Volume 86, No. 3, Spring 2014

As the globalization of economies and finance has taken hold, international arbitration clauses have become more and more common in contracts between multinational corporations.  However, in the realm of insurance contracts, the enforceability of international arbitration provisions implicates a very complicated conflict between treaty law, state law, and federal statutory law. One particular source of complication is the McCarran-Ferguson Act, which gives state insurance laws preemption power over federal laws that indirectly affect state insurance regimes.  Although the Supreme Court has generally articulated a broad interpretation of the McCarran-Ferguson Act, the scope of the McCarran-Ferguson Act’s preemption power is unclear in the context of treaties—specifically, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention or Convention).  The New York Convention is a treaty subscribed to by the United States in the Federal Arbitration Act (FAA) that mandates the enforceability of foreign arbitral awards made for or against interested U.S. parties.

The conflict occurs where mandatory arbitration provisions are included in international insurance contracts, particularly in states where mandatory arbitration provisions are deemed unenforceable in insurance contracts. In resolving the conflict, the U.S. courts of appeals have reached varying conclusions as to the scope of the McCarran-Ferguson Act’s reverse-preemption power and the effect it has on the provisions in the New York Convention and the FAA.

The Second, Fifth, and Fourth Circuits are the only three circuits that have examined the conflict between the McCarran-Ferguson Act and the provisions of the New York Convention and FAA. The Second Circuit, in Stephens v. American International Insurance Co., held that the McCarran-Ferguson Act’s power did include the provisions of implemented treaties, andstate insurance laws therefore preempted the New York Convention provisions set forth in the FAA.  In contrast, the Fifth Circuit and the Fourth Circuit held that the McCarran-Ferguson Act did not give state insurance laws preemption power over the New York Convention provisions in the FAA.

Given the trend in case law established by the Second, Fifth, and Fourth Circuits, and the common reasoning used to support this trend, this Comment seeks to clarify the complicated legal doctrines surrounding the conflict between the McCarran-Ferguson Act and the New York Convention. Furthermore, because more circuits will likely encounter this same issue, this Comment proffers an analytical framework that is both consistent with the trend in case law and the language and purpose of the McCarran-Ferguson Act.

Read Article… 86 Temple L. Rev. 663