United States: Endorsement Preemption: Eighth Circuit Says Forum Selection Endorsement Supersedes Policy's Arbitration Provision

Insurance Coverage Case Advisory, Issue 45

In Union Electric Company v. AEGIS Energy Syndicate 1225, No. 12-3546, 2013 WL 1688859 (8th Cir. Apr. 19, 2013), the US Court of Appeals for the Eighth Circuit held that under Missouri law, a choice-of-law and forum-selection endorsement to an excess insurance policy superseded the policy's mandatory arbitration clause, thereby affirming the trial court's denial of the foreign insurer's motion to compel arbitration.

The dispute over the arbitration provision arose after the policyholder utility company faced nearly $200 million in product liability and environmental claims after an accident at its hydroelectric power plant operations.  The policyholder filed an action against its insurer seeking to recover under its $25 million excess liability policy.  The foreign insurer filed a motion to compel arbitration under the policy's arbitration clause, which stated that "any controversy or dispute arising out of or relating to" the policy, "or the breach, termination, or validity thereof . . . shall be settled by binding arbitration."  Id. at *1.  The policyholder argued that the policy's arbitration provision was superseded by a policy endorsement that provided:

Notwithstanding anything contained in this Policy to the contrary, any dispute relating to this Insurance or to a CLAIM (including but not limited thereto the interpretation of any provision of the Insurance) shall be governed by and construed in accordance with the laws of the State of Missouri and each party agree [sic] to submit to the jurisdiction of the Courts of the state of Missouri.

Id.  A Missouri statute renders mandatory arbitration provisions in insurance contracts unenforceable in Missouri.  See Mo. Ann. Stat. § 435.350.

Although the parties extensively briefed a circuit split¹ over whether Missouri state law prohibiting mandatory arbitration reverse-preempted a treaty requiring enforcement of arbitration provisions involving foreign parties, the court did not reach the issue.  Instead, the Eighth Circuit, applying Missouri law, agreed with the trial court that the endorsement's plain language supplanted the policy's mandatory arbitration provision.  Although recognizing the general principle that endorsements only supplant contract provisions that are in conflict, the court rejected the insurer's argument that the two provisions could be read in harmony, although the argument was "not entirely implausible in the abstract."  Id. at *2.  The court also noted, however, that "even if the policy as a whole were ambiguous as to the mandatory arbitration, and we think it is not, UEC would still prevail because it would be entitled to have the ambiguity resolved in its favor."  Id.

The Eighth Circuit's decision, based on the policy's plain language, is noteworthy in that it does not address how the similar policies have been interpreted in other cases.  For example, some courts have held that arbitration clauses do not conflict with grants of jurisdiction in "service of suit" clauses in insurance policies, and thus have held that the arbitration provision is enforceable.  See, e.g., West Shore Pipe Line Co. v. Associated Elec. and Gas Ins. Services Ltd., 791 F. Supp. 200, 203-4 (N.D. Ill. 1992); Boghos v. Certain Underwriters at Lloyd's of London, 115 P.3d 68, 72 n.3 (Cal. 2005) (collecting cases).  The endorsement in Union Electric may be distinguished from these cases, however, because it is not limited to the service of suit context, and also because the endorsement expressly declares that it applies "[n]otwithstanding anything contained in this Policy to the contrary."  2013 WL 1688859 at *1; see also Boghos, 115 P.3d at 72 (holding similar language established a priority as between two clauses). 

Footnotes

^{1. Compare Safety Nat'l Cas. Corp. v. Certain Underwriters at Lloyd's, London, 587 F.3d 714, 724-25 (5th Cir. 2009) (holding the Convention on the Recognition and Enforcement of Foreign Arbitral Awards was not pre-empted by state law under McCarran-Ferguson Act) and ESAB Group, Inc. v. Zurich Ins. PLC, 685 F.3d 376 (4th Cir. 2012) (same) with Stephens v. Am. Int'l Ins. Co., 66 F.3d 41 (2d Cir. 1995) (holding arbitration clause unenforceable because pre-empted by Kentucky law under McCarran-Ferguson Act).}

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