Arbitration provisions are becoming more common in excess insurance. These provisions affect how disputes will be resolved and where they will be resolved and may affect policyholders’ legal rights. These clauses are becoming so common that I wrote a blog asking, Will arbitration become the new assessment?
An order issued last week1 sent a Hurricane Laura claim to arbitration even though Louisiana had a code prohibiting arbitration. The excess insurance companies made the following arguments:
This action arises out of a commercial property insurance claim made by Zagis USA, LLC (‘Zagis’), a business located at 21095 South Frontage Road in Lacassine, Louisiana, based on damage it sustained in Hurricane Laura on August 27, 2020 and Hurricane Delta on October 9, 2020. At the time of the loss, Zagi’s property was insured… under a commercial property excess policy.
This policy includes a broad arbitration agreement requiring that “[a]All matters that differ between the Insured and the Insurers “in connection with this policy” shall be submitted to arbitration.
Under 9 USC § 202, the arbitration agreement falls within the Convention because it arises out of a commercial relationship and is not wholly between citizens of the United States. Therefore, pursuant to 9 USC §§201, 206, Defendants seek an order from the Court referring all of the claims asserted by Zagis in this matter against Defendants to arbitration pursuant to the Arbitration Agreement. In the alternative, the arbitration agreement is enforceable under the Federal Arbitration Act (FAA) because the policy is a contract evidencing a transaction involving commerce to resolve by arbitration a controversy arising out of such contract, including refusal to perform in whole or in part. of the contract. Therefore, pursuant to 9 USC §4, Defendants seek an order from the court directing Zagis to submit all claims to arbitration pursuant to the provisions of the arbitration agreement.
The district court agreed. It’s not the first time a Louisiana court has done so this year, as noted in Look for arbitration provisions – especially when dealing with foreign insurers:
Read full post-loss policy – RTFP. When doing so, it is also important to check how disputes will be resolved and what rules apply, including time frames for appealing them. This is especially true for foreign insurers where an arbitration clause will apply.
A Louisiana case involving a Louisiana city ruled last week that an arbitration agreement and the application of New York law upheld even though Louisiana has a law prohibiting it.
The lesson is that arbitration is becoming increasingly common as a substitute for litigation or adjudication. These clauses change how, where and sometimes which law applies to resolve disputes.
Progress is impossible without change, and those who cannot change cannot change anything.
—George Bernard Shaw
1 Zagis USA v. Certain Underwriters at Lloyd’s, LondonNo. 2:22-cv-02189 (WD Lou. Aug. 26, 2022).