Several states have anti-arbitration statutes that apply to insurance. In Louisiana, a state with such a statute, it as been an open question whether its anti-arbitration statute applies to surplus lines contracts. The Fifth Circuit, as answered that question.
Read more: Louisiana Anti-Arbitration Statute Stymies Surplus Lines ArbitrationIn S.K.A.V. LLC v. Independent Specialty Insurance Co., 103 F.4th 1121 (2024), a dispute arose over a hurricane loss. The insured brought suit against the insurer and the insurer moved to dismiss the action and compel arbitration. The district court denied the motion and the Fifth Circuit affirmed based on reverse preemption under section 22:868 of the Louisiana Revised Statutes.
In affirming, the court carefully analyzed Louisiana case and statutory law. The argument to avoid reverse preemption and sustain the arbitration clause rested with paragraph D of the statute, which provides:
The provisions of Subsection A of this Section shall not prohibit a forum or venue selection clause in a policy form that is not subject to approval by the Department of Insurance.
The question was whether arbitration, which is a “forum,” means that an arbitration clause in a surplus lines insurance contract–a policy form that is not subject to regulatory approval–may go forward in Louisiana in spite of the anti-arbitration statute. The circuit court answered that question in the negative. The court found that if the legislature when amending the statute to add paragraph D meant to allow arbitration under surplus lines contracts it would have said so. Additionally, it appeared that the legislature considered an arbitration clause a qualitatively different form of forum selection clause in the face of long-standing anti-arbitration history in Louisiana.
In rejecting the insurer’s arguments, the court held that:
General principles of contractual freedom, however normatively attractive in the surplus lines insurance business, cannot trump specific statutory commands. We are in no position to second-guess the wisdom of the Louisiana Legislature on this point; our duty is only to determine, as best we can, how the Louisiana Supreme Court would read § 22:868in this context.
Finally, in rejecting the principle that questions of arbitrability go to the arbitrator where there is a broad arbitration clause, the court concluded:
But, according to our precedent, this is a second-order question that follows one we have already answered: whether the parties have a valid agreement to arbitrate. We have already concluded, of course, that they do not, and if that is correct, we need not go any further. When a statute prevents the valid formation of an arbitration agreement, as we read § 22:868 to do, we cannot compel arbitration, even on threshold questions of arbitrability.
