123 A.D.3d 51
N.Y. App. Div.2014Background
- California regulates workers’ compensation via the CDI and WCIRB; forms must be filed for approval.
- National Union issued annual workers’ compensation policies to California insureds from 2003–2010 and separately issued payment agreements affecting payment obligations and dispute resolution.
- The payment agreements contained broad arbitration clauses and references to New York governing law, with arbitration to be under FAA.
- The payment agreements were not attached to the policies nor filed with the WCIRB/CDI, despite CDI directives and California law requiring such filings.
- State litigation followed in Monarch, Priority, and Source One actions, with courts split on FAA preemption and filing requirements; CDI settlement in Zurich action indicated side agreements are subject to filing.
- This Court (New York appellate) ultimately held that the payment agreements are subject to filing under California law and that FAA preemption is barred by McCarran-Ferguson, invalidating the arbitration clauses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether payment agreements are policies/endorsements requiring filing | Monarch/Priority/Source One contend payment agreements must be filed as endorsements. | National Union argues payment agreements are non-policy documents and not subject to filing. | Payment agreements are endorsements requiring filing; nonfiling renders arbitration provisions unenforceable. |
| Whether FAA preempts California filing requirements | Plaintiffs argue FAA cannot compel arbitration when CA filing requirements are unmet. | National Union argues FAA preempts state filing rules and arbi-tration can proceed. | McCarran-Ferguson Act precludes FAA preemption; FAA cannot force arbitration here. |
| Remedy for failure to file side agreements | Nonfiling taints the validity of arbitration provisions; arbitration should be allowed or denied accordingly. | Nonfiling should not void the entire contract; arbitration could still be valid under FAA. | Arbitration provisions unenforceable; court should not enforce una filed side agreements. |
| Who decides arbitrability in this context | Court should decide whether filing violations render arbitration provisions unenforceable. | Arbitrators should decide arbitrability if the contract is at issue. | Court determines enforceability where filing violations render arbitration provisions unenforceable. |
Key Cases Cited
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (arbitrability severability; challenges to contract vs. arbitration clause)
- Preston v. Ferrer, 552 U.S. 346 (2008) (FAA supremacy when state law does not control arbitrability)
- Humana Inc. v. Forsyth, 525 U.S. 299 (1999) (McCarran-Ferguson Act does not apply where federal law does not conflict with state policy)
- State Farm Mut. Auto. Ins. Co. v. Quackenbush, 77 Cal. App. 4th 65 (1999) (weight given to CDI interpretations of regulations)
- Rosenthal v. Great Western Fin. Sec. Corp., 14 Cal.4th 394 (1996) (regulatory violations can void offending provisions)
- ESAB Group, Inc. v. Zurich Ins. PLC, 685 F.3d 376 (4th Cir. 2012) (reverse preemption considerations under McCarran-Ferguson for state regulation)