26 N.Y.3d 659
NY2016Background
- National Union issued California workers' compensation policies (2003–2010) and later entered into unfiled "Payment Agreements" with three insured California employers that deferred payments in exchange for collateral.
- The Payment Agreements included arbitration clauses and delegation language giving arbitrators "exclusive jurisdiction" over arbitrability. The Payment Agreements were not filed with California's WCIRB/Commissioner as required by Cal. Ins. Code § 11658.
- Disputes arose and National Union sought to compel arbitration; insureds sought stays and argued the unfiled agreements (and their arbitration clauses) were unenforceable under § 11658. The Commissioner filed amicus briefing supporting the insureds.
- The Appellate Division reversed trial court orders compelling arbitration, holding McCarran‑Ferguson permitted California law to bar arbitration; two justices dissented.
- The New York Court of Appeals reversed the Appellate Division: it held the McCarran‑Ferguson Act did not preclude application of the Federal Arbitration Act (FAA) here and, because the parties clearly delegated arbitrability to arbitrators, arbitrability must be decided by the arbitrators.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether McCarran‑Ferguson reverse‑preempts the FAA so courts may refuse to enforce arbitration clauses in unfiled workers' compensation insurance agreements | Insureds: §11658 requires filing; enforcing arbitration in unfiled agreements would undermine California's insurance regulation and is reverse‑preempted by McCarran‑Ferguson | National Union: FAA does not specifically relate to insurance and applying the FAA would not invalidate, impair, or supersede §11658; FAA governs | Held: McCarran‑Ferguson does not apply; FAA governs because §11658 did not regulate arbitration clauses or provide a procedural scheme that would be impaired by arbitration enforcement. |
| Who decides enforceability/arbitrability when arbitration clause plus delegation provision exist in an unfiled insurance agreement | Insureds: Courts should decide enforceability because §11658 makes the agreements illegal and unenforceable; thus arbitration clauses invalid | National Union: Challenge is to the whole agreement; delegation clause clearly and unmistakably delegates arbitrability to arbitrators, so arbitrators should decide | Held: Delegation clauses are severable and were not specifically challenged; arbitrators must decide arbitrability and enforceability of the Payment Agreements. |
| Whether failure to file eliminates state oversight or remedies if arbitration compelled | Insureds: Compelling arbitration would frustrate Department's review and incentivize non‑filing | National Union: Filing consequences and state enforcement remain available; arbitration of private disputes does not displace regulator | Held: Compelling arbitration does not undermine the regulatory scheme; the Department can still pursue enforcement actions. |
| Whether the court should reach merits of enforceability | Insureds: Court should rule arbitration clauses unenforceable now | National Union: Court should compel arbitration and leave merits (including filing consequences) to arbitrators | Held: Court declined to rule on enforceability merits; left merits to arbitrators per delegation and FAA. |
Key Cases Cited
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (arbitration agreements are enforceable and courts must rigorously enforce them)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (severability of arbitration clause from contract)
- AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643 (arbitration is a matter of contract; parties cannot be compelled to arbitrate matters they did not agree to)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (ordinary state‑law principles govern whether parties agreed to arbitrate arbitrability)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (attacks on the contract as a whole go to arbitrator)
- Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (delegation clauses enforceable when parties clearly and unmistakably agreed to arbitrate arbitrability)
- Humana Inc. v. Forsyth, 525 U.S. 299 (McCarran‑Ferguson framework; when federal law controls or reverse preemption applies)
- Department of Treasury v. Fabe, 508 U.S. 491 (McCarran‑Ferguson limits federal preemption of state insurance regulation)