Patton Boggs Reinsurance Newsletter - March 2013: A Brief Review of Reinsurance Trends in 2012: Mccarran-Ferguson Act


Though the McCarran-Ferguson Act did not receive significant treatment from the courts in 2011, the United States Court of Appeals for the Fourth Circuit weighed in on the Act in the past year. In ESAB Group, Inc. v. Zurich Ins. PLC, 685 F.3d 376 (4th Cir. 2012), the Fourth Circuit affirmed an order compelling arbitration, as it held that the McCarran-Ferguson Act did not apply.

In this non-reinsurance case, the Fourth Circuit affirmed the district court's exercise of subject-matter jurisdiction and order to compel arbitration. The appeal presented the question of whether the McCarran-Ferguson Act applies such that state law can reverse preempt federal law and invalidate a foreign arbitration agreement. The dispute stemmed from a state court action brought by the insured challenging the insurer's refusal to defend and indemnify the insured in products liability actions. The policies issued to the insured contained arbitration clauses requiring any disputes to take place in Sweden. The district court, adopting the reasoning of the Fifth Circuit, held that because the McCarran-Ferguson Act limits its scope to federal statutes, and the New York Convention, not Chapter 2 of the FAA, directs courts to enforce international arbitration agreements, the McCarran-Ferguson Act could not disrupt the application of traditional preemption rules.

In affirming the district court's order, the Fourth Circuit held that the scope of the McCarran-Ferguson Act is limited to domestic legislation and therefore does not encompass Chapter 2 of the FAA because Chapter 2 implements the legislation of a treaty. The court stated that Congress did not intend the McCarran-Ferguson Act to "delegate to states the authority to abrogate international agreements that this country has entered into and rendered judicially enforceable." In so finding, the Fourth Circuit upheld the district court's order to compel arbitration in Sweden on the basis that state law invalidating arbitration agreements in insurance policies did not apply.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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