Thursday, July 27, 2017

First Circuit examines McCarran-Ferguson Act, Nebraska Law, and Federal Arbitration Act to affirm arbitrator's decision that dispute over insurance fees was not arbitrable

Mountain Valley Property (MVP) purchased from Applied Underwriters a comprehensive insurance package that included multiple lines of insurance.  As part of the package it entered into a three-year Reinsurance Participation Agreement  (RPA) with AUCRA, a company related to Applied Underwriters.  The RPA contained a mandatory arbitration clause and a Nebraska choice-of-law clause.

MVP sued Applied Underwriters and its related companies, asserting that the package was overpriced and that it was charged unlawful fees in premiums and in amounts claimed to be due under the RPA. 

The United States District Court for the District of Maine referred the claims against AUCRA to arbitration for a determination of their arbitrability.  The arbitrator ruled that the case was not arbitrable and had to be adjudicated in court. 

The arbitrator noted that a Nebraska statute provides that a written contract to submit to arbitration a controversy thereafter arising between the parties is enforceable, except when the written contract "is an agreement concerning or relating to an insurance policy."

Section 1012(b) of the McCarran-Ferguson Act, 15 U.S.C. §§1011-1015 provides, "No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance."

Therefore, the arbitrator concluded, the Federal Arbitration Act, which provides generally that arbitration clauses in contracts are enforceable, is "reverse-preempted" by the Nebraska statute.

AUCRA moved to vacate the arbitration award.  That motion was denied.  AUCRA appealed the denial of the motion to vacate.

In Mountain Valley Property, Inc. v. Applied Risk Services, Inc., __ F.3d __, 2017 WL 2981798 (1st Cir. 2017), the court did not determine whether the decision of the arbitrator was correct.  It held that it was enough under the Federal Arbitration Act that the arbitration award did not demonstrate a manifest disregard for the law. 

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