The Fifth Circuit Court of Appeals has reversed and remanded a ruling by a district court that an injured worker could not be compelled to arbitrate against his former employer’s insurer.
Anthony Todd was injured while working for the Delta Queen Steamboat Company. When he was unable to recover against Delta Queen, which was insolvent, he brought a direct action against its insurer, Steamship Mutual Underwriting Association (Bermuda) Ltd. Steamship sought to stay the action, arguing that Mr. Todd should be compelled to arbitrate pursuant to a provision in Delta Queen’s policy because he was a third-party beneficiary to that agreement, which was governed by federal law. The district court denied Steamship’s request for a stay, however, relying on Fifth Circuit precedent holding that under applicable federal law, plaintiffs in direct actions against insurance companies could not be bound by arbitration clauses in agreements to which they were not a party.
The Fifth Circuit reversed the district court’s ruling, however, holding that the Supreme Court decision in Arthur Anderson LLP v. Carlisle, 129 S. Ct. 1896 (2009), which was issued after the district court rendered its opinion, had overruled the Fifth Circuit precedent relied upon by the district court. The Court in Carlisle held that a court must look to state contract law principles, not federal law, in order to determine the scope of arbitration agreements, “including the question of who is to be bound by them.” Thus, the Fifth Circuit remanded the case for further consideration under state law. (Todd v. Steamship Mut. Underwriting Ass’n. (Bermuda) Ltd., No. 09-30177, 2010 WL 969795 (5th Cir. Mar. 18, 2010))