Reinsurance & Arbitration Focus

In an opinion issued on May 8, 2025, the Second Circuit Court of Appeals addressed two cases: Certain Underwriters at Lloyd’s London v. 3131 Veterans Blvd LLC and Certain Underwriters at Lloyd’s London v. MPIRE Properties LLC. At issue in both cases was an insurance policy issued by surplus lines insurers that included a mandatory arbitration clause covering “all matters in difference between the Insured and the [Insurers] … in relation to this insurance” and directing that the arbitration take place in New York with the arbitration tribunal applying New York law.

The insurance policies at issue in both cases covered commercial property in Louisiana damaged in August 2021 during Hurricane Ida. When their respective claims for damages could not be resolved, the insureds filed suit in Louisiana state court. In response, the insurers filed suit in the Southern District of New York to enjoin the insureds from pursuing their Louisiana state court actions and to compel arbitration under the Federal Arbitration Act (FAA) and the New York Convention. The insureds opposed, arguing Louisiana state insurance law voided the arbitration provisions in their policies because, under the McCarran-Ferguson Act (MFA), that Louisiana law “reverse preempted” the FAA and the New York Convention. The district court in both cases ruled the Louisiana law, which prohibits arbitration — rather than the FAA or New York Convention — is controlling because, under the MFA, the Louisiana law “reverse preempted” the FAA and the New York Convention. The insurers appealed.

The Second Circuit first noted that mandatory arbitration clauses are enforceable under the FAA, and the FAA would ordinarily preempt a state law that seeks to void or limit those clauses. Recognizing an exception to the rule, the court noted that “Congress created an exception to the usual rules of preemption” under the MFA, which provides that “state laws enacted for the purpose of regulating the business of insurance are generally exempt from preemption.” The court rejected the insurers’ argument that the reverse preemption issue should be resolved by the arbitration tribunal, concluding that it “cannot rely on the FAA to hand off to an arbitration tribunal the critical antecedent question of whether the MFA allows Louisiana law to void the arbitration clauses at issue in this case.”

The court then noted that the MFA’s reverse preemption rule does not apply to federal policies, but to acts of Congress, and a state law can reverse preempt a treaty provision under the MFA “only when that treaty provision relies on an ‘Act of Congress’ to take effect — in other words, when the provision is not ‘self-executing.’” With that backdrop, the court then framed the issue in these cases as “whether Article II Section 3 of the New York Convention is self-executing, making it exempt from reverse-preemption under the MFA, or whether it relies on an Act of Congress for its effect, such that it can be reverse-preempted by Louisiana law.” The court then applied applicable precedent and found the New York Convention is self-executing, “with the result that it cannot be reverse preempted by Louisiana law under the MFA.” The court abrogated a prior decision of the Second Circuit to the extent it held Article II Section 3 of the New York Convention is not self-executing and reversed the district court’s decisions to the extent they relied on the abrogated decision, and remanded both cases for further proceedings consistent with its opinion.

Certain Underwriters at Lloyd’s London v. 3131 Veterans Blvd LLC and Certain Underwriters at Lloyd’s London v. Mpire Properties LLC, Nos. 23-1268 and 23-7613 (2d Cir. May 8, 2025).