The U.S. Fourth Circuit Court of Appeals, applying Virginia law, held an arbitration agreement contained in a putative insurance contract to be invalid. Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc., 867 F.3d 449 (4th Cir. 2017).
An insured entered into a putative insurance contract in Virginia. A dispute arose over a sharp increase in the premium charged, and the insured filed suit. The insurer sought to compel arbitration under an arbitration agreement contained in the contract, and the insured asserted a Virginia statute that prohibits clauses that deprive Virginia courts of jurisdiction over actions against insurers. The trial court invalidated the arbitration clause.
On appeal, the insurer argued that the arbitration clause did not deprive Virginia courts of jurisdiction because the arbitration clause included an antecedent delegation provision that left the question of arbitrability for the arbitrator to decide. The Fourth Circuit noted that a federal court will analyze challenges to arbitration agreements only if that challenge is focused on the antecedent delegation provision. It further noted that the insured successfully challenged the provision because the insured challenged the enforceability of “any” arbitration provision in the putative insurance contract, which necessarily included the delegation provision. Furthermore, the Fourth Circuit found that the delegation provision is unenforceable to the extent it grants an arbitrator, rather than a Virginia court, the power to determine whether the putative insurance contract in fact constitutes an insurance contract, and therefore is subject to Virginia insurance law. Accordingly, the court upheld the trial court’s determination that the arbitration provision violated Virginia law.