Excess insurance companies often claim they are exempt from state insurance rules and statutes. Sometimes they are exempt. This topic was decided last week in Louisiana regarding Louisiana’s anti-arbitration statute.1
The US-based, rather than a London-based, Lloyd’s surplus lines carrier argued:
Defendant contends that Louisiana law does not bar enforcement of the policy’s arbitration clause because the policy is a surplus lines policy.23 Defendant contends that Louisiana Revised Statute § 22:868 does not bar enforcement of the arbitration clause because that provision does not apply to excess lines policies. Defendant argues that § 22:868(D) expressly exempts excess insurance policies from the statutory prohibition against arbitration clauses in insurance policies that would deprive Louisiana courts of jurisdiction or venue. Defendant therefore argues that the Court should grant this motion because courts construing Louisiana law have concluded “that surplus line carriers are not subject to the requirements of La. RS § 22:868 when a [p]the plaintiff seeks to invalidate a forum selection clause.̵7; “The current case concerns an arbitration clause in a surplus insurance policy. The central question this court must answer is whether Louisiana law bars enforcement of the policy’s arbitration clause. Defendant argues that § 22:868(A)(2)’s prohibition against insurance contract provisions limiting the jurisdiction of Louisiana courts does not apply here because Defendant is an excess insurer. Plaintiff argues that § 22:868 is an anti-arbitration provision and that courts in Louisiana and the Fifth Circuit have held that arbitration “deprives[s] the courts in respect of an action against an insurer.’
The federal district judge disagreed, saying:
§ 22:868(A)(2) prohibits “any term, provision, or agreement” in any “contract of insurance delivered or issued for delivery in this state” that would “[d]deprive the courts of this state of the jurisdiction of the action against the insurer.’ Because the plain language of the provision does not directly guide the result, this Court turns to the judicial history to determine the legislative intent underlying the provision.
In 1948, in response to the enactment of the MFA, the Louisiana Legislature enacted Louisiana Revised Statute § 22:629 of the Louisiana Insurance Code, the predecessor to § 22:868, to reverse the preemption of the FAA.59 In 2020, the Louisiana Legislature revised § 22:868 to add § (D). Subsection (D) provides that “[t]The provisions of subsection A of this section shall not prohibit a forum or venue selection clause in an insurance form that is not subject to approval by the Department of Insurance.
IN Macaluso v. Watson, the Louisiana Fourth Circuit Court of Appeal invalidated an arbitration clause in an insurance contract pursuant to the statute. The Louisiana Fourth Circuit found that an arbitration agreement between the insurer and the insured was “void and unenforceable” because “its effect [was] to deprive the courts … of jurisdiction over the plaintiff’s action against the insurer” in violation of La. RS 22:629(A)(2). They Macaluso the court found that arbitration agreements covering all disputed issues in insurance contracts violate the prohibition expressed in the Louisiana Insurance Code.
Here, the court cannot enforce the arbitration provision because Louisiana law views arbitration provisions in insurance contracts as a “term, stipulation, or agreement” that deprives Louisiana courts of jurisdiction over the action.63 Defendant’s status as an excess insurer is irrelevant to the analysis. Defendant’s argument that § 22:868(D) exempts surplus insurers from the anti-arbitration provision rests on a strained interpretation of the Court’s prior case law. Defendant relies on a strained interpretation of orders dealing with motions to transfer pursuant to a valid forum selection clause found in excess insurance policies. This case is easily distinguishable because it deals with an arbitration clause found in an excess insurance policy, not a forum selection clause. As other courts have recognized, the plain language of § 22:868(D) is limited to forum selection and venue clauses, and “to read arbitration clauses into the text of subsection D would be to give a different meaning than the legislature intended .’ Several courts have found that § 22:868 is an anti-arbitration provision that abrogates the effects of mandatory arbitration provisions in insurance contracts as contrary to public policy.In accordance with this established principle, the Court finds it inappropriate to order the parties to arbitration in this case.
This find is similar to a post: Property Insurance Has Arbitration Clause – Louisiana Court Says Policyholder Does Not Have to Go to Arbitration. I noticed:
If non-US companies, such as the Certain Underwriters at Lloyds, issue a policy with an arbitration clause, the contract obligates a policyholder to go to arbitration. However, if you are in a state with an anti-arbitration law like Louisiana, and all the insurers are US insurers that issued the policy, arbitration cannot be forced.
Arbitration clauses, dispute clauses and choice of law clauses are becoming increasingly common in surplus line policies. Counsel for the policyholder should strive to have local state laws and forums apply as this is usually much more beneficial to the policyholder. After the loss occurs, these provisions should be sought immediately. If discovered, they should be carefully scrutinized because they can affect insurance coverage determinations, affect the time limits for the policyholder’s obligations after a claim, and affect dispute resolution.
Thought for a Wednesday afternoon
Just like fighters, you have to be smart, you have to read the fine print in your contract, and you have to do what’s best for your family.
— Benson Henderson
1 Fairway Village Condominiums v. Independent Specialty Ins. Co.No. 22-2022, 2023 WL 2866944 (ED La. Apr. 10, 2023).