On May 8, 2025, United States Court of Appeals for the Second Circuit held, in Certain Underwriters at Lloyd's, London v. 3131 Veterans Blvd LLC,and Certain Underwriters at Lloyd's, London v. Mpire Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv, that the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"), which governs international arbitrations, is self-executing and is not reverse preempted by the McCarran Ferguson Act, which ordinarily leaves the regulation of insurance to state law. By so concluding, the Second Circuit reversed its 1995 decision to the contrary in Stephens v. American International Insurance Co. ("Stephens")1 and joined the Fifth Circuit's decision in Safety National2 the Ninth Circuit's decision in CLMS Management,3 and the First Circuit's decision in Green Enterprises,4each of which has held that the New York Convention is self-executing. The Second Circuit's 3131 Veterans Blvd. decision is particularly important for foreign insurers and reinsurers operating in the U.S. Since New York is a popular seat for arbitrations involving foreign insurers and reinsurers, and many insurance policies and reinsurance treaties contain arbitration provisions, foreign insurers and reinsurers can now cite the decision against arguments that certain state laws prohibit arbitrations of insurance disputes.
3131 Veterans Blvd. and Mpire Properties each involved a coverage dispute between a Louisiana business and a foreign surplus lines insurer. Each policy at issue contained a broad arbitration provision. Unsatisfied with the monies offered to settle claims for damaged property, policyholders filed actions in Louisiana state court, arguing Louisiana law prohibits arbitration clauses in insurance contracts.5 The insurers, in turn, filed actions in federal court in New York, arguing the arbitration clauses are enforceable under the New York Convention and seeking compulsion of arbitration. The District Court judges, being bound by the Second Circuit's 1995 decision in Stephens, ruled for the policyholders. In Stephens, the Second Circuit previously held that the New York Convention is not self-executing and relies on an "Act of Congress" for its implementation and, therefore, the McCarran Ferguson Act is not preempted.6
On appeal, the Second Circuit reversed itself from 30 years ago and abrogated Stephens to the extent that it holds that the New York Convention is not self-executing. As an initial matter, the Second Circuit held that despite the clear delegation language in the arbitration clause, applying the Federal Arbitration Act's delegation principles to send the getaway dispute to arbitration would invalidate, impair, or supersede Louisiana law forbidding the enforcement of arbitration clauses in insurance contract. Thus, the Court concluded, it could not rely on the Federal Arbitration Act to "hand off to an arbitration tribunal the critical antecedent question of whether the McCarran Ferguson Act allows Louisiana law to void the arbitration clauses at issue."
Turning to Stephens, the Second Circuit held the 1995 decision was no longer compatible with the intervening Supreme Court jurisprudence, particularly Medellin v. Texas.7In Medellin, the Supreme Court identified several hallmarks of a "self-executing" treaty provision such as (1) a directive to U.S. courts, (2) a requirement that the United States take a particular action, and (3) an indication that the ratified treaty take immediate legal effect. Viewed in light of the Medellin test, the Second Circuit held that the New York Convention is self-executing because Article II of the New York Convention directs U.S. courts to refer parties to arbitration (unless an exception exists), and that this language satisfies both the first and the second factors. The Second Circuit dismissed the policyholders' arguments that the New York Convention contains provisions that cannot be fairly read as being a "directive;" the Court reasoned that a self-executing treaty can have both the directive-type language and a more discretionary language. As to the third factor, the Second Circuit acknowledged the policyholders' observations that President Johnson, the House Judiciary Committee, and Senator Kearney each made statements indicating the implementing legislation was necessary for the New York Convention to become law in the U.S. Notwithstanding, the Second Circuit agreed with the Ninth Circuit that there is no evidence that the Convention's drafters and negotiators believed Article II was not self-executing. Finally, the Second Circuit relied on the amicus curiae brief of the United States in La. Safety Ass'n of Timbermen-Self Insurers Fund v. Certain Underwriters at Lloyd's, London,8 in which the government stated unequivocally that Article II is self-executing.
The Second Circuit's decision in 3131 Veterans Blvd. avoids a conflict among Circuits and makes it more difficult for a party to argue in a Circuit that has not yet ruled on the issue that Article II of the New York Convention is not self-executing. Still, parties in the insurance/reinsurance industry should carefully choose governing law and venue provisions to make sure the arbitration provisions in the agreements are enforceable.
Footnotes
1. Stephens v. Am. Int'l Ins. Co., 66 F.3d 41 (2d Cir. 1995).
2. Safety Nat. Cas. Corp. v. Certain Underwriters At Lloyd's, London, 587 F.3d 714 (5th Cir. 2009).
3. CLMS Mgmt. Servs., 8 F.4th 1007 (9th Cir. 2021).
4. Green Enterprises, LLC v. Hiscox Syndicates Ltd. at Lloyd's of London, 68 F.4th 662 (1st Cir. 2023).
5. La. R.S. §22:868.
6. The McCarran Ferguson Act, a federal law, leaves the regulation of insurance to the states. The relevant language provides:
"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."
15 USC § 1012(b).
7. 552 U.S. 491 (2008)
8. No. 09-945, 2010 WL 3375626, at *8-11 (2010).
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