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Federal Arbitration Act Inferior to McCarran-Ferguson Act, Rules Judge

Monday, August, 15, 2011

Insurance Regulation Not Subject to Federal Arbitration Act


The Federal Arbitration Act was at issue in a case involving financial giant American International Group this week.  AIG had hoped to require a worker's compensation insurance buyer based in California to use arbitration to resolve disputes.  Such arbitration, according to a side agreement, would have to take place in New York, which is inconvenient for one of the parties.


Eileen Bransten, sitting on the New York Supreme Court, ruled against the requirement to arbitrate, working on the legal theory that the Federal Arbitration Act is not able to override a state insurance code.  She holds this belief because the McCarran-Ferguson Act, also a federal law, specifically sets forth a system in which insurance taxation and regulation issues are to be decided on a state-by-state basis. 


Federal Arbitration Act Falls to California Law


Since California law requires all workers compensation policies to be on file with the California Insurance Department, and this policy was not, the clauses mandating arbitration in New York were ruled unenforceable.  "There definitely has been an uptick in policyholder willingness to challenge these arbitration agreements and spend some money doing it,” said Alex D.  Hardiman, who serves as a partner at Anderson Kill & Olick P.C.


Insurance arbitration is a non-judicial method for resolving disputes that involve insurance policies or procedures.