Nebraska Statute Prohibiting Arbitration Of Insurance-related Claims Was Reversed Preempted By The Federal Arbitration Act Under The Mccarren-ferguson Act

On Behalf of | Sep 6, 2018 | Firm News

The California Court of Appeals in Citizens of Humanity v. Applied Underwriters, Inc., 17 Cal.App. 5th 806 (2nd Dist. 2017), the court found that Nebraska’s Insurance Anti-Arbitration statute had been reverse pre-empted by the Federal Arbitration Act (FAA).

Nebraska’s Uniform Arbitration Act contained a provision which prohibited agreements to arbitrate certain types of insurance-related disputes. Under the McCarren-Ferguson Act the FAA could not invalidate, impair, or supersede the enforcement of Nebraska’s Uniform Arbitration Act’s prohibition on arbitration. In Citizens of Humanity, the Court found that the arbitration provision in question, which was set forth in a reinsurance participation agreement, was an agreement concerning or relating to an insurance policy within the meaning of the Nebraska Act and therefore to enforce the arbitration provision through the Federal Arbitration Act would have the consequence of invalidating, impairing, or superseding the Nebraska Act’s prohibition on arbitration of insurance disputes.

In deciding that the McCarren-Ferguson Act applied, the Court noted that the FAA was not a law specifically related to insurance. Therefore, application of the McCarren-Ferguson Act turned on whether the Nebraska Act’s prohibition of arbitration agreements concerned or related to an insurance policy was an act enacted to regulate the business of insurance within Nebraska and whether the application of the FAA to the Nebraska Uniform Arbitration Act would invalidate, impair, or superseded the Nebraska Act. In finding reverse preemption, the Court noted that the Nebraska Supreme Court had addressed the precise issue when it concluded that Nebraska’s Act was a state law and acted for the purpose of regulating the business of insurance within the meaning of the McCarren-Ferguson Act.