Through the McCarran-Ferguson Looking Glass

Citizens of Humanity, Inc. v. Applied Underwriters, Inc., No, B276601 (D2d2 Nov. 22, 2017)

When we talk about preemption and arbitration, we’re usually talking about federal law preempting a state law rule that says something isn’t arbitrable. But when it comes to insurance, that gets stood on its head. 

The McCarran-Ferguson Act, 15 U.S.C. §§ 1011–1015, says that federal law doesn’t regulate state insurance law unless the federal law is specifically addressed to the topic of insurance. It’s kind of a reverse preemption where state insurance law displaces federal laws of general applicability when it comes to insurance. 

One area where state insurance law does so is the Federal Arbitration Act. Under McCarran-Ferguson, state insurance laws that say insurance claims aren’t arbitrable trump the FAA’s generally applicable rule that federal law will make you arbitrate whatever the parties agree to arbitrate, subject to defenses that apply to any contract. Here, the parties selected Nebraska law, which includes a statute that says that insurance policy disputes aren’t arbitrable. So the superior court rightfully denied the motion to compel in this case.

There’s also a threshold issue of whether the McCarran-Ferguson issue should have been decided by the court or the arbitrator. The clause in this instance specifically delegated arbitrability questions to the arbitrator. Under the FAA, that usually means the arbitrator decides arbitrability. But Nebraska law says none of this can go to the arbitrator, so the attack on the arbitration provision was also an attack on the delegation clause. Under those circumstances, the court needs to decide the gateway choice of law question.

Affirmed.