McDonnel sued the insurers in the U.S. District Court for the Eastern District of Louisiana.

The insurers moved to dismiss for lack of subject matter jurisdiction and improper venue. As to both defenses, the insurers invoked the insurance policy's arbitration provision, which provided:

Any dispute, controversy or claim arising out of, relating to, or in connection with this Policy, shall be finally settled by arbitration. The arbitration shall be conducted in accordance with the International Arbitration Rules of the American Arbitration Association in effect at the time of the arbitration. The seat of the arbitration shall be New York, New York, in the United States of America.

The insurers argued that the arbitration provision should be enforced, and the case dismissed in favor of arbitration pursuant to the Convention.

The Convention, an international treaty that the United States joined and adopted in 1958, requires that signatory states “recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.” Congress implemented the Convention by enacting Chapter 2 of the Federal Arbitration Act (“FAA”).

The policy, however, also contained a “conformity to statute” provision that stated, “In the event any terms of this Policy are in conflict with the statutes of the jurisdiction where the Insured Property is located, such terms are amended to conform to such statutes.” Invoking that provision, McDonnel responded that any obligation to arbitrate under the Convention did not apply to its dispute with the insurers because the policy's arbitration provision was, as a matter of law, invalid as contrary to La. Rev. Stat. Ann. § 22:868(A)(2), which prohibits arbitration agreements in insurance contracts covering property located in Louisiana. Thus, the conformity provision, McDonnel argued, “amended” the arbitration provision out of the contract to “conform” with Louisiana law.

The district court disagreed with McDonnel, holding that the Convention superseded Section 22:868. Because the state statute was preempted by the FAA, the district court determined that no conflict existed between the policy and state law so as to trigger the conformity provision of the policy. Thus, the arbitration agreement remained valid. The district court, therefore, dismissed the action in favor of arbitration.

The dispute reached the Fifth Circuit.

The Fifth Circuit's Decision

The circuit court affirmed, finding that the policy's conformity provision did not negate the agreement to arbitrate even though Section 22:868 rendered void arbitration provisions in insurance policies.

The circuit court explained that, under the Convention, a district court must dismiss a case in favor of arbitration if:

(1) There is an agreement in writing to arbitrate the dispute;

(2) The agreement provides for arbitration in the territory of a Convention signatory;

(3) The agreement arises out of a commercial legal relationship; and

(4) A party to the agreement is not an American citizen.

The Fifth Circuit decided that the Convention's requirements were “clearly” met in this case: The policy provision was a written agreement to arbitrate the dispute; it provided for arbitration in a signatory country (the United States); it arose from a commercial legal relationship (an insurance contract); and the insurers were not American citizens.

The circuit court pointed out that a decade earlier, in Safety National Casualty Corp. v. Certain Underwriters at Lloyd's, 587 F.3d 714 (5th Cir. 2009), it decided that the Convention superseded Section 22:868. As a result, the Fifth Circuit continued, Section 22:868 did not apply to the policy and there was no conflict between the policy and the state statute. Therefore, the Fifth Circuit concluded, the arbitration provision in the policy applied, “undiminished by state law.”

The case is McDonnel Group, L.L.C. v. Great Lakes Ins. SE, UK Branch, No. 18-30817 (5th Cir. May 13, 2019). Attorneys involved include: For Mcdonnel Group, L.L.C., Plaintiff – Appellant: J. Geoffrey Ormsby, Dylan Torvald Leach, Randall Alan Smith, Smith & Fawer, L.L.C., New Orleans, LA. For GREAT LAKES INSURANCE SE, UK BRANCH, Improperly named as Certain Underwriters at Lloyd's, London, LLOYD'S SYNDICATES, CNP 4444 and CNP 958, Improperly named as Certain Underwriters at Lloyd's, London, INTER HANNOVER, Improperly named as Certain Underwriters at Lloyd's, London, Defendants – Appellees: Robert Douglas Morgan, Esq., Jacob Thomas Evans Stutzman, Esq., Lee Ann C. Thigpen, Carroll, Warren & Parker, P.L.L.C., Jackson, MS.

Insurance Coverage Law Center Comment

The Fifth Circuit's decision is consistent with other decisions it has issued holding that conformity provisions in insurance contracts were not triggered when the conflicting state law was preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”). See La. Health Serv. & Indemnity Co. v. Rapides Healthcare Sys., 461 F.3d 529, 533 (5th Cir. 2006) (“Neither [conformity] provision displaces the preemption analysis in this case. ERISA plans must always conform to state law, but only state law that is valid and not preempted by ERISA.”); Light v. Blue Cross & Blue Shield of Ala., Inc., 790 F.2d 1247, 1248 (5th Cir. 1986) (holding that because “ERISA pre-empts state law, there is no applicable state law to which the administrator must conform”).