Commercial property insurance policies written in hurricane-prone jurisdictions often contain arbitration clauses. Can a policyholder avoid arbitration and bring breach of contract claims into court instead? Earlier this year, a Louisiana federal court said no.
In Spanish Villa LLC v. Certain Underwriters at Lloyd’s, London, No. 23-4258 (E.D. La. Apr. 1, 2024), the court, on removal from state court, addressed a dispute over insurance coverage for hurricane damage. The policies had arbitration clauses and the insurers moved to compel arbitration. The policyholders resisted on various grounds, including the non-applicability of The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention”), unconscionability, lack of knowledge and consent, ambiguity and reverse preemption. In compelling arbitration, the court rejected each of the grounds raised against arbitration.
The court found the New York Convention was applicable and that the Inter-American Convention on International Commercial Arbitration did not apply. The court also refused to dismiss the non-US reinsurers and leave the US reinsurers in the litigation and, instead, estopped the policyholder from raising this argument as the policyholder considered there to be only one policy, not separate policies for each insurer. The court also rejected a reverse preemption argument, finding that the McCarran-Ferguson Act did not apply to insurance contracts subject to the New York Convention. The court also rejected the claim that the policyholder did not know about the arbitration clause, quoting the following language:
Regardless, “[i]t is well settled that a party who signs a written instrument is presumed to know its contents and cannot avoid its obligations by contending that he did not read it, that he did not understand it, or that the other party failed to explain it to him.” (citation omitted).
Accordingly, the action was stayed and the parties were sent to arbitration.
