an estimated $5,660,000 in damages to the townhome complex. A third-party claims administrator for Lloyd’s concluded that the Policy’s deductible was $3,600,000.
Plaintiffs filed a complaint in the Western District of Washington asserting breach of contract, failure to communicate policy changes, and unfair claims handling practices in violation of Washington law, asserting that the deductible should be $600,000. Lloyd’s moved to compel arbitration and stay proceedings, arguing that the Policy’s arbitration provision falls within the scope of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Plaintiffs did not contest that the arbitration provision falls within the Convention’s scope but argued the provision is unenforceable because Washington law specifically prohibits the enforcement of arbitration clauses in insurance contracts. Plaintiffs cited the McCarran-Ferguson Act, 15 U.S.C. 1011–15, which provides that state insurance law preempts conflicting federal law. On interlocutory review, the Ninth Circuit upheld an order granting Lloyd’s motion. Article II, Section 3 of the Convention is self-executing, and therefore is not an “Act of Congress” subject to reverse-preemption under the McCarran-Ferguson Act.
Court Description: Arbitration / McCarran-Ferguson Act. The panel affirmed the district court’s order granting a motion to compel arbitration in plaintiffs’ diversity insurance coverage action. The insurers filed a motion to compel arbitration, arguing that the policy issued to plaintiffs had an arbitration provision that fell within the scope of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a multilateral treaty. Plaintiffs argued that the arbitration provision was unenforceable because Washington law prohibited the enforcement of arbitration clauses in insurance contracts and the McCarran-Ferguson Act operated to reverse-preempt the Convention, such that Washington law controlled. The panel held that the text of Article II, Section 3 of the Convention and the Convention’s relevant drafting and negotiation history led to the conclusion that Article II, Section 3 was self-executing, and it required enforcement of the parties’ arbitration agreement. The panel further concluded that the Convention was not reverse-preempted by Wash. Rev. Code § 48.18.200. Because the Convention was not an “Act of Congress” subject to reverse-preemption by the McCarran-Ferguson Act, the district court correctly granted defendants’ motion to compel arbitration. CLMS MGMT. SERVS. V. AMWINS BROKERAGE 3
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