Affirming the Central District of California’s order compelling arbitration, the Ninth Circuit Court of Appeals held that the Washington anti-arbitration statute, RCW § 48.18.200(1)(b), which has been held to prohibit binding arbitration agreements in insurance contracts in Washington, was preempted by the federal Liability Risk Retention Act of 1986 (LRRA) as it applied to risk retention groups chartered in another state. The LRRA broadly preempts the authority of nonchartering states to regulate the operation of risk retention groups within their borders.
Plaintiff Allied Professionals Insurance Co. is a risk retention group, a liability insurance company owned by its insured members, chartered in Arizona and doing business in Washington. Allied previously insured Dr. Michael Anglesey, a chiropractor in Washington. In December 2012, Dr. Anglesey provided chiropractic treatment to Eliseo Gutierrez, which allegedly resulted in Gutierrez suffering a stroke. A few months later, Dr. Anglesey renewed his coverage with Allied but, in doing so, did not inform the company of the potential malpractice claim against him by Gutierrez and his wife. When Dr. Anglesey later notified Allied of this potential claim, the company advised him that it was denying coverage and rescinding his 2012 and 2013 insurance policies.
A year later, Dr. Anglesey informed Allied that he was planning to execute a consent judgment in favor of the Gutierrezes and to assign his rights against Allied to them. They had agreed to seek satisfaction on the judgment from Allied and not from Dr. Anglesey. Allied responded by demanding that all claims against Allied be sent to arbitration, pursuant to the arbitration clause in the underlying policies. Dr. Anglesey refused, and Allied filed suit against both Dr. Anglesey and the Gutierrezes, moving to compel arbitration.
The district court initially held that Allied did not have standing to bring the underlying action to compel the defendants to arbitrate. Allied appealed that decision to the Ninth Circuit. The Ninth Circuit ruled that Allied had standing to bring the action against Dr. Anglesey to seek rescission of the policy and declaratory relief and had standing against all defendants to compel arbitration of those claims. On remand, the district court granted Allied’s motion to compel arbitration, granted the motion to stay proceedings pending arbitration, denied the defendants’ motion to transfer venue to the Eastern District of Washington, and certified a controlling interlocutory question of law to the Ninth Circuit. The Ninth Circuit granted permission to appeal.
The question certified by the district court was “whether the Liability Risk Retention Act preempts Wash. Rev. Code. § 48.18.200(1)(b) as applied to risk retention groups.” The Ninth Circuit held that the LRRA does preempt Washington’s anti-arbitration statute, RCW § 48.18.200(1)(b), as it applies to risk retention groups chartered in other states. In reaching that conclusion, the court found that the federal McCarran-Ferguson Act, which generally protects state regulation of insurance, did not reverse preempt the LRRA. The court also found that Washington’s anti-arbitration statute offended the LRRA’s preemption language and that no exception applied to save the law. The court therefore concluded that the Washington statute was preempted by the LRRA as it applied to a risk retention group charted in Arizona but doing business in Washington.
Allied Professionals Insurance Co. v. Anglesey, No. 18-56513 (9th Cir. Mar. 12, 2020).