On May 21, 2009, the United States Court of Appeals heard en banc oral argument on its ruling in Safety National Casualty Corp. v. Certain Underwriters at Lloyd’s of London, No. 06-30262 (5th Cir. Sept. 29, 2008) that the New York Convention overrides a Louisiana statute prohibiting arbitration clauses in insurance contracts. Ordinarily a federal law preempts any inconsistent state law, but the McCarran-Ferguson Act (“McCarran Ferguson”) reverses this by imposing a rule that state laws enacted for the purpose of regulating insurance do not yield to conflicting federal statutes unless a federal statute specifically requires otherwise. As we previously reported here, the Fifth Circuit ruled in Safety National that McCarran-Ferguson does not cause a state law regulating the business of insurance to “reverse preempt” the provisions of a United States treaty.

In its October 14, 2008 application for rehearing en banc (click here to read the application), the Louisiana Safety Association of Timbermen (“LSAT”) argued that the case merited en banc consideration because of its “exceptional importance.” LSAT stated that the court’s decision conflicts with the only other appellate decision to directly address the issue, Stephens v. American Int’l Ins. Co., 66 F.3d 45 (2d Cir. 1995). LSAT also argued that the effect of the Fifth Circuit’s decision is to restrict a state from prohibiting the remedy of arbitration in a policy of insurance issued by a foreign insurer when such a prohibition is allowed in a policy issued by a domestic insurer. According to LSAT, many of the syndicates subscribing to the policies at issue may be domestic carriers and should not be treated differently merely because they subscribe to a risk in London.

We will post here on further developments.