A Missouri district court recently held a mandatory arbitration provision was unenforceable in an insurance coverage dispute after an electrician was injured on the job and won an uncontested judgment in state court against Solaris Power Services (“Solaris”). His employer was insured by Liberty Mutual and had excess insurance through AEGIS. The plaintiffs in the present case, including Solaris, sued both insurers and alleged they should have been additional insureds under both policies and their coverage claims were wrongly denied. AEGIS moved to stay the proceedings and compel arbitration pursuant to a mandatory arbitration provision in its excess insurance policy. The various parties disputed which state’s law applied. The court ultimately denied the motion, holding the mandatory arbitration provision was unenforceable.
First, the court concluded the arbitration clause was unenforceable as it contravened Missouri public policy. Missouri choice of law rules allow for the application of another state’s law as long as the law “is not contrary to a fundamental policy of Missouri.” Application of North Dakota law (as advocated for by AEGIS) or any other state’s law that would enforce the arbitration provision was inappropriate as it would contravene Missouri law prohibiting mandatory arbitration clauses in insurance contracts.
Next, the court concluded that even under a traditional choice of law analysis, the arbitration clause was still unenforceable. Missouri choice of law for insurance coverage disputes provides certain factors to consider in determining what law to apply, “[i]n the absence of effective choice of law by the parties.” Here, the court found the insurance policy contained an effective choice of law provision where it stated construction “in accordance with the laws of the jurisdiction in which the situation forming the basis for the controversy arose.” The accident’s location in Kansas therefore dictated Kansas law governed. Because arbitration provisions in insurance contracts are unenforceable under Kansas law, the court reached the same conclusion it previously did that the provision was unenforceable.