Citizens of Humanity v. Applied Underwriters
909 N.W.2d 614
Neb.2018Background
- Citizens of Humanity and CM Laundry entered an EquityComp workers’ compensation program and signed a Reinsurance Participation Agreement (RPA) with Applied Underwriters Captive Risk Assurance Co. (AUCRA) that tied premiums/losses to a segregated “cell.”
- The RPA included a broad arbitration clause (AAA rules) and a Nebraska choice-of-law clause; AUCRA later demanded arbitration for an $842,802.78 dispute and Citizens resisted.
- Citizens filed in Nebraska seeking a declaratory judgment that it could not be compelled to arbitrate, relying on Neb. Rev. Stat. § 25-2602.01(f)(4) (state anti-arbitration rule for agreements "concerning or relating to an insurance policy").
- The Douglas County district court stayed the action and held that the parties had "clearly and unmistakably" delegated arbitrability to an arbitrator under the Federal Arbitration Act (FAA). Citizens appealed.
- The Nebraska Supreme Court held that the RPA relates to an insurance policy, that McCarran-Ferguson preserves the state statute against FAA preemption, and that § 25-2602.01(f)(4) invalidates the RPA’s delegation clause; arbitrability is for the court to decide.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the FAA preempts Neb. Rev. Stat. § 25-2602.01(f)(4) | Neb. anti-arbitration law is preserved by McCarran-Ferguson and governs because parties chose Nebraska law | FAA governs because parties are in different states and RPA involves interstate commerce | McCarran-Ferguson + § 25-2602.01(f)(4) are not preempted by FAA here; state law controls on insurance-related arbitration clauses |
| Whether the RPA is an "agreement concerning or relating to an insurance policy" | RPA is integral to the workers’ compensation program and adds retrospective pricing—thus it relates to insurance | AUCRA: RPA is reinsurance or a contract between insurers and so excepted from § 25-2602.01(f)(4) | RPA relates to an insurance policy and is not a reinsurance contract between insurers; § 25-2602.01(f)(4) applies |
| Validity of the delegation clause delegating arbitrability to arbitrator | Citizens specifically challenged delegation under § 25-2602.01(f)(4) and requested judicial determination of arbitrability | AUCRA argued Rent-A-Center requires courts to enforce delegation absent a specific challenge to delegation | Court held Citizens made a specific challenge; delegation clause is invalid under § 25-2602.01(f)(4) and cannot be enforced |
| Who decides arbitrability (court or arbitrator) | Because delegation is invalid under Nebraska law, the court must decide arbitrability | AUCRA: Parties clearly and unmistakably delegated arbitrability to arbitrator; FAA requires enforcement | Held that arbitrability is a threshold issue reserved for the court where delegation is invalidated by state insurance anti-arbitration law |
Key Cases Cited
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (addresses enforcement of delegation clauses under the FAA)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (FAA’s saving clause allows generally applicable contract defenses to invalidate arbitration agreements)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (arbitration agreements are enforceable like other contracts; courts may sever certain challenges)
- Nitro-Lift Technologies, L.L.C. v. Howard, 568 U.S. 17 (if delegation is valid, arbitrator decides gateway validity questions)
- Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (statutes capable of coexistence should be harmonized)
- J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., 534 U.S. 124 (overlapping statutes may be harmonized if each reaches distinct cases)
- Kremer v. Rural Community Ins. Co., 280 Neb. 591 (Nebraska case applying McCarran-Ferguson and § 25-2602.01)
- Speece v. Allied Professionals Ins. Co., 289 Neb. 75 (Nebraska case discussing § 25-2602.01 and McCarran-Ferguson)