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Listen! Hear! Binding arbitration and binding appraisal rules are prohibited in the Louisiana Property Insurance Blog for Real Estate Insurance



The Louisiana Department of Insurance (LDI) has issued Directive 173 (recast and reissued) 1 to remind insurers of La. R.S. 22: 868 (A) and to advise on the latest amendments, with effect from 1 August 2020, made in Louisiana's Regular Session 2020, which adds "space" to subsection (A) (2): [19659002] Note that, in accordance with La. RS 22: 868 (A) (2), arbitration and appraisal provisions that seek to deprive Louisiana courts of jurisdiction or location are not permitted in insurance policies or insurance contracts that are delivered or issued for delivery in Louisiana.

Although Louisiana courts have interpreted binding arbitration and assessment clauses in Louisiana Insurance Measures Agreements since at least January 1

5, 2003, the LDI has ruled that these binding provisions are prohibited and invalid, and has directed: if the condition or provision is not the requirements did not exist and / or were formulated to be in full compliance with the law set forth in the Louisiana Insurance Code. 2

LDI also warns Louisiana insurers. non-compliance with the Louisiana Insurance Code, the insurer will be subject to penalties:

Furthermore, if an authorized insurance company certifies compliance in accordance with Rule 78 and it is later discovered that the form contains a prohibited binding arbitration or a binding assessment provision, the insurer will to be subject to sanctions including, but not limited to, the imposition of such fines as are permitted by law. 3

Although the LDI does not prohibit evaluation or arbitration provisions in the insurance policy issued to a resident of Louisiana, the non-binding nature of that provision must be clear:

The Commissioner will consider for approval provisions that clearly convey the policyholder that the arbitration is not binding, does not deprive the courts of Louisiana jurisdiction or place and is invoked at the request of the insured. The language used should clearly convey that the insured does not forfeit any right to seek legal resolution of the dispute. Louisiana. As with arbitration, such terminology in an assessment provision has the effect of removing the issue from the legal branch in violation of La. R.S. 22: 868. Furthermore, such language is misleading. According to La. R.S. 22: 862, policies with misleading language shall not be approved by the Commissioner. 4

Interestingly enough, we have just now begun to see the "non-binding" language in the evaluation provisions of the policy. As recently as May 13, 2019, however, the fifth district court of McDonnel Group v. Great Lakes Insurance 5 ruled that a binding arbitration clause in a Louisiana insurance was enforceable despite La RS 868 (A) prohibiting provisions that seeks to deprive Louisiana courts of jurisdiction. The Court held that the Louisiana Charter was preceded by the Convention on the Recognition and Enforcement of Foreign Arbitration ("Convention") implemented in Chapter 2 of the Federal Arbitration Act.

The court found that the trigger of the convention consisted of four elements:

This court has briefly described the trigger of the convention which consists of four elements; a district court must dismiss a case in favor of arbitration "if (1) there is a written agreement to settle the dispute (2) the agreement provides for arbitration in the territory of a convention that has signed the Convention, (3) the agreement arises from a commercial legal relationship and (4) a party to the agreement is not a US citizen. ” Francisco v. STOLT ACHIEVEMENT MT 293 F.3d 270, 273 (5th Cir. 2002). Like all treaties, the Convention usually prevents conflicting state laws. See e.g. Glue 404 F.3d at 904.

Id. (emphasis added).

It is important to note that the first element is "a written agreement to settle the dispute" and the second part talks about the provisions of the agreement. Perhaps the better argument against a binding arbitration in New York would have been to annul the invalid and prohibited language incorrectly included in the policy issued to a Louisiana resident. As mentioned above, Louisiana does not prohibit arbitration. In Directive 173 (revised and reissued), the Commissioner recommends that he consider provisions that "clearly convey to the policyholder that the arbitration is not binding, do not deprive the courts of Louisiana of jurisdiction or place and are invoked at the request of the insured."

Today, we encourage Louisiana insurers to review their insurance policies under LDI Directive 173 (Revised and Issued):

Authorized insurance companies should review their insurance form available with the Louisiana Department of Insurance ("LDI") to determine if all forms contain arbitration regulations or assessment conditions that can be interpreted as binding, such forms should be reviewed and re-archived to LDI in accordance with regulations 78 §§10107.H, 10109.H and 10113.H.

Please be regulated accordingly. 6

_______________________________
1 Directive 173 (revised and issued), James J. Donelon, Commissioner, Louisiana Inst. Av Ins., October 5, 2020.
2 Id.
3 Id.
4 Id.
5 McDonnel Group, LLC v Great Lakes Insurance SE, UK Branch No. 18-30817 (5th Cir. 13 May 2019).
6 Directive 173 (revised and unpublished), James J. Donelon, Commissioner, Louisiana Department of Ins., October 5, 2020.


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