Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Second Circuit Affirms Dismissal of Challenge to FINRA Award

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The Second Circuit Court of Appeals has affirmed the dismissal of a challenge to a FINRA arbitration award after concluding that federal courts lacked jurisdiction over the matter.

Versel Green filed an action seeking to vacate a FINRA arbitration award in favor of Bank of America Merrill Lynch and other entities. The district court dismissed his action for lack of jurisdiction. Green appealed. He conceded that no diversity existed but claimed the federal courts had federal question jurisdiction over his claim. The Second Circuit disagreed. It noted that even though Green invoked the Federal Arbitration Act, he still had to present an “independent jurisdictional basis” for his claim that appeared “on the face of the application itself.” The Second Circuit concluded that Green had not done that, explaining that “quarrels about legal settlements — even settlements of federal claims — typically involve only state law, like disagreements about other contracts.”

Green v. Bank of America Merrill Lynch, No. 24-2550 (2d Cir. May 13, 2025).

Second Circuit Holds New York Convention Is “Self-Executing,” Reverses Orders Denying Motion to Compel Arbitration

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In an opinion issued on May 8, 2025, the Second Circuit Court of Appeals addressed two cases: Certain Underwriters at Lloyd’s London v. 3131 Veterans Blvd LLC and Certain Underwriters at Lloyd’s London v. MPIRE Properties LLC. At issue in both cases was an insurance policy issued by surplus lines insurers that included a mandatory arbitration clause covering “all matters in difference between the Insured and the [Insurers] … in relation to this insurance” and directing that the arbitration take place in New York with the arbitration tribunal applying New York law.

The insurance policies at issue in both cases covered commercial property in Louisiana damaged in August 2021 during Hurricane Ida. When their respective claims for damages could not be resolved, the insureds filed suit in Louisiana state court. In response, the insurers filed suit in the Southern District of New York to enjoin the insureds from pursuing their Louisiana state court actions and to compel arbitration under the Federal Arbitration Act (FAA) and the New York Convention. The insureds opposed, arguing Louisiana state insurance law voided the arbitration provisions in their policies because, under the McCarran-Ferguson Act (MFA), that Louisiana law “reverse preempted” the FAA and the New York Convention. The district court in both cases ruled the Louisiana law, which prohibits arbitration — rather than the FAA or New York Convention — is controlling because, under the MFA, the Louisiana law “reverse preempted” the FAA and the New York Convention. The insurers appealed.

The Second Circuit first noted that mandatory arbitration clauses are enforceable under the FAA, and the FAA would ordinarily preempt a state law that seeks to void or limit those clauses. Recognizing an exception to the rule, the court noted that “Congress created an exception to the usual rules of preemption” under the MFA, which provides that “state laws enacted for the purpose of regulating the business of insurance are generally exempt from preemption.” The court rejected the insurers’ argument that the reverse preemption issue should be resolved by the arbitration tribunal, concluding that it “cannot rely on the FAA to hand off to an arbitration tribunal the critical antecedent question of whether the MFA allows Louisiana law to void the arbitration clauses at issue in this case.”

The court then noted that the MFA’s reverse preemption rule does not apply to federal policies, but to acts of Congress, and a state law can reverse preempt a treaty provision under the MFA “only when that treaty provision relies on an ‘Act of Congress’ to take effect — in other words, when the provision is not ‘self-executing.’” With that backdrop, the court then framed the issue in these cases as “whether Article II Section 3 of the New York Convention is self-executing, making it exempt from reverse-preemption under the MFA, or whether it relies on an Act of Congress for its effect, such that it can be reverse-preempted by Louisiana law.” The court then applied applicable precedent and found the New York Convention is self-executing, “with the result that it cannot be reverse preempted by Louisiana law under the MFA.” The court abrogated a prior decision of the Second Circuit to the extent it held Article II Section 3 of the New York Convention is not self-executing and reversed the district court’s decisions to the extent they relied on the abrogated decision, and remanded both cases for further proceedings consistent with its opinion.

Certain Underwriters at Lloyd’s London v. 3131 Veterans Blvd LLC and Certain Underwriters at Lloyd’s London v. Mpire Properties LLC, Nos. 23-1268 and 23-7613 (2d Cir. May 8, 2025).

Fifth Circuit Reverses Decision Denying Motion to Compel International Arbitration

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The Fifth Circuit Court of Appeals recently reversed a district court’s denial of a motion to compel arbitration, concluding that the contract between the parties evinced an intent to arbitrate even if the purported arbitral forum chosen by the parties no longer existed.

Baker Hughes Saudi Arabia Co. and Dynamic Industries Saudi Arabia Ltd. entered into a subcontract related to an oil and gas project in Saudi Arabia. The subcontract contained two arbitration clauses: Dynamic Industries could demand arbitration in Saudi Arabia and either party could initiate arbitration under the rules of the Dubai International Financial Centre’s joint partnership with the London Court of International Arbitration (DIFC-LCIA). The DIFC-LCIA was subsequently abolished, and a new institution was created in its place.

Baker Hughes then sued Dynamic Industries in court in the United States. Dynamic Industries moved to compel arbitration in the DIFC-LCIA. The court denied that motion because the parties’ designated forum, the DIFC-LCIA, no longer existed and the “forum-selection clause” was unenforceable.

The Fifth Circuit reversed. It noted that the arbitration clause related to the DIFC-LCIA provided that a “dispute shall be referred by either Party to and finally resolved by arbitration under the Arbitration Rules of the DIFC LCIA.” It concluded that that language was not a forum-selection clause because it “sets only the rules of arbitration and not the forum.” The Fifth Circuit also held that even if the clause was a forum-selection clause, the clause was not integral to the subcontract and the subcontract evinced a general intent to arbitrate regardless of the specific arbitral forum. Indeed, a separate arbitration provision allowed for arbitration in Saudi Arabia.

Baker Hughes Saudi Arabia Co. v. Dynamic Industries, Inc., 126 F.4th 1073 (5th Cir. Jan. 27, 2025).

Fourth Circuit Applies Supreme Court’s Coinbase Decision Outside Context of Arbitration

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The Fourth Circuit Court of Appeals recently concluded that the U.S. Supreme Court’s decision in Coinbase Inc. v. Bielski is not limited to interlocutory appeals involving arbitration.

In Coinbase, which involved an interlocutory appeal from an order denying a motion to enforce an arbitration provision, the Supreme Court held that an interlocutory appeal of a motion denying arbitration “divests the district court of its control over those aspects of the case involved in the appeal.”

In City of Martinsville v. Express Scripts Inc., the city of Martinsville, Virginia, sued Express Scripts and OptumRx in state court related to their purported role in the opioid epidemic. The defendants removed the case to federal court, but the federal court remanded the case to state court. Immediately after the federal court remanded the case, but before the federal clerk mailed the remand order to the state court, Express Scripts filed an interlocutory appeal and sought to stay the case pursuant to Coinbase.

The district court denied the motion to stay, holding that Coinbase concerned appeals from motions regarding arbitration, not appeals regarding remand decisions. The Fourth Circuit reversed. It held that although Coinbase involved arbitration, that was a distinction without a difference and that Coinbase establishes that an automatic stay is in effect when appeals are filed regardless of whether the appeal concerns an order regarding arbitration, a remand order, etc. The court noted that while the stay may not preclude the court from taking any action whatsoever on the case, it precludes the court from taking action “over those aspects of the case involved in the appeal.” In the case of an appeal challenging a remand order, that includes mailing the remand order to the state court.

City of Martinsville v. Express Scripts Inc., No. 24-1912 (4th Cir. Feb. 10, 2025).

Second Circuit Vacates Decision Denying Arbitration

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The Second Circuit Court of Appeals recently vacated a decision holding that a union could not compel arbitration of a grievance related to an expired collective bargaining agreement.

Xerox Corp. entered into a series of collective bargaining agreements with the Local 14A, Rochester Regional Joint Board, Xerographic Division Workers United. The final collective bargaining agreement expired in 2021 and the parties did not agree to a successor agreement. Xerox subsequently allegedly modified health benefits for certain retired workers. The union filed a grievance and demanded arbitration. Xerox refused to arbitrate and filed an action seeking declaratory relief and to stay and enjoin arbitration. It argued that none of the retiree benefits at issue had vested by the time the last collective bargaining agreement expired, and the union could therefore not enforce the provisions in the final agreement. The union argued that certain language in the final agreement promised benefits that survived the expiration of the agreement and were therefore enforceable.

The district court sided with Xerox, but the Second Circuit vacated that decision. It concluded that certain provisions in the final collective bargaining agreement could “be reasonably understood as guaranteeing benefits beyond the [final agreement’s] expiration or as constituting deferred compensation.” The Second Circuit also noted that to “discern the parties’ intent here, consulting extrinsic evidence of intent may be necessary,” which “would be a task for the arbitrator” “[i]f the Union’s grievance [was] indeed arbitrable.”

Xerox Corp. v. Local 14A Rochester Regional Joint Board, Xerographic Division Workers United, No. 23-634 (2d Cir. Feb. 5, 2025).