District Court Orders Insurer in Receivership to Arbitrate With Reinsurers, Rejecting Argument That Jurisdiction Rests With Receivership Court and That McCarran-Ferguson Act Preempts FAA

The District Court of Puerto Rico upheld a prior judgment ordering Integrand Assurance Co. to arbitrate its claims against its various reinsurers, rather than remand the case to the court overseeing Integrand's receivership, the Superior Court of the Commonwealth of Puerto Rico.

Integrand commenced proceedings against the reinsurers in order to recover assets that the reinsurers purportedly owed Integrand. In support of its argument that the proceedings should be remanded, Integrand argued that, under the Puerto Rico insurance code, the Superior Court of Puerto Rico had "exclusive jurisdiction to attend" to any action by or against Integrand and its estate subsequent to the commencement of receivership proceedings. Integrand further argued that the McCarran-Ferguson Act preempted the application of the Federal Arbitration Act to the parties' dispute.

The court disagreed with Integrand, finding that, under the U.S. Supreme Court's test in Humana v. Forsyth, the FAA was not preempted because the application of the FAA to the parties' dispute would not "invalidate, impair, or supersede the state statute regulating insurance." The court found that the provisions relied upon by Integrand related clearly and exclusively to the commencement of receivership proceedings. The instant dispute, however, was over entitlement to certain assets, not the commencement of receivership proceedings. The exclusive jurisdiction provisions, therefore, did not apply.

The court also distinguished this case from prior cases holding that, in the context of a liquidation proceeding, the FAA was preempted. Significantly, in those prior cases, the action was brought by other entities against the assets of a delinquent insurance company, unlike in this case, in which the action was brought by and for the delinquent insurance company in an attempt to recover assets supposedly owed to it. Finding that the FAA applied, the court upheld the order that the parties proceed with the arbitration of their dispute.

Integrand Assurance Co. v. Everest Reinsurance Co., No. 3:19-cv-01111 (D.P.R. May 1, 2020).