We have been following onwww.insurereinsure.com various decisions that concern whether state laws that bar enforcement of arbitration agreements in insurance or reinsurance contracts are preempted by the Federal Arbitration Act (the “FAA”). As noted here (insert link to Dec. 29th post), the U.S. Supreme Court recently declined to review the Fifth Circuit’s holding that the Convention on The Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), implemented by the FAA, preempts and supersedes Louisiana state law precluding enforcement of arbitration agreements. In another recent case examining this issue, however, an Oklahoma federal court reached a different result. See Deaconess Health Systems, LLC v. Aetna Health, Inc., No. 5:10-cv-00781 (W.D. Okl. Dec. 13, 2010).
In that case, plaintiff Deaconess Health Systems, LLC brought a breach of contract action against defendant Aetna Health, Inc. in Oklahoma state court. The contract at issue contained an arbitration clause. Aetna removed the case to federal court and moved to compel arbitration on the grounds that the parties were required to arbitrate under the FAA. Deaconess, however, argued that the case should remain in federal court, relying upon an Oklahoma state law that bars enforcement of arbitration clauses in insurance (but not reinsurance) contracts. Deaconess asserted that Oklahoma state law, and not the FAA, governed the validity of the arbitration agreement pursuant to the McCarran-Ferguson Act, which provides that state law reverse-preempts federal law that invalidates, impairs, or supersedes state law regulating the business of insurance, unless the federal law also relates to the business of insurance.
Relying upon case law from the Second, Tenth, and Eleventh Circuits, the court found that the FAA does not relate to the business of insurance, and therefore did not preempt the Oklahoma statute concerning the enforceability of arbitration agreements (noting that “[i]f the state has an anti-arbitration law enacted for the purpose of regulating the business of insurance, and if enforcing, pursuant to the [FAA], an arbitration clause would invalidate, impair, or supersede that state law, a court should refuse to enforce the arbitration clause”). Further, the court rejected Aetna’s assertion that ERISA preempted Deaconess’ claims, or that the McCarran-Ferguson Act did not apply because ERISA is a federal law that regulates insurance. Thus, the court held that the arbitration agreement was unenforceable under Oklahoma law.