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Law Triangle: Arbitrating International Reinsurance Disputes Under the New York Convention, the McCarran–Ferguson Act, and Antagonistic State Law

Posted by on Friday, July 20, 2012 in Notes, Vol. 41 No. 5, Volume 41.

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.

This Note argues that the outcome in Goshawk was the correct one, but expands the doctrinal basis on which courts should rely when faced with this conflict.  Courts should invoke any of four doctrines to enforce arbitration agreements in international reinsurance contracts: (1) pacta sunt servanda and the corresponding obligation to abide by the text of a ratified treaty; (2) the Charming Betsy canon’s teaching that domestic law should not be interpreted in a manner that conflicts with international law and obligations; (3) the last-in-time rule, which gives the force of law to the latest expression of the state’s will in a certain area; and (4) the Supreme Court’s jurisprudence enforcing international arbitration agreements in a host of situations based on notions of international commercial comity, cooperation, and efficiency.

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