Will Policyholders be Compelled to Arbitrate International Coverage Disputes?

Do state laws barring arbitration of insurance disputes trump private international agreements to arbitrate? According to a recent Fifth Circuit Court of Appeals decision, the answer to this question is a resounding “No.” In Safety National Casualty Corp. v. Certain Underwriters at Lloyd’s, London, the United States Court of Appeals for the Fifth Circuit held that Louisiana law does not trump the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Louisiana law purports to bar enforcement of arbitration clauses in insurance contracts. Surprisingly, this was not enough for the Fifth Circuit, which took issue with a contrary decision by the Second Circuit. Both cases involved attempts by foreign corporations to enforce arbitral agreements against American parties.

These two opposing views could eventually play out before the U.S. Supreme Court, and which view prevails will have significant consequences for U.S. policy holders involved in international insurance coverage disputes.