The McCarran-Ferguson Act was enacted to preserve the longstanding prerogative of the States to regulate the insurance industry. States have acted in accordance with this statute to declare arbitration agreements in insurance contracts invalid. However, the Senate has since ratified the New York Convention and appended implementing legislation to the Federal Arbitration Act that obligates domestic courts to recognize arbitration agreements in all international contracts. In an odd convergence of authority, a functional conflict arises between these three bodies of law: the federal law says that state law controls in this area, even over other federal law that might incidentally cover the subject of insurance; the reverse-preemptive state law instructs that arbitration agreements are void in all circumstances; and a later-in-date treaty and corresponding implementing legislation purportedly compel enforcement of the agreement. A resolution of this conflict is required.
In a recent case in the district court for the Northern District of Georgia, a British insurer attempted to enforce an arbitration agreement contained within a reinsurance agreement with a Georgia-based investment company. The reinsurer resisted, invoking the McCarran-Ferguson Act and arguing that Georgia law quite clearly states that arbitration agreements in insurance contracts are void as a matter of public policy. The court held that even though the arbitration agreement would be invalid in a domestic setting, special considerations pertaining to international commercial arrangements counseled that this arbitration agreement should be enforced.
J. L. Murphy,
Law Triangle: Arbitrating International Reinsurance Disputes,
41 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vjtl/vol41/iss5/7