(Article from Insurance Law Alert, April 2020)
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The Ninth Circuit ruled that the Liability Risk Retention Act (“LRRA”), 15 U.S.C. § 3901, preempts Washington’s anti-arbitration statute, as applied to a risk retention group chartered in another state and doing business in Washington. Allied Prof’ls Ins. Co. v. Anglesey, 2020 WL 1179772 (9th Cir. Mar. 12, 2020).
Allied Professionals, a risk retention group, is chartered in Arizona and does business in Washington. Allied Professionals insured a chiropractor who was sued by a former patient. Allied Professionals denied the claim and sought to rescind his policy based on alleged omissions in the application. A California district court granted Allied Professionals’ motion to compel arbitration and the Ninth Circuit affirmed. The Ninth Circuit ruled that the LRRA, which supports the formation of risk retention groups, preempts Washington’s anti-arbitration statute. The court held that there was no reverse preemption under the McCarran-Ferguson Act because the LRRA is “an exception to the McCarran-Ferguson Act’s preference for state regulation of insurance.”
Washington’s prohibition on the arbitration of insurance disputes was also at issue in Wash. Cities Ins. Auth. v. Ironshore Indem., Inc., 2020 WL 1083715 (W.D. Wash. Mar. 6, 2020). Washington Cities Insurance Authority (“WCIA”), a self-insured risk group, entered into reinsurance agreements with Ironshore. The agreements included an arbitration clause and a New York choice of law provision. When a dispute regarding Ironshore’s reinsurance obligations arose, WCIA moved to void the arbitration and choice of law provisions and Ironshore moved to compel arbitration. The court granted WCIA’s motion, ruling that both provisions were void.
As a preliminary matter, the court held that reinsurance qualifies as “insurance” for the purposes of applying Washington’s anti-arbitration statute, which defines “insurance” as “a contract whereby one undertakes to indemnify another.” In so ruling, the court noted that reinsurance was not explicitly exempted from the statute (as other types of insurance were). In addition, the court ruled that a separate, more specific provision governing the purchase of reinsurance by local government joint insurance programs did not operate as an exclusion to the anti-arbitration provision. That clause provided local government entities “maximum flexibility in self-insuring” but did not reference arbitration or authorize the inclusion of arbitration provisions in reinsurance contracts. The court therefore ruled that Washington’s statutory prohibition on arbitration operated to void the arbitration clause.