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United States: Fourth Circuit Weighs In On Circuit Split Concerning Whether State Insurance Statutes "Reverse Preempt" Arbitration Provisions In International Agreements
ESAB Group, Inc. v. Zurich Ins. PLC, et al.,
No. 11-1243 (4th Cir. 2012), recently weighed in on a matter that
has split the Circuits and has given pause to international
contract draftsmen and international dispute resolution
practitioners: to what extent to international contracts
containing mandatory arbitration provisions supercede contrary
state (or even federal) law. The superceding in this case
would have taken the form of "reverse preemption"
pursuant to the McCarran-Ferguson Act. The Court of Appeals
that there was no reverse provision.
ESAB Group is a South Carolina-based manufacturer of welding
materials. It sued its towers of insurance carriers for
coverage in products liability cases against ESAB relating to
injuries caused by exposure to welding consumables. ESAB sued
in state court, the insurers removed. The District Court
ordered arbitration of certain policies. South Carolina law
purported to preclude arbitration under the state's power to
regulate the business of insurance.
Those opposing preemption argued that both the New York
Convention and the federal legistlation enacting the New York
Convention into law did not succumb to South Carolina's state
insurance statute. The Court of Appeals then summarized
decisions from the Second and Fifth Circuits addressing whether the
New York Convention applied to the states as a treaty or as
implementing federal lesiglation, and the Fourth Circuit saw a
conflict in the holdings of the Second and Fifth Circuits.
For the Fourth Circuit, it acknowledged that "the question of
what constitutes a self-executing treaty has long confused courts
and commentators". Ultimately the Court of Appeals did
not utilize that taxonomy. Instead, the Court found:
Where a statute touches upon foreign relations and the
United States' treaty obligations, we must proceed with
particular care in undertaking this interpretive task. As the
Supreme Court observed in considering a prior potential conflict
between the Convention Act and a federal statute, "[i]f the
United States is to be able to gain the benefits of international
accords and have a role as a trusted partner in multilateral
endeavors, its courts should be most cautious before interpreting
its domestic legislation in such manner as to violate international
agreements."
Given the importance of "speak[ing] with one voice when
regulating commercial relations with foreign governments", the
Circuit was unwilling to let the state statute preclude
arbitration.
The Court of Appeals also affirmed the District Court's
determination to remand to state court all claims that were not
arbitrable.
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