General Reinsurance Corporation (“Gen Re”) reinsured certain commercial excess liability policies issued by Mid-Continent Casualty Company (“Mid-Continent”). Several underlying insureds filed claims against Mid-Continent under the excess policies and, thereafter, Gen Re refused to indemnify Mid-Continent for any portion of the defense or liability costs associated with such claims. Mid-Continent filed suit in federal district court in Oklahoma and Gen Re sought to compel arbitration under the Federal Arbitration Act (“FAA”). The reinsurance contracts at issue contained arbitration clauses that required the parties to submit “any unresolved difference of opinion” to a three-person arbitration panel.
The Northern District of Oklahoma held that arbitration clauses such as those in the reinsurance contracts at issue are barred by Section 1885(D) of the Oklahoma Act, which provides that arbitration clauses are not enforceable in collective bargaining agreements and contracts “which reference insurance,” and that under Section 1012 of the federal McCarran-Ferguson Act, Oklahoma state law preempts the enforceability of such clauses under the FAA. See 12 Okl. St. § 1855 (D) and 15 U.S.C. § 1012. The section of the McCarran-Ferguson Act relied upon by the district court states, in pertinent part, that “no act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any state for the purpose of regulating the business of insurance. . .unless such act specifically relates to the business of insurance.” The court found that since the Oklahoma Act regulates the business of insurance, the McCarran-Ferguson Act empowered the court to invalidate arbitration clauses contained in reinsurance contracts.
On appeal, Gen Re contends that when the subject reinsurance contracts were executed, arbitration agreements were expressly authorized by the Oklahoma Act and that the district court erred in enforcing the later amendments to the statute, which removed the reinsurance exception to the Oklahoma Act’s exclusion of insurance contracts. Gen Re further asserts that even if the revisions to the Oklahoma Act apply and insurance contracts are excluded, the anti-arbitration provision of that statute should be viewed in the context of protecting consumers in direct insurance transactions only. Gen Re also argues that since Oklahoma public policy now embraces arbitration, the preemptive force of the FAA overcomes any state law that would inhibit the enforcement of an arbitration agreement.
Click here to review a copy of the amicus brief filed by the RAA in support of Gen Re’s position.
