First Circuit Holds That New York Convention Preempts Puerto Rican Law

The First Circuit Court of Appeals has held that the New York Convention applies to an insurance arbitration dispute between a Puerto Rican company and Lloyd’s of London and that the convention preempts a Puerto Rican law seemingly banning arbitration in insurance coverage disputes.

Green Enterprises LLC, a Puerto Rican recycling company, submitted a claim to its insurer, Lloyd’s of London, after a fire destroyed one of its plants. Lloyd’s denied Green’s claim and Green filed suit. Lloyd’s moved to compel arbitration. The district court granted Lloyd’s motion and Green appealed to the First Circuit, which affirmed.

Green argued that arbitration was improper under a Puerto Rican law prohibiting provisions that deprive an insured of access to the courts and that the Federal Arbitration Act did not preempt that law because the McCarran-Ferguson Act allows state law to supersede federal law when it comes to insurance matters. Lloyd’s responded that the New York Convention applied to the dispute, trumped the Puerto Rican law, and was not subject to the McCarran-Ferguson Act because the New York Convention is a multinational treaty, not an act of Congress.

The First Circuit agreed with Lloyd’s. It rejected Green’s arguments that the New York Convention was not “self-executing” such that it required an act of Congress governed by the McCarran-Ferguson Act to implement, meaning that the McCarran-Ferguson Act’s reverse preemption provision applied to the New York Convention. The First Circuit concluded:

[N]one of Green’s arguments can overcome the self-executing nature of the plain text of Article II(3) [of the New York Convention]. That article, which is not an act of Congress, has the force of law and applies directly to preempt Puerto Rico law.

Green Enterprises, LLC v. Hiscox Syndicates Ltd. at Lloyd’s of London, No. 21-1542 (1st Cir. May 19, 2023).