Fifth Circuit Held That The McCarran-Ferguson Act Does Not Authorize State Law to Reverse-Preempt International Treaties

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Safety National Casualty Corporation v. Certain Underwriters at Lloyd’s London

 (5th Cir. (La.) November 9, 2009)


The Fifth Circuit has held that the McCarran-Ferguson Act does not authorize state law to reverse-preempt international treaties, i.e. the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  The McCarran-Ferguson act allows Congress to pass laws which will regulate the “business of insurance.” It also provides that federal acts that do not expressly purport to regulate the “business of insurance” will not preempt state laws or regulations that regulate the “business of insurance.” Neither the Convention nor the federal laws implementing the Convention are specific to insurance. 


A self-insured workers’ compensation obtaining excess insurance through Lloyd’s by reinsuring claims that exceeded an SIR.  Another insurer, Safety National, asserted that it also provided excess workers compensation to the insured, and that the insured assigned its rights under the reinsurance agreements to it.  A dispute arose as to whether the assignments were valid. 


Safety sued Lloyd’s in federal court.  Lloyd’s sought a stay and sought to compel arbitration.  That was granted, but the parties could not agree on how arbitrators were to be selected. Lloyd’s then filed a motion to lift the stay and add the insured as a party, and made a motion to compel arbitration to resolve how to compose an arbitration panel.  The insured moved to quash the arbitration, citing a Louisiana statute that has been applied to prohibit arbitration, and that the statute reverse-preempted the convention based on the McCarran-Ferguson Act.


The Fifth Circuit held that the Convention, whether self-executing or not, was an international treaty, not subject to the McCarran-Ferguson Act, noting that “[t]he fact that a treaty is implemented by Congress does not mean that it ceases to be a treaty and becomes an ‘Act of Congress’.”


A copy of the decision can be found here


Sarah Delaney and Dan Gerber