Arbitration clauses that are mainly found in excess lines with the choice of statutory provisions that generally choose New York law and an abbreviated statute of limitations are a trap for careless public adjusters and lawyers. A federal appeals court case recently upheld such a clause even though a state law makes it illegal. The handling of the case indicates how complicated a legal issue this is:
This appeal gives a question of first impression in this circle which lies at the intersection of international, federal and state law: on the McCarran-Ferguson Act, 15 USC 1011-15 §§, allows a Washington Charter to pre-negotiate the Convention on the Recognition and Enforcement of Foreign Arbitration, a multilateral treaty. We conclude that the relevant provision of the Convention is self-confiscating and therefore not a "congressional act" subject to reverse pre-notification under the McCarran-Ferguson Act. Consequently, we confirm the district court's injunction order. 1
Treaties and international law are not what most public adjusters think of while waiting forever for payment and adjustment from Lloyds or another foreign surplus company for payment. The very important lesson from this blog is to carefully check the policy to see if there is a provision that requires arbitration. If so, does politics have a provision that changes the state law to another state? If the answer is "yes" to these questions, arbitration will apply, and the other state law will apply.
Knowing that this blog is read by many who are intellectually curious – also called by ignorant as "nerdy" – Berlin Law Group's knowledge manager Ruck DeMinico traced the treaty that causes this bizarre legal result. President Richard "Tricky Dick" Nixon is to blame for this result. While Lloyd's claims manager in London can raise a pint to his memory, American policyholders now feel the brunt of this treaty long after he has left. forced into arbitration far from wherever the loss occurred. The policyholder's consumer protection in a particular state does not apply. In many cases, you have to worry about an abbreviated prescription. The analysis of the loss and valuation will be determined by another state law. Arbitration rather than assessment or disputes will be the method of dispute resolution.
I expect this trend of arbitration to be an increasing movement with excess lines. This means that for any excess property insurance lines, carefully ask the question of whether it has an arbitration and choice of law because your entire analysis of how to handle the claim will change from the first notice of loss.
I warned of this trend in Surplus Lines Carriers Choose arbitration and law enforcement in New York to pay less coverage and less on claims . I gave examples of why insurance agents do their customers such a disservice by selling insurance with these provisions:
On top of my head I noted some pretty obvious examples of how these clauses provide a very practical leverage for the insurer:
1 . Arbitration in New York is much more expensive for the policyholder. It is not a valuation.
2. Arbitration is a formal procedural requirement that includes lawyers. In this case, attorneys must be licensed in New York rather than Florida.
3. Because the policyholder must prove the damage, all witnesses must participate in the arbitration in New York or have their deposits made in Florida. This is a cost and strategic advantage for the insurer.
4. The opportunity to show the judge the damaged property is not available because the arbitration is taking place in New York.
5. New York law is generally much more conservative and less policyholder friendly. I can not imagine an area of real estate insurance law that is more advantageous in New York than Florida law as I write this.
There is nothing beneficial for a non-New York policyholder to have an arbitration clause requiring arbitration in New York. It's even worse for coverage when New York is the designated law to apply. This is the type of "cheap" insurance professional insurance agents who will refuse to sell and strongly advise against buying if they are looking for their customer.
I became a lawyer in New York and opened our Red Bank office in 2012 after Superstorm Sandig. It seems that I will visit much more often because these clauses are increasingly found in surplus policies.
I would also like to give a shout out to United policyholders and lawyers at Covington & Burling for their excellent amicus card and fight the good fight for policyholders against this result.
Thought For The Day
A man is not finished when he is defeated. He's done when he finishes.
—Richard M. Nixon
1 CLMS Management Services v. Amwins Brokerage of Georgia 21 Cal. daily Op. Serv. 8158, – F.4: e – (9th Cir. 12 August 2021).