|
A federal court in Arkansas held that in light of the importance of international comity, the New York Convention trumps any application of the McCarran-Ferguson Act that would preclude enforcement of an international arbitration agreement.
In Murphy Oil USA, Inc. v. SR International Business Insurance Co., NO. 07-CV-1071, 2007 WL 2752366 (W.D. Ark. Sept. 20, 2007), a Murphy Oil refinery was damaged in Hurricane Katrina, resulting in an oil spill. Murphy Oil was insured by SR International for excess insurance coverage and sought insurance coverage for losses incurred in litigation over the oil spill.
SR International notified Murphy Oil that they wanted to arbitrate the dispute in accordance with the parties’ contract. Murphy Oil responded by filing suit and seeking an injunction to enjoin SR International from attempting to enforce the parties’ arbitration agreement.
The Court rejected Murphy Oil’s argument that the arbitration agreement was unenforceable under Arkansas’ insurance law, which prohibits arbitration agreements under the auspices of the McCarran-Ferguson Act. The McCarran-Ferguson Act generally precludes federal preemption of state laws governing insurance contracts.
Instead of applying Arkansas insurance law, the Court agreed with SR International that the New York Convention trumped the McCarran-Ferguson Act. The New York Convention is an international treaty whereby the signatory nations have agreed to honor international arbitration agreements.
In holding that the New York Convention trumps the McCarran-Ferguson Act, the Court rejected the Second Circuit’s reasoning in Stephens v. National Distillers and Chemical Corp., 69 F.3d 1226 (2d Cir. 1995) as “doubtful.” Instead, the Court followed the reasoning of the Fifth and Eleventh Circuits, which have held that the New York Convention trumps inconsistent rules of law. See Indus. Risk Insureres v. M.A.N. Gutehoffnungshutte GmbH., 141 F.3d 1434 (11th Cir. 1998); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat’l Oil Co., 767 F.2d 1140 (5th Cir. 1985).
The Court rested its holding on the premise that “international comity is a fundamental principle deserving substantial deference.” As the Court noted, the Supreme Court has given elevated status to international arbitration agreements based on the principle of international comity.
Subscribe to a free weekly update on ADR case law and
legislation
|