Mountain Valley Property, Inc (MVP) entered into a three-year reinsurance participation agreement with Applied Underwriters Captive Risk Assurance Co. Inc. (AUCRA), which contained a mandatory arbitration clause as well as a Nebraska choice-of-law clause.   Thereafter, MVP filed a complaint asserting breach of contract and various tort claims, alleging that the reinsurance was overpriced and imposed unlawful fees. After removal to federal court, AUCRA counterclaimed in the amount of the outstanding premiums.

The trial court referred the case to arbitration for a determination of arbitrability, whereupon the arbitrator decided that the case was not arbitrable. The arbitrator reasoned that the FAA, if applied to enforce the arbitration clause, would “invalidate, impair, or supersede” the Nebraska Uniform Arbitration Act (NUAA) by requiring the parties to an insurance-related contract to arbitrate — which is exactly what the NUAA forbids.  Therefore, the arbitrator concluded that the McCarran-Ferguson Act applied and the FAA was reverse-preempted by NUAA, which, in turn, precluded the case from being arbitrated as a matter of law.

The First Circuit, reviewing de novo, affirmed, finding no manifest disregard of the law in the arbitrator’s determination that the NUAA bans arbitration of insurance-related cases, regardless of the parties’ intent to arbitrate. Specifically, the First Circuit reasoned that the arbitrator’s decision was not “unfounded in reason and fact” or “based on reasoning so palpably faulty that no judge, or group of judges, ever could conceivably have made such a ruling.” Mountain Valley Property, Inc. v. Applied Risk Services., Inc., No. 16-2189 (1st Cir. July 13, 2017).